C-7-3 EVIDENCE OF UMQ
(English translation)
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R-3732-2010
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ESTABLISHMENT OF A NATURAL GAS RECEPTION TARIFF
THE UMQ SUBMISSION
Prepared by: Louis-Renault Rozéfort and Yves Hennekens
September 30, 2010
UMQ
UNION DES MUNICIPALITÉS DU QUÉBEC
[UNION OF QUEBEC MUNICIPALITIES]
YHC
ENVIRONMENT
R-3732-2010: UMQ submission
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1.
Table of Contents
Foreword ............................................................................................................................ 3
2.
Context ............................................................................................................................... 5
3.
Underlying costs in establishing the new reception tariff ............................................ 7
3.1.
Category “A” costs – Distribution costs linked to investments in connection pipelines
.................................................................................................................................. 7
4.
3.2.
Category “B” costs - Costs of the existing distribution system.................................. 7
3.3.
Category “C” costs - Distribution costs not related to the gas system...................... 8
3.4.
Category “D” costs - Additional costs of using the TCPL/TQM transmission system10
The reception tariff for natural gas produced in Quebec............................................ 11
4.1.
Reception points ..................................................................................................... 11
4.2.
Delivery point .......................................................................................................... 11
4.3.
Structure of the reception tariff................................................................................ 12
4.4.
Methods of establishing rates ................................................................................. 14
4.5.
Other provisions ...................................................................................................... 21
5.
Service conditions and tariff.......................................................................................... 25
6.
The UMQ’s conclusion.................................................................................................... 28
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1. Foreword
The UMQ wishes to stress the fact that the recommendations contained in this submission do not
in any way constitute explicit or implicit acceptance of the production and mining of natural gas in
Quebec or Gaz Metro territory. The debate on the acceptability of the mining and production of
natural gas to be produced in the territory of Quebec will take place before other authorities.
In this file presented to the Régie de l’Énergie [Energy Authority], the UMQ [Union des
Municipalités de Quebec – Union of Quebec Municipalities], as stakeholder and representative of
its member municipalities, wishes to make its recommendations on the proposed methods for
establishing a reception tariff for natural gas to be produced in the Gaz Métro territory.
In its evidence (GM-1, Doc. 1, Section 1 – Context and Appropriateness of the Application), Gaz
Métro ventures a positive preliminary assessment of a situation which is not demonstrated in the
evidence submitted in the file.
“This additional source should have a beneficial effect on the total natural gas costs for all
users of this resource in Quebec.”1
Still in this same section, Gaz Métro adds:
“The construction of pipelines enabling producers’ facilities to be connected to the Gaz
Métro gas system might possibly allow some portions of the Gaz Métro system to be
looped, as well as deliver volumes to the existing systems, while also having the additional
advantage of serving certain regions and new markets, particularly in the field of
agriculture.
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1
Gaz Métro - 1, document 1, page 8.
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This looping would thus allow increased potential for injecting natural gas into the system, from
the producers’ point of view, while also increasing access and supply security for clients. Indeed,
if one section of the system happens to be out of service, for example following a break, this
could then be compensated for in several places by local production which would be injected into
a nearby system. The gradual looping of the existing distribution system thus unquestionably
represents an additional attraction of this new gas supply source.”2 (Our emphasis)
The UMQ understands that these are preliminary assessments based on scenarios that have yet
to be subjected to the test of reality. This is why the UMQ wishes to indicate clearly and
unequivocally that it is not expressing any opinion on this aspect of the case.
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2
Gaz Métro - 1, document 1, page 9.
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2. Context
The limited partnership Gaz Métro (Gaz Métro) filed an application, dated May 26, 2010, to
authorize the establishment of a reception tariff for natural gas produced on Gaz Métro territory.
According to the evidence:
“Some producers have already started their analyses of production potential, business risk
and planning for possible operation of the sites for the coming years, and the construction
of connections from production facilities to the existing gas system, with the investment
applications which will follow, is conceivable in the short term. Producers have contacted
Gaz Métro in recent months making enquiries about the tariffs and the terms and
conditions allowing them to connect to the Gaz Métro system.”3
The UMQ finds that it is concerned at various levels: social, economic, environmental, security
and tariffs. At this stage of the case, the UMQ will confine itself to the three principal issues
selected by the Régie: the connection model for gas production sites and the underlying costs,
the structure of the new reception tariff and the methods of establishing the rates applicable to
this tariff.4
The UMQ understands that, as with any tariff, the reception tariff as proposed will be adjusted
gradually as the operating data become clearer. For example, the reception points are not yet
specified. The relationship between the volumes injected into a consumption area and the
volumes consumed remains to be determined, as well as the need to contract for additional
capacity with the TCPL/TQM [TransCanada PipeLines Limited/ Trans Québec & Maritimes
Pipelines Inc.] in order to transmit the surplus from one consumption area to another consumption
area.
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3
Gaz Métro - 1, document 1, page 9.
4
D-2010-082, 23 June 2010.
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This determination will be made at the time of the application for investments to connect
producers’ facilities to the Gaz Métro system. Even then, the projection of the volumes injected
and the volumes consumed in an area will be done on the “best effort”5 basis.
The limits of the current exercise explain the fact that the evidence presents both relatively
general considerations on the methods of establishing the structure of the tariff and of certain
rates, and applications to set certain other rates at specific levels.
The UMQ submission will, after briefly summarizing the distributor’s proposals, present the UMQ
positions. This presentation will follow Gaz Métro’s evidence. More specifically, the submission
examines:
•
The underlying costs in establishing the new reception tariff;
•
The structure of the new reception tariff, the related terms and conditions, as well as the
methods of establishing rates that will be applied at the time of investment applications;
•
The distributor’s proposal with respect to the rates applicable to volumes delivered
outside the territory;
•
The distributor’s proposal as regards the rates applicable to the daily and cumulative
imbalances.
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5
Gaz - Métro 1, document 1.55.
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3. The underlying costs in establishing the new reception tariff
3.1 Category “A” costs – Distribution costs linked to
investments in connection pipelines
The partial listing of these costs is presented on page 14 of the document Gaz Métro – 1,
document 1. The investment applications will enable the Régie and the stakeholders to assess
the integrity and completeness as well as the reasonable character of these costs.
The reasonable character of the investments will be verified through the interaction of the various
stakeholders, each with their own interests and expertise. Consumer clients, among whom are
the UMQ clients, want the investments minimized, given that ultimately these investments will be
part of the distributor’s pricing basis and, in the first years, will have an upward effect on tariffs.
Producers will want to ensure that the investments are optimized, concerned as they are by the
possibility of having to repay the costs actually incurred by the distributor6.
Based on these observations, the UMQ deems it appropriate that these costs are allocated
to the applicants inducing them, based strictly on the principle of causation.
3.2. Category “B” costs – Costs of the existing distribution
system
The Gaz Métro gas system has two main components: the distribution system and the
transmission system.
Gaz Métro proposes that the costs linked to the distribution function continue to be invoiced solely
to the current clients via the distribution tariffs.
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6
Gaz - Métro 1, document 1.50, answer to question 4.3.
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According to the distributor, this concerns infrastructure required to distribute the natural gas to
the clients’ facilities.
In the case of the Gaz Métro transmission pipelines, producers will not, according to the
distributor’s proposal, have to bear the costs when the natural gas is consumed inside the
territory.
Conversely, if the natural gas injected is intended for outside the territory, the costs of the current
gas system’s transmission function will be shared between the clients and the producers.7
According to the UMQ, the distributor had a duty, in all cases where the molecule is consumed
inside its territory, to adopt a solution likely to create a “level playing field” between gas produced
inside the territory served by Gaz Métro and gas produced outside the territory served by Gaz
Métro.
However, if gas produced inside the territory served by Gaz Métro is intended for export, the
producers must bear the costs caused by transit of the gas in the distributor’s transmission
pipelines.
Based on these observations, the UMQ accepts Gaz Métro’s proposals.
3.3. Category “C” costs – Distribution costs not related to the
gas system
The main categories of distribution costs not related to the gas system are the operating
expenses, the amortization expenses (excluding amortization of the gas system) and amortization
of deferred expenses, as well as direct and indirect taxes, royalties and return on investment.8
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7
8
Gaz Métro - 1, document 1, page 16.
Gaz Métro - 1, document 1, page 16.
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In Gaz Métro’s proposal, the producers must take responsibility for part (4%) of the distribution
costs not related to the gas system.
At this stage, the UMQ is not taking a position on the percentage of costs not related to the gas
system allocated to the producers. The UMQ understands that this percentage represents a
compromise given that there are no clients yet in this category and that the distribution costs not
related to the gas system which they create are not known.9
There is no doubt these producers will generate costs not related to the gas system. On the other
hand, as the UMQ submits further on in the examination of the percentage of distribution costs
not related to the gas system, these producers will benefit from access to an established
distribution system, as well as from Gaz Métro’s expertise. Even if quantification of these benefits
is subject to debate and ultimately rests on a subjective assessment, it is not considered in the
application.
The percentage of the distribution costs not related to the gas system could constitute a “proxy”
both for the costs identified by Gaz Métro and for these benefits.
The UMQ accepts Gaz Métro’s proposal to charge the producers part of the distribution
costs not related to the gas system. The UMQ submits that beyond the costs identified by
Gaz Métro, there are benefits arising from access to an established system which must be
taken into account in determining the portion to be charged to the producers.
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9
Gaz - Métro 1, document 1.4, pages 1 and 2.
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3.4 Category “D” costs – Additional costs of using the
TCPL/TQM transmission system
These costs are constituted by the additional capacities on the TCPL/TQM system for which Gaz
Métro must contract specifically on behalf of the producers, in order to balance the requirements
of all clients in its territory. The structure of the current transmission contracts does not allow gas
to be transmitted from one consumption area to another without incurring costs.10
For example, if transit by the TCPL/TQM transmission system, to another consumption area, of
natural gas coming from a producer were to involve additional costs, these costs would be borne
by the producer.
On the other hand, the producer who wants to transmit its gas outside the territory will be
responsible for contracting for the required capacity between the point where the Gaz Métro
system and the TCPL/TQM systems interconnect and the final destination outside Quebec.11
The UMQ deems it appropriate that these costs are allocated to those who generate them
based strictly on the principle of causation.
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10
11
Gaz - Métro 1, document 1.16.
Gaz Métro - 1, document 1, page 17.
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4. The reception tariff for natural gas produced in Quebec
The reception tariff will be made up of pricing according to both the reception points and the
delivery points.
4.1. Reception points
In the case of pricing according to the reception points, different rates will be applicable according
to each reception point. Only Category A and C costs are taken into account in establishing the
tariff structure at the reception point. The tariff structure will be set mainly based on the maximum
contractual capacity agreed by contract between the producer and Gaz Métro. A variable portion
will be based on the volumes injected by the producers.
4.2 Delivery point
In the case of pricing according to the delivery points, the producers will have two possible points
of delivery, either in the territory or outside the territory.
4.2.1 Delivery points in the territory
For delivery points in the territory, the rates will vary based on the applicable consumption area.
The additional costs of using the TCPL/TQM transmission system (Category “D” costs) will be
invoiced. As was envisaged further up, these costs must have actually been incurred for the
producers. The applicable rates will be based on the daily deliveries.
4.2.2 Delivery points outside the territory
Costs corresponding to the share attributable to producers of the costs of the existing distribution
system in its transmission component (Category “B” costs) are applicable to volumes delivered
outside the territory.
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A unit rate, based on the “postage stamp” principle, for the volume delivered will be applicable to
the volumes delivered daily outside the territory by the producers.12
4.3 Structure of the reception tariff
If the structure of the reception tariff had to be expressed as a formula, it would be presented as
follows:13
T-PRX + T-PLT + PLHT
Where
T-PRx = Pricing applicable at reception point X
T-PLT = Pricing applicable at the delivery point in the territory
T-PLHT = Pricing applicable at the delivery point outside the territory
The invoicing applicable at the reception point will be as follows:
T-PRx = CMC (m3/day) x OMQ rates (¢/m3/day) + Volumes injected (m3) x Unit rate at the
volume injected (¢/m3)
Where
CMC = Capacité maximale contractuelle (m3/day) [maximum contractual capacity]
OMQ rates = Obligation Minimale Quotidienne (¢/m3/day) [minimum daily obligation] rates
The invoicing applicable to the delivery points will be as follows, depending on whether the
natural gas is delivered inside or outside the territory:
T-PLT = Volumes delivered in the territory (m3) x Unit rate at the volume delivered in the territory
(¢/m3)
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12
13
Gaz - Métro 1, document 1, pages 18 to 21.
Gaz - Métro 1, document 1, pages 23 and 24.
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T-PLHT = Volumes delivered outside the territory (m3) x Unit rate at the volume delivered outside
the territory (¢/m3)
4.3.1. Position of the UMQ
In order to properly assess the reception tariff structure, it is appropriate to ask what the gas
system facilities in the Gaz Métro territory can be compared to as regards the potential
development of the natural gas produced in Quebec.
In jurisdictions where gas production exists, investors who wish to offer a transmission service
verify the producers’ interest and the economic viability of the project, based on the quantity of
gas to be transmitted to the consumption centers.
Based on this analogy, the Gaz Métro gas system facilities may be compared to a transport
service through the territory (from one consumption area to another) and outside the Gaz Métro
territory. This analogy is all the more appropriate as Gaz Métro proposes to take responsibility for
contracting the additional capacities on the TCPL/TQM transmission system in order to optimally
manage the natural gas flows circulating in its territory.
The pricing at the delivery points in and outside the territory takes into account the transmission
component of the Gaz Métro system facilities.
The distribution pipelines to be constructed for transmitting natural gas from the producers’
facilities to those of Gaz Métro may be compared to a collection system.
The pricing at the reception points takes into account the “collection” component.
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The UMQ recommends that the Régie approve the structure of the new reception tariff for
Gaz Métro natural gas.
4.4. Methods of establishing rates
4.4.1. Rates applicable at the reception points
The rates applicable at the reception points are “customized” rates which will be established by
financial calculations based on the required income. The rates at the reception points will vary
based on the characteristics specific to each project, and each proposal must be examined by the
Régie at the time of the investment applications.
The required income will be established with the Category “A” costs specific to each producer and
the portion of distribution costs not related to the gas system which is allocated to the producers
(Category “C” costs). In this case, only the percentage of distribution costs not related to the
existing gas system (other than the royalties) is established at 4% for all investments.
“Gaz Métro requests the Régie to approve a ratio of 4% of investments as distribution costs
not related to the existing gas system (other than royalties), and its application in
calculating the required income at the time of investment applications in order to establish
the rates applicable at reception points.”14
In dividing the distribution costs (other than royalties) not related to the gas system, allocated to
the producers, by the investments, according to the assumptions selected under various
scenarios as to the level of volumes injected into the system, as well as the investments incurred
by Gaz Métro for serving these new clients in the various scenarios, ratios are obtained that vary
between 2.8% and 5.6%.
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14
Gaz Métro - 1, document 1, page 30.
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Gaz Métro settled its choice on the ratio of 4% which represents a value close to the mean of the
variability range calculated according to the various scenarios.15
Summary of the possible ratios according to various approaches
Applicable percentage
General rule
between 2% and 5%
All Gaz Métro assets
10 %
Average rate for large accounts
2.8 % to 5.6 %
4.4.1.1. Position of the UMQ
The UMQ submits that Gaz Métro’s calculations are based on assumptions grounded in
discussions with certain producers.
“These scenarios are the most tangible information Gaz Métro has for the eventual well
connection. However, Gaz Métro is not in a position to guarantee that these scenarios are
representative or to decide on the plausibility of each one.”16
The UMQ submits that it is premature to fix the ratio on such bases. In the opinion of the UMQ, it
would be just as appropriate to consider the ratio of the $160 M annual distribution costs not
related to the gas system to be shared (between producers and consumer clients) to all Gaz
Métro assets (pricing basis of $1,632 G), which is 10%.
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15
16
Gaz - Métro 1, document 1.9, answer to question 9.5.
Ibid, answer to question 9.3.
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Gaz Métro submits that it considers this figure too high as it takes account of all Gaz Métro
clients, including residential clients and [CM]. However, if the ratio is considered as an “entrance
fee”, both residential clients and CM should be considered. The UMQ refers to the considerations
set out in Section 3.1.3 of the submission.
The UMQ submits that the ratio should be set at 5%, which corresponds to equal
distribution of the ratio of annual distribution costs between producers and consumer
clients not related to the gas system, to be shared (between producers and consumer
clients), to all Gaz Métro assets.
4.4.1.2. Establishing the rates at the reception points
An example of establishing the rates at the reception points is presented in pages 30 to 34 of the
document Gaz Métro 1, document 1. Given that each connection to the gas system will be
subject to an authorization application to the Régie, only the methodology for a rate calculated
based on the required income must be approved by the Régie in this file. This methodology also
provides for how the fixed and variable components of this rate will be derived from the required
income obtained.
The UMQ understands that the inputs to the required income are given as an illustration with,
however, one major item, namely that Gaz Métro will aim for a tariff break-even point equal to the
expected lifetime of the asset.
“Finally, despite the fact that Gaz Métro proposes a 20-year amortization period at this
time, this could be subject to discussions during specific investment applications if the
characteristics of the project require a shorter or longer period.
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The Régie may decide on the determination of the amortization period during the
investment applications. The rate applicable at the reception point will be established
based on the amortization period approved by the Régie.”17
The UMQ notes that the initial duration of a contract is 10 years whereas the break-even point
may only be reached in year 20. This aspect will be touched on later under the Service
Conditions heading.
The UMQ deems acceptable the methodology for establishing rates at the reception
points, which will be applied when there is an investment project, subject to the coming
considerations on the initial term of the contract.
4.4.2. Rates applicable at the delivery points
4.4.2.1. Unit rates for volumes delivered in the territory
These rates will be calculated based on the additional costs (Category “D” costs) on the
TCPL/TQM system which may be incurred where the volumes injected by the producers into the
consumption area assigned to them exceed the capacity of this consumption area and must be
transmitted to another consumption area still within Gaz Métro’s territory.
The annual cost of additional TCPL/TQM transmission capacities will be divided by the volumes
injected into the consumption area and expected to be delivered in the territory by the producers.
The unit rate will be applicable and specific to this consumption area and will be established, for
each consumption area, during the tariff applications.
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17
Gaz - Métro 1, document 1.6.
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The unit rate thus obtained will be invoiced on all volumes actually injected and having the
territory as delivery point.
During the tariff application, the volumes injected daily and annually will be projected based on
the information provided by the producers to Gaz Métro. A deferred expenses account is planned
to neutralize the risk.
“The tariffs are set at the start of the year according to the volume forecasts. If the actual
volumes are less than what was expected and the transmission capacity on TCPL/TQM
had been provided for these volumes, a loss of income will be recorded on the
transmission resources. The difference between the costs actually incurred and the income
generated by application of the tariff will be entered in a deferred expenses account.”18
The UMQ submits that the fact that the methodology proposes one tariff per area is acceptable
and is in line with the analogy of the gas system as a transport service between consumption
areas within the territory, especially when the fact that the additional TCPL/TQM capacity will be
managed by Gaz Métro is taken into account.
The UMQ submits that Gaz Métro’s “traditional” clients will not be affected by the additional
transmission capacity costs.
The UMQ assumes that settlement of the deferred expenses account will be entirely attributable
to the producers, according to methods to be established.
For the reasons explained above, the UMQ finds the methodology for establishing rates at
the delivery point in the territory to be acceptable, which will be applied when there is an
investment project.
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18
Gaz - Métro 1, document 1.54, answer to question 8.2.
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4.4.2.2. Unit rate for volumes delivered outside the territory
The unit rate for volumes delivered outside the territory is established based on a share of the
costs of Gaz Métro’s transmission pipelines in the existing distribution system (Category “B”
costs). Gaz Métro’s proposal is to establish a single tariff area for the rate applicable to this
component of the reception tariff.
The methodology to identify the portion of the principal pipelines attributable to transmission
pipelines and, subsequently the spread of distribution costs between their distribution and
transmission functionalities, is presented on pages 36 to 38 of the document Gaz Métro 1,
document 1.
The distributor recognizes that:
“It is generally accepted, in pricing, that to try and isolate costs related to existing facilities
is difficult, complex and often impossible. »19
The result of the exercise, according to Gaz Métro, shows that of the total distribution costs of
$537 M, $48.3 M are costs that may be associated with the transmission functionality. This $48.3
[M] represents costs to be shared between producers and clients.20
At this stage, as there is no producer among Gaz Métro’s current clients and as the volumes
delivered outside the territory are not known, the costs allocation study cannot identify an average
unit cost for such a class of producers.
Gaz Métro proceeded by inference. As the level and stability of the volumes injected into the
system by producers is similar to the consumption characteristics of the current clients on the D4
tariff, Gaz Métro chose to use the average unit cost for the D4 tariff, excluding level 4.10, to
identify the unit rate for the volume delivered outside the territory applicable to producer clients.
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19
20
Gaz - Métro 1, document 2.49.
Gaz Métro - 1, document 2.52, page 3.
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The resulting unit rate is 0.70 ¢/m3. Gaz Métro requests the Régie to set the applicable rate of
0.70 ¢/m3 for volumes delivered outside the territory, and to do so from this case.21
4.4.2.3. Position of the UMQ
The UMQ submits that it is premature to set a specific rate applicable to volumes to be
delivered outside the territory, from the time of this case. Unlike the rate applicable to
distribution costs not related to the gas system (Category “C” costs), this rate is not essential for
processing subsequent investment approval applications. Furthermore, the UMQ considered the
rate applicable to distribution costs not related to the gas system more as an “entrance fee” and
proposed a rate of 5% instead of the 4% rate proposed by Gaz Métro.
In addition, even if Gaz Métro, for simplicity’s sake, preferred to propose a rate on the “postage
stamp” principle, it remains no less true that once the data are specified, at least for the first
connections, the assumptions as to the level and stability of the volumes are subject to revision.
Finally, to propose a specific rate from the time of this case could leave the impression that the
natural gas produced in Gaz Métro’s territory is above all intended for consumption outside the
territory; especially as there is no rate set for consumption in the territory.
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21
Gaz Métro - 1, document 1, page 39.
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The UMQ submits that, for the time being, only the general methodology should be
approved, with the condition that this methodology will be compared with “actual” data during an
investment application.
4.5 Other provisions
The UMQ has no specific representations on the provisions relating to the following points:
1.
Revision of the maximum contractual capacity (CMC)
2.
Dealing with exceeding the maximum contractual capacity (CMC) and differences
between the volumes injected and the “nominated” volumes
3.
Composition of the natural gas and the calorific content
4.
Pressure
5.
Interruptions and reduction in the reception of natural gas
6.
Transfer of ownership of the natural gas
As to the contract term, renewal and indemnity dealt with in paragraph 3.5.3 of Gaz Métro’s
evidence, the UMQ will have representations to make after having set out the main themes of the
distributor’s proposal.
4.5.1. Contract term, renewal and indemnity
Gaz Métro will require initial contracts for a minimum period of 10 years for clients subject to the
reception tariff. On expiry of the initial contract agreed with the producer, the latter may have to
renew its contract or, under certain circumstances, have to pay an indemnity. In the event that the
producer decides not to renew the contract and the break-even point has not been reached, the
latter must pay an indemnity to Gaz Métro.
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This indemnity must be equivalent to the book value of the assets at this time plus the lost tariff
income that the producer would have paid if it had been under contract until the break-even point
was reached, which should correspond, in most cases, to the amortization period, namely 20
years.
4.5.1.1. Position of the UMQ
The UMQ’s position rests on the level of risk that the Gaz Métro proposal makes other clients run.
The distributor, in answer to a question from the UMQ, made its position known as to the
possibility of making the break-even point correspond to the term of the contract. For the sake of
clarity, the question and Gaz Métro’s full answer are reproduced below:
Question:
12.5 The UMQ submits that the initial contract term to which the producer will want to
consent rests on the latter’s knowledge (possibly considered a trade secret) of the reserves
of shale gas. Instead of proposing an indemnity in the event that the producer decides not
to renew its contract after 10 years, has the distributor considered making the term of the
contract coincide with the break-even point, even if it means asking the producer for a
contribution, which could possibly be reimbursed if the contract is renewed beyond the
initial 10-year term. Please make clear, in your answer, the advantages and/or
disadvantages of such an approach.
Answer:
“Several tariff models are possible but Gaz Métro believes that the one selected is more
likely to adjust to the developments of this new client base, while being fair and reasonable
for everyone.
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The question does not specify if we should answer based on the viewpoint of existing
clients, Gaz Métro or the producers. It is clear that advantages for some may become
disadvantages for others depending on the various proposals.
For existing clients and Gaz Métro, the options of a longer contract term or a reimbursable
contribution seem to us relatively neutral in comparison with our proposal for the entire
period. Some may defend the argument that longer contracts and especially contributions
in advance would be marginally more favorable in some cases but no more.
On the other hand, without regard for the different financial capacities of producers which
may vary considerably, these options may become very restrictive and risk harming the
development considerably, by limiting access to major capital for this new category of
client.
With regard to the contract term and a reimbursable contribution, Gaz Métro is of the
opinion that if the advantages are marginal for the clients and Gaz Métro, the
disadvantages would be much more substantial for the producers, indeed even
inequitable.”22
The UMQ understands from Gaz Métro’s answer that the UMQ’s proposal as expressed risks
harming the development of this new category of clients.
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22
Gaz - Métro 1, document 1.58.
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Making the break-even point coincide with the initial term of the contract would have the
consequence of setting high initial tariffs at the reception points.
On the other hand, while recognizing that the distributor has tried to minimize the risk by
proposing an indemnity, the UMQ submits that the risk of bankruptcy is nonetheless not
eliminated. Based on simulations done by Gaz Métro, the indemnity may amount to
$33,222,150.23 The UMQ understands that the risk of bankruptcy is a risk that must be borne by
all clients.24 The amounts in question would be too high and, as a consequence, the UMQ
submits that the risk would be “unbearable”.
The UMQ understands that the amortization period for assets used to connect the producers’
facilities to the Gaz Métro system is related to the future capacity of the production sites. This
capacity is an input in the producer’s decision to go forward or not. This data would not
necessarily be revealed to Gaz Métro.
The producer will favor the longest amortization period possible, for example 20 years, in order to
minimize its tariffs, subject to the “threat” of having to pay an indemnity, if the future capacity of
the production sites (their economic utility) was estimated at, for example, 10 years.
> The problem that arises is the following: how to make the producers tell the truth?
The UMQ submits that the initial contract term should be equivalent to the amortization
period. From this it follows that the break-even point should be reached at the end of the initial
contract thus minimizing the risks for all clients.
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23
Gaz - Métro 1, document 1.58, Excel table.
24
Gaz - Métro 1, documents 10.3 and 10.4 & Gaz - Métro 1, document 1.58, answer 12.2.
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5. Service conditions and tariff
The UMQ proposes to harmonize the following formulation (underlined by Gaz Métro):
“4.5.1 FORM
The contract is written in the following cases:
1 The client is invoiced at the DM, D3, D4, D5 distribution tariff or the reception tariff;
2 [...]”
with this:
“5.3.2 FREQUENCY OF READINGS
Furthermore, where natural gas is invoiced at the D4, D5, D3 and D5 tariffs in combination or
at the reception tariff, the distributor reads […]”
The UMQ proposes that the formulation in 4.5.1 becomes:
“4.5.1 FORM
The contract is written in the following cases:
1 The client is invoiced at the DM, D3, D4, D5 distribution tariff or at the reception tariff;
2 [...]”
Furthermore, the UMQ proposes, in connection with the amendment to Articles 7.3.1, 7.3.2 and
8.4, to amend Article 5.3.2 as follows:
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“5.3.2 FREQUENCY OF READINGS
Furthermore, where the client natural gas is invoiced at the D4, D5, D3 and D5 tariffs in
combination or at the reception tariff, the distributor reads […]” (crossing out and bold
characters by the UMQ)
The UMQ proposes the following correction to Article 6.1.1: addition of “to the” before “reception
point”.
“Invoicing is established according to […]. However, when the distributor chooses to use
more than one measuring device in a single delivery point to the client or at the reception
point, the invoicing […]” (addition and emphasis by the UMQ)
The UMQ submits that the amendment (elimination of “natural gas” ) made to Article 7.3.1
“7.3.1 WRITTEN CONTRACT
All clients who have entered into the same contract are jointly and severally liable for total
payment of the natural gas invoices.”
should lead to the same amendment in Articles 8.4 and Article 7.3.2 of the document Gaz Métro 2, document 1.
“8.4 RETENTION PERIOD
The initial retention period for a deposit is:
1
2
3
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When the client fails to pay at least one natural gas invoice […]” (crossing out proposed by
the UMQ)
“7.3.2. OTHER CONTRACT
All clients at the same service address are jointly and severally liable for total payment of
the natural gas invoices on which they are identified by name.” (Crossing out proposed by
the UMQ)25
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25
Gaz - Métro 1, document 1.57.
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6. The UMQ’s conclusion
The UMQ respectfully requests the Régie to accept all the proposals it has put forward as part of
its submission.
#365007
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