TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 Hearing Order GHW‐001‐2014 Written Final Argument of Union Gas Limited 23 April 2015 TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 2 of 9 1.
Further to paragraph 3.14 of the Hearing Order GHW‐001‐2014, Union Gas Limited ("Union") respectfully submits its Final Argument. SUMMARY 2.
Union respectfully requests that the Board approve the TransCanada PipeLines Limited ("TransCanada") King’s North Connection Pipeline Project ("King's North Project") Application on an expedited basis. BACKGROUND 3.
TransCanada’s King’s North Project represents a critical link in the network of gas pipeline infrastructure in Ontario. The market's access to burgeoning supplies of competitively priced gas is constrained due to a bottleneck that exists between Parkway and Maple on TransCanada’s system. TransCanada’s King’s North Project can help alleviate that bottleneck. 4.
For a number of years the market has attempted to gain access to the growing supplies of gas located in the Marcellus and Utica basins and to further enhance access to the Dawn Hub. As the Board is aware, Union and Gaz Métro Limited Partnership ("Gaz Métro") contractually committed to this path as early as 2012 in order to provide access to this supply for their franchise areas commencing in 20141. As discussed in the Settlement proceeding (RH‐001‐2014), the King’s North Project was suspended until the Settlement was negotiated. The in‐service date is now expected to be 1 November 2015 at the very earliest. Any delay in Union and Gaz Métro’s ability to meet those requirements only adds to the urgency of expeditious approval of TransCanada’s King’s North Project. 1
Ex. C16‐02‐01, p. 3; Ex. C13‐03‐02, p. 7 TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 3 of 9 5.
The increasing demand for market access to the Dawn Hub and to Marcellus and Utica production was a predominant theme of the RH‐001‐2014 proceeding, which resulted in the Board approving tolls and tariff changes proposed by TransCanada based on the Settlement Agreement negotiated between TransCanada, Union, Gaz Métro and Enbridge Gas Distribution Inc. (“Enbridge”). That RH‐001‐2014 Decision acknowledged that the Mainline is in a state of transition2. With respect to the rapidly evolving natural gas market, the Board noted that "the changes in market circumstances and the evolving contracting practices indicate a greater preference for intra‐segment transportation in the future."3 The Board further noted that "the Eastern Triangle is highly utilized and demand for capacity exceeds the existing infrastructure."4 The King’s North Project, which was specifically referenced in the Settlement Agreement5, represents the next step in facilitating that transition by de‐bottlenecking capacity limitations at Parkway. ECONOMIC FEASIBILITY 6.
TransCanada has demonstrated the need for and economic feasibility of the King’s North Project. The long term use of the proposed facilities, at reasonable load factors, and confidence that the related demand charges will be paid, are demonstrated by the contracts executed by the shippers. Specifically, Union and Gaz Métro have executed the following 15‐year contracts for firm service commencing 1 November 2015: 2
RH‐001‐2014 Reasons for Decision, p. 13, p. 91 RH‐001‐2014 Decision, p. 79 4
RH‐001‐2014 Decision, p. 13 5
TransCanada Pipelines Limited Mainline Settlement Agreement, p. 18, s. 1.1 (ii); s. 9.2 (c); s. 11.1 (h) 3
TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 4 of 9 Contract Demand Service Shipper (GJ/d) Type Receipt Point Gaz Métro 239,148 FT Union Parkway Belt Gaz Métro 15,327 FT Union Parkway Belt Union 75,000 FT Union Parkway Belt Union 25,000 EMB Union Parkway Belt Union 10,000 FT Union Parkway Belt Total: 364,475 (Source: C13‐02‐02 ‐ Gaz Métro 1.1 a) and b)) 7.
Delivery Point GMIT EDA GMIT NDA Union EDA Union EDA Union NDA Moreover, Union has executed fifteen year FT contracts for a further 129,115 GJ/d commencing 1 November 2016 with Union Parkway Belt as the receipt point and delivery points in the Union NDA, Union EDA and Union NCDA6. Finally, Union has bid into the TransCanada 2017 New Capacity Open Season for fifteen‐year FT contracts for 11,491 GJ/d commencing 1 November 2017 with Union Parkway Belt as the receipt point and delivery points in the Union NDA, Union EDA and Union NCDA7. It is expected that all contracts commencing long‐term firm service in 2015, 2016 and 2017 will utilize TransCanada’s King's North Project as this section of pipeline will form a critical component of the TransCanada Mainline downstream of Parkway. PUBLIC INTEREST 8.
From the public interest standpoint, approval of TransCanada’s King's North Project reflects the resolution of a number of contentious issues arising from the rapidly changing North American natural gas market and its impact upon shippers and TransCanada alike. 6
Ex. C16‐02‐01, p. 1 Ibid. 7
TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 5 of 9 9.
These issues are well familiar to the Board. Without recounting the myriad of issues which have arisen at the federal level in RH‐3‐2011, RH‐001‐2013, RH‐001‐2014, various toll and tariff complaints, and in a (withdrawn) Section 71 application, the common position represented by the Settlement Agreement in the RH‐001‐2014 proceeding was determined by the Board to strike the right balance amongst the diverse shipper and pipeline interests. TransCanada’s King's North Project was specifically contemplated as part of the means of affording the market access to rapidly expanding supplies of competitively priced gas located in the Marcellus and Utica basins and to the Dawn Hub, amongst others.8 While some opposed the common position, the overall result was accepted and the resultant tolls deemed just and reasonable.9 The corollary of those toll and tariff determinations was that access to incremental firm, short‐haul capacity must be provided without delay through new infrastructure such as TransCanada’s King's North Project. 10.
Moreover, the public interest benefits are reinforced by the strong support registered by the Board's provincial counterparts; in particular the Ontario Energy Board ("OEB") which, in the process of adjudicating several facilities applications, ultimately approved significant expansions upon which TransCanada’s King's North Project is reliant.10 The OEB‐approved Enbridge GTA Project is under construction as are Union’s OEB‐approved Parkway West Project and Parkway D Compressor Project.11 Union’s Brantford‐Kirkwall Pipeline Project construction, however, awaits NEB approval of TransCanada’s King's North Project and TransCanada’s written commitment to satisfy its construction – specific conditions of approval imposed by the OEB. TransCanada’s King’s North Project is one component of a critical infrastructure build‐out in Ontario required to provide 8
Ex. C5‐02‐01, EGDI Letter of Comment, Adobe p. 1. Letter Decision dated November 28, 2014; Reasons for Decision RH‐001‐2014; and Order TG‐010‐2014. 10
Ex. C16‐02‐01, p. 6. 11
Ex. C16‐02‐01, p. 7. 9
TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 6 of 9 Ontario and Québec consumers increased access to the Dawn Hub and to the prolific resources of the Marcellus and Utica shale plays. 11.
The Régie de l’énergie du Québec ("Régie"), in addition to the OEB, has also lent support to the gas supply diversification strategy which underpins the Union and Gaz Métro contracts for the King's North Project.12 Both regulators have recognized the benefits of firm access to these new, growing supplies of gas located literally on their doorstep, including lower delivered gas costs, diversification and increased security of supply.13 Each regulator pronounced the balance struck in the Settlement Agreement as consistent with the public interest of their respective customers14. 12.
TransCanada’s King's North Project represents significant customer benefits, but those benefits are denied the longer the Project is delayed. Apart from foregone landed gas cost savings, the evidence reflects other adverse effects of delay including the cost of mismatches in facility in‐service dates.15 13.
Union and Enbridge are currently incurring significant capital expenditures to ensure their projects meet a 1 November 2015 in‐service date16. In total, capital expenditures for Union's Parkway D Compressor and Brantford‐Kirkwall Pipeline Projects are estimated to be $224 million. Union has already commenced construction of the $108 million Parkway D Compressor Project, which is on target to be completed in the fall of 2015. Pipe has been delivered to Ontario for the 13.9 kilometre NPS 48 Brantford‐
Kirkwall Pipeline Project in order to preserve a fall 2015 in‐service date. Union has 12
Ontario Energy Board Decisions EB‐2012‐0451, EB‐2012‐0433 and EB‐2013‐0074, January 30, 2014, page 29; Régie de l’énergie du Québec, 2013 Rate Case, R‐3809‐2012, D‐2012‐175, paragraphs 43, 44, 46 and 47 13
Ibid. 14
Ontario Energy Board Decisions EB‐2012‐0451, EB‐2012‐0433 and EB‐2013‐0074, p. 4, p. 29; Régie de l’énergie du Québec D‐2014‐064; R‐
3837‐2013, p. 9‐10 15
Ex. C16‐02‐01, p. 2. 16
Ex. C16‐02‐01, p. 7 TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 7 of 9 made capital commitments for this project of approximately $26 million as of March 2015, which includes mobilization costs associated with the pipeline contractor, and expects commitments of approximately $30 million by mid‐May 201517. As with any project, mobilization costs increase with any delay. These sunk costs do not benefit shippers or the public. A delay in the in‐service date of the TransCanada King’s North Project would delay the benefits, increase construction costs and be detrimental to natural gas customers in Ontario, Québec and beyond. 14.
Moreover, both Union and Enbridge have highlighted financial prejudice associated with delay as cancellation charges mount, while construction is delayed awaiting approval of the King's North Project.18 15.
In addition, during the 31 March 2015 King’s North Project Technical Conference, the Ontario Ministry of Transportation (“MTO”) outlined their concern with the potential delay in commencement of the King’s North Project construction and MTO plans for an extension of Highway 427 that is scheduled to start in 2016: Another concern we have is with the construction timing. The province has made a political commitment to start construction of Highway 427 extension in 2016 and ’17. So the Ministry is in the process of starting procurement of the project. So in addition to ‐‐ we have the Premier commitment, we also have a number of activities that need to be undertaken prior to construction 2016 and ’17. These include pre‐engineering activities. We need to go out and do a number of field investigations which could conflict with the pipeline construction. We also have utility relocation, the hydro ‐‐ there was a couple hydro towers that need to be removed and replaced. This will also conflict with 17
Ibid. Ibid. 18
TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 8 of 9 the timing of possible TransCanada’s pipeline construction, land availability. We are required to make our land available and TransCanada will be on our land for construction and delays in their construction will impact land availability for our construction. And also, it’s not limited to the pipeline ‐‐ well, it’s not limited to the pipeline itself. It also includes the temporary work zones. So even though the pipeline has been drilled and maybe they’re done, they still need to go back and clean up the work zones. And they are looking at a slurry pit which needs to be dried out and so forth. So we do have a lot of concerns in terms of when they get approval because we do know their submission assumed a construction on March 26th which obviously March 31st, it’s not going to happen. But we also are aware that NEB can make a decision as late as December 1st, 2015, and if that decision is at such time, what implications that has on the Ministry given about a year later will be starting construction as well.19 16.
As noted by TransCanada in its Argument, almost all parties, including the MTO, developers and shippers contracting for the incremental pipeline capacity, “agree that if the Project is to proceed, it is critical to be completed as quickly as possible”20. In addition to the MTO, which urges the Project proceed as quickly as possible to avoid construction conflicts with its future highway and transit plans21, property/land developers expressed similar concerns about potential delays to their development plans22. All parties to this proceeding, therefore, agree that an expeditious approval and the earliest possible in‐service of the Project are in the public interest. 17.
Union therefore submits that the King’s North Project is in the public interest and, given the significant and broad‐based interest in 2015 construction, should be approved on an expedited basis. 19
TransCanada King’s North Project 31 March 2015 Technical Conference, 1T739‐1T743 TransCanada Argument, 10 April 2015, p. 18 21
Ex. C7‐08‐02, Adobe p. 1‐3 22
Ex. C2‐03‐01, Adobe p. 3‐4; Ex. C3‐02‐01, Adobe p. 3; Ex. C17‐03‐02, Adobe p. 3‐4 20
TransCanada Pipelines Limited King’s North Connection Pipeline Project File Number OF‐Fac‐Gas‐T211‐2014‐02 01 GHW‐001‐2014 Written Final Argument of Union Gas Limited Page 9 of 9 CONCLUSION 18.
TransCanada’s King’s North Project is the sole remaining component required to provide economic natural gas supply as well as greater flexibility, diversity and security of supply to Ontario and Québec customers in 2015. Ontario and Québec markets are in transition and continue to face uncertainty until TransCanada’s King’s North Project is in service. Union and Enbridge are investing approximately $1 billion in new related infrastructure in Ontario in 2015 to facilitate this market transition. 19.
On behalf of customers throughout its diverse, widespread franchise areas, Union strongly urges the Board to provide its earliest possible approval of TransCanada’s Application in order to maintain the Project's planned in‐service date. Signaling the Board's approval at the earliest possible opportunity would also remove a remaining obstacle to the commencement of construction work on Union's Brantford‐Kirkwall Pipeline Project which has been conditioned on the NEB approval of the King's North Project (and TransCanada’s commitment to construct its project). The alleviation of Eastern Ontario Triangle capacity constraints at Parkway is critical to enhancing access to Marcellus/Utica and Dawn supplies not just in 2015, but for incremental contract demand arising from TransCanada’s recent 2016 and 2017 open seasons and for future growth in years ahead. 20.
Union encourages the Board to issue a decision with reasons‐to‐follow as soon as possible following close of the record. As TransCanada emphasized in its Argument – "Time is of the essence".23 ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 23rd DAY OF APRIL, 2015. 23
TransCanada Argument, 10 April 2015, para. 59.