222 1 RP-2000-0110 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, S.O. 6 1998, c. 15, Schedule B; 7 8 9 AND IN THE MATTER OF an Application by Union Gas Limited 10 for leave to construct the Trafalgar Facilities 11 Expansion Project consisting of a 48 inch diameter 12 natural gas pipeline in the Townships of Zorra, East 13 Zorra-Tavistock and Blandford-Blenheim in the County of 14 Oxford and a 48 inch diameter natural gas pipeline in 15 the Township of North Dumfries in the Regional 16 Municipality of Waterloo. 17 18 19 Hearing held at: 20 Holiday Inn Cambridge, 200 Holiday Inn Drive, 21 Cambridge, Ontario on Friday, February 9, 2001, 22 commencing at 0930 23 24 B E F O R E : 25 MS S. HALLADAY Presiding Member 26 MS J. SIMON Member 27 28 VOLUME 2 Les Services StenoTran Services Inc. 613-521-0703 223 1 APPEARANCES 2 3 JENNIFER LEA/ Board Staff 4 WILFRED TEPER/ 5 NEIL McKAY/ 6 ZORA CRNOJACKI 7 8 GLENN LESLIE/ Union Gas Limited 9 KAREN HOCKIN 10 11 LESLIE DREHER/ On their own behalf 12 LINDA DREHER 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 224 1 Cambridge, Ontario 2 --- Upon resuming on Friday, February 9, 2001 3 at 0930 4 THE PRESIDING MEMBER: Good morning. 5 MR. LESLIE: Good morning. 6 THE PRESIDING MEMBER: I see we still have a 7 full house today. Congratulations. 8 Are there any preliminary matters before we 9 begin? 10 MR. LESLIE: Madam Chair, just one, I think. 11 At page 84 of the transcript -- you don't need to turn 12 it up, I spoke to the reporter about this -- either I 13 forgot to turn my mike on or there was a technical 14 glitch of some kind, but one of Mr. Baker's answers was 15 not reported. It was a re-examination question that I 16 had asked him. 17 If I may, I will just put the answer on the 18 record this morning. Otherwise it won't be there at 19 all. I had asked him what the excess demand would be if 20 the second loop were not built based on the current 21 status of the contract. The answer was that it would be 22 70,000 gigajoules a day. 23 I think that number appears elsewhere on the 24 record, but that was the answer to the question that I 25 started to ask at page 84, line 17. 26 Thank you. 27 THE PRESIDING MEMBER: Thank you. 28 Before we hear Ms Lea's presentation, what is Les Services StenoTran Services Inc. 613-521-0703 225 PRELIMINARY MATTERS 1 the status of the outstanding undertaking? 2 MR. LESLIE: Mr. Gardiner phoned this morning 3 to say that the work involved in re-evaluating the 4 inputs in the long term economics that he is responsible 5 for, and this relates to the spread between the cost of 6 gas and other fuels, was substantially more than he I 7 guess had initially anticipated. I think he can do it, 8 but it would take some time. 9 My recollection is the undertaking was to 10 first inquire as to how much work would be involved and 11 then, secondly, depending on the answer to that, either 12 go ahead or not. If the Board would give us some 13 direction on what to tell Mr. Gardiner how we should 14 proceed. 15 THE PRESIDING MEMBER: Just one moment. 16 --- Pause 17 THE PRESIDING MEMBER: The economic analysis 18 of the second stage would have been helpful. However, 19 we don't think that it's absolutely necessary for 20 rendering this decision in this case, so thank you. 21 MR. LESLIE: All right. Thank you. 22 THE PRESIDING MEMBER: Ms Lea. 23 ARGUMENT 24 MS LEA: Thank you very much. 25 There was just the one undertaking, was there? 26 There was. Yes. Okay. That's great. 27 Thank you. I have a few remarks which I hope 28 will be helpful to the Board and I think my friend will Les Services StenoTran Services Inc. 613-521-0703 226 ARGUMENT (Lea) 1 probably not disagree with. 2 In this application Union is asking the Board 3 to approve the construction of two sections of 48 inch 4 gas pipeline as a reinforcement to the Trafalgar line 5 transmission system. The Trafalgar line is a set of 6 transmission lines which provides the majority of 7 natural gas used by Ontario consumers. 8 Union has determined that two sections need to 9 be looped for the winter of 2001-2002 on the basis of 10 their estimate of demand on the peak days for winter 11 heating, which is the winter design day. 12 Union is asking the Board to approve the 13 construction of both sections, despite the fact that the 14 company does not have committed contracts to use all the 15 capacity the looping will provide. Union is saying to 16 the Board "Approve this construction and let us manage 17 any unutilized capacity". 18 The Board will have to decide whether the 19 evidence that we have heard here during this hearing and 20 the prefiled evidence have provided sufficient 21 justification for this proposal. To Board Staff it 22 seems that the evidence has provided sufficient 23 justification. To us three reasons seem persuasive. 24 The first reason is that even if the pipeline 25 capacity is not fully needed in 2001-2002, the evidence 26 is that it will be needed in 2002-2003 winter in heating 27 season. 28 The Beachville to Bright section with the Les Services StenoTran Services Inc. 613-521-0703 227 ARGUMENT (Lea) 1 addition of winter peaking service might provide service 2 for 2001-2002. That is it might provide sufficient 3 capacity for that season, but the Board would be faced 4 with an application to complete the Owen Sound to 5 Brantford section for the 2002-2003 season. 6 If the Board does not approve the latter 7 section now as part of this application, this is in 8 effect a postponement, not an avoidance of construction 9 of that section. 10 The second reason is that the evidence that 11 cost saving synergies will result from the construction 12 of both sections in one year. The sections are 13 relatively close together. I mean they are not far 14 apart in distance. This allows efficiencies for 15 contractors and equipment, as described by Mr. Mallette. 16 The estimated cost savings from building both 17 sections the same year are estimated at $11 million is 18 my recollection. If I haven't got that right, perhaps 19 Mr. Leslie can help us. 20 The evidence on private costs and economics as 21 updated in Exhibit 11.1 shows the savings due both to 22 synergies and also to competitive prices obtained for 23 labour and materials. The profitability index for the 24 two sections is now 0.9 with a negative NPV of about 25 $6.8 million. This profitability index compared 26 favourably with individual profitability indices that we 27 saw for previous looping. 28 The third reason that seems persuasive to Les Services StenoTran Services Inc. 613-521-0703 228 ARGUMENT (Lea) 1 Board staff is that even if Union's predictions 2 regarding demand for the capacity are overly optimistic, 3 ratepayers will not be significantly affected according 4 to the evidence we have heard. 5 If Union's rates continue to be set by a cost 6 of service method, the evidence we have received is that 7 the annual cost of under-utilization of this asset on an 8 average residential ratepayer would be 50 cents or less. 9 Under a performance based regulation scheme, there would 10 be no direct impact on rates from this project without 11 some further approval of the Board, as I understood the 12 evidence. For example, a Z factor or rebasing. 13 The evidence indicates that rate impact is 14 probably not a significant factor in the decision as to 15 whether to approve both sections of pipe for this year. 16 If the Board decides that approval of the 17 project as proposed is acceptable on need and economic 18 grounds, then the Board I think has to turn its mind to 19 what concerns there may be with respect to landowners, 20 construction practices and environmental matters. 21 Dealing first with landowners. Nearly all the 22 affected landowners have signed easement agreements. 23 These agreements are in a form that has previously been 24 approved by the Board for transmission line projects. 25 Two landowners that operate gravel pits have not yet 26 signed, but we understand that an aggregate consultant 27 will assist the parties to reach an agreement on 28 compensation for sterilized gravel reverses. Les Services StenoTran Services Inc. 613-521-0703 229 ARGUMENT (Lea) 1 The Drehers are apparently willing to sign an 2 agreement. They haven't done so yet, although they do 3 have concerns largely with respect to public safety and 4 abandonment of pipelines which they feel is still 5 unresolved. 6 The compensation package offered to landowners 7 in this case and the quantum of compensation are 8 comparable to those offered in EBLO 267. That case was 9 heard in 1998. 10 Changed construction practices. The evidence 11 is that Union will meet or exceed the public safety 12 requirements in the CSA code Z662 and the Ontario 13 regulations, whose number I have forgotten. Abandonment 14 is still obviously an issue for landowners though. 15 Union has indicated that it is working on this issue in 16 a technical standards safety authority committee and 17 also with the Lambton County Storage Association, an 18 intervenor in previous cases that hopes that these 19 matters will be resolved soon. 20 Union has agreed to abide by its standard 21 construction procedures for this case, including the 22 standard Board conditions related to construction and 23 its own specifications with respect to blasting if 24 blasting is required. It will also monitor well water 25 quality in accordance with its standard well monitoring 26 program. 27 Union has also agreed to abide by the 28 construction windows established by the various Les Services StenoTran Services Inc. 613-521-0703 230 ARGUMENT (Lea) 1 agencies, such as the Grand River Conservation 2 Authority, the Department of Fisheries and Oceans and 3 the Ministry of Environment. 4 Construction, as we understand the evidence, 5 may start and finish earlier than stated in the 6 originally filed sample construction schedules. Mr. 7 Mallette indicated that all those aspects of 8 constructions may be able to be commenced two weeks to 9 four weeks earlier than anticipated. 10 Turning more specifically to environmental 11 matters. The Ontario Pipeline Coordination Committee 12 Review is complete and as we understand it, there are no 13 outstanding concerns there. 14 Union should abide by the environmental 15 mitigation and rehabilitation measures as well as 16 monitoring recommendations that were made by its 17 environmental consultant. 18 There will still be some residual cumulative 19 impacts however. Board Staff suggests that broader 20 scale cumulative impacts be addressed in Union's next 21 transmission application as not only the easement and 22 work areas are affected by cumulative impacts. 23 Union may wish to consider addressing the 24 processes and pathways of cumulative environmental 25 effects that are found at pages 16 and 17 of the section 26 to addendum. I think that's the Owen Sound to Brantford 27 section, but I think it may be repeated in both 28 addendums. The section 2 addendum on environmental Les Services StenoTran Services Inc. 613-521-0703 231 ARGUMENT (Lea) 1 assessment in its next case. These processes and 2 pathways can be used as a guide to assessing broader 3 cumulative impacts. 4 We also understand that several woodlots and 5 other trees will be affected by construction. That 6 recommends that Union continue to work with local 7 authorities to have a tree cutting and replacement 8 program that is acceptable to landowners, to 9 municipalities and to conservation authorities. 10 We understand that the archaeological 11 assessment and social impact assessments and mitigation 12 measures have been addressed by the company. 13 That leaves the Grand River crossing. It's 14 clear, or at least it sounds to us in the evidence that 15 it's -- it sounds like a major operation. However this 16 river is crossed, there will be negative environmental 17 impact. However, if the Owen Sound to Brantford section 18 of the pipeline is to be built, the Grand must be 19 crossed. 20 The Board must then ask itself the question: 21 In our view, is the public interest in having the 22 additional capacity of the pipeline section sufficient 23 to outweigh the environmental damage the crossing will 24 necessarily cause? 25 It appears from the evidence that the proposed 26 wet crossing method is the least damaging alternative, 27 largely because it's the quickest. As we understood the 28 evidence, minimizing the length of disturbance seems to Les Services StenoTran Services Inc. 613-521-0703 232 ARGUMENT (Lea) 1 be a significant factor in the severity of damage that's 2 caused. 3 Union is working closely with the Grand River 4 Conservation Authority, which agency is also 5 administering the Department of Fisheries and Oceans 6 permitting process. Union should be required to comply 7 with all conditions imposed by the GRCA and Union should 8 address itself to erosion prevention and to restoration 9 of the stream bed to as natural a condition as possible 10 in an attempt to recreate the original stream morphology 11 and geometry where possible. 12 Union's geotechnical survey suggests that some 13 blasting may be required in the vicinity of the river 14 and possibly in the water course itself. Conditions 15 regarding blasting should be added to the conditions of 16 approval for this project. 17 This morning staff and Union's staff have come 18 up with some proposed wording for those conditions. I 19 will read them into the record now and provide you with 20 a hard copy also, Madam Chair. We are suggesting that 21 the following two conditions be added. First: 22 "Where blasting is required, Union shall 23 follow its standard blasting 24 specifications and water well within 100 25 metres of the pipeline shall be 26 identified and water quality shall be 27 tested before and after blasting 28 operations." (As read) Les Services StenoTran Services Inc. 613-521-0703 233 ARGUMENT (Lea) 1 Secondly: 2 "Where blasting is required instream, 3 Union shall obtain authorization and 4 follow all the directions of the Grand 5 River Conservation Authority and the 6 Department of Fisheries and Oceans." 7 (As read) 8 We understand that those are the only two 9 agencies involved. If there are more, perhaps Union 10 could let us know. We further understand that those 11 conditions are acceptable to Union, so Mr. Leslie can 12 speak to that perhaps. 13 In addition, we would ask that Union give 14 Board Staff at least seven days notice of the 15 commencement of the river crossing operation with the 16 understanding that weather conditions may affect the 17 actual timing of the crossing. We are not asking that 18 that be included in the conditions of approval, but we 19 understand that Union was happy to do this from what was 20 said by the witnesses in the hearing. 21 Lastly, Union should perform the restoration 22 of the prairie remnant adjacent to the river in 23 accordance with the directions to the Grand River 24 Conservation Authority. 25 In sum then, the applicant appears to have 26 satisfied the requirements in sections 94 and 97 of the 27 Act, which are prerequisites to an approval under 28 section 96. The Board must now decide whether the Les Services StenoTran Services Inc. 613-521-0703 234 ARGUMENT (Lea) 1 proposed project in whole or in part meets the test of 2 public interest in section 96. 3 Thank you very much for the opportunity to 4 make these remarks. 5 THE PRESIDING MEMBER: Thank you, Ms Lea. 6 Mr. Leslie. 7 ARGUMENT 8 MR. LESLIE: Thank you. 9 In view of Ms Lea's remarks, I will attempt to 10 be as brief as possible, but there are some things that 11 I think we should say to assist the Board, hopefully. 12 As Ms Lea has indicated, the nature of the 13 request that is being made is approval to proceed to 14 construct two sections or loops on the Dawn-Trafalgar 15 system, the Beachville to Bright, and Owen Sound to 16 Brantford section. The demand capacity status is 17 summarized in the evidence, and I will give you the 18 references, although we went through many of these 19 yesterday: Section 4, Schedules 8 and 10; Section 5, 20 Schedule 5, page 2, and Appendix A to that section at 21 tab 1; and, finally, Exhibit 11.2, Table 6. That is the 22 updated cost and economics evidence. 23 Referring to that last exhibit, you will see 24 that the capacity to be provided by these two loops is, 25 in the case of Beachville to Bright, approximately 26 184,000 gigajoules a day, and in the case of Owen Sound 27 to Brantford, approximately 128,000 gigajoules a day. 28 The exact total is 311,747 gigajoules a day. Les Services StenoTran Services Inc. 613-521-0703 235 ARGUMENT (Leslie) 1 The existing demand, as updated by 2 Ms Galbraith yesterday, will require all of the 3 Beachville to Bright capacity, and the Owen Sound to 4 Brantford capacity to the extent of 70,000 gigajoules a 5 day, which leaves 54,000 gigajoules a day uncommitted. 6 The evidence is that is less than 1 per cent 7 of design day demand on the Dawn-Trafalgar system, and 8 is approximately 17 per cent of the total capacity of 9 the two loops. 10 The evidence is that Union is confident that 11 this capacity can be sold this year. As Ms Lea has 12 pointed out, the evidence is that there is very little 13 doubt that there will be longer term demand for the 14 capacity in the following year. 15 Mr. Baker testified that between Consumers 16 Gas, the growth in their demand, and the growth in 17 Union's on infranchise demand, the 54,000 gigajoules a 18 day would be almost certainly spoken for in the 19 following year. 20 Ms Galbraith indicated that Union was prepared 21 and confident that it could manage the sale of that 22 capacity in the current year as well. 23 Union will be at risk for this capacity. In 24 my submission, the clearly prudent economic choice is to 25 proceed. The evidence is that $11,900,000 in savings 26 can be achieved by proceeding this year. Those numbers 27 appear in Table 1 of Exhibit 11.2. $1.5 million of that 28 amount was in the original estimate. It relates to the Les Services StenoTran Services Inc. 613-521-0703 236 ARGUMENT (Leslie) 1 synergies. The balance of the amount is detailed in the 2 exhibit. 3 Mr. Mallette testified that approximately 4 $6 million in reduced costs occur if you build both of 5 these sections during the same year because of their 6 close proximity geographically, that is, construction 7 cost savings. Because of some circumstances that exist 8 in the marketplace today, Union has been able to 9 contract for pipe at a savings of approximately 10 $2.9 million. In the one case, the supplier is another 11 pipeline company. It is almost certain that that pipe 12 won't be there next year. 13 The balance of the requirements are being 14 purchased in the mill that is working in very 15 competitive circumstances. Whether or not those 16 circumstances will reoccur is, I suppose, anyone's guess 17 but it can't be assured. 18 And the balance of the amount, the 19 $11.9 million, is also a result of current competitive 20 circumstances in the marketplace and the bids that were 21 achieved as a result of those circumstances. 22 These savings clearly outweigh the costs of 23 the alternative, which is to delay building the Owen 24 Sound to Bright section one year, and to substitute 25 winter peaking service to service the demand, the excess 26 demand, which I indicated at the outset today is 27 70,000 gigajoules a day. 28 As Ms Lea has indicated in her remarks, it Les Services StenoTran Services Inc. 613-521-0703 237 ARGUMENT (Leslie) 1 really makes no or very little difference to the outcome 2 or the choice of whether rates are governed by a PBR or 3 a cost of service regime. If PBR is adopted, Union will 4 manage the cost within approved rates. 5 There was some discussion of the possibility 6 of rebasing in five-years' time and what the 7 implications might be if there were rebasing. I will 8 point out, in that connection, that the long-term 9 Trafalgar expansion project economics produced a $70 10 million net present value. That appears in Exhibit 11.2 11 as well. That is based on these two sections proceeding 12 this year. I would point out that that analysis is done 13 using existing rates so it is to that extent 14 conservative. The point being that the sections are 15 almost certainly economic and in five years' time it is 16 highly unlikely that even if there were rebasing that 17 there would be a negative impact as a result of having 18 proceeded with these two sections. 19 Under a cost-of-service regime, I will start 20 by pointing out that the Board itself controls rates, so 21 they are not going anywhere unless the Board approves 22 it. 23 I will also point out Mr. Packer's evidence 24 that the impact is minimal. As Ms Lea has already told 25 you it is less than $500,000 a year in the revenue 26 requirement with a base of $800 million. 27 Again, the longer term benefit which is 28 documented in the evidence, Exhibit 11.2, is based on Les Services StenoTran Services Inc. 613-521-0703 238 ARGUMENT (Leslie) 1 proceeding this year with both loops to capture the 2 favourable economics of a joint build this year. 3 So, as I say, it really doesn't matter which 4 rate-making regime governs. The impact on ratepayers is 5 either non-existent or minimal. 6 I just wanted to say a word about market 7 conditions. Mr. Baker spoke to this yesterday. He 8 indicated that the market is evolving and has evolved to 9 the point where customers have a variety of options that 10 didn't exist until recently. The result of that is, 11 according to Mr. Baker who is in the business, that 12 customers are less willing to contract their long-term 13 capacity, and they are also less willing to accept 14 uncertainty in their contracting or what has been 15 described as regulatory risk. That has two consequences 16 for Union. 17 First, in our submission, it is not realistic 18 to require long-term contracts before building any new 19 capacity. Secondly, there is a need for early and 20 expeditious approval of sound projects in order to be 21 able to deal with the marketing of that capacity with a 22 degree of certainly that customers require. 23 For whatever comfort it may be, I thought I 24 would point out to the Board that this is not a unique 25 circumstance for this Board. I have proposed to give 26 you two decisions. Ms Hockin will pass them up. 27 The first is an NEB, National Energy Board, 28 case. I haven't given you the entire decision but only Les Services StenoTran Services Inc. 613-521-0703 239 ARGUMENT (Leslie) 1 those parts that are relevant to this issue. That is 2 the decision involving the Vector pipeline. I give you 3 that simply because the NEB did approve that pipeline 4 notwithstanding that there was a significant amount of 5 uncommitted capacity involved in the project. In fact, 6 I think the percentage of uncommitted capacity was about 7 the same as in this case, about 17 per cent. 8 But the National Energy Board approved the 9 project nonetheless, recognizing that markets were 10 developing and would develop, and it was realistic to 11 assume that that capacity would be used and useful 12 within the time frame of the project, and there is a 13 great deal of discussion in that decision of the growth 14 in the markets upstream of Dawn-Trafalgar and the 15 forecast for growth on the Dawn-Trafalgar system itself 16 and other downstream pipeline systems. 17 The second decision I have given you is a 18 decision of the FERC in the United States, the Federal 19 Energy Regulatory Commission. That is a statement of 20 policy issued in September of 1999. It deals with 21 FERC's approach to pipeline construction. I thought it 22 was particularly apposite because the FERC did recognize 23 that under current market circumstances we are not going 24 to see long-term contracts of the kind that existed ten 25 or even five years ago, at least to the same extent as 26 previously. That is specifically addressed at page 17 27 of the decision. 28 There, again, FERC has developed a policy Les Services StenoTran Services Inc. 613-521-0703 240 ARGUMENT (Leslie) 1 which enables pipeline construction to go forward 2 notwithstanding that there isn't absolute rock solid, 3 long-term, contractual demand for all of the capacity, 4 provided that there are reasonable expectations that the 5 capacity will be used and useful in the market. 6 For what it is worth, I will mention that the 7 Century Pools, Phase II development, was approved and 8 was partially underpinned by a short-term storage 9 contract, so even here there is a recognition or has 10 been a recognition that facilities can and should be 11 built based on demand other than long-term contractual 12 demand. 13 Lastly, on this subject, I just wanted to 14 emphasize the importance of the Dawn-Trafalgar system in 15 the continental supply network. Dawn is a hub. The 16 Vector decision discusses that. If you look at 17 Section 3, Schedule 4 of the evidence, you will see the 18 extent to which it is a hub. That is a map which shows 19 all the pipelines that converge on Dawn or on other 20 points -- at other points, I should say, of the 21 Dawn-Trafalgar system. 22 The importance of Dawn and the importance of 23 the Dawn-Trafalgar system in this supply network that is 24 existing and growing is not assured. If sufficient 25 capacity doesn't exist to meet the current and incipient 26 demand, that capacity is restricted, then that demand 27 can go elsewhere. There are other options. So it is 28 important, I think, not only to Union but to Ontario, to Les Services StenoTran Services Inc. 613-521-0703 241 ARGUMENT (Leslie) 1 ensure as best we can that Dawn-Trafalgar remains a 2 viable part of the network, which, as I say, is depicted 3 at Section 3, Schedule 4. 4 With respect to the project costs and 5 economics, again, Table 1 of Exhibit 11.2 summarizes 6 these. Table 2 gives the cost and economics for the 7 Beachville to Bright section only. I will point out 8 that the numbers that appear there for Owen Sound to 9 Brantford are derived, that is, they are in effect a 10 subtraction from the totals, they are not standalone 11 costs or economics, and if the section is not completed 12 this year those numbers will change. 13 I will also note, and this is Mr. Hyatt's 14 evidence, that the favourable economics for the next to 15 be built section up to Strathroy, which appear at Table 16 6 of that exhibit, are based on the assumption that the 17 two sections that are before you now are built before 18 Brooke to Strathroy and assuming Brooke to Strathroy is 19 built next year, that means these two sections would be 20 built this year to achieve those favourable economics. 21 Again, the long term expansion economics which 22 produce net present value of $70 million for the entire 23 expansion projects are based on the assumption that 24 these two sections will proceed this year. That's 25 discussed at section 5, Appendix A. 26 Ms Lea alluded to the evidence yesterday 27 pertaining to section 2, paragraph 2, which is a list of 28 previous loopings on the Dawn-Trafalgar system. Ms Les Services StenoTran Services Inc. 613-521-0703 242 ARGUMENT (Leslie) 1 Callingham gave you the profitability indices for 2 projects after 1990. They range from 6.67 to 1.09. I 3 will note that there are three projects which had been 4 approved and gone forward which have profitability 5 indices that are less than that of the two sections that 6 are proposed. 7 With respect to construction environmental 8 concerns, I will remind the Board, although I don't 9 think I need to, that Mr. Mallette's evidence is that 10 ideally Union will commit by April 1 to its contractors 11 in order to maintain the construction schedule. 12 We submit that Mr. Mallette dealt with the 13 concerns that Mr. Dreher raised in a responsive and, I 14 thought, responsible fashion. 15 With respect to blasting, it appears that the 16 conditions under which Union will do that, to the extent 17 that they are stipulated in the Board's order have been 18 resolved. The conditions that Ms Lea read this morning 19 are acceptable to Union. Union is also quite willing to 20 give the notice requested to Board Staff. 21 With respect to land matters, as Ms Lea has 22 indicated, that's under control. The gravel pit owners 23 are really just waiting for an evaluation. There 24 doesn't appear to be any other problem. The Drehers 25 indicated that they would give the easement 26 notwithstanding their general concerns about pipeline 27 safety. 28 By way of conclusion, Union requests the Board Les Services StenoTran Services Inc. 613-521-0703 243 ARGUMENT (Leslie) 1 to approve, as I have said, construction of both 2 sections on the Dawn-Trafalgar system. With respect, we 3 would also request that you grant that approval at the 4 earliest possible date. 5 I will remind the Board that it is open to you 6 to give a decision without reasons and then deal with 7 the reasons subsequently when time permits. We 8 recognize that you do have a very busy schedule, but in 9 this case, there do not appear to be any issues which 10 would prevent the projects going forward, at least 11 insofar as the parties are concerned. 12 If the Board has any concerns that have not 13 been addressed, if they were made known, we would seek 14 to address them as quickly as we could. Subject to 15 that, we would request approval as soon as possible, as 16 I say, recognizing that the reasons might come 17 subsequently. 18 Those are my submissions. Thank you very 19 much. 20 THE PRESIDING MEMBER: Thank you, Mr. Leslie. 21 Thank you very much. 22 In an effort to meet the request of Union as 23 early and expeditiously as possible, the Panel is hoping 24 to be able to render an oral decision in this matter 25 later this morning. We will, therefore, adjourn and 26 Board staff will contact you when we are ready to 27 reconvene. 28 MR. LESLIE: Thank you. Les Services StenoTran Services Inc. 613-521-0703 244 ARGUMENT (Leslie) 1 THE PRESIDING MEMBER: Thank you. 2 --- Upon recessing at 1006 3 --- Upon resuming at 1240 4 THE PRESIDING MEMBER: Order. Please be 5 seated. 6 Thank you for waiting. 7 DECISION 8 THE PRESIDING MEMBER: Union Gas has applied 9 pursuant to subsection 90(1) of the Ontario Energy Board 10 Act for an order or orders granting leave to construct 11 19.9 kilometres of NPS 48 pipeline from the Beachville 12 valve site located in lots 19 and 20, concession 5, 13 Township of Dora, County of Oxford, to the existing 14 Bright compressor station located in lots 3 and 4, 15 concession 10, Township of Brantford-Blenheim, County of 16 Oxford, and associated valving facilities and the 17 connection to the existing Bright compressor station and 18 15.9 kilometres of NPS 48 pipeline from the Owen Sound 19 line valve site located in lot 36, concession 9, 20 Township of North Dumfries, Regional Municipality of 21 Waterloo, to the existing Brantford valve site located 22 in lot 7, concession 8, Township of North Dumfries, 23 Regional Municipality of Waterloo, and associated 24 valving facilities. 25 An oral hearing of the application was held in 26 Cambridge, Ontario, on February 8 and 9, 2001. While 27 the Board has considered all the evidence, submissions 28 and arguments in arriving at this decision, we have only Les Services StenoTran Services Inc. 613-521-0703 245 DECISION 1 referenced the evidence and positions necessary to our 2 finding. 3 By way of background, the Dawn-Trafalgar 4 system is a series of parallel natural gas transmission 5 pipelines and compressors transporting natural gas 6 between the Dawn compressor station near Sarnia in the 7 west end of Union's franchise and the Lisgar station 8 near the Parkway compressor station in Oakville, 9 Ontario. 10 The system connects with the Enbridge 11 Consumers Gas system at Parkway and Lisgar and with the 12 TransCanada pipeline system at Kirkwall and Parkway. 13 The primary functions of the Trafalgar system are to 14 transport natural gas to markets within Union's 15 franchise area, transport natural gas easterly in winter 16 from Dawn for Union's exfranchised storage and 17 transportation customers and transport natural gas 18 westerly in the summer for injection and gas storage. 19 The system also transports natural gas to 20 Parkway to ship customers indirectly in Union's northern 21 and eastern areas. 22 Union's evidence is that on a design winter 23 day, approximately one half of the gas serving Ontario 24 and Quebec markets goes through the Dawn-Trafalgar 25 system. The Board recognizes that the Dawn-Trafalgar 26 system is an important continental supply network and a 27 key link to eastern Canada and northeastern markets in 28 the United States. Dawn is a hub. Les Services StenoTran Services Inc. 613-521-0703 246 DECISION 1 Union's position is that demand for natural 2 gas from both Union's infranchise customers and 3 transmission service customers continues to grow and 4 that the proposed facilities are needed to meet this 5 increasing demand. 6 The existing current design day capacity of 7 the Dawn-Trafalgar system is 5,463,706 gigajoules per 8 day. Union's present demand is 5,491,331 gigajoules per 9 day. Union makes up the difference by using 27,633 10 gigajoules per day of winter peaking service. 11 Union forecasts that the demand for 2001-2002 12 will be 5,805,835 gigajoules per day. Of this Union has 13 demand for 5,730,437 gigajoules per day, which is well 14 beyond the present capacity of the system. 15 Union's evidence is that the increasing demand 16 of 314,496 gigajoules per day is caused by an increase 17 of 289,600 gigajoules per day of M-12 demand and an 18 increase of 24,896 gigajoules per day in Union's 19 infranchise customer demand. 20 Union estimated that an additional 117,600 21 gigajoules per day of throughput would be sold. At the 22 hearing Union advised the Board that it had firm 23 contracts for 2001-2002 for an additional 42,202 24 gigajoules per day, leaving a balance of 75,398 25 gigajoules per day of uncontracted forecast demand. 26 Union has forecast infranchise requirements 27 for its customers based on analysis of provincial 28 economy, customer growth, normalized average consumption Les Services StenoTran Services Inc. 613-521-0703 247 DECISION 1 in each service cost, energy efficiency and industrial 2 customer demand. 3 Union forecasts that annual infranchise 4 throughput volumes will grow over the next six years by 5 an approximate annual average increase of 3 per cent per 6 year. General service volumes are expected to increase 7 by 2 per cent per year. Contract customer requirements 8 are forecast to increase by approximately 4 per cent per 9 year. This infranchise forecast projects an increase in 10 the Trafalgar system design day demand of 1,564,971 11 gigajoules per day for the 2001-2002 winter. 12 Union noted that at a minimum, based on 13 historical growth, Union predicts an increase in demand 14 of 50,000 to 60,000 gigajoules per day, taking into 15 account the increase in growth for both Enbridge 16 Consumers Gas and Union infranchised customers. 17 This expectation is based on a number of 18 factors including forecasting significant increases in 19 natural gas demand in Ontario and the northeastern 20 United States as a result of new and growing demand, 21 including expansion of gas-fired powered generation 22 industry, increased security and diversity of supply, 23 increased global price transparency, improved efficiency 24 of the integrated system to Union and growth at Dawn. 25 Union proposes to meet the anticipated incremental 26 demand by building the proposed facility. 27 With respect to the capacity of the new 28 facilities, it is Union's evidence that building the Les Services StenoTran Services Inc. 613-521-0703 248 DECISION 1 Beachville-Bright section would increase overall 2 capacity of the Trafalgar system by 183,990 gigajoules 3 per day. This increase in capacity alone would not be 4 sufficient to meet Union's demand for 2001-2002. Union 5 acknowledged that additional gas could be purchased 6 through winter peaking service, but argued that this 7 does not provide long term capacity needed for projected 8 future demand. 9 The Owen Sound to Brantford looping would add 10 an additional capacity of 127,757 gigajoules per day to 11 the system. The total additional capacity provided by 12 the two proposed loops would be 311,747 gigajoules per 13 day. While this would provide more than sufficient 14 additional capacity to meet the current demand for 15 2001-2002, it would result in a shortfall of 54,000 16 gigajoules per day of uncommitted for capacity, which is 17 equivalent to 17 per cent of the total capacity of the 18 two loops or approximately 1 per cent of the total 19 design day demand on the Dawn-Trafalgar system. 20 Union argued that because of changes in market 21 conditions, it is no longer realistic to require long 22 term contracts to underpin system expansion projects. 23 Customers are increasingly willing to enter into long 24 term contracts and to absorb regulatory risk. 25 Union further argued that this is not a unique 26 market situation. Union has provided the Board with 27 recent decisions of the National Energy Board and a 28 policy statement by the Federal Energy Regulatory Les Services StenoTran Services Inc. 613-521-0703 249 DECISION 1 Commission of the United States to support this 2 position. 3 Nonetheless, Union expressed confidence that 4 the surplus capacity could be sold this year and that 5 there was very little doubt that this surplus capacity 6 would not be committed for next year. 7 With respect to the cost of the project, Union 8 submitted in its prefiled evidence that the overall cost 9 of both looping projects would be $86.5 million. This 10 would result in a negative net present value of the 11 project of $21.3 million and a profitability index of 12 0.75. 13 After receiving bids for constructing the 14 project prior to the hearing, Union reduced its capital 15 cost estimate to $69.8 million with a resulting 16 improvement to a negative net present value of $6.8 17 million and API of 0.9. Union explained that this 18 increase was due to a number of factors, including a 19 decrease in the cost of material and labour. 20 In addition, Union stressed the synergies of 21 the two loops because of the close proximity in time and 22 geographical location, competition between bidders, 23 market conditions for part-time contractors and the 24 ability to purchase pipe at competitive prices. 25 Because of greater certainty in costs, Union 26 was able to lower the contingency. Lower costs have led 27 to a lower IDC. 28 The Board notes that the average unit cost of Les Services StenoTran Services Inc. 613-521-0703 250 DECISION 1 pipeline compares favourably with similar projects over 2 the past ten years. 3 Union argued that cost savings of 4 approximately $11.9 million could be achieved by 5 building both loops this year. Union indicated that 6 these cost savings were unlikely to be available if the 7 Owen Sound-Brantford loop were to be built next year. 8 Union's position was that the savings to be achieved by 9 building both loops this year would far outweigh the 10 alternative of delaying the Owen Sound-Brantford loop 11 and topping up the deficiency of capacity with winter 12 peaking service. 13 Union's evidence was that the long-term PI of 14 the entire Trafalgar Facilities Expansion Program was 15 projected to be 1.21 with a net present value of 16 $70 million. Union submitted that this estimate was 17 conservative because it was based on current rates. 18 Union noted that the revised PI for this 19 project compared favourably to PIs for other NPS 48 20 looping projects since 1990 on the Trafalgar system. 21 With respect to rate impact, Union noted that 22 in its rates case currently before the Board Union is 23 proposing a comprehensive performance based regulation 24 scheme. Under the proposed PBR scheme, Union would 25 manage its costs within the Board's approved rates. It 26 was Union's position that if the Board accepted Union's 27 PBR proposal there would be no rate impact as a result 28 of this project. Les Services StenoTran Services Inc. 613-521-0703 251 DECISION 1 Union's evidence was that if its rates 2 continued to be set by the cost-of-service method, the 3 rate impact of this proposed project would be minimal 4 since it would have an impact of less than $500,000 per 5 year on a revenue requirement base of approximately 6 $800 million. Union indicated that this is 7 approximately equivalent to an annual rate impact in the 8 ball park of 50 to 60 cents per residential customer. 9 The Board finds that this level of rate impact is not 10 undue. 11 The Board notes that that is a facilities 12 hearing. The rate impact of a proposed project is only 13 one of the economic factors to be considered by the 14 Board in determining whether it is in the public 15 interest to grant leave to construct. The Board expects 16 Union to continue to provide rate impact analysis in 17 subsequent facilities hearings whether or not the 18 accepts Union's PBR proposal. 19 With respect to outstanding land matters, 20 there is one landowner, ORC, with one property in 21 Beachville-Bright and three outstanding landowners in 22 Owen Sound-Brantford with a total of five properties. 23 Union's evidence at the hearing was that a letter from 24 the Ontario Realty Corporation indicated that Union's 25 offer was acceptable and that the agreement would be 26 signed in 90 days. 27 As far as the Blue Circle Canada and the three 28 properties owned by Paris Pitts Limited is concerned, Les Services StenoTran Services Inc. 613-521-0703 252 DECISION 1 both pit owners have indicated that there would be no 2 problem in granting the easements and they were 3 satisfied with Union's proposal to hire a consultant to 4 establish the areas, amounts, and value of sterilized 5 aggregate affected by the easement. 6 The only other outstanding landowners were 7 Mr. and Mrs. Dreher. Mr. and Mrs. Dreher attended the 8 hearing to express concerns about pipeline safety, pipe 9 abandonment and public safety issues. Union's witness, 10 Mr. Haley, advised the Board that he had met with the 11 Drehers on Monday, February the 5th, and that they had 12 indicated to Mr. Haley that he could advise the Board 13 that their problems concerning the proposed NPS 48 14 pipeline had been adequately addressed and they would 15 attend the hearing to discuss more general matters. 16 The Board is satisfied that Union will be able 17 to reach an agreement on the outstanding landowner 18 matters. Union advised the Board that it would offer 19 landowners affected by this proposal the improved form 20 of easement agreement previously offered to landowners 21 in EBLO 267. The Board is satisfied that Union has 22 offered or will offer to each owner of land along the 23 proposed route the form of easement agreement previously 24 approved by the Board in EBLO 267. 25 At the oral hearing, the Drehers raised a 26 number of concerns regarding public safety and pipeline 27 abandonment. Union's evidence was that their proposed 28 facilities would either meet or exceed the requirements Les Services StenoTran Services Inc. 613-521-0703 253 DECISION 1 of Ontario Regulation 157/97 and CSA standard Z662, 2 which are the safety regulations for natural gas 3 pipelines in Ontario. 4 Further Union's evidence was that the 5 Technical Standards and Safety Authority, which is a 6 member of the Ontario Pipeline Coordinating Committee, 7 reviewed this leave to construct application and 8 confirmed that TSSA had no outstanding concerns. 9 With respect to abandonment of pipeline, 10 Union's evidence was that they would prefer to deal with 11 abandonment issues at the time at abandonment, and that 12 they would comply with the TSSA abandonment checklist 13 and that they would consult with affected landowners on 14 any plans for abandonment. 15 The Board is satisfied that Union has 16 addressed the Dreher's concerns in this proceeding and 17 would encourage Union to continue to actively take steps 18 to address outstanding landowner concerns. 19 In connection with environmental matters, the 20 Board notes that environmental studies for each loop 21 were conducted in 1992 and 1993 and were updated in July 22 2000. The updates examined changes in land use patterns 23 and other biophysical conditions along the preferred 24 route. The updates found no significant impacts that 25 warranted changes in the proposed routing. Public 26 consultation was carried out as part of the update. As 27 the Board directed in EBLO 246, Union studied the 28 cumulative impact as a result of previous loopings in Les Services StenoTran Services Inc. 613-521-0703 254 DECISION 1 the vicinity of the proposed additional loops. 2 The OPCC review was completed and there were 3 no outstanding concerns. Union has not obtained all the 4 necessary permit approval, but has indicated its 5 intention to do so and does not anticipate any problems 6 in obtaining such approvals. Union has also indicated 7 that it intends to comply with all recommended 8 mitigation and monitoring measures contained in its 9 evidence and to comply with all of its standard pipeline 10 construction, maintenance, monitoring and mitigation 11 specifications. 12 The cumulative effects assessment indicated 13 that the loopings would cause impacts within the 14 boundaries of the easement and temporary work areas such 15 as reductions in crop yield and alterations of woodlot 16 edge, structure and diversity. Union submitted that it 17 is committed to implement the recommended cumulative 18 environmental mitigation measures and post construction 19 monitoring contained int he environmental assessment 20 reports. However, there will still be some residual 21 long-term cumulative effects. Union's compensation 22 package deals with the residual cumulative effects 23 related to agricultural impacts. 24 With regard to residual impacts of woodlots, 25 Union has indicated that it has embarked on discussions 26 with appropriate authorities to develop a satisfactory 27 tree restoration program. The Board notes that Union 28 intends to follow its two-for-one tree replacement Les Services StenoTran Services Inc. 613-521-0703 255 DECISION 1 program and its consultant's recommended remedial plan 2 for restoration of the prairie remnant east of the 3 Grand River. 4 The Board notes that the stage 3 5 archaeological assessment is ongoing and will be 6 completed in the spring. Union does not anticipate any 7 significant archaeological issues. 8 Union's prefiled evidence established the 9 spatial boundaries of the CEA. These included the 10 easement and temporary work area, which Union's 11 consultant interpreted was implied by the Board in 12 EBLO 246. 13 Upon examination by Board staff, Union's 14 consultant, Mr. Wesenger, clarified that the spatial 15 boundaries for the CEA included the full extent of any 16 environmental features that abutted or ere contained in 17 the easement or temporary work area. The Board agrees 18 with Board staff that cumulative effects assessment 19 study boundaries need to be determined more broadly by 20 considering the four different cumulative environmental 21 effects pathways, namely, slowly dissipative (additive), 22 magnification (interactive), multiple impacts 23 (additive), and synergistic relations (interactive), in 24 the context of each new looping project. 25 Also, the Board notes that the interpretation 26 of EBLO 246 to include only the easement and temporary 27 work area as cumulative effects assessment study 28 boundaries could be too restrictive. Les Services StenoTran Services Inc. 613-521-0703 256 DECISION 1 There are a total of 24 water crossing, of 2 which the Grand River is the most significant. The 3 Board agrees that, based on the alternatives presented, 4 Union's proposal to use the open cut wet crossing method 5 is the least damaging alternative from an environmental 6 perspective. Union's evidence is that it will obtain 7 all permits relating to the water crossing and will 8 comply with all conditions imposed. The Board expects 9 that Union will pay close attention to erosion and 10 sedimentation control and will restore the stream bed to 11 as natural a condition as possible. 12 Union's geotechnical surveys indicate that 13 some blasting may be required near highway 24 in the 14 vicinity of the Grand River and possibly in the river 15 bed. Union has indicated that it intends to follow its 16 standard blasting specifications for pipeline 17 construction. 18 Prior to the oral hearing, Board staff 19 provided Union with draft Conditions of Approval. These 20 conditions of approval were amended at the hearing to 21 contain provisions with respect to blasting. The Board 22 notes that Union has agreed to comply with these revised 23 Conditions of Approval. 24 In conclusion, the Board finds that the 25 proposed project is in the public interest. Therefore, 26 the Board will issue an order granting leave to 27 construct the proposed facilities subject to the amended 28 draft Terms and Conditions proposed by Board staff and Les Services StenoTran Services Inc. 613-521-0703 257 1 agreed to by Union. 2 The Board directs Union to pay the Board's 3 costs related to this proceeding upon receipt of the 4 Board's invoice. 5 Are there any questions? 6 MR. LESLIE: No questions, Madam Chair, but I 7 would like, on behalf of Union Gas, to thank you and 8 Ms Simon for the obvious expenditure of time and effort 9 in preparing those very careful and thoughtful reasons. 10 We recognize that this is a special occasion and very 11 much appreciate the panel's responsiveness to our 12 request for an early decision. We didn't, frankly, 13 anticipate it being this early, but we do appreciate it 14 very much. It is a very progressive approach and we 15 thank you. 16 THE PRESIDING MEMBER: Thank you very much for 17 your comments, Mr. Leslie. 18 Anything else? 19 Before we leave, I would like to thank Union 20 and all of its witnesses for a thoughtful presentation, 21 including the prefiled evidence and the evidence of the 22 witnesses at the hearing. We thank you for clarifying a 23 number of issues for the Board and enabling us to make 24 this decision as quickly as possible. 25 As always, I would like to thank Board staff 26 for their careful preparation of the hearing and their 27 participation at the hearing. 28 Last but not least, we always have to thank Les Services StenoTran Services Inc. 613-521-0703 258 1 Dan, our court reporter, who always does such a great 2 job. 3 That having been said, thank you very much. 4 We are adjourned. 5 --- Whereupon the hearing concluded at 1300 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 259 1 INDEX OF PROCEEDING 2 PAGE 3 Upon commencing at 0930 224 4 Preliminary matters 224 5 Argument by Ms Lea 225 6 Argument by Mr. Leslie 234 7 Upon recessing at 1006 244 8 Upon resuming at 1240 244 9 Decision 244 10 Upon concluding at 1300 258 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 260 1 ERRATA 2 VOLUME 1 - FEBRUARY 8, 2001 3 PAGE LINE DESCRIPTION 4 2 n/a "JIM McKAY" s/b "NEIL McKAY" 5 3 23 "Julie Simon" s/b "Judy Simon" 6 105 14 "for" s/b "or" 7 105 16 "legislations" s/b "legislation" 8 106 15 "there" s/b "area" 9 107 8 "to be a" s/b "to be" 10 107 16 "a sign" s/b "assigned" 11 107 22 "But I'm really" s/b "I'm really" 12 109 5 "It's that less" s/b "It's less" 13 109 14 "is half" s/b "is a half" 14 109 24 "Took the average unit this morning" 15 s/b "I took a look at this, this 16 morning" 17 109 25 "we took to look up the" s/b "we 18 looked up the" 19 110 2 "will be of the" s/b "will be that 20 the" 21 110 7 "time and it's" s/b "time as" 22 110 18 "to be that" s/b "to be more than 23 that" 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703