E.B.L.O. 269 E.B.O. 212,213 E.B.R.M. 112 THE ONTARIO ENERGY BOARD IN THE MATTER OF the Ontario Energy Board Act, R.S.O. 1990, c. O.13; AND IN THE MATTER OF an Application by The Consumers' Gas Company Ltd. for a regulation designating the area known as the Ladysmith Pool in the Township of Moore, Lambton County as a gas storage area; and for authorization to inject gas into, store gas in and remove gas from the said Pool; AND IN THE MATTER OF an Application by The Consumers' Gas Company Ltd. for a regulation designating the area known as the Ladysmith Pool in the Township of Moore, Lambton County as a gas storage area; and for authorization to inject gas into, store gas in and remove gas from the said Pool; AND IN THE MATTER OF an Application by The Consumers' Gas Company Ltd. for an order granting leave to construct natural gas pipelines in the Townships of Moore and Sombra; AND IN THE MATTER OF an Application by The Consumers' Gas Company Ltd. to the Minister of Natural Resources for permits to drill or deepen wells in the proposed designated storage area. Hearing held at 2300 Yonge Street, 25th Floor, Hearing Room No. 1, Toronto, Ontario on Friday, March 26, 1999 commencing at 9:00 a.m. -------------- VOLUME 1 -------------- B E F O R E : G. A. DOMINY Vice-Chair and Presiding Member S. HALLADAY Member 2 A P P E A R A N C E S JENNIFER LEA ) CHRIS MACKIE ) Board Facility Staff HAROLD THIESSEN ) FRED CASS ) Enbridge Consumers Gas, ) Applicant Preliminary Matters 3 ---Upon commencing at 9:01 a.m. PRELIMINARY MATTERS: THE VICE-CHAIR: Please be seated. Good morning. Today, March 26th, the Board is sitting to hear applications by Enbridge Consumers Gas Limited related to the designation of gas storage area. Consumers Gas has applied under section 35(2) of the Ontario Energy Board Act, R.S.O. 1990, Chapter 0.13 of the Act for a regulation under section 35(1)(g) of the Act designating certain lands in lots 19, 20 and 21, concessions 4 and 5, Moore Township, County of Lambton overlaying the Ladysmith Pool as a gas storage area, and that has been given Board file number EBO 212. Consumers Gas has also applied under section 21(1) of the Act for authorization to inject gas into, store gas in and remove gas from the above proposed gas storage area if so designated and to enter into and upon the above lands for such purposes, and that has been given EBO 213. Consumers Gas has applied under sections 46(1) and 48 of the Act for an order granting leave to construct approximately 1.3 kilometres of NPS-16 transmission pipeline from the Ladysmith valve site in Moore Township, the Applicant's existing Wilkesport NPS-16 line, together with gathering pipelines of NPS-16 and NPS-10 pipelines in the Ladysmith Pool area. The Applicant also proposes to extend the existing NPS-16 Wilkesport line to the Coveny transmission line by constructing 2.2 kilometres of NPS-16 Preliminary Matters 4 pipeline, and that's been given Board file number EBLO 269. Consumers Gas has also applied under section 23(1) of the Act for a favourable report to the Minister of Natural Resources to whom the Applicant has applied for permits to drill four wells within the proposed designated area of the Ladysmith Pool, and that has been given Board file number EBRM 112. With me today is Sheila Halladay. My name is George Dominy. Please may I have appearances? MR. CASS: Good morning, Mr. Chairman, Fred Cass for Enbridge Consumers Gas. THE VICE-CHAIR: Good morning, Mr. Cass. MS. LEA: Good morning, Jennifer Lea appearing for the Board's facility staff. THE VICE-CHAIR: Good morning, Ms. Lea. Ms. Lea, is the hearing properly constituted and all affidavits of service in order? MS. LEA: Yes, I believe so, Mr. Chairman. Have you received a copy of the exhibit list that was prepared by Board staff? The reason that I'm referring the Panel to this is section 5 deals with the matter of affidavits and there is an update to the affidavits that I think needs to be given an exhibit number this morning. As you are aware, it is necessary to search title immediately before the applications to make sure there are Preliminary Matters 5 no new interested parties that may have been missed the first time around because they didn't own the land at that time. We have an affidavit filed this morning of Terence Scott Chupa which I would like to make Exhibit 5.4 - it's of course from Consumers Gas - updating that search of title and indicating there are no new interests to be heard from. THE VICE-CHAIR: Thank you, Ms. Lea. We'll file it. I see you've left a space there, 5.4 blank. MS. LEA: Yes. ---EXHIBIT NO. 5.4: Affidavit of Terence Scott Chupa. MS. LEA: So with the filing of that document then, it's my view that the Board's order for service have been complied with and the hearing is properly constituted. THE VICE-CHAIR: Thank you, Ms. Lea. Are there any other preliminary matters? MR. CASS: I might just point out, Mr. Chairman, in addition to that document, one other document I believe has been passed around to everyone, and it's simply a list of the witness panels -- proposed witness panels. THE VICE-CHAIR: Thank you, Mr. Cass. There being no other matters, do we proceed? Mr. Cass, I believe it's in your court. MR. CASS: Yes. Mr. Chairman, I believe that the Applicant is prepared to call forward its first witness panel. Preliminary Matters 6 The witnesses, of course, would need to be sworn. They are Mr. Bob Craig, Mr. Ray Schnegelsberg, Mr. John Wickens and Mr. Neil Hoey. THE VICE-CHAIR: Please come forward. ROBERT J. CRAIG, RAY SCHNEGELSBERG, JOHN WICKENS, NEIL HOEY; Sworn. MR. CASS: For the record, Mr. Chairman, I point out that as noted on the list of witness panels it is proposed that this first panel will generally address the overview of the project, geology and reservoir engineering. I'll start with a few questions to the expert witness on the panel, Mr. Chairman. This is Mr. Hoey who was the person seated three seats away from the Board Panel. DIRECT EXAMINATION BY MR. CASS: Q. Mr. Hoey, I believe that you are an independent consulting geologist; is that correct? MR. HOEY: A. That's correct. Q. And I believe you have an Honours Bachelor of Science in geology from Brock University; is that correct? A. That's correct Q. And you received that in 1981? A. That's correct. Q. And since 1981, you've been working in the Ontario petroleum and natural gas industry as a geologist; is that correct? Craig,Schnegelsberg, 7 Wickens,Hoey dr ex (Cass) A. That's correct. Q. And more specifically, I think since 1994 you've been working independently as a consulting geologist? A. That's correct. Q. And I think since 1982 or thereabouts you've attended numerous petroleum-related training courses as described in your curriculum vitae; is that correct? A. That is correct. Q. All right. Thank you, Mr. Hoey. MR. CASS: Subject to any observations Ms. Lea may have, Mr. Chairman, I would ask the Board to accept Mr. Hoey as an expert consulting geologist. THE VICE-CHAIR: Ms. Lea? MS. LEA: No questions, thank you. THE VICE-CHAIR: Thank you, Mr. Cass. MR. CASS: Thank you, Mr. Chairman. MR. CASS: Q. Then very quickly to finish off a few questions with you, Mr. Hoey. You're responsible for the evidence on which your name appears in this case including any answers to interrogatories and including evidence at the technical conference; is that correct? MR. HOEY: A. That's correct. Q. And was all of that evidence given or prepared under your direction and control? A. Yes, it was. Q. And do you have any corrections that need to Craig,Schnegelsberg, 8 Wickens,Hoey dr ex (Cass) be made? A. Yes. In my prefiled evidence, Exhibit C, tab 1, schedule 1, page 8 of 9 -- Q. Maybe just a little more slowly, Mr. Hoey, please. A. Oh, I'm sorry. Q. Could you give the reference again, please? A. Exhibit C, tab 1, schedule 1, page 8, at the very bottom of the page, the total area included in this DSA should read 370 hectares and 915 acres. THE VICE-CHAIR: 950? MR. HOEY: 915. THE VICE-CHAIR: 915, thank you. MR. HOEY: That's the only correction. MR. CASS: Q. And is that evidence then accurate to the best of your knowledge or belief, Mr. Hoey? MR. HOEY: A. Yes, it is. Q. Thank you. Then similarly, Mr. Schnegelsberg, you are, I understand, Manager, Storage Engineering of Enbridge Consumers Gas; is that correct? MR. SCHNEGELSBERG: A. Yes, that's correct. Q. And you were responsible for the evidence on which your name appears, again including interrogatory answers and testimony at the technical conference; is that correct? A. Yes, that is correct. Q. And was that evidence given by you or prepared by you or under your direction and control? Craig,Schnegelsberg, 9 Wickens,Hoey dr ex (Cass) A. Yes, it was. Q. And do you have any corrections to make to your evidence? A. Yes, I do. During the technical conference I was asked to provide the distances between the wellheads -- the storage wellheads in the Ladysmith Pool, and the distances I gave were incorrect and I would like to correct them on the record today. The reference in the technical conference transcript is on page 132, line 4. The 150 feet should read 100 feet. MS. LEA: What page, sir? I'm sorry. MR. SCHNEGELSBERG: Page 132. MS. LEA: Thank you. MR. SCHNEGELSBERG: Line 4, the 150 feet should read 100 feet. Then on line 7, the 500 feet should read 200 feet. And again on line 10, the 500 feet should read 200 feet. Having said that, the 500 feet spacing still applies to the bottom hole locations. Those are my corrections. MR. CASS: Q. Thank you, Mr. Schnegelsberg. And is the evidence for which you were responsible accurate to the best of your knowledge or belief? MR. SCHNEGELSBERG: A. Yes, it is. Q. Thank you. Craig,Schnegelsberg, 10 Wickens,Hoey dr ex (Cass) Mr. Wickens, I understand that you are Storage Engineer for Enbridge Consumers Gas; is that correct? MR. WICKENS: A. Yes, I am. Q. And similarly, is the evidence upon which your name appears - and I won't recite again the various types of evidence - was that given by you or prepared by you or under your direction and control? A. Yes, it was. Q. And do you have any corrections to make? A. Yes, I have a couple small corrections. The first correction is on Exhibit C, Tab 3, schedule 1. Okay. In Answer 9, the second paragraph, the second line in the second paragraph, I will read the entire line. It's: 'The vertical well Tecumseh/Ladysmith No. 5 is located in the thicker crustal region approximately...' Should be 500 feet, and that in metric will be 152 metres. Okay. The second correction is the next page, page 6 of 6, and it's answer No. 10, the last line. I'll read it. It's: 'The gas storage operations began in 1964.' I have 1963 there. That's all of my corrections. Q. Thank you, Mr. Wickens. And is the evidence for which you were responsible accurate to the best of your knowledge or Craig,Schnegelsberg, 11 Wickens,Hoey dr ex (Cass) belief? A. Yes, it is. Q. Thank you. Then finally, Mr. Craig. You, I believe, are Director, Storage Operations and Development of Enbridge Consumers Gas; is that correct? MR. CRAIG: A. Yes, it is. And was the evidence upon which your name appears prepared by you or under your direction and control? A. Yes, it was. Q. And are there any corrections that should be made to that evidence? A. There are no corrections to that evidence; however, there are two corrections that I would like to make to the applications, and they're this reference to the acreage. So if I could ask you to turn up the designation application which is in Exhibit A, tab 2, schedule 1. That's Exhibit A, tab 2, schedule 1. And if you would go to page 2 of that application, paragraph 4, the bottom of paragraph 4 should read 370 hectares and 915 acres. MS. LEA: Could you reiterate the reference, please, sir? MR. CRAIG: It's Exhibit A, tab 2, schedule 1, page 2. It's the first application in the prefiled evidence. MS. LEA: In paragraph 4? Craig,Schnegelsberg, 12 Wickens,Hoey dr ex (Cass) MR. CRAIG: Paragraph 4, the bottom of that, the last line, and those changes to acreage. And that similar change needs to be made to the next application which is Exhibit A, tab 2, schedule 2, and it's page 3, the last line of paragraph 6; 370 hectares and 915 acres. And those are all the changes. MR. CASS: Q. And is that the same change that Mr. Hoey provided in his evidence, Mr. Craig? MR. CRAIG: A. Yes, it is. Q. Thank you. And is your evidence to which you have referred, Mr. Craig, accurate to the best of your knowledge or belief? A. Yes, it is. Q. And then very briefly, Mr. Craig, could you just give the Board an overview of the Ladysmith project, please? A. Yes, I will. Mr. Chairman, you indicated the applications that we are here for today, so I won't summarize those. There's a summary section in our evidence that speaks to those, but speaks also to the need. The company operates eight similar pinnacle reef pools in Lambton County plus a small pool in the Niagara Peninsula. We have in total close to 93 bcf of storage capacity that we operate and all of that capacity is now fully utilized. Craig,Schnegelsberg, 13 Wickens,Hoey dr ex (Cass) We project in our evidence the growth of our in-franchise needs over the next five years of some 51.2 bcf, and that translates into a need for 8.8 bcf of incremental storage space. And that's really to supply the heat-sensitive residential customers that drives that need for increased storage space. The Ladysmith Pool is indicated and to that we will add 3.1 bcf of storage space, so it will satisfy approximately 35 per cent of the incremental need that we have going forward. As far as the location of the pool and its suitability, this pool is very favourably located. Shown to my right and on the easel here is a map which is included in evidence as Exhibit A, tab 3, schedule 1. And if Mr. Schnegelsberg can point out the location of the pool, you can see that it's very favourably located within our existing infrastructure of storage pools and, therefore, can be readily connected and tied into the existing facilities. As far as suitability, it's a pinnacle reef, Ladysmith is a pinnacle reef similar to those operated by Consumers - we have eight - and it's also similar to those operated by Union Gas, and they have I believe 15 storage pools in operation at this time. We indicate in evidence the facilities required; obviously, the pool and some cushion gas to put in the pool. Beyond that, we have a requirement for three Craig,Schnegelsberg, 14 Wickens,Hoey dr ex (Cass) wells and possibly a fourth is in as a contingent well. And then, in total, the high-pressure gas pipelines of some 3,500 metres in the two segments that you indicated in the applications, and contained in the applications. In total in terms of costs, the cost of the project is close to $16-million. The land issues. All of the storage rights are held by the company and all of the P&NG rights are held also by the company, subject only to payment of landowner royalties and the P&NG interests have been joined in the voluntary unit. All of the landowners have agreed to the conversion for storage. The wells and facilities have been agreed to, and pipeline easements have been agreed to with those that are affected. The environmental issues have been addressed and we have incorporated the environmental consultant's recommendations in our filing and in our facility proposals. The economic feasibility has been addressed and the benefits identified in the 40-year discounted cashflow after-tax analysis indicates a net present value of some $42-million. Expressed following the Board feasibility guidelines on a benefit-to-cost ratio, we calculate a favourable benefit-to-cost ratio of 4.12 for this project. Insofar as timing, when we filed this application Craig,Schnegelsberg, 15 Wickens,Hoey dr ex (Cass) in prefiled evidence last September - and we indicated in there the need for this space for in-franchise markets for this coming year - we were respectfully seeking approval from the Board in February which would have allowed time for all of the LGIC approvals to be in place. Perhaps that was realistic in normal times, but we obviously don't live in normal times anymore and I think we can all agree on that. We are certainly cognizant of the Board and the Board Staff's workload and issues that you're having to deal with and demands on your time. We're faced with - to proceed with this project - ordering the high-pressure line pipe the first week of April, so that there's time to make the steel because it is a high-pressure steel, it's a special rolling in a mill and to roll the pipe and then deliver the pipe to the coating mill and have it on site for summer installation. We will go ahead with that order unless we're directed not to. I guess, with respect, we simply ask that the Board proceed as expeditiously as possible to an approval process, and we realize that the LGIC has involvement in that and we are prepared to work with you in whatever way we can to help move that process along. So those are my summary remarks. MR. CASS: Thank you, Mr. Chairman. That's my examination-in-chief completed. MS. LEA: Thank you. Good morning. Craig,Schnegelsberg, 16 Wickens,Hoey (Lea) EXAMINATION BY MS. LEA: Q. As I think Mr. Mackie has indicated to you and I've indicated to your counsel, the quality of the preparation of this case and the interrogatory process and the technical conference has allowed Board Staff to understand this application quite well, and so today we'll only be cross-examining on a few issues that either remain unclear or that we feel there's some issue arising from. So, Mr. Chairman, and members of the witness panels, we will not be doing a fulsome cross-examination. We're just looking at those things that we feel need further clarification at this time. One matter that I wanted to ask you about, there's been a request in a sense to amend the applications to accommodate the correction in acreage. Can I have a clarification on whether or not that correction in the acreage actually represents any change in the proposed boundary or merely a correction of the calculation of the area within the original proposed boundary? MR. CRAIG: A. The answer to that is it doesn't represent any change to any of the maps or any of the proposed designated area. It's simply a number that was picked up in error and the correct acreage should be 915 and that's the acreage that's represented by all the evidence. 971 is an acreage number that included some outside acreage and it's in the unit agreement and, Craig,Schnegelsberg, 17 Wickens,Hoey (Lea) unfortunately, we picked that number up in error when we prepared the applications. Q. That's fine then. Given that answer, Board Staff sees no harm in allowing the amendment to the application as requested. I'd like to begin with some questions regarding the geology of the pool and, as I think you were aware, Board Staff is not challenging the interpretation of the geology as far as it relates to the location or the size of the reservoir characteristics of the pool. We do have two areas that we'd like to examine about. We did prepare a proposed issues list for this proceeding and, as you may be aware, I'll be looking at Section C of that issues list and I'll be looking at numbers 4, 5 and 6 under Geology and Reservoir Engineering. ---Off the record discussion. MS. LEA: Q. Thank you. Apparently Consumers Gas never received this proposed issues list, so you never know what surprises are coming up on the first day. However, I don't think that it will be of any surprise to you to know that numbers 4, 5 and 6 under Section C are Proposed Boundary for the Designated Area, Working Volumes and Solution Gas, and Proposed Well Locations and Well Bore Trajectory. I don't think these matters will be a surprise to you when you hear my questions. Craig,Schnegelsberg, 18 Wickens,Hoey (Lea) Now, in the first series of questions I'd like to debate with you a bit further something that we began to debate with you through the interrogatory and technical conference process and that is the boundaries of the pool, in particular the inclusion of two tracts. I wonder if you could get yourselves ready to look at two exhibits, please, the Exhibit C, tab 2, schedule 14 and also interrogatory No. 16 which is Exhibit I, tab 1, schedule 16. So that's Exhibit C, tab 2, schedule 14 and Exhibit I, tab 1, schedule 16 which was an interrogatory. As you may be aware we are questioning the reasons for the inclusion of the following tracts: tract 6, lot 21, concession 5 and tract 7 lot 21, concession 6. I don't believe there's any exhibit filed in this proceeding that shows the tract numbers on it; is there? MR. HOEY: A. No, there isn't. Q. Okay. I wonder then -- Mr. Mackie has drawn up the tracts on interrogatory No. 16 very kindly for me, so I'll be looking at that exhibit. Let's attempt to delineate these tracts together if you would, please. So we're looking at interrogatory No. 16. And the first tract I'd like to attempt to set out is tract 6, lot 21, concession 5. I think we can all see that Lot 21 runs in a north-south linear direction, if I can put it that way, on the lefthand side of the proposed pool boundary; am I correct? Craig,Schnegelsberg, 19 Wickens,Hoey (Lea) A. That's correct. Q. All right. So that approximate third of the pool represents Lot 21 -- not third of the pool, pardon me, third of this squared-in area on schedule 16, it's the lefthand side of the page? A. Yeah, I would say approximately a sixth of the whole map you're looking at is represented by lot 21, concession 5. Q. Okay, that's helpful. Thank you. Now, if we're going to locate tract 6 on that map, can you explain to me where that tract is, please? A. Tract 6 would be identified at the very extreme northwest corner of the proposed DSA boundary. If you can see on the left side of that map it says Ladysmith Road? Q. Yes. A. And that tract immediately to the east of that is tract 6. Q. And what is the northern boundary of tract 6? A. The dashed line that goes east-west halfway up the lot or the concession. Q. Okay, great. Somebody had just put up on the board Exhibit E, tab 2, schedule 2 now. All right. Mr. Schnegelsberg, you're indicating the upper lefthand quarter of Lot 21 there; am I correct? MR. SCHNEGELSBERG: A. Correct. MR. HOEY: A. That map only shows the south half of Lot 21. Craig,Schnegelsberg, 20 Wickens,Hoey (Lea) Q. I understand. So what we're looking at on Exhibit E, tab 2 schedule 2 is the southern half of lot 21 and so we're not looking at the identical area that we're looking at on schedule 16; am I correct? A. That's correct. Q. Okay. On schedule 16 I think what you have to do is find the proposed pool boundary. First there's the northern boundary of tract 6; is that correct? A. It's not listed anywhere on this map, the proposed pool. Q. Okay. Well, I'm presuming that the proposed pool boundary is delineated by a dashed line on the lefthand side of the map. If you look at Ladysmith Road, there's a dashed black line proceeding in an easterly direction from Ladysmith Road through lot 21. A. That's the correct line, yes. Q. Is that the correct line? Thank you. So the upper left corner bounded by that line to the north, Ladysmith Road to the west and a line bisecting lot 21 to the east and a line bisecting the distance between the pool boundary and approximately the Courtright Line to the south? A. That's correct, yes. Q. Okay. So what we've got then is that upper lefthand corner is lot 6? A. Tract 6. Q. Pardon me, tract 6, yes. Thank you. Craig,Schnegelsberg, 21 Wickens,Hoey (Lea) Now, Mr. Hoey, the buffer zone which is delineated on schedule 16, does any part of that buffer zone pass through tract 6? A. No, it does not. Q. Okay. I'd like to identify the second tract then we're talking about which is lot 21, tract 7. And as I understand that, that's the extreme lower left corner, that is, the extreme southwest corner of the proposed designated storage area; am I correct? A. That's correct and it's in concession 4 for the record. Q. concession 4. Thank you. Now, does any of the proposed 150-metre buffer zone pass through tract 7, lot 21, concession -- did you say 4? A. 4, yes. Q. 4. Does any of that buffer zone pass through there? A. No, it does not. Q. Okay. Can you give me then the geological reason why these two tracts should be included in the proposed designated storage area? A. The geologic criteria we use to include any 25-acre tract in the DSA, as we said in our technical conference, should include any tract that that buffer zone touches, and you're correct those two do not fit that geologic criteria. Q. So is there any geological reason at all for Craig,Schnegelsberg, 22 Wickens,Hoey (Lea) including those two tracts in this designated storage area? A. Because of the lack of well control surrounding the reef, we have felt that there is a possibility that the edge is not as smooth as we have interpreted and there's the possibility that in between well bores that the sucrosic edge could go out further than we've mapped it, thus the buffer edge could go out further than we mapped it. That would be a reason for including the two tracts we're discussing. Q. Can I suggest to you, sir, that these tracts are not being included for a geological reason. There may be other good reasons to include them, but it is not justified on the basis of geology? A. That is correct. Q. Thank you. So if there's no justification for including these tracts on the basis of geology, can someone help me as to the reason for including them? MR. CRAIG: A. Basically, Ms. Lea, what we look to do in -- we looked at the geological evidence but we also looked at the criteria that these lands are included in the unit area and one of the reasons for not including lands in a designated area in the minds of explorationists in the MNR is to leave lands available for exploration. And that's true in some cases. In this case, these lands are included in the Ladysmith Pool unit area and, as such, are held by the Craig,Schnegelsberg, 23 Wickens,Hoey (Lea) company and are not going to be available for exploration by others. So there's that aspect to it. The other aspect that we tried to follow here is lot boundaries and -- or half-lot boundaries and concession boundaries and to square it up in the fashion that we have done it. These are two tracts that admittedly geologically don't have the same weight for including them as others, but for the purposes of squaring the lands up we've included them. The other issue is dealing with the landowners. We've indicated to them that it's our intent to include these lands and, as such, they would enjoy the increase in the storage lease rental rates for those tracts and to now exclude them we would have to go back to them and indicate that that's -- you know, they've been excluded. Q. Mr. Craig, you've listed some reasons which I do want to explore with you and understand fully, but I don't quite understand your statement that these tracts do not have the same weight with respect to geological interpretation. Are you disagreeing with the evidence that I think we just heard, that there is no geological reason for including these tracts in the DSA? A. I guess I would agree with Mr. Hoey's statement that we don't have geological evidence to include them. Q. Well, as you know, this Board is concerned Craig,Schnegelsberg, 24 Wickens,Hoey (Lea) about protecting the integrity of the reservoir here. I mean, that's got to be its primary consideration as you're aware. And I'd like to understand if there is a danger in this Board -- if it decides to exclude those tracts, I'd like to understand if it is running into some danger by so doing. Is there a real danger that the formation will not be adequately protected if those tracts are excluded? MR. HOEY: A. We feel that the 150-metre buffer zone that we've included past the sucrosic edge is protection enough. On the northwest side of these reefs, the sucrosic dolomite isn't developed very well. Q. Is not developed very well, yes? A. I'm very comfortable in leaving that one out. Q. Yes. A. And the south and southeast portions of the reef, the sucrosic dolomite is usually more well developed and I would be less comfortable leaving that one. Q. Okay. So as I understand your evidence, Mr. Hoey, you're quite comfortable for geological purposes in leaving out the tract which is at the northwest corner of the DSA. You also indicated that you would be uncomfortable with excluding tracts on the southeast corner, but I don't think we're talking about the southeast corner; are we, we're talking about the southwest corner. Craig,Schnegelsberg, 25 Wickens,Hoey (Lea) What is your view with respect to the necessity for protection of the reservoir of the inclusion of tract 7, concession 4, lot 21? A. I feel that our buffer zone has adequately protected the reservoir without that tract. Q. Okay. So then, is there any disagreement on the panel that there is no reason geologically to include these tracts in the DSA? And there may be very good reasons otherwise which I want to explore, but from a geological perspective. MR. CRAIG: A. There are none. Q. Thank you. Now I'd like to turn to the other reasons then, Mr. Craig, that you have set out. And, as I understood your reasons, there were several. These tracts were included in the original unitization of the pool. To include them follows lot boundaries. The landowners have been told that they will be included and there is no incremental decrease in the rights landowners might exercise on these tracts as a result of designation. I wonder if you could explain to me what the effect is of designating these two tracts. Am I right in saying that there is no incremental -- no additional restriction on the ability of the landowners to use these lands if they are designated in this circumstance? A. There will be no change to their rights Craig,Schnegelsberg, 26 Wickens,Hoey (Lea) whether they're designated or not given that they are included. For the purposes of exploration, they're included in the unit area and, you know, they have agreed to those conditions with respect to unitization. I don't see that including them or excluding them is going to change their situation at all, other than we have indicated to them that we propose to include these lands and have shown them maps to this effect. The change would be that they wouldn't enjoy the full storage lease rental as if they were inside a designated storage area. Q. So you're indicating then that if these two tracts are excluded from the DSA, the landowners will receive less compensation? A. Yes. Q. And how much less, can you indicate? A. 25 acres times $55.30, whatever that equates to. I think about $1,200 per 25-acre tract per year. Q. Per annum, mm-hmm. A. Sorry, $1,380 per tract per year. Q. Okay, thank you. And the notice that you have given to these landowners in this case is that those tracts will be included, or you're proposing they be included? A. We propose to include them, yes. Q. And just to be certain, sir, the reason that -- sometimes when we deal with these designated storage areas we are concerned and we hear representations Craig,Schnegelsberg, 27 Wickens,Hoey (Lea) from landowners, don't include my land because I won't be able to drill there and I won't be able to do what I want to do with the sub-surface rights if you designate it. What is different about this application that means that the landowners are not losing any further rights by designation? A. I think that the situation here is that the P&NG rights are held, and it's by virtue of the P&NG rights that somebody would come in and try to drill there and they're held by the company and they're held pursuant also to the unit agreement. So those -- it's not an extraneous right that somebody else could come in and try to exercise on behalf of the landowner or the landowner could try to exercise himself. He's being paid for the P&NG right that he has -- the lease that he has agreed to. Q. Okay, thank you. A. So it's probably different than other situations that have come before the Board. Q. Thank you, Mr. Craig. So in this circumstance then, the only party that could wish to drill or explore on those lands is Enbridge Consumers Gas or Tecumseh? A. Yes. Q. And as I understand it, the disadvantage to the holder of the P&NG rights of designation is that you must, if you wish to drill a well, come before the Board with an application for that well because it's referred to Craig,Schnegelsberg, 28 Wickens,Hoey (Lea) the Board from the MNR; am I correct? A. Yes. Q. And is Enbridge Consumers Gas willing to assume diminution of its rights with respect to these tracts if they're included in the DSA? A. Yes. Q. One moment, please. Thanks. I'd like to now deal with a second issue with regard to the pool boundaries and that's the overlap with the Kimball-Colinville Pool. Perhaps someone could indicate to me what the situation is with respect to the designated storage area for the Kimball-Colinville Pool and where this present application overlaps it. A. Yes, I could, Ms. Lea. There are two maps in evidence, and I'll give them to you as references, but we've also prepared another map that we will -- we have here on the easel, but we also have copies of it that clearly indicates the area of overlap. Just for the reference, Exhibit C, tab - you don't need to turn these up - but tab 2, schedule 14 is a map and you'll see the overlap on that one. Secondly, Exhibit I, tab 1, schedule 16-- Q. Which is the one that at least I've been looking at. A. --is the one that we've been looking at, also shows the overlap. Craig,Schnegelsberg, 29 Wickens,Hoey (Lea) What we have here on the easel is a coloured map that will clearly show them and, Mr. Cass, I'm not sure if we want to -- we have copies of that. MS. LEA: Thank you. Thank you very much for preparing these maps. It's very helpful. And we'll make those maps Exhibit 7.2, please. ---EXHIBIT NO. 7.2: Map showing proposed designated Storage area. MS. LEA: So this is -- just let me have a look at the title. I think map showing proposed designated storage area. Thank you. MS. LEA: Q. Yes? MR. CRAIG: A. Just for greater certainty and to see where these areas overlap, Exhibit 7.2 which you now have shows a blue area or an area that has a crossed blue outline on it and this is the original Kimball-Colinville designated storage area. You can see in -- it includes the south half of lot 20 and the south half of lot 19 in concession 4 -- sorry, in concession 5. This designation was done back in 1963, in that time frame, and it included those two tracts. In 1969-1970, some six to seven years later, the Ladysmith Pool was discovered and with information from the drilling and then subsequently with information from the 3D seismic that was shot in 1992, it was determined that the Ladysmith Pool indeed extends into that designated -- previously designated storage area. Craig,Schnegelsberg, 30 Wickens,Hoey (Lea) So if you look at that map, you can see the red area which is what we're proposing to be designated for Ladysmith or deemed to be the Ladysmith Pool. It includes those two 100-acre parcels of land that were designated back in 1963. Q. Okay, thank you. Would it be correct to say that if the Ladysmith -- pardon me, if the Kimball-Colinville designated storage area did not exist, the designated storage area for the Ladysmith Pool would have to include those two areas that overlap in order to protect the formation adequately? A. Yes. MR. HOEY: A. Yes. Q. I got two yeses there, one from Mr. Hoey and one from Mr. Craig. That's fine, thank you. So I understand you're recommending that we designate this area of overlap because without it the Ladysmith Pool would not be adequately protected sort of as a unit on its own; can I put it that way? MR. CRAIG: A. Yes. In particular, for those two 100-acre parcels, as you can see from the map, the pool indeed lies under those lands. It's not protective land, it is land that the pool lies under. So, you know, going forward we would like to have those lands noted as lands for the Ladysmith Pool. Q. Mm-hmm. A. Admittedly they are already designated as part of Kimball-Colinville and, in this fashion, they Craig,Schnegelsberg, 31 Wickens,Hoey (Lea) would be double designated, if you like, in terms of double protected. Q. Can you review for me the implications, if any, of this double designation problem. Are you aware of any problems arising from that? A. We have looked at it, and given that it's a common ownership and common operatorship of the pools - we are the operator and owner of the Kimball-Colinville designated storage area and, likewise, will be of the Ladysmith designated area - we don't have a problem with that internally. I've asked if there are legal impediments to it and have been advised that there are none that our counsel is aware of that would be an impediment to doing this. A designation ultimately is a notice on title because we register the designation order on title and the notice would simply go on title, and there would have been a notice back there in 1963 as well. So we don't see that there's any legal impediment to it, but I'm not a lawyer to debate that one fully. Q. Is there any disadvantage to those people owning the surface area there of having double designation, as far as you're aware? A. No, there isn't. Q. Is there any advantage? In other words, will they be compensated twice? A. From a storage standpoint, no, they won't be compensated twice. Craig,Schnegelsberg, 32 Wickens,Hoey (Lea) Q. And why is that? A. They will be compensated as they have been compensated for the last 35-odd years as part of the Kimball-Colinville area and they will continue to be compensated going forward on the same basis. But we don't propose to, and they're not seeking double payments because their lands have been designated twice. Q. Would there be any advantages or disadvantages, in your view, in removing that overlapping area from the designated area for this pool, the Ladysmith Pool, and having the boundaries of the Ladysmith designation wrap around, as it were, the designated Kimball-Colinville designated area? A. Sorry, did you -- was it... Q. Would there be advantages or disadvantages to that proposal? A. To removing them from...? Q. Yes. From this proposal, yes. A. Do you mean that we would simply designate the additional lands? Q. Correct, yes. A. I mean, that would certainly accomplish the protection of the pool, given that some of the lands are already designated and there would be additional lands. I guess going forward, we would like to consider all of the lands over the Ladysmith Pool as one designation order. Craig,Schnegelsberg, 33 Wickens,Hoey (Lea) You know, we would then be relying on a designation order for Kimball-Colinville some 35 years ago and a new designation order would simply be the additional lands that we are talking here. Q. Mm-hmm. A. It could be done that way, but our preference would be that it simply be designated as proposed, perhaps with a footnote in the designation order in the description of lands that makes note of the fact that certain lands and references that had previously been designated. Q. As we look at this area today, would it be your view that those overlapping lands are, in fact, necessary for the Kimball-Colinville formation, or are you able to answer that question? A. I think that part of the lands in lot 19, if you look at the map you can see that the extreme northeast corner of the proposed Ladysmith designated storage area comes fairly close to the reef outline for the south Kimball Pool, which is -- Kimball-Colinville is really a reef chain, it has three different reef segments, but the south Kimball is fairly close to the edge of that designated area. So part of that south half of lot 19, concession 5, in my view, would be needed as protection for the Kimball-Colinville Pool. Q. Okay, thank you. Turning to the questions then regarding reservoir Craig,Schnegelsberg, 34 Wickens,Hoey (Lea) engineering, please, I would like to ask you something that kind of relates to what we were just discussing. Are there any A1 carbonate observation wells between the Ladysmith Pool and the south Kimball Pool? Schedule 13 shows this a little bit, but I could not understand whether or not there was a well there and, if not, whether that was a problem. MR. WICKENS: A. Yes, there is an observation well in between the two pools. I don't believe it's shown on any of my prefiled evidence, but it is shown on Exhibit 7.2 that we were just looking at concerning the overlap. Q. Okay. And where do we see that, sir? Maybe it could be pointed out on the... A. (Indicating) That would be the upper north part, just north of the proposed Ladysmith designated storage area. Q. Those little pink things? A. Yes. Q. Okay. Pardon my eyes, but all right. That's fine. So just north of that proposed Ladysmith boundary we see sort of two pink linear indications, and you're indicating that that's an A1 carbonate observation well? A. Yes, it is. Q. All right. And is there a number or name for that well, so that we can refer to it? A. It's called Tecumseh-Kimball-Colinville No. 56. Craig,Schnegelsberg, 35 Wickens,Hoey (Lea) Q. Tecumseh-Kimball-Colinville 56. Okay, thanks. Now, have you had an opportunity to determine from this well whether there is any communication between these two reefs? Have you got any indications with respect to that? A. Well, from that well we have determined that the southern part of the A1, which is in communication with the south Kimball Pool, extends down to that location. And we are not sure how much further it extends, but we think it ends somewhat in the vicinity of that well. Based on the pressures in the Ladysmith Pool and the pressures in that well plus the south Kimball-Colinville Pool, we see no pressure response or separate pressure responses. The Tecumseh-Kimball-Colinville No. 56 well tracks the pressures of the reef somewhat. Q. Which reef? A. Sorry, the south Kimball-Colinville reef, showing that it is in communication with that, but does not track the Ladysmith pressures at all, so they're basically not in communication. Q. Mr. Wickens, has there been enough of a change in pressure over time in the Ladysmith Pool for you to know whether this well tracks the Ladysmith well formation pressures? Craig,Schnegelsberg, 36 Wickens,Hoey (Lea) I thought that the Ladysmith Pool had not been repressurized and there was a general decline. Can you explain further what you mean? A. Actually, I might point you out to my interrogatory No. 14. Q. Certainly. A. Page 2 of 2 shows a table showing the pressures from the Kimball-Colinville Pool, the Tecumseh Kimball-Colinville No. 56 well and the Ladysmith Pool. Q. Okay. There's a fair amount of dots and crosses and whatnot here-- A. Right. Q. --so please help us to interpret this diagram. A. The circles represent the pressures at the south Kimball-Colinville Pool and you can see they have a huge fluctuation ranging from approximately 300 pounds. Pressure is on the vertical scale and date is on the horizontal scale. So you can see over time the wellhead pressures in the reef track from approximately 300 pounds up to 1,100 pounds. And you can see that it's fairly consistent and that reflects our injection and withdrawal. Once we inject, the pressure goes up; once we withdraw, the pressure goes down. Q. Yes. A. In approximately December 31st, 1996, we started measuring the pressures from the TKC 56 well and Craig,Schnegelsberg, 37 Wickens,Hoey (Lea) that looks like a plus sign that starts about two divisions over from the righthand side of the chart. Q. Yes. A. And you can see it tracks the Kimball-Colinville Pool in a similar manner. I wouldn't call it exact. There is a lag time there because it is A1 carbonate and there's a lag time for the gas to move in and out. But it does track the Kimball-Colinville Pool fairly closely, again going down on withdrawal and going up on injection. Q. I can see that, yes. A. Okay. Q. Sorry, go ahead. A. Sorry. And also on this cart is a dashed line at approximately 680 pounds. That is the Ladysmith pressure. And you can see from that that it is not tracking either the TKC 56 well pressure or the south Kimball-Colinville pressure, which indicates that there is no communication. There can be no gas coming across from the south Kimball into the Ladysmith Pool; otherwise, you would see some pressure fluctuation in that dashed line. What you do see is it's fairly consistent, fairly flat. It was shut in, so there was no production and it was basically a static line -- a static pressure for a number of years, and you can see that reflected in that line. It doesn't change much. Craig,Schnegelsberg, 38 Wickens,Hoey (Lea) Q. Okay, thank you. That's helpful. Turning to the question of solution gas, last summer this Board recommended an injection licence be issued for this pool to allow Enbridge Consumers Gas to re-inject solution gas that was being produced and separated from oil being produced. Do I understand correctly that this solution gas is natural gas that has dissolved into the oil and is then separated upon production; am I correct? A. Yes. Oil actually occurs with this solution gas entrained right in it-- Q. Okay. A. --as naturally occurring. Q. Naturally occurring. All right. And what are the Ministry of Natural Resources' rules with respect to solution gas that's produced in this fashion? I understood that they had a rule about not being allowed to flare it anymore and you had to re-inject it or something? MR. CRAIG: A. Well, there are certain threshold limits above which you are not allowed to continue to vent it or flare it. And off the top of my head I can't -- I can find that number out, you know, but you ultimately want to conserve gas if it's of a sufficient amount that you don't want to continue to waste it or let it go up or flare it or do those things with it, so... Craig,Schnegelsberg, 39 Wickens,Hoey (Lea) But there are some definite guidelines from the Ministry of Natural Resources that specify the amount of gas. What can happen is you can have a small well somewhere off quite some distance and it's not economic to re-inject the gas and you're not maybe using up that much of it. But in this situation where we're going to be in a storage situation, as a company there's no way we want to continue to vent gas or flare it from the oil operation while a storage operation is going on concurrently with it. Q. Okay. So your wish to re-inject solution gas wasn't really as a result of MNR guidelines; it was your own company policy that this is a wasteful thing and also possibly a hazardous thing in the midst of gas production? A. I believe we could have produced one of the wells and fell under the MNR guidelines for the amount of gas. But when you put two of them together, if you want to produce two wells, we would kind of go over the limit and that's what -- you know, we wanted to conserve it. But it also was from a long-term policy standpoint, we didn't want to -- we want to carry on for a long time, we're not going to let the gas be wasted. Q. Okay. Now, do you think that you will continue to see such volumes of solution gas associated Craig,Schnegelsberg, 40 Wickens,Hoey (Lea) with oil production? A. Yes, we will. Q. And will this increase as the pressure of the pool increases during injection, or will it remain constant; do you know? A. We're going to go through pressure cycles each and every year in storage. What we find that happens in our existing pools, Corunna and Seckerton, where we already produce oil is that as the pressures get high the gas production increases in the oil operation and you have to deal with more gas as the pressures get higher. But then it comes down the following spring and you're dealing with a different situation. The other thing you're dealing with is over time you've got gravity segregation basically between the gas and the oil, so you've got oil wells completed down in the oil zone and, you know, as time goes on the gas/oil contact will come down as more oil is produced and you're going to get -- your perforations are going to be closer to your gas so, and that can influence the amount gas you produce as well. Q. Okay. What I'm trying to get at is will you be, in fact, producing in your solution gas some of your working volume of your gas stored in the reservoir? Are you going to be reducing the working volume of your pool as a gas storage area by the fact that you're pumping it out in solution with the oil? Craig,Schnegelsberg, 41 Wickens,Hoey (Lea) A. I think we would probably increase the volume available for storage by taking the oil out. Taking the liquid out of the pore space over time will directionally increase the amount of void space left in the reservoir for gas storage. Q. So does the -- what I'm trying to get at - I'm probably not expressing myself very well - some of the gas that you're injecting for storage, does it end up being produced with the oil? A. In the long term there's a possibility that a bit of gas that is in there for pressure support would get produced and re-injected, yes. Q. And is that a problem in terms of calculating the cushion volume and the working volume of this pool as a gas storage area? A. No, it isn't. MS. LEA: One moment. ---Off the record discussion. MS. LEA: Q. So you are able to re-inject any gas produced in solution with the oil back into the reservoir and those facilities are completed and ready to be used? MR. CRAIG: A. They are close to being completed, but we haven't finished the re-injection equipment as yet, but it will be in place before storage operations commence. Q. That's helpful, thank you. Turning to the question of the trajectory of the Craig,Schnegelsberg, 42 Wickens,Hoey (Lea) wells and the well locations, I wonder if someone -- I think it's probably Exhibit C, tab 3, schedule 5 we need to look at, but Mr. Wickens you may be able to best help us. I need to understand why you've chosen to drill horizontal wells here, the advantages or disadvantages over vertical wells and a little bit about their trajectory. You gave evidence this morning that the surface locations of TL5 and TL6 are only a hundred feet apart. Looking at that, without further investigation, it sounds like they're going to interfere with each other significantly, so I need to understand a little bit more about the trajectory, the bottom hole locations and so on. MR. WICKENS: A. Just one second. Q. Yes, please. A. Okay. I have a description of a bit about the horizontal wells in question 8 within my direct evidence, so I don't know if I want to belabour the point of the advantages of them or the disadvantages of vertical wells. But whenever we're developing a pool, we have a portfolio of tools basically and some of them may be vertical wells and part of this portfolio may be horizontal wells. So we will look at the best way to develop it to drain the gas out of the pool in the most effective way and get the -- attain our design deliverability, our Craig,Schnegelsberg, 43 Wickens,Hoey (Lea) design conditions. And in this particular case we decided that one vertical well draining the northern part of the reef and two horizontal wells draining the southern part of the reef was the optimum method of developing this pool. Now, the advantages of the horizontal well is that you can get more than double your flow capacity at less than double your cost. So when there's an opportunity to use one, or to drill one then it's a cost advantage for the company. Q. Do I understand correctly from your evidence that each of these horizontal wells will replace two vertical wells that would otherwise have to be drilled? A. Yes, that's correct. Q. What makes this particular reservoir suitable for horizontal wells particularly? A. You could probably drill horizontal wells in just about any one of our reefs, but if the reefs get very, very thick then the advantage of a horizontal well is negated because you're going to have a very long vertical well. So obviously if it gets too thick, then there's a disadvantage there. In this case it's not extremely thick, so we have the advantage of being able to effectively drain the reservoir with the horizontal wells. In addition, we have the oil lake sitting below the gas cap and it would be advantageous to have a horizontal well which is by virtue of its long length you Craig,Schnegelsberg, 44 Wickens,Hoey (Lea) have less of a pressure draw down so less of a chance of pulling oil up into the well bore, and with that you can also extend the well bore further out into the thinner sections of the reef which is the southern part so you get, again, more efficient drainage in those regions. Q. Thank you, that's helpful. Now, as we look at Exhibit C, tab 3, schedule 5, we see that the horizontal wells appear to extend in a roughly south/southwesterly manner from the original -- from the holes in the ground, if I can put it that way, the surface locations. What constitutes a bottom hole location for a horizontal well? Can you explain to us where the casing ends and where, if I can put it rather bluntly, these wells begin to suck? Drain -- Mr. Mackie says I should use the word "drain." Thank you. Come up with something a little better. [Laughter] A. Well, the circles represent the wellhead locations. You'll see TL6, TL5 and TL7. Q. Yes. A. Those are actually the origin of the well. We will start drilling at those locations and we will drill vertically straight down at the reef at those points. The distances that Ray was referring to earlier is the distance between those wellheads and the wellheads Craig,Schnegelsberg, 45 Wickens,Hoey (Lea) are not going to be draining any of the reservoir, so whether they're right on top of each other or very close it's not relevant. It's actually where they penetrate the reef which is more germane. In this particular case we have TL6 and TL7 are the two horizontal wells. They will be going in a southwesterly direction and approximately 1,500 feet down -- sorry, let me -- I might have misled you already here. They will be going vertically down from those locations to approximately 1,500 feet. At that point we will then change the orientation from a vertical orientation to a horizontal orientation and have it go in a southwesterly direction. Now, if you follow that dashed line - I won't get into single dot or double dot dashed line - but there's a dashed line going from those circles approximately where the Courtright Line which is the road -- east-western road there, there's a small intersecting line on those dashed lines. Q. Mm-hmm. A. That represents where the well bores will be entering the reef, and at that point they'll be approximately horizontal and they'll continue on a horizontal path until the end -- the end of that dashed line, and that's the bottom hole location. MR. SCHNEGELSBERG: A. Ms. Lea, it's also schematically shown in my evidence at Exhibit D, tab 2, Craig,Schnegelsberg, 46 Wickens,Hoey (Lea) schedule 5 which is the horizontal well casing profile, and you can see where the well begins its curvature and at the end of its curvature it is close to the horizontal position entering the reef. Do you see that? Q. Yes. A. And then the open hole portion of that then enters the reef. And that small intersecting line that Mr. Wickens just talked about would be that casing point in this schedule. Q. Okay. So as we look back at Exhibit C, tab 3, schedule 5 there is some horizontal distance that the well covers before the casing ends? MR. WICKENS: A. That's correct. Q. And is the trajectory of the well during the part of it that has casing around it before you get the open hole locations, is that in the reef or is it outside the reef? A. That's in the formation above the reef. And that's again shown on that profile on exhibit D, tab 2, schedule 5. Again, if you look at that profile you'll see that the -- from the -- we call it the Salina F Unit, that's where we go from the intermediate casing to the production casing. Q. Yes. A. And that will be cased with this -- we call it production casing right from surface, from that point where it's bending right to the top of the reef. Craig,Schnegelsberg, 47 Wickens,Hoey (Lea) Now, that may be because of the vertical exaggeration on this particular schedule it's not to scale, there's a lot of formation, there's about 600 feet of formation between that Salina F shale and the top of the reef. That's not within the reef, that's just other geological formations. And that will all be cased with this production casing and cemented behind it right to surface. And then once it's cased at the top in the cap rock, which is the A2 anhydride shown on that profile, then we will drill open holes into the reef. Q. So as I understand your explanation then, the point at which the two horizontal wells begin to drain is significantly removed on the horizontal distance from the point at which TL5 is draining the reef. Do I understand correctly? A. Yes, that's correct. It's approximately 500 feet. Q. What is the spacing between the beginning of the open hole horizontal portion of those two wells each from the other? A. Again, that's approximately 500 feet. Q. Thank you. Do you expect any interference then among these wells? A. No. We've used 500-foot spacing in all of our vertical wells in all our previous drilling and we found that to be quite satisfactory. Craig,Schnegelsberg, 48 Wickens,Hoey (Lea) Q. Thank you. You've included a contingency well TL No. 9. You're asking for approval of that well at this time? MR. SCHNEGELSBERG: A. Yes, we are. Q. What is the reason for it? A. The contingency location is being proposed in the event that the original three wells do not meet the flow criteria that we have set out for the pool. Like, obviously, when we go through the process there are certain expectations that we set up for this pool and we design the pool to meet those expectations and, if we fall short of those, then we would drill that contingency location. Q. All right. Thank you, that's helpful. There was one other thing that we didn't understand about the reservoir engineering and that was dealt with in a technical conference transcript at page 138. You might want to look at it. This is the discussion regarding the remaining 1 bcf of working volume that I understand you say should be produced to establish how much gas remains within the pool, and this has to do with providing evidence to the landowners of how much gas there is in the pool. I wonder if someone could attempt that explanation to me and we'll see if we can clarify it, please. MR. CRAIG: A. The page reference was 1...? Q. I have 138 written down, but I haven't Craig,Schnegelsberg, 49 Wickens,Hoey (Lea) actually got it turned up. I can find that for you. I think we're in the midst of your explanation. It begins at 137, Mr. Craig, with line 25 with you saying 'maybe I can try to respond'. The discussion occurs ahead of that page and also on pages 137 and 138. A. And the question is just to revisit that? Q. Yes, please. I wonder if you could explain to me why you need to produce that much gas in order to determine the remaining gas in place. A. We estimate today there's something in the order of 2 bcf of gas left in the reservoir. We have to produce some of that gas so that we make an accurate determination for the landowners in terms of the residual gas volumes that they're entitled to. To be reasonably accurate we're attempting to produce in the order of 25 per cent of that 2 bcf, which means we'll produce half a billion cubic feet before we go to storage injection. That would enable very accurate calculations to be made of what is left in place and -- so for that reason we are on production as we speak. Q. Okay. I think then that the answer to my question may be, it's the degree of accuracy of the calculation because, of course, in evidence we already have a production decline curve for the pool. That's in evidence. Schedule 2 of -- I'm sorry, I'm not sure whose evidence, perhaps Mr. Wickens or Mr. Schnegelsberg's evidence which has -- you know, seems to presume a volume Craig,Schnegelsberg, 50 Wickens,Hoey (Lea) pressure relationship for the pool being in existence. If those data have been produced, why do we need to pool more gas out of the pool? A. Okay. From an engineering perspective and from, you know, reservoir engineers sitting around a table I think we've fairly -- we're prepared to accept the numbers and the data that we have today taking the geology -- taking the 3D seismic, taking estimates that can be made volumetrically, also taking estimates that we have from material balance calculations based on the oil that's been produced and the pressure decline, we have pretty reasonable estimates of the volume, but those are not -- in the minds of the landowners who are not knowledgeable with those calculations, they're not willing to accept those numbers. Q. Just one moment, please, I'm sorry. Okay. Mr. Craig, I think that I got a bit mixed up. It was some of my question also. The total production from the pool to this point has only been about half a bcf; is that right? A. The gas has never been produced-- Q. but -- okay. A. --and sold, let's put it that way. Q. But is this solution gas that has come up with oil production? A. There's been solution gas and it would appear that some of the -- some of what we would call produced gas, whether it was in solution originally or was, in Craig,Schnegelsberg, 51 Wickens,Hoey (Lea) fact, part of the gas cap, has been produced. Q. Okay. So when I stated earlier that there was a production decline curve, there is not a production decline curve because you haven't produced gas from this pool yet? A. That's correct. Q. Okay. A. There's a material balance estimate that can be obtained from the oil data and the gas/oil ratio data, but the gas cap zone has not been produced and sold at this point in time. So there's a degree of accuracy and that's what it comes down to. We would be prepared -- in fact, we made offers to the landowners based on those estimates, but it came down to them not willing to accept those volume estimates. And one way to solve that is to simply go on production and come up with a much more accurate number and one that they will accept. So I think we're dealing with -- is it 2 bcf, you know, plus or minus a tenth of a bcf, but that's the degree of accuracy that they're asking us to come up with. Q. One moment, please. Mr. Craig, I'm not yet at the question of construction schedule, but what you said is this need to produce this gas, is it going to delay your ability to begin the injection cycle in the pool? A. No. No, it will not. Q. And can you explain that to me? Craig,Schnegelsberg, 52 Wickens,Hoey (Lea) A. We are currently producing gas and we're producing it at a rate that will enable us to get that half a bcf or very close to half a bcf well in advance of when injection would occur and, indeed, well in advance of when we would run into even part of the drilling process, so we're not -- it's not an issue or a concern. Q. What are you doing with the gas that's being produced over that time period? A. It's being produced and sold. Q. But is it tied in to a line somewhere or...? A. Yes, it is. Q. And can you explain that to me? A. It's tied into the Tecumseh facility through a small three-inch production line. MS. LEA: Thank you. One moment, please. Mr. Cass, I just have to determine if I have any further questions for this panel, if I could just have a moment. Thank you. Those are my questions for this panel. The Board may have questions for this panel at this time. THE VICE-CHAIR: Thank you, Ms. Lea. Ms. Halladay? MS. HALLADAY: Thank you. EXAMINATION BY MS. HALLADAY: Q. Mr. Craig, just for clarification, are you producing gas right now from this facility? At one point in time I think you said you Craig,Schnegelsberg, 53 Wickens,Hoey ex (Halladay) weren't, there had never been commercial production. And then I think your evidence just now has been that there is. MR. CRAIG: A. In prior years there had never been commercial production, the gas cap had never been tied in. Earlier this year we tied it in for the purposes of producing some of the gas. The reason for doing that is for a determination of what's there today and what will be left when we convert to storage. So if you had asked me two months ago -- two to three months ago we weren't producing gas, but we now are. Q. Thank you. And, Mr. Craig, which well are you producing this gas from presently? A. There's a well on -- which is the best exhibit? Actually, the exhibit that you have open or had open, Exhibit C, tab 3, schedule 5. Q. Right. A. Okay. You'll see there's four wells in a row there that -- or on the north part of the pool and there's one that it has a symbol with a bunch of stars. That's the existing well that is there today. It was drilled back in 1971. Q. Right. A. And that's the well we're producing gas from. Okay. The other wells are wells that will be drilled under the storage proposal. Q. Right. Somewhere in the evidence I think Craig,Schnegelsberg, 54 Wickens,Hoey ex (Halladay) there was evidence to suggest that that well, there were problems with the casings and that's why it couldn't continue to be used; is that...? A. Yes. For the purposes of long-term integrity of the storage pool, that's a well that we will not keep beyond the production phase that it's currently in. So when we get to go to -- want to go to higher pressures under storage, that well will be abandoned. Q. So you can continue producing gas from that well on an interim basis until the -- assuming that the other wells are approved and then you'll switch -- you'll cap off that well and switch over to the other wells; is that correct? A. That is correct. Q. Thank you. I just had one question for Mr. Wickens. Mr. Wickens, I appreciate your evidence that, in fact, the south Kimball-Colinville and Ladysmith Pools do not appear to be communicating with one another, therefore, the integrity of the Ladysmith Pool is sound; is that correct? MR. WICKENS: A. That's correct. Q. For the purposes of this application, is there any practical problem if, in fact, you're wrong and they are communicating with each other based on the fact that the company have rights in both of the pools? A. No, I don't believe -- Q. I'm just curious as to whether there would be Craig,Schnegelsberg, 55 Wickens,Hoey ex (Halladay) a problem if they were communicating and it wasn't an integral part. A. No, I don't believe there would be a problem. Q. Okay, thank you. My other question - I'm not sure who to direct it to - just deals with the whole question of double designation. That's what I was trying to get at. Are any of you aware of any circumstances where lands have been doubly designated for two separate storage pools? MR. CRAIG: A. I certainly am not aware where it's been done in the past. No, I'm not aware of it. Q. Okay, thank you. A. There's been instances where unit agreements overlap each other. There's instances of overlapping unit agreements, but that's a different situation than a designation. But again, new and improved. MS. HALLADAY: Thank you very much. Those are my questions. THE VICE-CHAIR: Thank you, Ms. Halladay. EXAMINATION BY THE VICE-CHAIR: Q. I had just one question and it's related to the maps we've been looking at with regard to the boundaries of the pool, and I think it was either schedule 29, page 2 of 3 -- Exhibit I, tab 1, schedule 9, page 2 of 3 would be one and we were discussing the two corners, the north corner and south corner of the storage area as to whether they should be included in the designated storage Craig,Schnegelsberg, 56 Wickens,Hoey ex (Vice-Chair) area. And the question that occurred to me is a question of the issue of outside acreage, and I wondered if you could tell me whether in this application there are any instances of outside acreage and whether you pay compensation for outside acreage. My understanding from a different case is that's where a farm has part of it designated and the rest of it is considered outside acreage. MR. CRAIG: A. Yes, Mr. Chairman, there is one lease that is outside acreage and that's why we had this problem of 970 acres versus 915. And that small part, it's 56 acres that is outside of the proposed designated area. Maybe I can just refer you to this map and indicate where it is. In fact, this particular lease here (indicating), the landowner own lands that extend another 56 acres up in here. So we have a gas storage lease with him that includes those lands and we also have a petroleum and natural gas lease that includes those lands. For the purposes of gas storage, he will receive an outside acreage payment. In this case, I believe it's $10 an acre as protective acreage that we would just continue to hold. As far as the P&NG lease, he's outside the unit area and he would get a nominal P&NG lease payment at the same time. Q. Now, the storage pool extends -- under the Craig,Schnegelsberg, 57 Wickens,Hoey ex (Vice-Chair) designated area the storage pool for Ladysmith is in two designated areas, supposing a double designation? A. Yes. Q. The owners of the land there, you were saying, would only get one storage area rental payment? A. That's correct. Q. But the pool is under that area, so they will get something in payment for the cushion gas, et cetera? A. Oh, definitely. They will get payments for residual gas for their royalty share. They will also get payments for the oil royalties that occur as oil production continues into the future. They previously weren't getting those payments, but now that it's unitized and oil is being produced and shared with everyone, that will happen. Previously the oil was simply being shared by the landowners that had oil wells on their property. So going forward, those landowners will get oil royalties, they will get their residual gas payments, they will get -- if the royalties don't exceed a minimum threshold of a $10 an acre payment, they would then get that minimum P&NG lease rental payment, and they will also continue to get the storage lease rental payments. Q. Just a question about the buffer area of 150 metres, I think you described it. Is that a standard practice that Consumers uses; 150 metres of buffer area around the zero isopac? Is that -- Craig,Schnegelsberg, 58 Wickens,Hoey ex (Vice-Chair) MR. HOEY: A. I'm not familiar with all of the Tecumseh buffer areas, but I think that's a fairly standard industry practice. And 150 metres or 500 feet gives us some comfort in the transitional nature of the sucrosic porosity. Any less than that may be dangerous. MR. CRAIG: A. In fairness to Mr. Hoey, he was not our geologic witness at the last case that we had, it was Mr. Trevail. And I think we did something in the range of 500 feet but, with respect, it's pretty close to 150... Q. All right. And as I understand it, that if that buffer area passes through a drilling tract then the drilling tract is contained? A. Yes. Q. That's the principle you would be-- A. Yes. Q. --using, other than where Ms. Lea had been discussing the two where the drilling tract didn't go through? A. (Nodding head) THE VICE-CHAIR: I think those are the Board's questions. Mr. Cass, any re-direct? MR. CASS: No, Mr. Chairman. Thank you. THE VICE-CHAIR: I think maybe, Ms. Lea, it would be a good idea to break now and come back in 20 minutes-- MS. LEA: Thank you. THE VICE-CHAIR: --and get the next panel up. Craig,Schnegelsberg, 59 Wickens,Hoey Thank you. Thank you, panel. ---Recessed at 10:38 a.m. ---On resuming at 11:02 a.m. THE VICE-CHAIR: Please be seated. Mr. Cass, I think it's yours. MR. CASS: Yes. THE VICE-CHAIR: I just apologize. I gather I left the on air button on, so I hope people haven't been holding confidential conversations throughout the whole -- MS. LEA: State secrets. [Laughter] MR. CASS: Thank you. Mr. Chairman, the next panel will address facilities and capital costs. The witnesses are Mr. Schnegelsberg again, Mr. John Oakley, and Mr. Craig again. So I would ask Mr. Oakley to come forward and be sworn. THE VICE-CHAIR: Thank you. JOHN OAKLEY; Sworn, RAY SCHNEGELSBERG, ROBERT CRAIG; Resumed. DIRECT EXAMINATION BY MR. CASS: Q. Mr. Oakley, I have just a few preliminary questions for you as the new witness on the panel. You are, I understand, Manager, Storage Business Administration for the company; is that correct? MR. OAKLEY: A. Yes, that's correct. Q. And you were responsible for the evidence Oakley,Schnegelsberg, 60 Craig dr ex (Cass) upon which your name appears, including answers to interrogatories and testimony at the technical conference; is that correct? A. Yes. Q. And was that evidence given by you or under your direction and control? A. Yes, it was. Q. Do you have any corrections to be made? A. No, I do not. Q. All right, thank you. And is the evidence accurate to the best of your knowledge or belief? A. Yes. MR. CASS: Thank you. Mr. Chairman, those are my questions of the panel. Thank you. THE VICE-CHAIR: Thank you, Mr. Cass. Ms. Lea? MS. LEA: Thank you. CROSS-EXAMINATION BY MS. LEA: Q. We're now turning to Section D of the issues list which is Proposed Facilities. I have a couple questions about the wells and the method of drilling the wells. I understand that the wells are initially to be drilled with a cable tool rig, then the surface casing will be set, and then rotary drilling will commence. Have I got that correct? MR. SCHNEGELSBERG: A. Yes, you do. Oakley,Schnegelsberg, 61 Craig cr ex (Lea) Q. Okay. Now, during a recent hearing before this Board Union Gas discussed in one of its applications certain risks associated with rotary drilling, and one of the risks they discussed was fire hazards. I wonder if you could describe briefly your experience with rotary drilling and any concerns you have with respect to the safety aspects of it? A. Tecumseh has been using rotary drilling technique for a long time, I would guess probably in the last 20 years they've used it a fair bit. Now our drilling activity using a rotary rig has increased in the last 10 years even more so. We have drilled wells using that technique with no incident. We have never had a safety issue that has arisen because of the rotary drilling technique. As far as -- from a generic standpoint, rotary drilling is a very safe operation. There is adequate pressure control. We use a hydraulic head, that's the -- the drilling fluid that we use creates a hydraulic pressure column which contains the pressures that we may encounter during drilling. Rotary drilling is a 24-hour operation, so it's always manned, there's always somebody monitoring the activity and it's always being supervised. We have adequate expertise in the form of well site consultants that supervise this activity on behalf of the company. So I have very -- or virtually no concerns about rotary drilling. Oakley,Schnegelsberg, 62 Craig cr ex (Lea) Q. And is there some additional, however slight, but additional danger of fire with rotary drilling as compared to cable tool drilling? A. It depends on the manner that the well is being drilled. Now, let me step back a bit. During the technical conference I was asked by Mr. Mackie about an incident that happened in one of the other companies. They had a fire and -- Q. I don't think that had to do with drilling; did it? A. It had to do with the drilling operation. And the reason why the fire -- or the source of the fire was the flare itself during the drilling operation. Now, flaring is quite acceptable while you're rotary drilling. Now, if you have flammable substances or if you're near a bush or whatever and that flare gets extraordinarily large beyond your expectations, then you could have a potential fire hazard. And that was the situation that I was describing to Mr. Mackie during the technical conference. Now, we don't flare gas at surface on a regular basis when we drill with a rotary well. Normally speaking we're drilling with a fluid, so the gas is contained and not much gas is vented to surface, so we would not be exposing ourselves to the same kind of risk that that company had. Q. Okay. Now, I understand that as a recent update you have provided a letter of consent with respect Oakley,Schnegelsberg, 63 Craig cr ex (Lea) to the proposed well locations, and we find that in interrogatory 31.1. I just need that confirmed for the record. A. Yes. Q. Okay, fine. Thank you. Turning to the question of the construction schedule, please, I think we may want to look at Exhibit D, tab 2. Exhibit D, tab 2, schedule 6, page 1. Before we get into what is going to be built, can you tell me, is this pool presently tied into the Wilkesport line? A. The Ladysmith Pool as a storage pool is not tied into the Wilkesport line. But as was mentioned earlier this morning, we have a small 3-inch line that's tied into the Tecumseh facilities. Q. Okay. So looking at the construction schedule then, we see the transmission line construction, the Wilkesport-Coveny transmission line construction during June and July and the Ladysmith transmission line during July and August with injection commencing September 15th, '99. Is that correct? A. The facilities should be in place by September 15th, so we should be able to inject any time after that date, yes. Q. Okay. And we have already heard that you intend to produce about 1 bcf of existing gas before injection commences? A. No, we -- Oakley,Schnegelsberg, 64 Craig cr ex (Lea) MR. CRAIG: A. Half a bcf. Q. Half a bcf, pardon me. Yes, that's correct. Okay. Now, the schedule shows well drilling commencing June the 1st, 1999 and continuing for three months and the construction of the gathering lines is scheduled to be completed two weeks before injection. Is that enough -- is that two weeks of gap enough of a safety margin to allow for any delays in the construction of gathering lines? MR. SCHNEGELSBERG: A. The construction of the gathering lines could happen before we put in the pipeline or it could happen afterwards. The way the schedule shows right now is that we would be doing it after, after the pipeline construction. The construction activities would have to be coordinated around the drilling activities and, as far as your question, have we left enough time in there as slack? I would say that overall in the schedule, yes, we have. Now, the individual events themselves may be not totally 100 per cent accurate on their timeframes, but overall we are there. Q. All right, thank you. Dealing with the approvals that you need before you can begin construction, even if this Board rushes through a report to the Lieutenant Governor-in-Council, you're aware that it is, to an extent, out of our control how soon this area is actually designated? There's a certain time period that elapses before Oakley,Schnegelsberg, 65 Craig cr ex (Lea) an area is designated after a report is issued; is that correct? MR. CRAIG: A. Yes. Q. And do you have a timeframe in mind for that designation to occur? I guess what I'm trying to get at is in interrogatory 28 you have indicated that if Board approval - I think is how you phrased it - was not received by July 1st, 1999, you would -- Pardon? ---Off the record discussion. MS. LEA: Q. Yes. -- was not received before July the 1st, 1999 you would construct next year. I need a further elucidation of whether by "Board approval" you mean all of the designation and everything from the Government or just this Board's report or what sort of thing we are talking about now? MR. CRAIG: A. I think what... You know, if it's a scenario where there was no indication before July 1st that this was going to be approved and we were then faced with, at that point, having to order the long delivery items and having to line up the drilling equipment, it just would not physically be possible to obtain the pipe and install it and achieve any injection before -- you know, while we were still in the injection season. But if going into July 1st or going over the next several months there's a favourable report issued and we Oakley,Schnegelsberg, 66 Craig cr ex (Lea) know that there should be no reason why the LGIC would not approve it, and given that you have issued -- the Board has issued the report and are favourably disposed to approving the project; namely, the drilling of wells and the construction of pipeline, I think that we would have all of our ducks lined up so that we would hit the ground running on July 1st, you know, with hopefully the paper in hand at that point. But the other scenario where we didn't have any approvals and any indication until July 1st, we physically couldn't do it this year. Q. Okay. Do I take from your answer then that you don't need official designation by regulation before July 1st in order to begin construction this year, but you would need Board approvals to the extent that they're possible to issue before July 1st of this year? A. Yes. Q. Okay. MR. SCHNEGELSBERG: A. I think we would like to have the comfort level to know that we can proceed on the installation of these facilities at a minimal risk. Q. All right. Now, even if the approvals were delayed until July 1st, would you contemplate still building the project this summer but not injecting until the following spring? A. Well, we wouldn't be able to meet the in-franchise requirements for the 1999/2000 year if we were to do that. Oakley,Schnegelsberg, 67 Craig cr ex (Lea) And the benefits I think have been clearly demonstrated in the evidence what they are. And I think those benefits would have to be delayed by one year if we would not, or if we could not inject the volumes that we plan to inject for this year. Q. I don't think anybody disagrees with the benefits of getting it done this year, but I'm just -- you know, I'm just trying to understand whether you could do some of the construction this year so as to be ready for injection in the spring. Would that be of assistance? MR. CRAIG: A. Well, it certainly would. I guess the one scenario that even that delayed approval would give us is there would still be a half a bcf in the pool that would be available for withdrawal next winter and that would be the gas that hadn't been produced. We haven't gone back and looked and said, 'Well, what's the benefit, if it's just a half a bcf versus the injection volumes that we had targeted.' But that would be something that we would go back and look at. Q. Okay, thanks. Now, is it necessary to have the Wilkesport extension, that part of the line completed before injection into the pool begins? MR. SCHNEGELSBERG: A. No, physically it is not necessary for it to be there but from a construction standpoint we look at this thing as one project, one contract and it wouldn't make sense, from a construction Oakley,Schnegelsberg, 68 Craig cr ex (Lea) contract basis, to separate these two out. They -- albeit the two segments will take longer than just the one segment, but the two segments together, just the construction phase of it, is still something that can be done within a six- to eight-week period. Q. I see. The reason I'm asking is that it appears that you're - going back to the construction schedule - that you would do the Wilkesport section before the Ladysmith section. I was wondering whether if you reversed the order that might assist you in terms of hastening the ability to inject? A. That certainly would be an option that we would look at if we felt we were constrained. MR. CRAIG: A. The problem we would run into there though, Ms. Lea, would be you depressure the line to do your tie-ins and you would only really want to do it once. So if you're going to do a tie-in from Ladysmith to Wilkesport and you're going to depressure the line to do that, but you're ultimately going to depressure the line to do the other connection as well, you really wouldn't want to depressure it twice. So you prefer to do them as one project. Whether you flip one ahead of the other is immaterial. Q. Okay, thanks. Are you referring to the hydrostatic tests of the lines or some other procedure? MR. SCHNEGELSBERG: A. No. In order to tie-in Oakley,Schnegelsberg, 69 Craig cr ex (Lea) these pipelines into the existing Wilkesport pipeline, the Wilkesport pipeline the way it sits today is full of gas at a pressure. Q. Oh, okay, so it's the tie-in... A. So gas would need to be produced out of that pipeline and that takes time. And a certain amount of that gas, also because it's at such a low pressure, will have to be flared. And it's a time process and a cost process. So we only want to do that once. Q. Okay, thank you. That's helpful. Now, Mr. Craig, in your evidence-in-chief I think you talked about the fact that you are going to go ahead and order the pipe the first week of April. Am I understanding you correctly? MR. CRAIG: A. Yes. Q. And that will allow you to have it ready to go into the ground as soon as this Board may give its approval? A. Well, I guess the wildest scenario would be the Board would give approval today but we wouldn't be ready to put the pipe in the ground that quick. But the physical sequence is that you place an order, the pipe mill then places an order with the steel company to manufacture the steel, they get the steel, it gets rolled into plates and then plates get rolled into pipe, the pipe gets delivered ultimately to a coating mill and the coating is put on and delivered to the job site. An order placed next week -- well, the first week Oakley,Schnegelsberg, 70 Craig cr ex (Lea) of April will get us the pipe at the end of June for July/August construction. Q. Okay, thank you. Now, what financial risk is Consumers assuming in ordering this pipe ahead of approval? A. The pipe portion of the cost is in the order of half a million dollars. Q. And if this facility is not approved, of course, that pipe would not be at least used and useful for this project and you would run the risk of having to bear that cost by the shareholders of Consumers? A. Yes, we would ultimately hope that the project would go forth at some point. It is a high pressure steel so it's not -- high pressure pipe, it's not common grade pipe that others might use, but you could ultimately, if it never went ahead, sell it at a discount presumably. Q. What about retaining a drilling contractor, is there a time line for that that needs to be considered now? MR. SCHNEGELSBERG: A. Yes, there is. We are getting to the point now where we should be committing to a drilling contractor for our drilling program. And right now I think we're saying that if we're in a position to be able to talk to somebody or to secure a rig by early May, we should still be able to meet our drilling program for this year. Q. Okay. And again, you'll have to assume some Oakley,Schnegelsberg, 71 Craig cr ex (Lea) financial risk if you go ahead and confirm with a drilling contractor? MR. CRAIG: A. It wouldn't be in the order of the line pipe, and I think that risk would be fairly small. Q. Okay, thank you. One moment. ---Off the record discussion. MS. LEA: Q. I'd like to turn to the question of project costs now, please. The first issue that I need some help with there deals with the inspection of wells and the costs related to that. I understand from reading the technical conference transcript that you spent money to inspect IM-8-20-5 well; is that correct? MR. SCHNEGELSBERG: A. Yes, we spent some money to inspect -- I believe it's Imperial Moore 8-20. Q. I'm sorry, I don't have the figure here. How much was spent there on that well? A. Yeah, that's actually not broken down anywhere in evidence at this point but approximately $30,000. Q. About $30,000. Now, was it that inspection that enabled you to make the decision to abandon that well as a gas injection withdrawal well for the long term? A. Yes. Q. What was wrong with it? A. From what I understand the casing had some Oakley,Schnegelsberg, 72 Craig cr ex (Lea) corrosion in it and the casing cement was not adequate in about three of the strings in the well, so it was not a very well completed well and we're concerned that if we do use it for storage, or it stays there for storage that it could jeopardize the integrity of the storage zone. Q. Okay. I wonder if we could look for a moment at Exhibit G, tab 1, schedule 2. I'm looking at page 1 of that exhibit and this shows what is described as the connection costs. The costs to inspect the well that we've just talked about, is that included in one of these figures here? A. Yes, it is. Q. Which figure? A. It would be included in the costs across wells and under costs to end of fiscal 1998, that 140,200. Okay. Included in that costs are the well inspection costs for the gas well and the oil wells. Q. Okay. So on well IM-8-20 of 5, that's $30,000 related to that well. So we have 90,200 remaining for the inspection of other wells; am I correct? A. 110,200. Q. 110, yes, sorry. I'm not firing an all cylinders today I think. Now, that 110,000 approximately, what wells was that spent on? A. The other oil wells in the pool. I can't specifically say how much money was spent on which well Oakley,Schnegelsberg, 73 Craig cr ex (Lea) but there were three oil wells. I believe the 1-20 well, the 3-20 and the 2-20 well. MR. CRAIG: A. I believe it also includes an observation well that's down in the south part, or a well that's there in 4-20. So there was actually four wells that were inspected. Q. So there's an observation well as well as the oil wells there? A. Well, it's a reef edge well that's never been produced. Q. A what kind of well? A. It's at the edge of the reef. Q. A reef edge well. Okay, thank you. MR. SCHNEGELSBERG: A. That well is also proposed to be abandoned. Q. Maybe we can just find that well on our map before we go any further. I think maybe Exhibit C, tab 2, schedule 10, that labels some of the wells. I don't know whether that captures it or not. A. Yes, that shows the well. Q. Which one is it? A. Okay. It's the well that's in the southeast edge of the reef. It says MCM 4-20-4. Q. Okay, thank you. A. Okay. Q. All right. Now, the costs that are listed on Exhibit G, tab 1, schedule 2, I understand these are costs Oakley,Schnegelsberg, 74 Craig cr ex (Lea) that it is your view should be included as costs of this project; is that correct? A. Yes. Q. And if this project is approved and these costs are approved, eventually those costs will flow into rate base and be paid for by ratepayers; is that correct? A. Yes. Q. What I fail to understand is why gas ratepayers should pay for work done on oil production wells? A. Well, the oil wells are existing wells in the pool and there's no way to deny the fact that these wells are penetrating the storage zone, so the well bores themselves will be exposed to storage pressures. If, for example, these well bores were in such a condition that they couldn't contain the storage pressure or they were going to jeopardize the integrity of the storage zone, then all of a sudden the storage operation is at risk. And on that basis we feel that, for storage integrity purposes, that the capital dollars should be included as a utility item as an upgrade of the storage zone. Now, you can look at it in a slightly different manner and say, 'Well, if you don't do this work what is the impact?' And you know that the oil wells were put in the ground when the pool was initially discovered and then Oakley,Schnegelsberg, 75 Craig cr ex (Lea) that pressure would become the governing pressure of our storage system. And rather than take the pool up to 1,300 pounds, we're only going to be take the pool up to 950 pounds, something of that order, okay. And because we're only going to be able to take the pool up to that level, that also impacts our storage capacity, and the difference between the storage capacity that we would achieve at discovery pressure versus the storage capacity at 1,300 pounds is somewhere in the order of 1.3 bcf. So it's a fairly significant amount of storage capacity that would be lost if we were to restrict the operation to that level of pressure. Q. Can I ask you this question kind of in summary of your position. If you were not undertaking the development of the Ladysmith Pool as a gas storage area, as a designated gas storage area, would you be doing any of this work on the oil wells? A. No, we would not because it's not required that these wells be upgraded for the kind of pressures that -- the declining pressures that you would see in a normal production scenario. Q. One moment, please. Are there any other costs in this table that relate to oil wells, oil production, anything else that might be argued to be outside of the ambit of natural gas production or storage? Oakley,Schnegelsberg, 76 Craig cr ex (Lea) A. No. Q. In Interrogatory 43.1 you are dealing with the question of the $200,000 of abandonment costs. I got a bit mixed up. At the technical conference, Mr. Schnegelsberg, you identified another $70,000 to be spent on two oil wells in fiscal 2000. Why does not the inspection work that was undertaken in fiscal 1998 cover your inspection work? I mean, I would have thought that by 2000 the pool would be in operation, it will be pressurized. What work do you need to do on oil wells in fiscal 2000? A. Well, in the first year of operation we're not taking the pool up to any pressure above discovery pressure. It, in fact, is going to be less than discovery pressure. So from that standpoint, we still will continue to do the work on the existing wells even though we're already using the pool for storage operations. As far as the $70,000, what that entails is pressure testing the casings themselves and looking at the wellheads and replacing them as necessary. MR. CRAIG: A. I guess what you could say, Ms. Lea, is that some further inspection in the safety and integrity area and replacing some wellheads that were put in for oil production and to operate at 900 pounds or 950 pounds. But to get to the full 1,300 pounds and get there Oakley,Schnegelsberg, 77 Craig cr ex (Lea) reliably, this is something that we need to do. To put it in round numbers, if you were to add the amounts - and this is a rough estimate - but the amounts spent on inspection on oil wells in the past and indeed the additional costs that may be incurred in 2000 represent about 1 per cent of the total project costs. But by doing that Mr. Schnegelsberg indicated we achieve an additional -- or we can safely achieve an additional 1.3 bcf of injection capacity which represents about 40 per cent of the total 3.1 bcf of capacity. So we're spending that on the safety factor. We wouldn't do it for the oil production alone, but it certainly gives us comfort to take the pool to much higher pressures. Q. Thank you. I wonder if we could look at another number on Exhibit G, tab 1, schedule 2, and that's the cost to acquire the land rights. We understand from the evidence in the technical conference transcript that this is an estimate or calculated number. Can you give me a brief explanation of the derivation of the $4-million of land rights there, please? MR. OAKLEY: A. Yes. If you turn up interrogatory response 42. Q. Yes? A. You'll see on table 2 of that response there are four storage pools identified that were acquired by -- in and around the same time as the Ladysmith Pool was Oakley,Schnegelsberg, 78 Craig cr ex (Lea) being acquired through the purchase from Imperial Oil and we felt that these other pools were representative of the prices paid for similar gas storage rights. And when we valued Ladysmith we took -- to be conservative, we took the lower end of the range, being $1.25-million per bcf of working capacity, and that unit rate was derived by taking the value in column 2, being the total price, and dividing it by the working capacity of those pools identified. Q. Okay. I'm just going to back up for a moment. I presume you had to calculate a cost because these gas storage rights were purchased in 1991, but they were purchased as part of a total purchase when you acquired the company that's known as 923726 Ontario Limited from Imperial Oil; is that right? A. That is correct. Q. Are you able to tell me how much was paid to acquire the assets in total of that numbered company? A. About $13.4-million. Q. Thank you. And given that that -- I understand that that number was never disaggregated into storage rights and anything else; is that correct? A. That's correct. Q. Okay. So you have attempted to give us your best guess at a number by the calculation that you have described and which is described at schedule 42 -- interrogatory 42 that is? A. Well, what we did, I wouldn't characterize it Oakley,Schnegelsberg, 79 Craig cr ex (Lea) as a best guess. What we had done is -- Q. Yeah, I didn't mean to imply anything by that term. Your best estimate. A. Okay, thank you. [Laughter] What we had done, I guess in securing the assets related to 923726, the company's primary interest was to acquire the gas storage rights related to the Ladysmith Pool. It was identified as a candidate for future development. And, as you know, to bring any pool forward, a storage operator would like to have all of those rights. So when we valued or assigned the share purchase across the assets, the primary asset that we looked at was the gas storage rights and we used existing industry benchmarks in determining that value. Q. Okay, thank you. And I understand that the $4-million listed here is 1991 dollars; is that correct? A. It would be at 1993 dollars. Q. '93 dollars, thank you. And you have indexed that for inflation when you input that figure into your DCF analysis up to $6.6-million? A. I think it would be brought forward at the company's overall weighted average cost of capital. Q. I can ask that of the economics panel. Thank you. The last item I wanted to ask you about was the hearings -- legal and hearings costs which are listed in Oakley,Schnegelsberg, 80 Craig cr ex (Lea) fiscal '99 at $200,000. I understand that we've been chipping away at this and it was reduced to $130,000 in interrogatories 41 and 41.1. And then at the technical conference I think we got you down to $73.5-thousand. Given the way that this hearing has played out, is that a reasonable estimate of the legal and hearing costs? And we don't have to particularize for Mr. Cass' costs. [Laughter] MR. CRAIG: A. We have to twist his wrist. Q. Is that still a reasonable estimate? MR. OAKLEY: A. Yes, it is. Q. And are there any other revisions or updates to Exhibit G, tab 1, schedule 2? MR. SCHNEGELSBERG: A. No, there are not-- Q. One moment, please. A. --other than the ones that we just talked about. I assume that the 73-500 (sic) would be an update to that schedule. MS. LEA: Thanks. One moment, please. Thank you. Those are my questions for this panel of witnesses. THE VICE-CHAIR: Thank you, Ms. Lea. EXAMINATION BY MS. HALLADAY: Q. I just have a couple of questions for clarification, and I'm not sure who to address this to, so whoever would like to answer it is fine. Oakley,Schnegelsberg, 81 Craig ex (Halladay) We've heard evidence, and I guess it was in Mr. - maybe I should have asked Mr. Wickens, it's in his prefiled testimony - that as I understand it, dealing with the timetable for the well for the proposed injection, in the first year, which would be fiscal 1999, you are not going to inject the full capacity; is that correct? MR. SCHNEGELSBERG: A. Yes, that's correct. Q. And you're just taking it up to 1,100 psig? A. In the first year we're going to take it up to, I think, 850 pounds I believe and it's actually in his schedule. Let me just see. Q. I'm looking at Exhibit C, tab 3, schedule 1 at page 3 of 6. MR. CRAIG: A. I think if you look at Exhibit C, tab 3, schedule 2 you'll see the stages -- or the pressure levels that the pool will be pressured to over a three-year period. Q. Okay. A. 840 the first year which gives us the 1.5 bcf followed by 1,100 pounds the second year and then going to the full 1,300 pounds the third year. Q. Okay. I don't think the difference is material. My question is: Are there reasons for only increasing the pressure to a certain point in the first year; are they technical in nature? Is there a reason only to do it that far for technical points of view? Does it relate to the timing of Oakley,Schnegelsberg, 82 Craig ex (Halladay) this application as far as the injection period is concerned from the approval of the application? What are the reasons for the staging? MR. SCHNEGELSBERG: A. The reason for the staging in pressures has to do with the -- it's more of a technical reason. It has to do with injecting it in small stages to ensure that the storage container is operating the way it should and we're elevating it in pressure stages to get it up to that final pressure over a three-year period as opposed to doing it all in the first year and potentially exposing ourselves to an operational problem. But it's just company policy that we do it this way. Q. So there are technical reasons why you would not want to take it to full capacity immediately? A. Yes. It's really out of prudency that we're doing it. MR. CRAIG: A. I would say in the first year it's also a timing issue to be able to get the pool ready and also have a window to operate -- to inject the full 3.1 bcf. That wouldn't be available the first year. Q. Right. A. But the first year there is a timing factor in there as well, but the other -- the staged increase is a prudency factor. Q. So your timing as far as the project is concerned, it's based on this calculation of only injecting 1.5 bcf in the first year? Oakley,Schnegelsberg, 83 Craig ex (Halladay) A. Yes. Q. To meet the October 1st deadline, we need to go back to the timing that -- A. Time; we need to go back to be installing facilities in July and ordering equipment, you know, in advance of that, yes. Q. Okay. So this partial injection was taken then into place. I guess my next question - and this may be de minimis - but if you're only taking it up to 840 psig in year 1, then you don't need to upgrade and inspect the oil wells in year 1 because you're not taking it to those higher pressures. Is that correct? MR. SCHNEGELSBERG: A. That's correct. And, in fact, the dollars that we are proposing to spend on upgrading those wells will occur in fiscal 2000. Q. So none of it deals with fiscal 1999? A. Right. The costs that were previously spent on the inspection were to get the initial impression of these wells -- the initial condition of these wells. Q. So presumably it is prudent company policy to keep on inspecting these wells in 1999, but the costs of that inspection for 1999 have not been included in the costs of the project? A. No, the costs for the inspections prior to -- in 1998 and in prior years have been included. But we're also spending money in the year 2000 to upgrade and to pressure test the existing wells. And we can do that in Oakley,Schnegelsberg, 84 Craig ex (Halladay) year 2000 because we are not taking the pressure up to the highest level, okay. Q. Could you repeat that explanation? I thought the explanation for including the costs of the wells -- of the oil wells and the oil well inspections and the oil well upgrades as far as the costs of this project were concerned, is the fact that you're taking it up to pressure points beyond the natural pressure points of those oil wells and, therefore, that was the reason in including the costs of inspections and upgrades in the costs of this project; correct? A. Yes. That's correct, yes. Q. So it seems to me then that only the incremental costs as far as increasing the pressure up to those higher levels really are the direct result of the approval of the storage facilities. Am I missing something? A. I'm not sure I am understanding your question directly. But let me try and rephrase what I had said earlier. We are going to be inspecting -- or, sorry, we have inspected the wells and we spent some money and that was a sunk cost, that was in fiscal 1998 and in prior years. Now we're going -- and we're also going to do some pressure testing and some upgrading of some of the wells, but we can do that as long as we don't go up to the higher storage pressures. And we don't plan on going to Oakley,Schnegelsberg, 85 Craig ex (Halladay) the higher storage pressures until the second year of the project. So the upgrade costs appear in fiscal 2000. And it's a -- we're not there. MS. LEA: Sir, are you upgrading beyond the point you would need to for the pressurization of the pool that you are contemplating? Are the wells going to be better than they need to be? MR. SCHNEGELSBERG: No, they're going to be upgraded to meet the storage pressures that we expect at the end of the three-year period, which is the 1,300 pounds. THE VICE-CHAIR: Can I ask the question maybe, when are you going to do that work; in 2000 or in 1999, the upgrade? MR. SCHNEGELSBERG: In calendar year 1999, but our fiscal year 2000. It would be in the fall of 1999 is when we're proposing to do that. Sorry -- I'm sorry, fiscal 1998. I am sorry, it is - [laughter] - the dollars, the dollars are fiscal 1999. Whenever I said fiscal 2000 on the record before, I meant fiscal 1999. I was one year out of phase. THE VICE-CHAIR: So the work has already been done, but is not going to be charged until 2000? MR. SCHNEGELSBERG: No. MR. CRAIG: I think that there's some past inspection work that has been done and we've agreed I think on that. Oakley,Schnegelsberg, 86 Craig ex (Halladay) We had to know going forward that these wells were adequate, subject to changing out some wellheads and that, but the next work that will be done will enable us to go to the higher pressures. We have it on schedule G, tab 1 - sorry - Exhibit G, tab 1, schedule 2 as occurring in fiscal 1999. I think maybe your point was, 'Well, do you really need to do it in fiscal '99 or could you wait 'til 2000?' You're probably right because we won't be at the 1,300 pounds until fiscal 2001. You would want to do it at least one year in advance of going there, but yes. It may be a timing issues on $70,000. And in reality, this is our estimate. And, you know, when things actually occur they will hit rate base as opposed to the estimate. So I hope that's helpful. MS. HALLADAY: Q. Okay, I understand. That was very helpful. Thank you very much. My next question, and it just deals with the value of the land and the rights that were acquired. As I understand it, it was the shares of the numbered company 923726 Ontario Limited that were purchased, not the underlying assets. Is that correct? MR. OAKLEY: A. Yes, that's correct. Q. And that's the reason there was no allocation of the underlying assets because the assets, in fact, weren't purchased; it was the shares of the company that Oakley,Schnegelsberg, 87 Craig ex (Halladay) owned those assets that was purchased? A. Yes, that's right. MS. HALLADAY: Those are my questions. Thank you. THE VICE-CHAIR: Thank you, Ms. Halladay. EXAMINATION BY THE VICE-CHAIR: Q. I have a question which is really not related to this, it relates to the previous panel, but Mr. Craig is still with us, and this is the map. On the map, Exhibit 7.2, you show us the Kimball-Colinville or mid-Kimball-Colinville Pool and the south Kimball Pool and the Ladysmith Pool. But to the right of the Ladysmith proposed designated service area there's a whole area that has been designated and there doesn't appear to be on it, according to the map, any storage pool. I was wondering if you could explain to me whether or not there is a storage pool there and how come there's this large area designated? MR. CRAIG: A. The lands that you referred to basically south of the wording "south Kimball", south and east of that? Q. That's right. Yes, that whole area there. A. The Kimball-Colinville Pool has a particularly large A1 carbonate zone that extends off to the south and east of it. I don't know whether there's -- the carbonate zone is a thin zone that basically, if you think of these Oakley,Schnegelsberg, 88 Craig ex (Vice-Chair) things as being pinnacle reefs and some of the reef debris got washed off the top of them in high winds and waves and got laid down in the quiet waters on the shore side. And that has particularly occurred on this pool, and we have A1 observation wells that are out in that, what we call the Kimball boot, if you like, that track the pressures in the pool, but they might be one on or two years behind. So we see a storage cycle, but the gas is communicating out there, we have to protect it, it's unique in all the pools that we have and, indeed, I think even unique in the pools that Union have. But this particular pool has a very large A1 sucrosic area associated with it. So if Mr. Hoey was to do the exact same analysis, you would find that that shaded buffer area would extend well down into that region. And there's well evidence -- pressure evidence to demonstrate that that area does communicate; so, therefore, we want to keep it protected under the designation order. Q. And when this string of Kimball-Colinville Pools was designated the first time, was all that area designated at the same time or was this added as experience was gained? A. No, it was all designated originally. Q. Okay. Oakley,Schnegelsberg, 89 Craig ex (Halladay) FURTHER EXAMINATION BY MS. HALLADAY: Q. Just one clarification, since Mr. Dominy mentioned it. I assume those observation wells are, as Ms. Lea would describe them, the "pink squiggles" in that south Kimball area? MR. CRAIG: A. That's correct. Q. Is that correct? Is there any evidence to show that there's any communication between -- from those pink squiggles in the south Kimball area into the Ladysmith designated area? A. We have no evidence of that. Q. Okay, thank you. A. Pink squiggles -- in fact, there were wells that went well beyond the pink squiggles in the south Kimball area. Over time those wells were abandoned, but the pressure evidence is still available that says there was communication there, but there was no need to continue to maintain an observation well out there. Q. Right. I was just questioning the integrity of the Ladysmith Pool. A. We have no evidence to show that any of that communicates with any Ladysmith well. MS. HALLADAY: Okay. Thank you. EXAMINATION BY THE VICE-CHAIR (Cont'd): Q. I have a question on Exhibit G, tab 1, schedule 1, page 3. I believe that's Mr. Schnegelsberg's Oakley,Schnegelsberg, 90 Craig ex (Vice-Chair) question. And that is basically, you're talking about the payment for base pressure gas and I believe it occurs in fiscal year '00. I was wondering if you could just go over for me how that price will be set for the base pressure gas. I'm assuming that's the assumption, that's the date in which the storage pool will start. MR. SCHNEGELSBERG: A. Yes, I'll just defer that to Mr. Oakley. MR. OAKLEY: A. The base pressure gas required for the Ladysmith Pool will form part of the company's overall acquisition requirements of the gas supply department. And, as you know, the company cannot stream a particular gas acquisition for a particular customer or to a particular use, so we would value that base pressure gas at the company's overall purchase gas variance or purchase gas cost for that year. Q. And then how will the price be set for the residual gas, the cushion gas that is left in the pool? MR. CRAIG: A. The price mechanism for the residual gas that's left in the pool is an agreed-upon formula with the landowners, and the formula is based on how Union Gas purchases local production. And basically what they use is a price at Niagara Falls called the Niagara index price less a load-balancing charge. And we're using the exact same formula for the Oakley,Schnegelsberg, 91 Craig ex (Vice-Chair) purposes of calculating this, the value of the residual gas in dealing with the landowners. Q. Thank you. A. We offered them the PGVA, but they didn't want that one. Q. With regard to the Wilkesport-Coveny connection, that line, if the Ladysmith Pool was not being developed, would you be proposing at some time the construction of the Wilkesport-Coveny line independent of the Ladysmith Pool? MR. SCHNEGELSBERG: A. The Wilkesport-Coveny pipeline has many other benefits other than add to the operational flexibility of the Ladysmith Pool, so the direct answer would be, yes, we would because of the other benefits. And I can perhaps go over those-- Q. Could you? A. --with you, yes. We have the Ladysmith Pool connecting to the Wilkesport pipeline here and the Wilkesport Pool also connected to that same pipeline and that creates some operational restrictions. To alleviate that operational restriction, we would make that connection into here. Now, not only will it help us with the operation of the Ladysmith Pool, but it now connects the Coveny, the Black Creek, Ladysmith and the Wilkesport Pool to either one of our compressor stations. So we could actually move the gas coming from the Corunna compressor station south to Wilkesport to fill the Oakley,Schnegelsberg, 92 Craig ex (Vice-Chair) Wilkesport Pool, or we could fill Wilkesport from the Sombra station or either one of these pools in the same kind of manner. Now, the other thing that it does do for us, if you notice, it actually creates a completed parallel path to our main transmission which is the pipeline -- the two 30-inch pipelines that we have and we now make this connection. And we now have another path for the gas to flow to our delivery point down at Dawn. So the benefit there is that in the event we have an outage or maintenance on one of our pipelines and we have flow restrictions or no flow at all down this transmission system, we can still continue to operate through this loop that's formed by the Wilkesport-Coveny and Black Creek pipelines. So operationally it adds an awful lot more flexibility, it adds security of supply to the system, and it allows us to pick and choose our compressor units to best match flow efficiencies with the pool. The other thing it will do as well is it will, by virtue of the fact that Wilkesport is now connected through the Sombra station, it will open up Wilkesport as a potential peaking pool and that could add additional peak day to the system, okay. Traditionally because of the way we are now, Wilkesport must flow thorough the Corunna compressor station. It is not considered a peaking pool because we have our mid-Kimball-Colinville Pool and our Dow-Moore Oakley,Schnegelsberg, 93 Craig ex (Vice-Chair) Pools which we will flow through the Corunna compressor station on that peak day and Wilkesport will be emptied by that time as a base load pool. This way we can continue to operate these peaking pools as well as add Wilkesport peaking and Black Creek peaking through the Sombra station. So, yes, the Wilkesport-Coveny connection has numerous other benefits that are not directly related to the Ladysmith Pool. THE VICE-CHAIR: Thank you. FURTHER EXAMINATION BY MS. HALLADAY: MS. HALLADAY: Q. Is Ladysmith considered a base pool or a peaking pool, and does this connection alter the designation of Ladysmith? MR. SCHNEGELSBERG: A. The Ladysmith Pool, because of its reservoir characteristics; that is, it has a lower permeability than some of our peaking pools, it still has excellent porosity and permeability to make it a very good storage reservoir, but it's not considered a peaking pool. We characterize it as a base load pool. MS. HALLADAY: Thank you. EXAMINATION BY THE VICE-CHAIR (Cont'd): THE VICE-CHAIR: Q. On page 6 of 15 of Exhibit D, tab 1, schedule 1 there's reference to the fact that the pipeline is based on a Class 2 location factor. It refers to Ontario Hydro specifications requiring that. Are both pipelines being constructed Class 2 location factor or just this one in the area of the Oakley,Schnegelsberg, 94 Craig ex (Vice-Chair) Hydro... MR. SCHNEGELSBERG: A. No, both pipelines will be constructed under Class 2 because it will form part of the same order, as well as the pipe that we're connecting into down here would be -- into the existing Coveny pipeline is also a Class 2 pipeline. So we just make sure for code consistency that it will all be Class 2. Q. And I just want to confirm that on page 14 and 15 any damages to agricultural drainage tile system will be repaired or replaced to original or better condition. I know we don't have an environmental panel on this, but could you just confirm that that it is the case and what process will be followed to ensure the tile drainage meets the landowners' -- A. Yes. What we will do is prior to any construction or drilling activities we will meet with the landowner and a tile drainage consultant and we will, according to his recommendation, put in header tile, so -- on either side of the proposed pipeline easements and roadways, so we would maintain drainage while construction is going on. Now, in the case of the main tiles themselves, those tiles will be reinforced by heavier material before we go and we set heavy equipment on site. Now, of course, during the course of construction if there is any damage, that damage -- those tiles will be marked and we will repair them later. But generally they Oakley,Schnegelsberg, 95 Craig ex (Vice-Chair) would be of a minor nature. We would make sure that the main tile and header system would be in place prior to construction and drainage would be maintained. Q. I notice that on Exhibit I, tab 1, schedule 36 you cross a whole lot of tiles, page 2 of 2, schedule 36 where you're talking about the -- I think it's the gathering pipelines, there's a map there. A. Yes, that's correct. That shows the tile drainage on the Art Eyre property. And, yes, we will be crossing a number of those tiles. As I've mentioned, we would go and we would place headers on the upstream side of those to maintain adequate drainage. THE VICE-CHAIR: Those are the Board's questions. Mr. Cass, it's your re-direct. MR. CASS: Thank you, Mr. Chairman, I have no re-examination. ---(Witness panel withdraws) THE VICE-CHAIR: Thank you, panel. Twelve o'clock, Ms. Lea, what do you recommend? Shall we break or shall we carry on? MS. LEA: I prefer to carry on, sir, if possible. I have very few questions for the lands and right-of-way panel and it may be that we can finish entirely the evidentiary portion of the hearing before lunch. THE VICE-CHAIR: Fine, we'll just carry on then. Mr. Cass, your next panel. 96 MR. CASS: Yes, Mr. Chairman. The land panel will continue with Mr. Craig and Mr. Oakley. I'd also call forward Mr. Inwood and Mr. Chupa to be sworn for the purposes of that panel. ROBERT J. CRAIG, JOHN OAKLEY; Recalled ROBIN INWOOD, TERRY CHUPA; Sworn. DIRECT EXAMINATION BY MR. CASS: Q. Mr. Inwood, I'll begin by quickly addressing a few questions to you. I understand that you are the Marketing Director of Elexco Limited; is that correct? MR. INWOOD: A. That is correct. Q. And you were responsible for the evidence in this proceeding upon which your name appears; is that correct? A. Yes, I am. Q. Was that prepared by you or under your direction and control? A. Yes, it was. Q. Do you have any corrections that should be made to that evidence? A. No, I do not. Q. Is the evidence accurate to the best of your knowledge or belief? A. Yes, it is. Q. Thank you. Mr. Chupa, you are a land administrator for the Applicant; is that correct? Craig,Oakley, 97 Inwood,Chupa dr ex (Cass) MR. CHUPA: A. Yes, it is. Q. And similarly you were responsible for the evidence upon which your name appears, including I think some evidence given at the technical conference; is that correct? A. Yes, it is. Q. And was that evidence given by you or under your direction and control? A. Yes, it was. Q. Are there any corrections that should be made to your evidence? A. There is one correction. Q. Thank you. A. It's at Exhibit I, tab 1, schedule 24 -- that's Exhibit I, tab 1, schedule 24, in the third paragraph, the concession numbers were transposed so it should read lot 18, concession 5 rather than concession 4, and it should read lot 19, concession 4 rather than concession 5. Q. Thank you, Mr. Chupa. And is your evidence accurate to the best of your knowledge or belief? A. Yes, it is. Q. Then finally, Mr. Chupa, just one other question for you. I believe you're aware that in connection with a leave to construct application that there's a section of the governing statute under which the Board is to approve the agreement offered to the land landowners. Craig,Oakley, 98 Inwood,Chupa dr ex (Cass) Can you simply identify for us where in the record we would find the form of agreement that has been offered to the landowners, please? A. Yes, the form of agreement offered to the landowners is similar to that used in the Coveny-Black Creek as approved by the Board previously and it's found at Exhibit I, tab 1, schedule 34, pages 3 through 69. MR. CASS: All right. Thank you, Mr. Chupa. Those are my questions of the panel, Mr. Chairman. THE VICE-CHAIR: Thank you, Mr. Cass. Ms. Lea? MS. LEA: Thank you. CROSS-EXAMINATION BY MS. LEA: Q. A few administrative matters. Have easements or options to obtain easements been successfully negotiated for the gathering lines? MR. CHUPA: A. The gathering lines or the transmission lines? Q. The gathering lines. A. The gathering lines are going to be installed pursuant to the gas storage leases. Q. Yes. A. In the Century hearing it was found to be the Board's understanding that they were -- Q. Sorry, in which hearing, sir? A. The transmission lines are installed under the terms and conditions of the gas storage lease as it is Craig,Oakley, 99 Inwood,Chupa cr ex (Lea) not a transmission line in our view -- Q. Hang on, sir. You're referring now to the gathering lines? A. Gathering lines, yes, which is consistent with the findings in the Century hearing recently before the Board. Q. The Century hearing? Is that a hearing that Consumers brought forward? MR. OAKLEY: A. Mr. Chupa is referring to the Union Gas application for what was referred to as the Century Pools I think. Q. I see. I was present at that hearing. The Board made -- well, actually I don't think I've read the decision from cover to cover and word by word. The Board made no such finding, as far as I'm aware and, in fact, I argued with the witnesses on this point during the Century Pools. I don't think I want to enter into an argument with the company as to whether or not the gas storage leases, in fact, allow you to construct gathering lines without easements. Union's practice in that hearing, it was very clear, was despite the fact they may have the view that they can go ahead and construct gathering lines, nevertheless they obtained easements from the people concerned. Can I ask whether Consumers has done that? Can I ask whether Consumers has done that? Craig,Oakley, 100 Inwood,Chupa cr ex (Lea) MR. CRAIG: A. In this instance, no. We have on occasion in the past taken easements on gathering lines. Generally, the reason for doing that has been so that you register that interest on title. You register it by the way -- by way of an easement. Alternatively, you can create an 'R' plan indicating the location of those gathering lines and register the 'R' plan. So there's more than one way to put notice on title of the presence of your facilities. Q. And what did you choose to do in this circumstance? A. I don't believe we have easements on the gathering lines. Q. Are you registering any interest on title at all? A. Well, with this particular landowner we also have an easement for the transmission line and we will register an 'R' plan which indicates the location of all the wells and the facilities that connect to the transmission line. Q. Okay. So we're talking about one landowner here, and on his or her lands the transmission line easement exists? A. Yes. Q. Okay. So when you register your interests on title on the surface, we will -- if we went to that title we could find both the gathering lines and the Craig,Oakley, 101 Inwood,Chupa cr ex (Lea) transmission lines included? A. Yes, you could. Q. So I gather you have successfully negotiated an easement for the transmission line on this property; is that correct? MR. CHUPA: A. Yes. Q. Okay, thank you. And the easement agreement offered to this landowner, I think it's found at Exhibit E, tab 3, schedule 3; am I correct, or am I getting that mixed up with the interrogatory 34? A. You want it for the transmission line? Q. With the transmission, line, yeah. What is it at E, tab 3, schedule 3; what is it we see there? A. That was a copy of the typical agreement that would be offered to the landowners. And if you do refer to the interrogatory 34, that sets out the specific ones, the transmission easements acquired. Q. Okay, that's helpful. Thank you. Now, at the time of the technical conference there was still an open question as to the status of the petroleum and natural gas lease on the Ontario Hydro property that's involved in this application. Can someone update me as to what's happening with respect to the mineral rights there? MR. INWOOD: A. Those mineral rights were awaiting the approval of the Lieutenant Governor to assign those rights back from the Crown to Ontario Hydro. Craig,Oakley, 102 Inwood,Chupa cr ex (Lea) We received communication from the Ministry of Northern Development and Mines last week that that had, in fact, been done. Q. Sorry, is that the letter that we saw indicating an intention or is it another document that has not been filed? A. No, this is another document. It's actually a copy of the transcript, I believe, of the Lieutenant Governor-in-Council authorizing the Minister to dispose -- Q. I see someone coming forward. Is this something we can have filed now? Thank you. THE VICE-CHAIR: Can you give it an exhibit number, Ms. Lea? MS. LEA: Yes, the Exhibit 7.3 I believe. ---EXHIBIT NO. 7.3: Letter confirming receipt of Order-in-Council. MS. LEA: Thank you. If you'll just give us a moment to have a look at this document. Thanks. MS. LEA: Q. So the last page in this document, Exhibit 7.3 indicates that: 'A note to advise you we have received the order-in-council authorized in the granting of a patent to Ontario Hydro and Moore Township'. So now that Ontario Hydro has the mineral rights, what's the next step; is there something else that has to be done before you can go ahead or not? MR. INWOOD: A. No. Ontario Hydro had already entered into a P&NG lease with Consumers Gas and with a Craig,Oakley, 103 Inwood,Chupa cr ex (Lea) gas storage lease with Consumers Gas, and the terms and conditions of those instruments allow that Ontario Hydro, once it was entitled to make the disposition, could proceed with that disposition. Q. Okay. So that's all square now as far as we're aware? A. Yes. Q. Okay, thanks. Now, what about the easement agreement for the NPS-16 Ladysmith line with Ontario Hydro? We're looking in the prefiled evidence at Exhibit E, tab 3, schedule 1. Perhaps I can just look at that. It indicates agreements on page 3 of that evidence, question and answer 6, agreements with Ontario Hydro and the County of Lambton. What's involved there? MR. CHUPA: A. The agreement referred to is the easement agreement and is shown at Exhibit I, tab 1, schedule 34, page 7. It's the start of the easement which was finally acquired with Ontario Hydro. Q. What about the County of Lambton; what's the necessity for an easement agreement with them? A. It was not an easement agreement, it's an approval to cross the roads. Q. Oh, all right. That's fine. So that's a different sort of agreement altogether, yes? A. Correct. Q. And have you had discussions with the county in terms of the crossing of the road? Craig,Oakley, 104 Inwood,Chupa cr ex (Lea) A. On previous ones, so it's just a matter of following the same procedure. Q. I don't quite understand that answer. You're saying in previous applications you have had discussions with the county? What about for this application? MR. CRAIG: A. Maybe I could answer that, Ms. Lea. Q. Yes. A. We've had discussions with the county all along through this process and they're in agreement with what we're doing and will not have a problem in granting that crossing agreement. Q. Okay. A. This information has been filed with them way back in the fall as well and Mr. Tricker, who will be the pipeline project engineer, has had discussions with them. Q. All right. One moment, please. As this is the Lands Panel, we have heard evidence about the fact that there will be areas here that is "double designated" because of the overlap between the Ladysmith and Kimball-Colinville storage areas. Does the Lands Panel have any further comment to make with respect to the implications of that? MR. INWOOD: A. Not with respect to the implications and I would agree with what previous panels had expressed, that there is not another example, I believe, in the province where two gas storage designated Craig,Oakley, 105 Inwood,Chupa cr ex (Lea) areas overlap, but it is not an uncommon practice within all of the oil and gas producing jurisdictions within Canada and United States that such events may happen. Q. Thank you, Mr. Inwood. Now, can someone tell me, I understood that the landowner of those tracts is already being compensated for the fact that he is included in a designated storage area for the Kimball-Colinville reservoir and that no double compensation will be paid for the Ladysmith designation. But can I ascertain whether the compensation that is being paid for those overlapping tracts will be the same as the rest of the tracts in the Ladysmith area? MR. CRAIG: A. You mean the storage compensation will be exactly the same? Q. That's what I mean, it will be the same? A. Exactly the same. Q. Okay, thank you. And I gather you heard the evidence with respect to the debate I had with the first panel about the exclusion or inclusion of those corner lots on the west side. And I understood that there will be no reduction in the rights that the landowners would have were those tracts designated, but some reduction in compensation if they were not designated. Can someone from the Lands Panel just confirm that that's the case. MR. INWOOD: A. Yes, that is the case. Q. Okay. One moment, please. Craig,Oakley, 106 Inwood,Chupa cr ex (Lea) I'm sorry. I have to look up a section of the Act. Now, this is a point that it may be that your counsel will wish to address in his argument rather than you on the stand here, but he did raise it with you earlier and I wanted at least to put it on the record at this time. Section 97 of the new Act - and I can't remember which section of the -- 48 of the old Act, thank you - as Mr. Cass pointed out to you 'requires that where an application is made under a leave-to-construct section, the Applicant shall satisfy the Board that it has offered or will offer to each owner of land affected by the approved route an agreement in a form approved by the Board'. And you have indicated that in terms of the gathering lines in this application, you're not offering an easement agreement. Now, it is clear from your evidence that it's the same landowner with whom you have an agreement for the transmission line, so that may be a factor in this case that is different. But I notice that in your actual applications you have applied for leave to construct, approval for construction of the gathering lines and I'd ask you to turn your minds to whether you have satisfied the condition then that you must satisfy the Board that you intend to offer to the landowners for each line an Craig,Oakley, 107 Inwood,Chupa cr ex (Lea) agreement in a form that's to be approved by the Board. You may want to think about that and get back to me. And, as I say, because we have the same owner here, it may not be an issue, but I raise that for your consideration unless anybody wants to speak to it now? MR. CASS: Perhaps we'll take that under consideration, Ms. Lea, and address it later. Thanks. MS. LEA: Thank you. Those are my questions of this panel. THE VICE-CHAIR: Thank you, Ms. Lea. EXAMINATION_BY_MS._HALLADAY: ___________ __ ___ ________ MS. HALLADAY: Q. I just have a practical question. You're saying that you have an easement agreement for the transmission lines but not for the gathering lines; is that correct? MR. CHUPA: A. That's correct. Q. Okay. And is it your position that you don't need an easement agreement for the gathering lines or that you just haven't gotten one? MR. CRAIG: A. Our position is, is that we have those rights granted under the storage lease. The storage lease grants you the right to drill wells and install pipelines and so we're dealing in a situation where these are the facilities put on the pool and this particular landowner is inside the designated area. There are situations here and, indeed, in most cases where you'll have a transmission line that goes beyond the designated area to make the connection, and Craig,Oakley, 108 Inwood,Chupa ex (Halladay) it's certainly in those areas that one requires an easement, that being the limited right in lands to install that pipeline. But in the case of a gas storage lease, you already have that right granted under the gas storage lease. So the question is: Do you need an easement on top of the gas storage lease that already gave you that right? We've done it both ways. Initially, we never did take easements or Tecumseh didn't, then there was a period where they did. And the reason they took it was to put notice on title so that there was notice of the facilities. But you can do that in another way and that's simply create an 'R' plan of where your facilities are and register that on title. It achieves the same thing. This section of the new Act is something that I certainly wasn't aware of leading into today. But in respect of this landowner, it's not a concern or an issue. If we have to get an easement from him for the gathering lines, he will more than willingly supply that and it would be on the same terms and conditions as the easement that we already have. Q. That was my next question, as to whether that would be a practical matter. I should point out that in the Century Pools case, since it was raised, the decision says that 'while Union's position was that the gas storage agreement Craig,Oakley, 109 Inwood,Chupa ex (Halladay) provided the company with the rights to construct the gathering lines and access roads, as a matter of policy, the company will obtain easement agreements.' So in the Century Pools' case, Union have agreed to obtain easement agreements for the gathering lines. But you're saying that, as a practical matter, there would not be a problem in this case in getting an easement agreement for the gathering lines as well as the transmission lines? A. No, it would simply be extending probably the existing easement document to include those lands. Q. To include a description of the gathering lines. MS. HALLADAY: Okay. Thank you. EXAMINATION_BY_THE_VICE-CHAIR: ___________ __ ___ __________ THE VICE-CHAIR: Q. Just to confirm that, the gathering lines are entirely on that Kim-Col farm property? MR. CRAIG: A. That's correct, yes. Q. I had a question on Mr. Chupa's evidence and it's page 4 of 4. I just wondered if you could just - it's question A-9, if you could just go over the status of the various permits and agreements by going down the list he lists in A-9 and tell me what the status of those are for the moment? MR. CHUPA: A. To this point we have identified the parties where we would need to contact; but at this stage there's no need to have actually contacted them or Craig,Oakley, 110 Inwood,Chupa ex (Vice-Chair) attempted the acquisition process. Q. Okay. With regard to the question of compensation and rights, have all the parties agreed to the compensation terms for storage rights and that, or is it just you have made an offer? MR. CRAIG: A. They have all agreed. Q. All agreed? A. Yes. THE VICE-CHAIR: Thank you. Those are the Board's questions. MS. LEA: I have one further question arising, if my friend and the Board will permit. FURTHER_CROSS-EXAMINATION_BY_MS._LEA: _______ _________________ __ ___ ___ MS. LEA: Q. I wonder if we could look for a moment at Exhibit D, tab 2, schedule 1, which is a facilities diagram. And I just want to understand, and going on with this practical question of easement, understand the ramifications of this diagram. Do I understand correctly that for the wells that plan to be drilled, the NPS-16 transmission line for which you have an easement agreement is the line that runs east-west to those wells and the gathering lines are the very short north-south pieces that come off that NPS-16? MR. CRAIG: A. I guess at this point in time the description would include the north-south section of that line. Q. Sorry. What description would include? Craig,Oakley, 111 Inwood,Chupa cr ex (Lea) A. Well, the easement document is for the north-south section-- Q. Yes? A. --but doesn't include the east-west section. Q. It does not include the east-west? A. So it would have to include the east-west section. Q. Okay. So at present the easement agreement includes the north-south section but not the NPS-16 east-west section? A. Yes. Q. And I presume it does not include the NPS-10 possible gathering line that may be constructed to the TL9 well if it is drilled? A. That's correct. MS. LEA: Okay, thanks, that clarifies it. Thank you. FURTHER_EXAMINATION_BY_THE_VICE-CHAIR: _______ ___________ __ ___ __________ THE VICE-CHAIR: Q. Okay. Can I just understand it then. The gathering lines are just the east-west element and the transmission line is the north -- the one going north; if that's correct? MR. CRAIG: A. In this case, yes, that's correct. In some cases the distinction is made as to where the 16-inch or the main line goes over to the small little 10-inch lines. Craig,Oakley, 112 Inwood,Chupa ex (Vice-Chair) But in this case we have an easement that runs north-south, but not east-west-- Q. Thank you. A. --in the description of that easement. THE VICE-CHAIR: Mr. Cass, any re-direct? MR. CASS: No re-examination, Mr. Chairman. Thank you. THE VICE-CHAIR: Thank you, Mr. Cass. ---(Witness panel withdraws) THE VICE-CHAIR: Ms. Lea, do you want to press ahead with the next panel or it's half past twelve. MS. LEA: I'M in your hands, Mr. Chairman. I expect I'll probably have about 25 minutes of questions for the next panel and then I would, just to assist you further, I would probably need about 10 minutes to be ready to deliver a summary, and the summary would be of a length of about 10 minutes. So that is the sort of -- I'M just trying to think ahead to where I can stop and that's what I have estimated. So we could possibly finish all of Board Staff's questions and summary by five past one, if it's seen as an advantage to do so before lunch. THE VICE-CHAIR: Mr. Cass, have you any views on this? MR. CASS: I hesitate to press the Board if there's a desire to take a break. MS. LEA: I'm happy to go. It's up to you. 113 MR. CASS: If Ms. Lea could complete her questions before lunch, perhaps that is desirable, but I don't know about the Board Panel Members' own situation and I don't want to press something that's difficult to accommodate. THE VICE-CHAIR: Really, the concern I have more is whether it's okay with the court reporters whether we continue for another 35 minutes before a break. Can I ask you? THE COURT REPORTER: That's fine. THE VICE-CHAIR: Okay. Well, if everyone is willing, let's proceed. MS. LEA: Let's give it a try and if one of us gets tired we will just have to... THE VICE-CHAIR: Okay. Thank you, panel. MR. CASS: The final panel, Mr. Chairman, represents a complete change-over of witnesses. In the order that they are coming forward, we have Nicole Butcher, Will Lomax, Charlie Barrotta and Frank Brennan, all of whom would need to be sworn. NICOLE_BUTCHER, ______ _______ WILL_LOMAX, ____ _____ CHARLIE_BARROTTA, _______ ________ FRANK_A._BRENNAN; Sworn. _____ __ _______ DIRECT_EXAMINATION_BY_MR._CASS: ______ ___________ __ ___ ____ MR. CASS: Q. This may be a little tedious, but because we have all new witnesses I just have to quickly run through the questions to have you each adopt your Butcher,Lomax, 114 Barrotta,Brennan dr ex (Cass) evidence. Ms. Butcher, if I could start with you. I understand that you are Supervisor, Financial Studies of Enbridge Consumers Gas; is that correct? MS. BUTCHER: A. Yes, that's correct. Q. And you were responsible for evidence of different varieties as appears under your name in this case; is that correct? A. Yes. Q. That was prepared by you or under your direction and control; is that right? A. Yes. Q. Are there any corrections that should be made to that evidence? A. No, there are not. Q. And is it accurate to the best of your knowledge or belief? A. Yes, it is. Q. Thank you. Similarly, Mr. Lomax, you are Manager, Financial Studies for the company; is that correct? MR. LOMAX: A. Yes, that's correct. Q. And you were responsible for the evidence upon which your name appears; is that right? A. Yes, that's correct. Q. Do you have any corrections to make? A. No, I do not. Q. And is that evidence accurate to the best of Butcher,Lomax, 115 Barrotta,Brennan dr ex (Cass) your knowledge or belief? A. Yes, it is. Q. Thank you. Mr. Barrotta, you are Supervisor, Supply Analysis for the company; is that correct? MR. BARROTTA: A. That's correct. Q. And you, too, were responsible for evidence upon which your name appears? A. Yes, I was. Q. Was that prepared by you or under your direction and control? A. Yes, it was. Q. Are there any corrections that should be made to that evidence? A. Yes, there is. In the prefiled evidence, Exhibit H, tab 1, schedule 1, page 5 of 10 the answer to question 10 in the second paragraph, I'll read part of that sentence: '...is to determine the gas supply cost savings for the period from 2006 to 2007 through 2040 to 2041.' The 2040 to 2041 should read 2038-2039. Q. All right. Thank you, Mr. Barrotta. And is your evidence accurate to the best of your knowledge or belief? A. Yes, it is. Q. Thank you. Mr. Brennan, you are Manager of Gas Supply Butcher,Lomax, 116 Barrotta,Brennan dr ex (Cass) Planning for the company; is that correct? MR. BRENNAN: A. Yes. Q. And you, too, were responsible for the evidence upon which your name appears? A. Yes, that's correct. Q. And was that prepared by you or under your direction and control? A. Yes, it was. Q. Are there any corrections that should be made to your evidence? A. Yes. I believe we have one correction to make with reference to Exhibit H, and maybe I can just read those corrections that are being handed out now. It's at Exhibit H, tab 1, schedule 1, page 7 of 10. And the first correction is in response to question No. 15. The heading there is No. 1 and it reads "TCPL FT" and in brackets "base case". We will remove the words "base case". And correspondingly, on page 9 of 10 in that same exhibit there's a table in response to question No. 16. In that table it identifies again TCPL FT and again in brackets "base case". Remove the words "base case". And right next to that, the cost difference we show plus 14,557. That number should be 69,759 or million -- they're really millions of dollars, but... Those are all the corrections. Q. Thank you, Mr. Brennan. Butcher,Lomax, 117 Barrotta,Brennan dr ex (Cass) And is your evidence accurate to the best of your knowledge or belief? A. Yes, it is. MR. CASS: Thank you. Those are my questions, Mr. Chairman. Thank you. THE VICE-CHAIR: Thank you, Mr. Cass. Ms. Lea? MS. LEA: Thank you. CROSS-EXAMINATION_BY_MS._LEA: _________________ __ ___ ___ Q. I have two follow-up questions that are sort of left hanging over, at least in my mind, from previous panels. One had to do with a question from the bench and this dealt with the effect if there was any communication between the Kimball south reef and the Ladysmith Pool. At that time the answer was that even if there was communication, it wasn't really important. I don't want to misquote the witness, but the idea was it wasn't really important because both of those pools are owned by Consumers and developed by Consumers Tecumseh, so what's the problem. I wonder, though, if someone on this panel could comment on the idea that if communication did exist between the two pools, the effect on the economics; that is, the profits gained from the Ladysmith Pool might be affected in such a circumstance? MR. BRENNAN: A. I would have to say that no one on this panel is really in a position to be able to answer Butcher,Lomax, 118 Barrotta,Brennan cr ex (Lea) that question, not knowing what the impact of that migration may be between the two pools, what the impact is and how it would affect the storage operation itself. Q. Okay. Yes, I accept that we don't know this. All I was trying to suggest was something very simplistic. In your economic analysis you have assumed a certain amount of revenue to be generated from the pool and that is partly dependent on its working capacity and its ability to produce gas during withdrawal season; is that correct? A. That's correct. Q. If the working capacity of the pool was reduced or its ability to produce gas during withdrawal season was reduced due to communication with some other reef, if there was a reduction therefore in its ability to act as a storage reservoir, there might be a reduction in its revenues? A. Relative to the cost, yes. Q. Yes, relative to the cost. I understand that. Now, you know, where you lose on the swings you may gain on the roundabout. I'm not saying that it's a big problem. I just wanted to -- considering the Ladysmith Pool by itself, there may be some effect on the revenues generated if there were significant communication with another Consumers' Tecumseh-owned reef? A. There may be. Butcher,Lomax, 119 Barrotta,Brennan cr ex (Lea) Q. Thank you. There's also the question that I asked the panel about the calculation of, or determination of the cost of the storage rights for this pool. And I asked them whether those numbers were -- what year dollars they were and they indicated that the $4-million estimated as a cost of the storage rights were 1993 dollars. I then asked that panel if that had been indexed for inflation when it was inputted into the DCF analysis, and I believe the answer was yes. Can somebody help me with that? MS. BUTCHER: A. Yes, we put the $4-million directly into the DCF and when we future value it from '93 to '99 there's an inflation adjustment embedded in the cost of capital. Q. So it is indexed for inflation once it has been input into the DCF; is that what you're saying? A. Yes. Q. Are you able to tell us what that number is then in 1999 dollars? A. What the inflation... Q. No, what the cost of the storage rights is in 1999 dollars? You may not be able to, I'm asking. A. No. Q. It's not disaggregated? A. No. Q. Okay, thank you. Now, the rest of my questions for this panel Butcher,Lomax, 120 Barrotta,Brennan cr ex (Lea) largely deal with the Sendout model and the calculation of gas cost savings and the profitability of this pool arising from that model. I understand that any project of this type is typically analyzed for economic feasibility through the use of this Sendout model which is a type of software Consumers uses; is that right? MR. BARROTTA: A. That's correct. Q. I wonder if you could simply and briefly explain how this model might derive the least cost solution to a problem of growing forecast demand? A. I'll try. Q. Thank you. A. The Sendout model is an optimization model which looks at an entire forecast period and typically it's anywhere between one to 10 years. It determines which contracts you should use and how you should schedule your purchases in order to meet your company's demand in the least cost fashion. But in order to do that, there's a menu of supply options that get incorporated into the Sendout model along with the company's existing long-term supply arrangements. So the model goes through many iterations and processes and comes up with a mixture of supply resources which gives the results, the best mix of supply resources to come up with the least cost. Q. Okay, thank you. I understand that you run the model once to Butcher,Lomax, 121 Barrotta,Brennan cr ex (Lea) prepare what's called a base case and this is the optimum mix of resources that you could apply to the problem assuming that the Ladysmith -- in this case, the Ladysmith project is not constructed; am I correct? A. That's correct. Q. Okay. And what were the supply sources that would have been included in the base case for this particular run; do you know? A. I guess if I could direct you to the evidence on Exhibit H, tab 1, schedule 1, page 4 of 10. Q. Yes. A. Response to answer No. 9, the list of alternatives are additional firm transportation from Western Canada, U.S. supply and transportation moving up through the Union Gas system, additional Union Gas C1 and M12 transportation - and that's basically moving gas from Dawn to Parkway and St. Clair to Dawn - additional storage transportation service on TCPL to move gas to the central delivery area and eastern delivery area. And flipping over to the next page, page 5, there's also winter peaking service to get gas in the central delivery area and eastern delivery area, as well as two storage options which were the Michigan storage which we call the Washington 10 -- which we use as Washington 10 as a proxy and New York storage and it's a Tioga storage -- we use Tioga storage as a proxy. Q. And were each of these used in the mix that developed the base case? Butcher,Lomax, 122 Barrotta,Brennan cr ex (Lea) A. Yes, they were. Q. Okay. All right. Now, I think then that what happens next is you prepare a scenario case in which you ask the model to solve the same problem but with the Ladysmith project as constructed; is that correct? A. That's correct. Q. When you compare these two scenarios you're able to arrive at a forecast of the savings derived by including the Ladysmith project; is that correct? A. That's correct. Q. Now, I understand that the analysis of the savings from any given project of this nature is performed over a 40-year period; am I right? A. That's right. Q. But the Sendout model is run on a 10-year basis and you truncate the last two years to get rid of what is described as end effects? A. That is correct. Q. Okay. How then do you project the results from eight years of the Sendout model into a 40-year timeframe? A. Maybe if I could direct you to the IR No. 46, the cumulative gas savings from the Sendout model are discounted by the rate of inflation. These discounted -- let me take one step backwards. We regress the discounted cumulative gas cost savings, which are shown in IR No. 46, and the total Butcher,Lomax, 123 Barrotta,Brennan cr ex (Lea) cumulative gas cost savings is $27.7-million at the end of the eighth year. Q. Okay. That's the end of the eighth year, yes. A. Right. The regression produces the cumulative gas savings for the remaining 32 years, extending it out 32 years. Q. Can I ask you this: Do you think that it is valid to regress or extrapolate from an eight-year model over a 40-year period; does that really give you a realistic view of the gas cost savings over 40 years in your opinion? A. It gives us the best estimate since we don't have the resource to go that far. And I think it is probably the best result. Q. But you would agree with me that with every year added in time uncertainties are added, so that by the end of 40 years you've got considerable uncertainty built up into that forecast? MR. BRENNAN: A. It assumes though that, as Mr. Barrotta said, once you've regressed the cumulative gas cost savings and then you take the difference between those and look at the incremental year by year gas cost savings, essentially those gas cost savings are held constant over time, with the exception I guess that Mr. Lomax may put an inflation in there. So we're really not - at least I don't think anyway - adding extra costs into there that shouldn't be Butcher,Lomax, 124 Barrotta,Brennan cr ex (Lea) in there. I think we're assuming that if nothing else happens, the world stays the way it is, we should be able to continue to generate those savings over that period of time. Q. I understand that, sir. I'm not suggesting that you are adding additional benefits or subtracting additional costs. What I'm saying is that even if you assume that gas cost savings will remain constant, the farther out in time you're trying to forecast anything, the more uncertain it gets. A. I agree. But at the same time though I think - and maybe Mr. Lomax may want to comment on this as well - is that yes, there is probably more uncertainty but when you look at those gas costs and discount them back to 1999, that impact is very, very small. Q. Mr. Lomax? MR. LOMAX: A. A few comments. First of all, if we look at the DCF analysis at Exhibit H, tab 1, schedule 3, page 1, the project actually crosses over -- if you look at the very bottom line, the benefit cost ratio -- the cumulative running benefit cost ratio, it crosses over from below one to above one in between 2007 and 2008. Q. So year 8; isn't it? A. Yes. So I guess the first year of the regression analysis. So even if you were to assume that there is some uncertainty with the gas cost savings as we Butcher,Lomax, 125 Barrotta,Brennan cr ex (Lea) go further out in time the project is already feasible. In addition we've also -- Q. Just before you leave that point I wanted to highlight it. So the payback period for this project is achieved in eight years, or by that crossover point that you've just indicated? A. Yes. Q. Mm-hmm, okay. A. Also we have shown in the scenario analyses on Exhibit H, tab 1, schedule 1, page 7, scenario No. 4, we did reduce the gas cost savings by 25 per cent and the benefit cost ratio was still above 3. So, again, if you were to assume that that is a proxy for additional risk, as you go further out the project still has very healthy economics. Q. Thank you. That's helpful. In fact, the benefit cost ratio for this project, even assuming that -- even doing those sorts of sensitivity analyses is extremely robust and generally higher than we see in a project of this nature? A. Yes. My recollection is that the economics of this project is even better than what we saw in Black Creek-Coveny, so it is very high. Q. You've indicated that you performed a sensitivity analysis to test a reduction in cost gas cost savings. Did you conduct any sensitivity analysis to Butcher,Lomax, 126 Barrotta,Brennan cr ex (Lea) determine the effect of an increase in costs and, if so, where is that analysis and in what years did you assume such an increase? MS. BUTCHER: A. Yes, we have done two other scenarios on the same schedule page, Exhibit H, tab 1, schedule 1, page 7. There's four scenarios there. Q. Yes. A. The first one we increased the capital cost by 10 per cent. Q. In what sort of timeframe though that's what I was looking at. A. It was actually all capital costs across time. Q. Each and every year? A. Yes, including the '93 that had already been spent. We had just miscellaneously picked 10 per cent, so there was no rhyme or reason, and it is still feasible at 3.74. The second scenario we did was to increase the O&M costs by 25 per cent and it had very little impact on the benefit cost ratio. The benefit cost ratio remains at 4.04 in that sensitivity. Q. Okay. Thank you. I'd like to turn for a moment to another piece of evidence which you provided which had to do with stand alone alternatives. I just can't remember -- here we are. Somebody is finding it for me. Thank you very much. Butcher,Lomax, 127 Barrotta,Brennan cr ex (Lea) You've given us an update to that today; is that correct? MR. BRENNAN: A. Yes, we did. Q. Okay. What are the stand alone alternatives as compared to this base case that we talked about? A. Okay. I'm wondering at this point in time -- we have a document that we may want to hand out that would help clarify many of the changes that have occurred and shed some light on what processes we've gone through. Q. Certainly. Although I'm finding your explanations to be adequate up to this point, but certainly if you want to file something else, that's fine. We're looking at exhibit -- I think we would probably be up to 7.5 by now. Am I right? No, 7.4, I beg your pardon me. Thank you. ---EXHIBIT_NO._7.4: Document entitled: Comparing Costs _______ ___ ___ of Alternatives filed by Enbridge Consumers Gas. MS. LEA: Q. All right. I see you're anticipating my line of questions about the negative gas cost savings. Now, does somebody want to take us through Exhibit 7.4? How shall we go about this? MR. BRENNAN: A. Yes, sure, I'll be happy to do that. Q. Please. A. Do you have the complete fax sheet of the four pages? Q. I, in fact, have a more complete package than Butcher,Lomax, 128 Barrotta,Brennan cr ex (Lea) you. I have five. A. Okay. I'm not sure that we have to go through all of this, but we can go through the first ones probably fairly quickly. The first one -- maybe I won't start with the top page, just maybe go through some of the other ones first. The second sheet, I believe, is labeled 'gas market demand schematic'. Q. Yes? A. And that's just to give you an idea of our annual market demand and how it's broken out between the winter and summer. The winter market is approximately 65 per cent of the annual demand and our annual demand right now currently is in the range of 430 bcf. Q. Okay. A. So it just gives you some idea of how big the winter market is versus the summer market. The second drawing is just a little graph that shows the distribution on a monthly basis of our annual demand. Q. This is the page entitled 'demand profiles' with a curve and a graph? A. Right, yes. Q. Yes? A. And in there you'll see two curves, one blue and one pink. Q. They're both black on my page. A. Okay. Maybe I'll start again. Butcher,Lomax, 129 Barrotta,Brennan cr ex (Lea) Q. No more pink things. Sorry, go ahead. A. There are two curves. The bottom one is, for example, the demand in any one given year. The top one would be -- would represent the growth in demand, say, in the following year over some time period in the future. The dashed lines in the middle of the page really represent sort of the average demand on an annual basis. So if you're to take the annual demand and divide it by 365 in this case is roughly what you would get. So what this shows is that if you were to try to serve your demand simply by contracting transportation on a pipeline such as TransCanada where you would have a firm daily volume coming to you each and every day, you would have a problem in the winter. You wouldn't be able to serve your market demand and in the summer you would have too much gas and you wouldn't know where to put it; hence the need for storage. So what we're just trying to show here is that first of all, there is a need for storage. The second point is, I guess, that if you look at the increment -- the difference between the two dashed lines which would be the increase if you were to just contract on TransCanada, that wouldn't be enough on peak day because the difference between the two lines on peak day is greater than that, so you'd need something other than firm transportation to meet that market and, again, the need for incremental storage. Q. Just to clarify that point then, the difference between the two curves on the peak day, that Butcher,Lomax, 130 Barrotta,Brennan cr ex (Lea) difference is greater than the difference between the two dashed lines which represent two different levels of FT transportation on TransCanada? A. Right. Q. Thanks. A. The next sheet leads into, I guess, the Sendout optimization program and as Mr. Barrotta just took you through just in the evidence, these in the green boxes represent the supply options that we have available to us to meet the incremental demand. Now, I'll refer back to this, I guess, when I go through the next one when I explain how we use the Sendout model to come up with the benefit/cost analysis and also look at the alternatives. On the next sheet, I'd first like to concentrate on the left-hand side which is -- Q. Which sheet are you talking about, sir? A. I'm sorry. This will be, I guess, the one that shows the -- it's entitled 'Enbridge Consumers Gas, comparing gas costs of alternatives'. Q. Okay, that was the first sheet in my package. Yes, go ahead. A. And that sheet on the left-hand side deals with the benefit/cost analysis and as it's been all pointed out already is that the first scenario that we do is the base case and that's without Ladysmith. So going back to the previous sheet that shows all the green boxes as to which ones -- the options that are available to us, they're all there except Ladysmith. Butcher,Lomax, 131 Barrotta,Brennan cr ex (Lea) So that's our base case And that's referenced in Exhibit H, tab 1, schedule 1, page 4 where we describe the base case. The next scenario we do is called 'the scenario case with costs', and the only difference between that and the base case is now we've included the Ladysmith project as well as the costs of Ladysmith. And what we're trying to do there is to ensure that the Ladysmith project is an economic project and so, therefore, we have the cost in and we compare it to the base case to see if there's any gas cost savings to be had. And in this case, there was a saving. The number of 100 in the top box in the base case is just arbitrary. I just threw out a number of $100-million let's say, but the differences should be reflective of what we would see in our analysis. So what it's saying there is that the scenario case is $14-million -- $14.6-million, thus expensive than the base case. Now, the third one in that column is the scenario case with Ladysmith again, but we remove the cost of Ladysmith. Now, the reason for doing that is that the gas cost savings that we would take when comparing the base case to this case, those are the ones that we use to move into the discounted cash flow analysis and the costs of Ladysmith are already included in the discounted cash flow. So if we were to include the costs in the scenario case, we would be double counting and there's no need to -- you know, we feel confident through the optimization Butcher,Lomax, 132 Barrotta,Brennan cr ex (Lea) process in the second box that we've already established that there is a need for the Ladysmith Pool and that scenario is the one that's identified in Exhibit H, tab 1, schedule 1, page 4 in the evidence. And the difference between the base case and the scenario case, the third one, is the $27.7-million. That's over the eight-year period and that's the same $27.7-million that you'll see in response to, I believe it is, Interrogatory No. 46 where you look at the cumulative gas cost savings over the first eight years. It's the same number. Q. Okay, thank you. A. Now, on the next side of this under alternatives -- once we finish this process, then we look at what other alternatives are there to the Ladysmith project. And we were asked in the previous hearing to do -- to look at some stand-alone projects. Well, we feel that looking at -- throwing all the alternatives in one, making -- pick and choose from what it wants, from that pool is probably maybe a more appropriate way, we were asked to do this and this is what we've provided. So in comparing those alternatives, what we've done is just taken the scenario case with costs as our starting point and then we've compared the alternatives to that scenario case. So the base case we've moved again across. Now, that base case, the only difference between that and the scenario case with costs again is the Ladysmith Pool. The Ladysmith Pool is not in the base Butcher,Lomax, 133 Barrotta,Brennan cr ex (Lea) case. The next one up is TCPL FT, TCPL firm transportation. This is where the only alternative to the Ladysmith Pool is firm transportation from TransCanada. It does not include Washington 10. It does not include Tioga. Likewise, when we move up again to the Washington 10 alternative, it only includes Washington 10. It does not include Tioga and Tioga does not include Washington 10. We've measured all these costs and the only -- the update that we provided you today was to really clarify or correct, I guess, confusion in that we had put in our evidence the base case, which is the $14.6-million that you see here, when we really should have been showing the TCPL FT alternative which is $69.7-million. So what we're saying, once you start restricting the number of alternatives that you have to choose from, it's going to be more expensive. Q. Okay, thank you. That's helpful. Now, my last line of questioning deals with the last page that you've given us here and that is, in several years at Exhibit H, tab 1, schedule 3, page 1, where you see gas cost savings - that's Exhibit H, tab 1, schedule 3, page 1 - the annual benefits in the years 2000, 2001 and 2002 are actually negative. And given the benefits of this project, could you explain, please, how these benefits could be negative in those years? A. Okay, I'll try. I guess maybe just to start Butcher,Lomax, 134 Barrotta,Brennan cr ex (Lea) off with is to -- when we look at the gas cost savings - again, we're comparing the base case versus the scenario case - and in there, it's comparing for each year all the different supply alternatives and it's looking at a whole slew of resources that it has to choose from. So in analysing why it's going negative, you would have to look at certain factors and these factors would include the amount of supply that you purchased, the price that you purchased the supply and where you purchased the supply, the transportation path that you move the gas to get to the market, the price of the transportation, storage pools, which ones you're looking at, their price and their location. Now, you're looking at all these factors for both the base case and the scenario case for each year, so it becomes very complex in trying to analyse what is really going on. Just to give you an idea of the time we spend at doing a run like this, we would spend probably 10 per cent of our time inputting the data, 10 per cent running the model and 80 per cent of the time just analysing what came out of the model. So there's a lot of analysis that's going in to trying to understand what is actually happening. Having said that, I will try and explain why they're going negative. In the first year, you can see in response to No. 46 -- Q. Interrogatory 46, sir? A. Yes -- I'm sorry, 45. Butcher,Lomax, 135 Barrotta,Brennan cr ex (Lea) Q. 45, yes? A. Which is where you asked a question why they went negative. I think the starting point you have to look at -- why we show a positive gas cost saving in the first year and then they go negative, I think you have to start from the beginning and what I've done is broken it up between the base case and the scenario case. And in the base case, you can see that we've injected 116.35 10(6)s into Washington 10 in the first year. In the scenario case, we've injected 42.5 into Ladysmith and 28.4 into the Washington 10 pool. So what that means then is that if you look at costs of doing that, there's going to be more costs in terms of supply because you're filling up Washington 10 more in the base case than you are in the scenario case and that difference is about 45 10(6)m(3) in terms of the total supply that you use to fill storage. So the base case then has an extra cost relative to the scenario case of approximately $5-million. And because you're using more storage in the base case, you need more transportation to move that gas to storage and you need physically more storage. And if you include those costs, that total cost is $6.2-million more expensive in the base case relative to the scenario case and that's why you see a saving in the scenario case of $6.2-million. Q. And for what year is that, sir? A. That would be for '98/99. Butcher,Lomax, 136 Barrotta,Brennan cr ex (Lea) Q. Okay. Yes? A. Now, then moving into the next year, moving into the winter of '99/2000, in the base case, you have more gas in storage relative to the scenario case, so the scenario case then has to go out and purchase more gas in the wintertime because it still has to serve the same market demand. That is going to cost more in terms of going out and acquiring that supply and that supply is going to cost $6.2-million. Q. So that has to do with the timing of the purchase of the gas, the fact that you're purchasing expensive gas at that time of the year? A. Well, there is a difference and when you -- yes, there is a difference in the price of gas when you buy it versus -- you know, the summer versus winter, that's correct. So you had to buy that extra gas, but then there's also some savings in the scenario case because you still don't have to have that storage, the same amount of storage or the same amount of transportation that you do in the base case. So there is some other offsetting savings in that year. They're about $1-million. So if you're just looking at the winter portion, there's a negative $5.2-million. Now, moving over to the summer, again, the same thing is happening in the summer. We are injecting more gas into the Washington 10 pool in the base case relative Butcher,Lomax, 137 Barrotta,Brennan cr ex (Lea) to the scenario case. So again, you don't have to buy as much gas in the scenario case, you don't need as much storage, you don't need as much transportation. So there's a saving in the summer portion, if you like, of $3.4-million. So if you look at the 1999-2000 year, the net of the minus $5.2-million in the winter and the plus $3.4-million in the summer, the net of those two is minus $1.8-million or a negative gas cost saving. Now, I could continue to go out each year and the same thing is happening, but I think, though, that the simple way of looking at it may be if you were to look at, instead of looking at a fiscal year or a gas year, look at a storage year, storage cycle which would be from April 1st to March 31st, you wouldn't see that because what you would see in, for example, if you were to look at say the summer of 1999 where you would start injecting say April 1st and end in the end of the winter, March 31st, 2000, you will be netting out $6.2-million against the minus 5.2, so you would have a positive gas cost saving of about $1-million. And if you did that for each year, you would eliminate all these negatives. They would all be positive and all growing. Q. Okay. So if, instead of looking... Are we looking at fiscal or calendar years in the DCF? MS. BUTCHER: A. Fiscal. Q. Fiscal. If, instead of looking at fiscal Butcher,Lomax, 138 Barrotta,Brennan cr ex (Lea) years, when you divided up the gas cost savings and the cost to achieve those savings into injection/withdrawal cycles, injection/withdrawal years, we would not see a negative gas cost saving occurring? MR. BRENNAN: A. That's correct. Q. Okay. Now, I notice that this tendency, this timing problem almost, appears to go away in 2003. In other words, we get back to a positive saving in the fiscal year of 2003. Is that correct? A. Well, I think it's primarily... It's just that the negatives, I guess, are shrinking and those positives are really starting to take off, so that, you know, the net is I guess that the positives are just getting bigger and bigger and bigger as you go out. Q. Okay. Thank you. That's helpful. I had another question about the Year 2007. The year that the Sendout analysis ends and the regression trending starts, there is a fall in the gas cost savings. Is this coincidental or is there some reason for the fall in the gas cost savings related to that? A. Well, I think what you are seeing there is that when we do, it's basically a result of the regression process because the regression process is looking at all of the first eight years, so it's, if you like, doing a trend line. So when it trend lines that out beyond Year 7, it's looking at the first eight years. That average over the first eight years may be lower than the last year, so Butcher,Lomax, 139 Barrotta,Brennan cr ex (Lea) you are going to see a drop. I'm not sure I explained it very well, but... Maybe I should try it again. The cumulative gas cost savings are lower in the first eight years and they increase as you get out to eight years, so that's what you use to drive the trend analysis or the regression, okay. So that line would in all cases be lower than the last year because that's the eighth year which is the highest gas cost saving. So when you start looking at incremental, it's going to take the average of the first eight years and that's why it drops down. Q. I understand. Okay. Thank you. MS. LEA: Those are my questions for this panel. I have one general question which perhaps I could ask Mr. Craig as he is still under oath. ROBERT_J._CRAIG; Recalled. ______ __ _____ MS. LEA: Q. You have had the opportunity to review the Board Staff Proposed Conditions of Approval. Are there any that give you pause that you cannot agree to? MR. CRAIG: A. No, there are none. Q. Okay. So you are satisfied with them? A. Yes. MS. LEA: Thank you. Those are my questions. Thank you. THE VICE-CHAIR: Can I just ask a question on Butcher,Lomax,Barrotta, 140 Brennan,Craig these conditions of approval? Is it okay to change the words "permits" to "licences"? It's inconsistent. MS. LEA: I'm sorry. I can't hear you, sir. THE VICE-CHAIR: Change the word "permits" to "licences" to have one word used. The heading is "licence"; the wording is "permit"; if we could just change them to one consistent wording? MS. LEA: Are you referring to the Proposed Conditions? THE VICE-CHAIR: Yes. MS. LEA: We will look at that, sir. THE VICE-CHAIR: Okay. But all I'm saying is we clarify them; use one word rather than two different words for the same thing. MS. LEA: Okay. MS. HALLADAY: I just had a couple of questions. EXAMINATION_BY_MS._HALLADAY: ___________ __ ___ ________ MS. HALLADAY: Q. The Wilkesport-Coveny pipeline has been included within this application and I was wondering if there has been a separate economic analysis of the viability of that project on a stand-alone basis? MS. BUTCHER: A. From an economic analysis point of view, there hasn't been. The costs for the connection are included within the economic analysis we have filed. Q. I appreciate that. But there is nothing to say whether Wilkesport-Coveny -- I appreciate that it's part of the overall project that it's being asked for the Butcher,Lomax,Barrotta, 141 Brennan,Craig ex (Halladay) approval here and I appreciate the reasons why you want to include it. I was just -- but it is a bit of a stand-alone project itself. MR. CRAIG: A. Yes. We didn't isolate the benefits of it and analyze it separately I guess once we came on the idea that if we're going to make this shorter connection for Ladysmith and save the distance there and we looked at the other as kind of a complete project as opposed to kind of analyzing them separately. Q. Maybe you can help me then. Is the shortened proposal, shortened pipeline for Ladysmith conditional upon the Wilkesport-Coveny being approved, as well? In other words, you couldn't do that shorter pipeline without Wilkesport-Coveny? A. That's our proposal. We wouldn't -- the shorter route would not be our preferred route if that was all we were going to do because in Mr. Schnegelsberg's evidence, it talks about the limitations of then having two pools connected to the same system. Q. Right. I understand. A. So to go directly back to the plant was 4,500 metres versus the 1,300, and we prefer to keep it together as a project because the benefits lost by going the shorter route are gained back, and even more benefits are gained by the Wilkesport-Coveny connection. Q. I appreciate that. A. Okay. Thanks. Q. I think this question may be for Mr. Brennan. Butcher,Lomax,Barrotta, 142 Brennan,Craig ex (Halladay) I get concerned, maybe inappropriately, when we get corrected sheets which constantly change numbers. And in particular, I notice Exhibit H, Tab 1, schedule 1, 9 of 10, the TCPL FT number has changed from 14,557 to 69,759. And I guess my question is, what has led between the time of filing the first schedule to the present date to change that number so dramatically? MR. BRENNAN: A. The $69-million was always there. What happened was during the Technical Conference, Mr. Mackie and I were engaged in a conversation on the alternatives. And at that point, we were looking at our evidence and it said TCPL FT base case and then we thought, we started thinking, 'Well, this can't be right.' So we went back and realized that what we had was, in our original evidence was the base case and not the TransCanada FT case, and so all we did was just put the correct number in for the right case. Q. Okay. So it's merely a clarification. There hasn't been a dramatic change in circumstance? A. No, there hasn't. MS. HALLADAY: Thank you. EXAMINATION_BY_THE_VICE-CHAIR: ___________ __ ___ __________ THE VICE-CHAIR: Q. I have just one question. It's on Exhibit I, tab 1, schedule 7.1, Mr. Barrotta or Mr. Brennan. And this is where you make an estimate of what the implication of costs would be if you weren't able to inject 1.5 bcf of gas into Ladysmith Pool. It says at the bottom: Butcher,Lomax,Barrotta, 143 Brennan,Craig ex (Vice-Chair) 'The company is scheduling two alternatives to meet the additional 0.4 bcf requirements.' I just couldn't put it together because the question relates to 1.5. Is the answer you have given me just for the extra 0.4 bcf, the 1-million and the 1.8-million, the incremental cost? MR. BRENNAN: A. No. I believe it is for the full 1.5 bcf. If we were not able to inject into Ladysmith this fall, we would have to do something else; go out and purchase spot gas or whatever or contract third party storage, and those costs reflect the cost of not having 1-and-a-half bcf available to us. THE VICE-CHAIR: Thank you. Thank you very much. Those are the Board's questions. Mr. Cass or Ms. Lea? MS. LEA: That's all I have. THE VICE-CHAIR: Mr. Cass, any re-direct? MR. CASS: No, Mr. Chairman. Thank you. THE VICE-CHAIR: Thank you, Panel. ---(Witness panel withdraws) THE VICE-CHAIR: Now, Ms. Lea, what do you want to do? Do you want to break, have a short lunch, say 45 minutes to an hour, and then come back? MS. LEA: Yes. I think a lunch break would be of assistance. We could return at - my watch says 1:15 - we could return at 2:15 for my summary at that time. 144 THE VICE-CHAIR: Okay. MS. LEA: I don't expect to be long and I don't expect to bring any surprises to the table. THE VICE-CHAIR: So we will re-assemble then at 2:15 and give our court reporters a break because they need one. Thank you. And I'll remember to switch off. Thank you. ---Luncheon recess at 1:20 p.m. ---On resuming at 2:24 p.m. THE VICE-CHAIR: Please, be seated. So, Ms. Lea, I see we have two affidavits from Mr. Brophy and Mr. Wessenger. MS. LEA: We do? MR. CASS: Yes, Mr. Chairman, if I might just address that. These I think are the only two witnesses who had any form of evidence in the proceeding that was not adopted today under oath, so the affidavits have been prepared to put their evidence under oath. Copies have been handed around so that everyone would be aware that these affidavits are complete. The originals I think will just be the filed with the Board in the usual way by letter but we passed around the copies just so that everyone would be aware that this additional step has been completed. THE VICE-CHAIR: Thank you. MR. CASS: Also, Mr. Chairman, Mr. Craig had with him a piece of core from a pinnacle reef and we left it on Preliminary Matters 145 the Board's desk in the event that the Board was interested in taking a look at it. I'm told it comes from the Dow-Moore Pool actually. THE VICE-CHAIR: Thank you. MS. HALLADAY: Thank you. Is this ours to keep? MS. LEA: No, unfortunately. MR. CRAIG: I said to Mr. Cass that you could keep it if we got an oral decision. [Laughter] THE VICE-CHAIR: Ms. Lea, I believe it's your... MS. LEA: Thanks very much. SUMMATION_BY_MS._LEA: _________ __ ___ ____ Mr. Chairman, Ms. Halladay, I think there are three issues which the Board Staff sees as still requiring some comment. However, I will review the majority of the issues that I dealt with in cross-examination today if only to indicate how our concerns have been satisfied. I should say that none of these issues are such that should convince you to not approve the project. I think there's not much debate at least on the Board Staff side that this is a good project being both economically feasible and highly desirable, a good use of an Ontario resource. I would like to begin with the geology and reservoir engineering issues that we covered. And the first thing I covered is I think still one of the outstanding issues and that is the inclusion or exclusion of the two tracts which were identified in the evidence as having no geological justification for being included in Summation 146 (Lea) the pool. Historically this Board has determined the boundaries of designated gas storage areas based on the geology of the formation and largely only on the geology of the formation. It is the protection of the formation, the integrity of the formation and its protection from drilling or fracturing from outside the immediate area of the pool that really drives the boundary of a designated gas storage area. And as the witnesses agreed during cross-examination, the Ministry of Natural Resources is anxious to ensure that no excess lands are designated so that exploration or production within these lands is restricted by an unnecessary designation. The evidence is clear here then that these two tracts which are Concession 4, Lot 21, Tract 7 and Concession 5, I believe, Lot 21, Tract 6, the upper northwest and southwest corners of the proposed designated storage area. There's no geological reason for including those tracts. So then we turn to other reasons. I think the question the Board has to answer is given that the primary purpose of setting a boundary is to protect the formation, if there is no reason to include these tracts to protect the formation, is there another reason for including them sufficient to justify designation of these areas. Now, we've heard that with respect to the rights of the landowners, that is, the owners of the surface Summation 147 (Lea) rights in these areas, there is no reduction in these rights if these lands are designated because the petroleum and natural gas leases and the gas storage leases are all held by Consumers Gas. So the only company or persons that would be affected by a designation order here is Consumers Gas. They're the only ones whose rights are going to be restricted. We've also heard evidence that the landowners in that area will not receive the same amount of compensation if these lands are not designated, that is, that they will receive less compensation because they won't be part of the designated storage area. So the question then that I would ask Mr. Cass to address and ask the Board to turn its mind to is is this effect on the landowners, that is, a loss of compensation or is some other administrative reason -- and I can't think of any other way to describe it - sufficient to justify including in a designated gas storage area land that is excess to protecting the formation. The second issue we dealt with in geology and reservoir engineering was the overlap of the Kimball-Colinville designated storage area boundary and the Ladysmith designated storage area boundary that is proposed. The evidence doesn't appear to give any particular advantage or disadvantage to double or single designation. Just from an administrative or legalistic point of view it may be desirable to have each designated gas Summation 148 (Lea) storage area protect the integrity of the reservoir in and of itself so that when someone goes to this regulation, they can say, 'Aha, that's the extent the lands that the Board deemed necessary to protect this formation.' I think there is some desirability in having each regulation stand on its own in that way. So that would then if you accept that argument argue for double designation, that is, that the boundaries not be adjusted, the boundaries of this proposal not be adjusted by any concern for overlap. In the reservoir engineering section, there were several items that we explored. I think the evidence is fairly clear that there is no evidence of communication between the Ladysmith and South Kimball formations and, therefore, the boundaries are appropriate and the reservoir engineering is not going to be affected by that. We discussed the issue of solution gas. I think the fact that Consumers will be ready to reinject any gas that is brought up by way of oil production before they begin injection into the formation for storage should give the Board some comfort about the effect of the solution gas issue on the use of this pool as a gas storage reservoir. The evidence is that it should not affect the utility of the formation of the gas storage reservoir. We also discussed the trajectory, the nature and the bottom hole locations, if we can put it that way, of the horizontal wells. And it appears from the evidence that in the open hole areas of the wells there is 500 feet Summation 149 (Lea) or nearly 500 feet between the open hole locations of the horizontal wells and the vertical wells and each between the other, so that it appears that Consumers' standard spacing is being maintained in this pool. There was also a discussion of the need to produce some gas in order to increase the accuracy of the calculation of gas remaining in place - I think that was what it was - rather than relying on the previous gas that has been brought up as part of oil production. Given that this production of gas for that purpose will apparently not delay the commencement of the injection cycle, there doesn't appear to be any harm in having that increased accuracy obtained by that method. We then turned to the question of facilities and project costs. The experience that Enbridge Consumers Gas and Tecumseh have with respect to rotary drilling appears to be fairly extensive and the company indicates that it is not concerned about any difficulties engineering-wise or any particular hazards related to rotary drilling. The construction schedule was also of concern to the company. Now, we've turned our minds to the question of the most expeditious method of dealing with these applications should the Board see fit to approve them and I did discuss this briefly with my friend Mr. Cass on the telephone also. The most expeditious way that I could consider proceeding and I think that Board Staff does not see any quicker way to do this is as follows: The report to the Summation 150 (Lea) Lieutenant-Governor in Council has to be in writing. I don't think that we can get around that requirement that is apparently imposed by the legislation. However, once that report to the Lieutenant-Governor in Council has been made by the Board and before designation occurs I think it would be possible for the Board to issue an oral decision with respect to the other matters sought in this application. That would include the report to the Minister of Natural Resources. Although that report must also be written, I don't see a necessity that it precede oral decisions with respect to the transmission lines and the well drilling licences that have been applied for here. So I think that the first thing that must happen is a written report to the Lieutenant-Governor in Council recommending designation or not recommending designation has to be made. If that report is favourable I think the Board then could proceed to expeditiously issue oral decisions with respect to the other three applications before it. One moment. ---Off the record discussion. MS. LEA: Thank you. I just wanted to make sure I had my applications in order. With Mr. Mackie's help I can reiterate then, the Lieutenant-Governor in Council report must be written. The MNR report must also be written but the decision could be given orally. The authorization to inject order, the decision with respect to that can be made and issued orally. Summation 151 (Lea) However, the actual order from the Board cannot issue until the land is designated by regulation as a gas storage area so that although Consumers can proceed to construct the facilities it cannot inject until it receives designation and the Board's order in that regard. So in terms of how to deal with the decisions in this matter I think that's the most expeditious method that I could come up with. We also turned to the question of project costs and here is an area where Mr. Cass may also choose to address the Board. One issue that we saw still outstanding was the question of the allocation of the costs of the exploration, inspection and rehabilitation of the oil wells, existing oil wells for the purpose of including those costs as part of this application... The evidence in support of this, the allocation of costs to this application, include the evidence that if this work was not done, the reservoir would be restricted to its original pressure and that this would mean that 1.3 bcf, as I understood the evidence, of gas storage space would not be available. In order to bring the integrity of the reservoir up to the point where it could sustain 1300 pounds of pressure, as I understood the evidence, these wells had to be, I guess, rehabilitated. I don't know quite what the word is, upgraded in some fashion. Nevertheless, there is the question that $180,000, a little over that, in costs are being allocated Summation 152 (Lea) to this project. That means if these costs are accepted for this project, they will eventually flow into rate base and gas ratepayers will pay those cost. And the Board staff then raises the question as to whether this is justified; are expenses that are incurred in terms of oil production wells properly allocated to this project as an appropriate project cost? The last thing that we dealt with with respect to the project costs of any substance was the question of the cost of storage rights. Having heard the evidence, we don't believe that there is any issue remaining there. Turning then to the question of land and right-of-way matters, again, we believe there is an issue remaining in this area and that is the question of the easements for gathering lines. Now, I don't want to enter into any debate at this time as to whether the gas storage lease does permit the construction of gathering lines without anything further. It may be that it does; however, I don't think it's necessary to make a decision on that in this case. As a practical matter in this case, it appears that the easements for the gathering lines could easily be obtained by the company and I would urge the company to consider getting those easements; and if the company is not willing, urge the Board to direct that this can be done. One of the reasons for this, if we looked -- if you'll recall the schedule that we looked at of the transmission lines and gathering lines, it appeared that Summation 153 (Lea) the transmission line was a 16 -- was NPS 16 line running north and south, but the gathering lines, one of the gathering lines was an NPS 16 line running east and west and we failed to see the distinction between the the need for an easement for one NPS 16 and the other. Furthermore, there is the question of the legislation, section 48, sub 9 imposing an obligation on the company, or the Applicant here, to have an agreement with a landowner with respect to the lands that are applied for under a leave-to-construct application and the gathering lines have been included in that application. So we'd urge the company then to consider getting those easements. The last section of the evidence upon which we cross-examined was on economic feasibility. I think that it's quite clear that this project is very robust, the economics are very good, the payback period is only about eight years and that the benefit/cost ratio here is very substantial, indicating high profitability in this project. Also, the sensitivity analyses indicated the robustness of the project. Lastly, we would urge the Board to impose the proposed conditions of approval the staff has put forward. The company does not object to this. There are two minor changes we would like to make to those conditions, and one is in -- actually, they both occur in the drilling licence applications. In the drilling licence applications at paragraph Summation 154 (Lea) 5, which is the second page of that -- those conditions under the drilling licence applications, the first line contains the word "contractor", towards the end of the line, "independent tile contractor". Recently, Union has requested and we've agreed that that word "contractor" be changed to "consultant". In the interests of consistency, thank you, between the utilities, we would ask that the word "consultant" be used in place of "contractor". And Mr. Dominy, the point that you raised about the question of permits and licences, it should be licences. It turns out it's the Oil Gas Salt Resources Act which changed the wording and we will amend the wording under those proposed conditions of approval to use the word "licence" throughout where it should be used and we'll do that before the Board has to issue a decision containing these conditions. So subject to any questions you may have, those are our submissions and we'd invite Mr. Cass to address those questions that we have raised. Thank you. THE VICE-CHAIR: The Board has no comments, Ms. Lea. We will ask Mr. Cass whether he wants to break or if ... MR. CASS: I think I'm ready to proceed, Mr. Chairman, if that suits the Board's pleasure. THE VICE-CHAIR: All right, Mr. Cass, please proceed. SUBMISSIONS BY MR. CASS: Submissions 155 (Cass) Mr. Chairman, I propose to discuss some of the features of the application which I think are important. And in the course of doing that, I will endeavour to address Ms. Lea's questions at the same time. I will start at a point which I think is fundamental to the whole case, Mr. Chairman, and that is need. The need for this particular project is unchallenged in this case. It's clear from the evidence that the storage space in the company's existing pools is the fully utilized. It's clear, as the Board is well aware, that the company continues to experience significant levels of growth in heat-sensitive markets. The obvious result of that is a continuing need for additional storage. The evidence indicates that over the next five years I think it is, that that need for additional storage will accumulate to something like 8.8 bcf. So in summary, on the very important question as to the need for this project, it's very clear on the evidence that there is very strong justification to go ahead. Now, the next area that I propose to address is in relation to issues around designation. As the Board will have heard from the evidence and read in the evidence as well, this proposed storage area is quite similar to the eight which are already operated by the company, those all being pinnacle reef storage reservoirs and also similar to the 15 operated by Union Gas. This is a very Submissions 156 (Cass) likely candidate for a new storage reservoir. It has the same characteristics that make the existing reservoirs so good for this purpose. And on top of that, it's quite favourably located in relation to existing facilities. I think that Mr. Craig touched upon that during some of his evidence before the Board today. The location of this particular pool is such that it can very readily be integrated into the facilities now in place and operated by Tecumseh Gas Storage. Just as an aside, I might mention at this juncture that one can see this favourable location, in fact, as being a potential contributor to the robust economics of the project. There's not a lot that needs to be done physically to tie this proposed new storage pool into the infrastructure and the lack of -- relatively speaking, the lack of need for a lot of facilities certainly must be a contributor to the robust economics. Now, in relation to the proposed storage area, one issue which has been raised in this hearing relates to the boundary and it has been pointed out that geologically, there are -- I think it's two tracts that could be excluded from the proposed boundary. The three points that have been made in support of the inclusion of the two tracts are: First of all, that these lands are effectively tied up insofar as future exploration or drilling is concerned and so there will not be any new restriction on these lands as a result of designation. That's the first reason. Submissions 157 (Cass) The second reason had to do with the - and again, Mr. Craig testified to this today - had to do with the company's desire, everything else being equal, to try to follow lot lines and natural boundaries in laying out the designated storage area. The third reason had to do with the reduction in compensation that would be seen by landowners if the two tracts were deleted from the designated storage area. In some cases, Mr. Chairman, there might be a situation where the Board has to balance its desire to protect a designated storage area with somebody else's desire to carry on other activities in the vicinity. This is not such a case. The lands are tied up. There's nobody here expressing concern about these two tracts being designated. So it isn't a situation where the Board's desire to protect a designated storage area needs to be balanced against the interests of somebody who is arguing that they will be directly affected by a smaller -- I'm sorry, by a larger boundary. That's not the case here. In this situation, it's my submission to the Board that everything else being equal, it's logical to go with the company's proposal. The maps are down now, but we did see from the map, for example, that with the Kimball/Colinville designated storage area, it admittedly was quite irregular. But in my submission, that's not a desirable thing if in circumstances like this one can follow existing lot lines, one can have a regular square Submissions 158 (Cass) or rectangle without causing any undue restriction or any new restriction on any affected parties. My submission quite simply is, the regular sort of boundary proposed by the company is appropriate in this type of case where nobody is complaining or affected by the additional tracts. In my submission, it's almost intuitively obvious that if you want to protect this area and you want to be sure that people can readily understand the boundary, unless there's some strong objection, it's better to follow the more regular pattern than have an irregular pattern which has certainly occurred in the past. So for all of the reasons which have been advanced and they're not geological reasons - that is certainly clear on the record - it's the company's submission that the proposed boundary is appropriate. That being said, the company can live with the exclusion of the two tracts if the Board in the end result deems that to be appropriate. It's not a stopper by any means. The company sees its proposal as being an intuitively logical one to which there's no objection, but if the Board has a concern with it, it's certainly the company's position that it could accommodate the exclusion of the two tracts in issue. The other issue that's been raised around the designated storage area boundary, Mr. Chairman, has to do with the overlapping across into the area that's already been designated for the Kimball-Colinville pool. Submissions 159 (Cass) To begin with, as a legal matter, the authority to designate a storage area, of course, is that of the Lieutenant Governor-in-Council by way of regulation. And looking at section 35 of the previous version of the Ontario Energy Board Act under which this application was made, one sees that the Lieutenant Governor-in-Council's authority is: Upon - and I'm quoting here - upon the recommendation of the Board designating any area as a gas storage area. In my submission, it's clear that there's no restriction at all stated on the area that can be designated. There's nothing to suggest it's only any previously undesignated area. The words do not say that. They simply say "any area". As a result, the conclusion which I reach and which I urge upon the Board is there's no legal restriction to designating an area twice. Aside from the legalities, Mr. Chairman, it's my view and I think a logical view that where two pools are in proximity to each other, it does make sense that the storage area boundaries for each pool be able to stand alone. I think actually Ms. Lea used those words when she was presenting the alternative arguments on the overlapping issue, and she probably put it better than I would have succeeded in doing myself. But it -- just trying to check my notes on her words because I thought they were very appropriate. She said: Submissions 160 (Cass) 'Each regulation should stand on its own.' Now she was, of course, putting both sides of the issue and that was the way she put the one side of the issue. I think that is quite appropriate, Mr. Chairman, that each regulation be able to stand on its own. If, for example, somebody has reason to check the regulations to see in future what the boundary of the Ladysmith Pool is and it was done in a way which excluded the previously designated lands, that person would have to have some knowledge that that had occurred in order to understand that in checking the Ladysmith regulation, one would really only see part of the designated area. In my submission, it's quite logical to have the two overlap and to have the two be able to be recorded in a regulation on a stand-alone basis. The next area that I wanted to touch upon, Mr. Chairman, was the feasibility of the project. Now, Ms. Lea has done this for me. I was going to make the point about the very robust economics and additionally I was going to point out that even with the sensitivities that were tested around that, the economics are still extremely strong, and Ms. Lea has already alluded to that. I would only just add the additional point to what she said, that even with the various sensitivities that were run around the benefit/cost ratio, it still didn't come out at anything that wasn't greater than 3.0, even with the various sensitivity runs, so it's an Submissions 161 (Cass) extremely robust feasibility picture. In addition, the company has presented the evidence of the sendout model in line with what it has done in previous cases. The sendout model I believe provides the Board with the comfort that the company has determined the optimal mix of supply portfolios to meet its storage needs. And then further, as a result of a direction in a previous case, the company has presented an analysis of stand-alone alternatives. So with this record, in my submission, Mr. Chairman, the Board has a very firm evidentiary base to be able to conclude that on an optimal basis, in terms of an optimal mix or a stand-alone assessment or any sort of assessment, the proposed Ladysmith project is the appropriate way to address the company's storage requirements. Turning to the subject of facilities, Mr. Chairman, the evidence reveals that the Ladysmith Pool is proposed to be operated as a base load pool, but that with the connection that forms part of the proposal - and by this, I'm referring to the Wilkesport-Coveny connection - that it provides, the project as a whole provides additional flexibility and benefits that go far beyond the operation of the Ladysmith Pool as simply a base load pool. I think the evidence makes this clear and Mr. Craig alluded to it today, but just to be sure that Submissions 162 (Cass) there's no doubt about it, the two connections that have been talked about, the connection from the Ladysmith Pool to the Wilkesport line and then the further connection from the Wilkesport line or extension from that line to the Coveny line represent one proposal together. The evidence indicates that if the company -- if the solution that was being addressed was simply to attach Ladysmith to Wilkesport, the company's preference would be to, in fact, construct quite a different line from Ladysmith directly back to the Corunna compressor station. That is the alternative to be compared if there's any alternative at all. The exclusion of the Wilkesport to Coveny connection as an alternative is not really one that's in the company's planning. The evidence I think is that the company wouldn't do the Ladysmith to Wilkesport connection unless it could do the other connection. So those two together represent a package and comparing those two which I think, according to the evidence, represent 3,500 metres of pipe in total, the two of them, is still less than the 4,500 metres of pipe that would be required to connect Ladysmith back to the Corunna compressor station. So just on that simple comparison alone, we have the two alternatives and the proposed alternative represents a lesser amount of pipe in order to meet the company's objectives. Now, on top of that, of course, the connections Submissions 163 (Cass) proposed by the company offer a lot of additional benefits that one wouldn't have simply connecting Ladysmith back to the Corunna compressor station. So not only is it accomplished with a total amount of pipe that is less, but it also creates many other benefits that would not otherwise be there. I won't take the time to go through these benefits in detail. Mr. Schnegelsberg talked about it a little bit today and I also have a note that they are discussed in some detail at Exhibit D, Tab 1, schedule 1, pages 3 to 5. But the fact is there that the company's proposal achieves its objectives with less pipe. Even putting the two connections together, it's less pipe, and it creates these benefits that would not otherwise be available. Now, just concluding on the subject of facilities, Ms. Lea has raised the issue about work that is done, has been done or will be done on oil wells. I fear, Mr. Chairman, that because these are oil wells, I have a concern that we might lose sight of what the real point is here. I think the evidence is clear that the work that is being done on these wells is for storage purposes. The company's evidence is that any expenses related to the oil production have been excluded from the presentation before the Board. Because I suppose we have this perception that anything that's oil is out and anything that's gas may or Submissions 164 (Cass) may not be in, we are losing sight of the essential issue around these oil wells. It's not so much a matter that they are oil wells that's important here. It's the fact that they penetrate the reef, and one of the witnesses - it may have been Mr. Schnegelsberg - that said today. They could be any kind of wells. They could conceivably be anything that penetrates the reef. For storage purposes, because they penetrate the reef, it's important to ensure that the storage operation can be run the way the company needs to run it. That is the evidence as to why the money is being spent. It's for the purposes of the storage operation. And in my submission, the fact that they happen to be oil wells in this context is a little bit irrelevant. As I said, they could be any sort of a well, but what is important is the fact that they penetrate the reef and, for storage purposes, this work needs to be done. I had a note as my next issue to touch on, environmental and land matters. In fact, I don't believe there really are any environmental or land issues with the one exception around a somewhat legal point which I will come to. In my submission, the Board should take considerable comfort in this case, from the lack of environmental and land issues. It really shows that the company has done its homework. The landowners are satisfied with the Submissions 165 (Cass) arrangements that have been offered to them. The environmental issues have been addressed in a responsible manner, and the company really has done its homework, in my submission, to bring to the Board a very responsible and worthy project. Now, the one exception I alluded to is the issue around easements that has been the subject of some discussion today. I agree with Ms. Lea that we don't, for today's purposes, need to get into this argument about whether the gas storage leases are sufficient for the purposes of gathering lines. There certainly is an argument there, but it's not necessary. The wording of the statute which has been alluded to today, in the old Act, it's subsection 9 of section 48 and it indicates that: 'Leave-to-construct shall not be granted until the applicant satisfies the Board that it has offered or will offer to each landowner an agreement in a form approved by the Board.' Mr. Craig touched on this in his testimony and I confirm it. The company will offer the easement agreement to the owner of the lands upon which the gathering pipelines are to be constructed. The easement agreement has been offered and accepted in all other cases. In this case, the company will offer it and that also is contemplated by the section of the statute. So the company respectfully requests that the Board grant the Submissions 166 (Cass) approval contemplated by the statute of the form of agreement that has been offered or in one case will be offered to each landowner. And that, in fact, brings me to simply summarizing, if it's not obvious already, the approvals requested by the company. The approval under subsection 9 of section 48 is one. The others I think are fairly obvious. The company requests that its application for a regulation designating the gas storage area result in a favourable report to the Lieutenant Governor-in-Council. The company requests approval of its application for leave to inject gas into, store gas in and withdraw gas from the designated storage area. The company requests a favourable report to the Minister of Natural Resources with respect to the wells which it proposes to drill. And finally, the company requests leave-to-construct the gathering pipelines, the connection from Ladysmith to the Wilkesport line, and the extension of the Wilkesport line to the Coveny line. I think with the addition of the approval of the form of agreement, that summarizes the orders which the company requests. As far as timing is concerned, Mr. Craig pointed out the company is very cognizant, of course, that this is an extremely busy time for the Board and I would like to, in fact, at this juncture thank the Board on behalf of the Submissions 167 (Cass) company for doing what it did to make this hearing day available today. I know it's a very busy time for the Board and the company is appreciative that the Board was able to sit on this matter today. To the extent that written reports are not required, the company certainly does not from its point of view in any way expect or require written decisions. The company, indeed, requests the Board, if the Board sees fit, to render oral decisions in all areas of the case where that is appropriate. Further, anywhere that the company can cooperate and assist the process, assuming a favourable decision from the Board, as Mr. Craig indicated today, that the company would certainly be desirous of endeavouring to facilitate the process and move things forward as quickly as possible. So with all of those things having been said, Mr. Chairman, I will just quickly check with Mr. Craig, but I think I have completed my submission. ---Off the record discussion. THE VICE-CHAIR: Thank you, Mr. Cass. I don't think the Board has any questions. MS. LEA: I have one question arising actually. Mr. Cass, thank you very much for indicating that the company will offer a form of agreement to the landowners respecting easement for the gathering lines. Given that that is supposed to be in a form approved by the Board, would the company be willing to file that Submissions 168 (Cass) agreement once it is executed? MR. CASS: Yes, certainly. MS. LEA: Thank you very much. MR. CASS: And, in fact, Ms. Lea, my expectation was it would be the same form that has been used. MS. LEA: That's fine. Thank you. It just helps to complete the record for us to have that agreement approved. MR. CASS: Certainly. THE VICE-CHAIR: Mr. Cass, Ms. Lea, we've heard your comments for and the company's wish for a prompt decision and we certainly are mindful of it. We've also heard Ms. Lea's comments that at least one element of this requires a written decision and I think we would feel more comfortable if we had that in hand before issuing other decisions whether oral or written. But we have heard your concerns. If I may make a comment, we are thankful for the completeness of the evidence you've provided us and I think it will make the job of our reaching a decision a lot easier for us and we'd like to thank the witnesses and we'd like to thank the company and we'd like to thank Board staff for putting the facts before us in a way that should make it more - I was trying to think of the word, an appropriate adjective - to proceed to reach our decisions and issue the necessary report or oral decision as the case may be. Thank you. 169 Thank you very much, court reporters, too. With that I think we've closed for the day. ---Whereupon the hearing was concluded at 3:07 p.m. 170 170 I N D E X O F P R O C E E D I N G S Page No. Preliminary matters 3-6 ROBERT J. CRAIG, RAY SCHNEGELSBERG, JOHN WICKENS, NEIL HOEY; Sworn. 6 Direct Examination by Mr. Cass 6 Cross-Examination by Ms. Lea 16 Examination by Ms. Halladay 52 Examination by the Vice-Chair 55 JOHN OAKLEY; Sworn, RAY SCHNEGELSBERG, ROBERT CRAIG; Resumed. 59 Direct Examination by Mr. Cass 59 Cross-Examination by Ms. Lea 60 Examination by Ms. Halladay 80 Examination by the Vice-Chair 87 Further Examination by Ms. Halladay 89 Examination by the Vice-Chair (cont'd) 89 Further Examination by Ms. Halladay 93 Examination by the Vice-Chair (cont'd) 93 ROBERT J. CRAIG, JOHN OAKLEY; Recalled ROBIN INWOOD, TERRY CHUPA; Sworn. 96 Direct Examination by Mr. Cass 96 Cross-Examination by Ms. Lea 98 Examination by Ms. Halladay 107 Examination by the Vice-Chair 109 Further Examination by Ms. Lea 110 Further Examination by the Vice-Chair 111 171 I N D E X O F P R O C E E D I N G S Page No. NICOLE BUTCHER, WILL LOMAX, CHARLIE BARROTTA, FRANK A. BRENNAN; Sworn. 113 ROBERT J. CRAIG; Recalled. 139 Direct Examination by Mr. Cass 113 Cross-Examination by Ms. Lea 117 Examination by Ms. Halladay 140 Examination by the Vice-Chair 142 ---[Luncheon Recess 1:20 p.m.-2:24 p.m.] 144 Summation by Ms. Lea 145-154 Submissions by Mr. Cass 154-168 172 L I S T O F E X H I B I T S No. Exhibit Page No. 5.4 Affidavit of Terence Scott Chupa. 5 7.2 Map showing proposed designated Storage area. 29 7.3 Letter confirming receipt of Order-in-Council. 102 7.4 Document entitled: Comparing Costs of Alternatives filed by Enbridge Consumers Gas. 127 JB LJ BV [(c) Copyright 1985].