TransCanada PipeLines Limited -...

Written submissions of

TransCanada PipeLines Limited

to the Régie de l’énergie du Québec

In the Matter :

Avis sur les approvisionnements en fourniture et transport de gaz naturel nécessaires pour répondre aux besoins en gaz

naturel des consommateurs québécois à moyen et long termes

(R-3900-2014)

September 19, 2014

MÉRN - Avis sur les approvisionnements en fourniture et transport de gaz naturel nécessaires pour répondre aux besoins en gaz naturel des consommateurs québécois à moyen et long

TransCanada PipeLines LimitedWritten Submission

of 28 September 19, 2014

Table of Contents 1.0 Introduction .................................................................................................................... 3

2.0 Executive Summary ....................................................................................................... 2

2.1 Change in gas supply and flows ................................................................................. 2

2.2 Capacity to meet forecasted demand for natural gas in Québec ................................ 2

2.3 Eastern Mainline Project ............................................................................................ 2

2.4 Capacity to meet unforecasted Demand ..................................................................... 2

2.5 Optimization and impact on price .............................................................................. 3

2.6 Economic benefits of the Energy East Project ........................................................... 3

3.0 Overview of Transcanada .............................................................................................. 3

4.0 TransCanada’s Submission ............................................................................................ 4

4.1 TransCanada’s Services and the Contractual Underpinning of the System ............... 4

4.2 Evolving Business Environment ................................................................................ 5

4.3 The Energy East Project ........................................................................................... 10

4.3.1 Description of the Energy East Project ............................................................. 11

4.3.2 The EMP – A Related Project ........................................................................... 12

4.3.3 Benefits to Mainline Shippers ........................................................................... 13

4.3.4 All Firm Markets will be Met ........................................................................... 14

5.0 TransCanada’s Comments on Wood Mackenzie and SECOR-KPMg Reports ........... 20

5.1 Wood Mackenzie Report .......................................................................................... 20

5.2 SECOR-KPMG Report ............................................................................................ 21

6.0 Conclusion ................................................................................................................... 22

7.0 Schedule A: Glossary .................................................................................................. 23

8.0 Schedule B: Planned Enhancements, Northeast Natural Gas Pipeline Systems ......... 24

TransCanada PipeLines Limited Written Submission

MÉRN - Avis sur les approvisionnements en fourniture et transport de gaz naturel nécessaires

pour répondre aux besoins en gaz naturel des consommateurs québécois à moyen et long

September 19, 2014 of 28

1.0 INTRODUCTION

TransCanada PipeLines Limited (“TransCanada”)1 is pleased to participate in this consultation process initiated on July 4, 2014 at the request of the Ministre de l’Énergie et des Ressources naturelles (the “Minister”) for the Régie’s advisement with respect to: (i) the capacity, in terms of supply and transport, of natural gas to Québec consumers that will be required to meet the anticipated demand for natural gas up to 2030, considering various economic scenarios and (ii) the various natural gas supply options available to Québec in order to meet such demand over this same period and the impact of these options on Québec consumers in terms of tariffs and reliability (the “Request”).2

On July 18, 2014, in order to properly advise the Minister, the Régie launched a public consultation on the following matters:

The forecast of Québec’s needs in natural gas until 2030, for every type of consumer, and, more particularly, the industrial sector, under various economic scenarios

The options, in terms of supply and transport, of natural gas to Québec consumers that will be required to meet the anticipated demand for natural gas until 2030 and the impact of these options on the cost of natural gas for these consumers, notably in the context of TransCanada’s proposed Energy East Pipeline Project (the “Energy East Project”) being realized3

TransCanada wishes to assist the Régie in its advisory role to the Minister as set out in Section 42 of the Act respecting the Régie de l’énergie (the “Régie Act”).

TransCanada hereby intends to demonstrate that the Minister’s concerns regarding the potential impact on the supply and cost to transport natural gas to Québec have been considered and addressed by TransCanada in the design and development of the Energy East Project.

The Energy East Project will reduce the cost of gas transportation to Québec. In conjunction with the Energy East Project, TransCanada is also proposing to expand its natural gas facilities in Southern Ontario that will ultimately transport natural gas to Québec. This project, known as the Eastern Mainline Project (“EMP”), will ensure that TransCanada’s overall gas transportation system will continue to meet existing and future firm gas demand in Eastern Canada (notably Québec).

1 A glossary of the defined terms can be found in Schedule A. 2 Demande du Ministre, R-3900-2014-B-0001 3 Avis public, R-3900-2014-A-0002



Page 2 of 28 September 19, 2014

TransCanada’s interprovincial operations are subject to the jurisdiction of the National Energy Board (“NEB”). The EMP will be submitted shortly to the NEB for approval concurrently with the Energy East Project.

2.0 EXECUTIVE SUMMARY

The key considerations that are addressed in this brief are the following:

2.1 Change in gas supply and flows

North American gas supply and flows have changed drastically in the last 5 years, such that TransCanada’s Eastern Delivery Area (“EDA”), which includes Québec, now has access to multiple sources of gas supply for the foreseeable future (now to 2030). In addition, TransCanada’s gas exports to the U.S. will decrease over the next few years.

2.2 Capacity to meet forecasted demand for natural gas in Québec

All experts appear to be in agreement on forecasted natural gas demand growth in Québec. Over the next 10 to 15 years, it is expected that demand will increase at a compound annual rate of 2% for the entire EDA and 1% for the Québec market. This growth has been incorporated into the design of the EMP.

2.3 Eastern Mainline Project

With the EMP, TransCanada will be able to meet the needs of its existing and newly subscribed customers that have contracted for service, including the resumption of operation of the Bécancour co-generation power plant as well as the capacity for the proposed fertilizer production plant of Indian Farm Fertilizer Cooperative Limited (“IFFCO”).

2.4 Capacity to meet unforecasted Demand

If unforecasted growth were to occur over this period, solutions to meet this additional increase in demand would include:

The redeployment of existing capacity that will become uncontracted as the Northeast U.S. market switches to the use of U.S. domestic supply

Possible imports of U.S. gas to Eastern Canada

Expansion of TransCanada’s Mainline capacity to serve Québec requirements

Energy efficiency measures




September 19, 2014 Page 3 of 28

2.5 Optimization and impact on price

By removing the costs of uncontracted natural gas transmission facilities, TransCanada will maximize efficiency and lower costs of its Mainline transmission system. The Energy East Project is not expected to have any adverse impact on the pricing of natural gas in Québec. In fact, it is expected that local distribution companies (“LDCs”), such as Gaz Métro inc. (together with its affiliates, “GMI”) and Gazifère inc., will benefit from the Mainline optimizing the natural gas pipeline facilities and reduced gas transmission costs.

2.6 Economic benefits of the Energy East Project

In addition to the benefits associated with the EMP, the Energy East Project will bring significant economic benefits to Québec in the form of economic growth, employment, tax revenues and access to a reliable supply of Western Canadian oil.

3.0 OVERVIEW OF TRANSCANADA

TransCanada and affiliated corporations have actively contributed to the development of Québec’s diverse energy landscape over the past 50 years. A leader in the responsible development and reliable operation of North America’s natural gas and oil pipelines, TransCanada operates two gas pipeline systems that traverse Québec: (1) the Canadian Mainline that extends from the Alberta/Saskatchewan border east to the Québec/Vermont border connecting with other natural gas pipelines in Canada and the United States (the “Mainline”); and (2) the Trans Québec & Maritimes Pipeline (“TQM”) which connects the Montreal to Québec City corridor and extends south to the New Hampshire border. TransCanada owns 50% of TQM along with its partner 9265-0860 Québec Inc., a wholly-owned subsidiary of GMI. The TQM pipeline has served natural gas markets in Québec since 1982.

In addition to the infrastructure in Québec, TransCanada is one of the largest energy infrastructure operators in North America. TransCanada owns and operates approximately 71,960 km of oil and natural gas pipelines in Canada, the U.S. and Mexico. While TransCanada is perhaps best known as a pipeline operator, it also has a diverse power generation portfolio that includes, in Québec, the Bécancour Co-generation plant and Cartier Wind Energy (this latter is 62% owned by TransCanada and 38% owned by Innergex Renewable Energy Inc./Innergex Power Income Fund). Cartier Wind Energy is the largest wind farm in Canada, with projects in the Gaspésie, Îles-de-la-Madeleine and Matane regions. The wind projects’ total annual production represents 2.3 terawatt hours (TWh), the energy required to meet the electricity needs of approximately 150,000 households in the province of Québec. TransCanada also owns stakes in carbon free power generation facilities in North America. In total, TransCanada owns approximately 11,800 MW of power generation and significant natural gas storage facilities in Canada and the U.S.




4.0 TRANSCANADA’S SUBMISSION

4.1 TransCanada’s Services and the Contractual Underpinning of the System

The TransCanada system has two broad categories of service: firm transportation service (“FT”) and discretionary service. These two types of services involve very different obligations, on both the transporter’s part and the shipper’s part.

FT is a service that customers secure for a definite period of time and that TransCanada is obligated to provide throughout the term. In return, customers are required to pay a toll, which covers the cost to maintain and operate the transportation facilities. This toll is paid as a quid pro quo to secure guaranteed access to gas transportation service for a determined quantity and thus, is not charged based upon the actual capacity used by the customer.

Discretionary service is provided on an “as available – as requested” basis. Customers are allowed, on any given day, to request discretionary service which is awarded to customers through a bidding process. To the extent uncontracted capacity exists or firm-contracted customers are not fully utilizing their capacity, such unutilized capacity will be available for discretionary service. Under the discretionary service model, the customer has no financial obligation if it does not use any discretionary capacity.

The Mainline was initially developed to transport abundant natural gas supply from the Western Canadian Sedimentary Basin (“WCSB”) to eastern markets. As a contract carrier, TransCanada designed, built and developed the Mainline as a response to customer requests for FT service. In return, customers signed long-term contractual commitments that provided the underpinning required to deploy capital into the infrastructure required to provide this service. The following sections describe how this framework has adapted to the evolving market circumstance we see today.





Figure 4.1: Map of the Mainline

4.2 Evolving Business Environment

Changes in the business environment of natural gas supply and markets have affected the Mainline gas transmission system. As further discussed below, the following factors have led TransCanada to consider the redeployment of uncontracted Mainline assets that have historically transported WCSB supply to Eastern markets. The Energy East Project and the related EMP fall within the scope of this redeployment plan.

U.S. Northeast Goes from Canadian Export Market to Supply Source

Drilling technology has evolved and abundant natural gas supplies have been developed (especially in the Marcellus and Utica formations in the Northeast U.S.) nearer to Eastern Canadian and Northeast U.S. markets. This has caused a shift in the import-export flow of gas between Canada and the Northeast U.S. markets as well as alteration to historic gas flow patterns across Canada.

Figure 4.2 shows that the U.S. Northeast, which historically has been a significant export market for TransCanada, now has production that exceeds its domestic demand. This production is expected to continue to sharply increase such that the U.S. Northeast area will benefit from natural gas surpluses and will thus be in a position to export natural gas.




Figure 4.2: U.S. Northeast Supply and Demand (source TransCanada)

Due to the prolific nature of the Marcellus/Utica supply basins, markets in the U.S. Northeast have begun purchasing supply nearer to their ultimate markets and have not renewed their contracts with TransCanada to import Canadian natural gas. As a result, Canadian exports of natural gas into the Northeast U.S. via the Niagara, Chippawa and Iroquois points have decreased significantly, leaving portions of the Mainline un-contracted. In the case of the Niagara Export point, the Marcellus/Utica supply has been so productive that TransCanada has recently reversed the flow through the Niagara meter and that location is now a receipt (import) point on the system as shown in Figure 4.3. In fact, this trend will continue as TransCanada is currently expanding its capacity to accommodate additional imports from the Northeast U.S. gas production.





Figure 4.3: Niagara/Chippawa Historical and Forecast Deliveries (source TransCanada)

The same trend has already started at Iroquois and it is TransCanada’s expectation that it will follow a similar pattern as Niagara, as the transportation infrastructure out of the Marcellus play is developed. Between January 1 and mid-August 2014, deliveries to Iroquois from the Mainline have been less than 100 TJ/d for 64 days, with no deliveries occurring on 36 days. This confirms that Iroquois is moving toward becoming a physical receipt point into the Mainline.

Actual and forecasted flows for the Iroquois location are shown in Figure 4.4.

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06‐Nov 08‐Nov 10‐Nov 12‐Nov 14‐Nov 16‐Nov 18‐Nov

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Positive values: Mainline delivery, export to Niagara/ChippawaNegative values: Mainline receipt, import from Niagara/Chippawa




Figure 4.4: Iroquois Historical and Forecast Delivery Volumes (source TransCanada)

A number of new proposed pipeline projects will facilitate the forecast change in flow, as shown in Figure 4.9, contained in Section 4.3.4 below. Detailed information regarding these pipeline projects is contained in Schedule B.

Shift from Long Haul to Short Haul

Eastern Canadian and Northeast U.S. markets, including Eastern Canadian LDCs, have sought greater access to Marcellus/Utica gas via the Mainline and through connections to the Dawn hub, which are closer to their market areas than the supplies they historically accessed from the WCSB. The LDCs have stated that contracting to Dawn provides them greater flexibility, supply diversity and security. The Régie has recognized this evolution through its approval of GMI’s plan to shift supply from Empress, Alberta to Dawn, Ontario.4

In short, the Eastern Canadian LDCs have increasingly sought shorter distance contracts (referred to as “short haul contracts”) connecting more proximate supply to their market instead of longer distance contracts (referred to as “long haul contracts”) bringing distant supply to their markets on the Mainline.

4 Régie de l’Énergie decision D-2012-175, R-3809-2012, December 18, 2012.

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Positive values: Mainline delivery, export to IroquoisNegative values: Mainline receipt, import from Iroquois





Figure 4.55 illustrates the shift from Mainline long haul firm service to short haul firm service.

Figure 4.5: Affected Area: Long Term Firm Contract Demand Long haul vs Short haul

Mainline Regulatory and Commercial Context

In order to address the reality of changing continental gas flows, it became necessary to restructure the Mainline tolling model, which led to the NEB Decision RH-003-2011 in March 2013.6

Following the RH-003-2011 Decision, and as a result of the collaboration between TransCanada and the major LDCs, namely GMI, Union Gas Limited and Enbridge Gas Distribution Inc., an agreement was reached to settle outstanding issues regarding

5 This figure reports currently known firm contract commitments by Mainline LDCs including GMI for service, including the new contract commitments made by shippers in the Open Season. It is consistent with the commitments made by the LDCs in the Settlement. 6 National Energy Board Reasons for Decision, TransCanada PipeLines Limited, NOVA Gas Transmission Ltd., and Foothills Pipe Lines Ltd., RH-003-2011, Tolls and Tariff, March 2013 (“RH-003-2011 Decision”).




tolling and access to new capacity (the “Settlement Agreement”)7. The Settlement Agreement provides, inter alia, for the following:

It specifically addresses Mainline tolls for the years 2015 through 2020, and also addresses tolling parameters to be applied through 2030; and

TransCanada committed to build additional facilities to meet firm market requirements in the Affected Area8, including Québec.

In short, the Settlement Agreement, amongst other considerations, will ensure that LDCs, including GMI, have access to the required transportation infrastructure from supply basins of their choice to their franchise areas in order to meet their customers’ firm demand for natural gas, from present to 2030.

The forecast long haul to short haul transition depicted in Figure 4.5 as well as the projected growth in markets served by the Mainline are incorporated in TransCanada’s determination of the capacity and design of the EMP.

4.3 The Energy East Project

The changes described in section 4.2 led TransCanada to evaluate ways to optimize its existing pipeline systems to reflect these recent changes in the natural gas market. The Energy East project was developed to redeploy the un-contracted natural gas assets to oil service. This redeployment leads to a more efficient use of the system and reduces the operating costs to all firm natural gas shippers.

The area impacted by the Energy East Project and the EMP is defined as the “Affected Area” as shown in Figure 4.6. It includes the domestic markets of the Enbridge EDA, Union EDA, GMI EDA, Kingston Public Utility Commission (“KPUC”) EDA, and the export markets at Cornwall, East Hereford, Iroquois, Napierville and Philipsburg.

7 Application for Approval of Mainline 2015-2030 Settlement (RH-001-2014) https://docs.neb-one.gc.ca/ll-eng/llisapi.dll?func=ll&objId=2397890&objAction=browse&viewType=1. 8 For a definition of the Affected Area please refer to Section 4.3.





Figure 4.6: Affected Area

4.3.1 Description of the Energy East Project

The Energy East Project is a pipeline of approximately 4,500 km that will carry 1.1 million barrels of crude oil per day from Alberta and Saskatchewan to refineries and other outlets located in Québec and New Brunswick.

The majority of the project (approximately 3,000 km) consists of the conversion to oil service of certain uncontracted portions of existing natural gas pipeline (NPS9 42) from Alberta to Ontario.

The whole project, which constitutes an interprovincial pipeline project, will be submitted to the NEB for approvals necessary pursuant to the National Energy Board Act10 (the “NEB Act”).

The transfer of existing gas assets to oil service (the “Asset Transfer”) will only occur once sufficient gas transmission capacity is in place to serve firm contracts. The

9 “NPS” means “nominal pipe size”, measured in inches. 10 R.S.C. 1985, c. N-7.




proposed transfer date for the conversion of facilities located in the Affected Area is March 31, 2017.

The building and operation of the Energy East Project will bring positive economic growth throughout Canada. Direct jobs will be created in Québec for the construction and operation of the Energy East Project and Québec’s two refineries will be assured of stable, competitively-priced, domestically sourced crude oil supply which will in turn, enhance their own economic value to the province.11

4.3.2 The EMP – A Related Project

The Asset Transfer will result in the removal of capacity in the Affected Area. However, the EMP, shown in Figure 4.7, which consists of the construction and the operation of new natural gas pipeline systems along the existing Mainline between Markham, Ontario and the community of Iroquois, Ontario, will ensure that the transportation of natural gas to Ontario and Québec is not impacted by the Energy East Project. In short, the EMP will allow TransCanada to meet the existing and future needs of Ontario and Québec consumers, including the new subscriptions for gas transmission contracted following the Open Season (defined below in section 4.3.4). As shown in Figure 4.10 in Section 4.3.4, these firm contracts exceed peak needs in the region.

The EMP will further provide TransCanada with the flexibility to accommodate growing demand and new supplies of natural gas from the U.S. Northeast.

11 The initial analysis of the economic benefits of the Energy East Project is included in the Project Description, filed in the NEB docket OF-Fac-Oil-E266-2014-01-01: https://docs.neb-one.gc.ca/ll-eng/llisapi.dll?func=ll&objId=2432401&objAction=browse&viewType=1.





Figure 4.7: Eastern Mainline Project

4.3.3 Benefits to Mainline Shippers

TransCanada has calculated that the present value of the benefit to Mainline shippers as a result of the combined impact of the Asset Transfer and the EMP is in excess of $750 million when calculated to 2030.12 This benefit incorporates:

Cost savings realized due to the transfer of some of the facilities located in the Prairies, along the Northern Ontario Line, and along the North Bay Short Cut (“NBSC”)13 and the optimization of facilities to limit the impact of operational costs on end-users;

The costs associated with the construction and operation of the EMP; and

A contribution of $500 million from TransCanada and Energy East oil shippers which will benefit Mainline customers, including those in Québec.

12 Details will be fully described in the Application which will be filed with the NEB in connection with the Energy East Project. 13 As shown in Figure 4.1, NBSC runs between North Bay and Iroquois, Ontario.




4.3.4 All Firm Markets will be Met

TransCanada is in the business of providing transportation of natural gas to customers throughout Canada and for export to the U.S. As such, it is important to provide the market with the assurance that current and future firm contract obligations will be met at all times. In order to provide a clear understanding of TransCanada’s policies regarding system design and system access, it is important to provide transparency to regulators with respect to how existing TransCanada procedures and how the EMP will ensure that the firm requirements of TransCanada customers are met.

The Design and Development of Natural Gas Facilities

As a contract carrier, TransCanada designs and develops infrastructure to ensure that all firm service obligations can be met. This design philosophy assumes that all firm contracts with renewal provisions are renewed indefinitely and ensures that TransCanada will be able to meet all contractual obligations on any given day.

In forecasting future firm service requirements to appropriately size the EMP, TransCanada has used a set of assumptions that are based on the highest potential FT service obligations for existing contracts as well as newly contracted FT service obligations. This approach assumes that all existing contracts that have renewal rights are renewed, notwithstanding that full renewal may not occur. This conservative philosophy ensures that there will be no shortfall in capacity. Should contracts not be renewed following construction of the EMP, the uncontracted capacity will be available for unforecasted growth in demand, or for discretionary services.

TransCanada’s Access Procedures

TransCanada has committed, through the Settlement, to meet future requests for service that comply with Mainline Tariff provisions. This procedure ensures access to gas transportation on the TransCanada system into the future.

Eastern Mainline Project is Designed to Meet all Firm Contract Obligations

Recognizing that the redeployment of gas assets to oil service as a result of Energy East would reduce the capacity available for gas service, TransCanada initiated a process to identify the needs of all firm shippers to ensure that all firm markets could be met.

TransCanada informed Mainline shippers that un-contracted capacity on certain paths may not be available after the Asset Transfer. This information was conveyed to all shippers through an open season process, held from November 2013 to January 2014 (the “Open Season”). This Open Season notified markets that may be impacted by the Energy East Project and asked shippers to contract for firm service to meet their requirements. The Open Season process was conducted according to the provisions of the existing NEB approved Tariff and therefore provided a fair opportunity for the





markets (including the LDCs) to confirm their requirements for future FT contracts. The Open Season process resulted in a number of new requests for gas transmission service that are now reflected in binding precedent agreements. TransCanada has incorporated these new contracts into the scope of the EMP.

As a result, the transportation capacity into the Affected Area will now directly align with the existing contracts, all of which are assumed to renew, plus the capacity that was requested as a result of the Open Season process. It is important to note that the firm contracts serving Québec within the Affected Area exceed peak day requirements (refer to Figure 4.10). These contracts allow the LDCs to service their customers’ demand, even on peak days during the winter.




Eastern Market Dynamics Will Provide Additional Capacity Availability

TransCanada has already undergone transformative changes as a result of U.S. Northeast production and flow changes. This has resulted in Niagara, and, as of the end of 2015, Chippawa, changing from export points to import points. Considering the supply and demand for U.S. Northeast gas (see Figure 4.2), combined with over 25 Bcf/d of new capacity projects taking gas from the Marcellus/Utica formations directly to existing U.S. Northeast markets, it is very unlikely that U.S. Northeast markets will continue to contract for firm service on the TransCanada system.

Figure 4.9 provides perspective on the projects connecting the Marcellus formation to Northeast U.S. markets and how they may impact flows downstream of the TransCanada export points.

Figure 4.8 illustrates the expiry profile of export contracts in the Affected Area.

Figure 4.8: Affected Area Exports Expiry Profile





Figure 4.9: Proposed U.S. Northeast Projects

While there is no certainty that all of these projects will proceed, a number of projects are well advanced and are in various stages of the regulatory approval process.14 Those projects that do proceed will affect the Northeast U.S. market and reduce the historic reliance on traditional supply sources that have used Mainline capacity. When these projects displace capacity on the Mainline and, in turn, the Mainline capacity becomes uncontracted, it will be available for other shippers in the Affected Area to sign for firm contracts to meet any unexpected growth in the area should it materialize.

14 Please see Schedule B, Natural Gas Association list of proposed projects.




The Future of Québec Demand and Available Capacity

Figure 4.10 shows TransCanada’s demand forecast, and overlays the firm capacity contracted by GMI, it is clear that GMI has enough capacity to meet firm requirements well into the future.

It is important to note that both full operation of the Bécancour co-generation power plant and of the IFFCO plant, which is expected to use approximately 2.27 million m³/day (85 TJ/d), are factored into these numbers and are incorporated into the design of the EMP which ensure the needs of these facilities will be met.

The red line on Figure 4.10 shows actual and forecasted average day demand in Québec. The green area represents the long term firm contracts held by GMI that are used to meet this peak and average day requirement. As can be seen, GMI holds enough capacity to meet its market area requirements on both a historical and forecasted basis. TransCanada notes that 2013/2014 was one of the coldest winters in 35 years, and that even if the Bécancour plant consumed gas, there would have been enough firm contracted capacity to meet this demand. Further capacity will be available when U.S. Northeast customers exercise their alternative options to obtain Marcellus supply and not renew their Mainline capacity. This will provide incremental capacity for potential unexpected growth in the Affected Area. This additional capacity is illustrated with the blue area above the FT contract levels.

Should there be modest growth in Québec, as is expected, existing levels of firm capacity will be sufficient to meet any expanded Québec peak day requirements.





Figure 4.10: Quebec Demand and Pipeline Delivery Capacity

TransCanada’s Capacity will meet all Demands – Now and in the Future

As outlined in the above sections, the EMP will ensure that there is enough capacity to meet all firm contracts into the Affected Area. In addition to this capacity, as discussed in the prior section as well as section 4.2, current market trends strongly suggest that export markets served through Iroquois and East Hereford will be presented additional options for their supply procurement. Should these markets diversify their supply portfolio and reduce their FT contractual commitments with TransCanada, the capacity formerly used to serve those contracts will continue to exist and be available to markets in the Affected Area.




5.0 TRANSCANADA’S COMMENTS ON WOOD MACKENZIE AND SECOR-KPMG REPORTS

TransCanada has reviewed the Wood Mackenzie15 and SECOR-KPMG16 reports filed by GMI and Gazifère in this matter, and provides the following comments with respect to these studies.

5.1 Wood Mackenzie Report

Wood Mackenzie reports peak day demands for the EDA and the U.S. northeast exports points from the region in Chart 28 and Table 10. The report states that “On cold winter days, heavy heating loads in eastern Ontario, industrial and heating demand in Québec, combine with high U.S. export to surpass the 2.6 bcf/d of deliverability available after the Energy East conversion …”.

In this assessment, Wood Mackenzie has failed to recognize that much of the export market is not firm. This market was provided the opportunity to contract for firm service in TransCanada’s new capacity Open Season but elected not to do so. As the NEB found in the RH-003-2011 Decision, it is just and reasonable for shippers who need guaranteed access to the Mainline throughout the year to pay for the full annual costs related to the capacity they need. Shippers that truly require Mainline service can cap their exposure to discretionary tolls by opting to contract for FT service.17

Firm contract levels are the appropriate measure of the needs of the Mainline markets located in the U.S. Northeast. Such an assessment concludes that the capacity post Energy East Project and implementation of the EMP is sufficient to meet firm market needs in the Affected Area, including export requirements. If in fact these firm export contracts are not renewed, then the Mainline will have un-contracted capacity available after the transfer of conversion facilities and the construction of the EMP for future unexpected growth or interruptible service.

Wood Mackenzie states, at page 21, bullet point four:

“However, New England markets are currently constrained for much of the winter, and because of the region’s dependence on Iroquois, high import demand and high prices in New England can translate into high prices in Québec.”

TransCanada recognizes that marginal gas prices are transitory and will react to market conditions. GMI has contracted for firm capacity to fulfill the needs of all its gas supply requirements on a firm basis on the TransCanada system either from

15 Rapport de Wood Mackenzie intitulé "Proposed Energy East Pipeline Project White Paper", R-3900-2014-C-GM-GI-0004. 16 Rapport de SECOR-KPMG sur l'estimation des besoins pour la période 2015-2030 en gaz naturel au Québec et offre potentielle du territoire, R-3900-2014-C-GM-GI-0003. 17 RH-003-2011 Decision, p. 127.





Empress to a GMI EDA, or from Dawn/Parkway to the GMI EDA. These contracts provide GMI with firm transportation capacity for 365 days a year to their franchise area. GMI buys gas at AECO/Empress or Dawn, both highly liquid supply hubs. In addition, supply could be obtained at Iroquois when it becomes a receipt point on the Mainline. This means GMI can buy gas from many different suppliers under many different pricing options at these hubs and therefore insulate their customers from volatile pricing. In addition, there are many commodity supply contractual structures that can insulate the market from commodity price volatility if the market chooses to utilize these tools. With firm transportation to these hubs meeting all GMI’s gas requirements, the Energy East project will have an insignificant effect on gas supply prices in Eastern markets.

To the extent that some gas consuming markets choose to use interruptible service to source gas, these customers have elected to accept the risk of interruption in return for avoiding the obligation to contract and pay for service. This is an economic choice that the market makes and typically occurs when the market has alternatives available. This is the nature of interruptible service – it allows a customer to consume natural gas when commodity prices are low and switch to alternate fuels when natural gas prices are high.

Wood Mackenzie states, at page 21, bullet point 2:

“The interruptible pricing framework on TransCanada contributed to upward price pressure on eastern Canadian and Upper Midwest points.”

TransCanada disagrees with this allegation, and notes that Wood Mackenzie has provided no analysis or evidence to support it.

5.2 SECOR-KPMG Report

TransCanada generally agrees with the baseline scenario proposed by SECOR-KPGM although it does not accept all underlying assumptions. TransCanada does take issue with SECOR-KPMG’s best case scenario as it includes an outlook of Quebec’s natural gas demand growth that is highly speculative and based on hypothetical scenarios.

Moreover, the conclusions of the SECOR-KPMG report suggest potential adverse impact on Québec’s economy if a gas supply constraint were to occur. However, the report does not conclude that there will be, or could be, such a gas supply constraint. In fact, the SECOR-KPMG report does not consider the issue of whether there will be sufficient supply in Québec to meet the demand. In any event, the SECOR-KPMG report fails to consider:

the contractual basis and scope of the EMP;




the impact of the Settlement Agreement, and in particular of TransCanada’s commitment to build additional facilities to access U.S. Northeas supply; and

the trend of diminishing gas exports to the U.S.

In short, this conclusion is purely hypothetical and does not reflect current market trends and the actual landscape of the Québec gas market.

6.0 CONCLUSION

In advising the Minister, TransCanada respectfully submits that the Régie should emphasize the following:

It is generally accepted that the growth of the Québec demand for natural gas will remain relatively flat until 2030, for every type of consumer. In fact, the main growth drivers are the IFFCO fertilizer plant project and the resumption of the operations of the Bécancour cogeneration plant. These two projects have already secured FT service to transport their required natural gas supply

TransCanada designs and builds pipeline systems to supply firm-contracted demand. The Energy East Project and the EMP are designed to ensure that existing and new markets that have firm contracts will be served and thus will not impact the capacity to service existing and forecasted firm-contracted demand in Québec

Québec now has and will have greater access to multiple reliable sources of gas supply

The firm contracts serving domestic markets within the Affected Area, including Québec, exceed the peak day requirements of these markets

TransCanada is committed to build additional pipeline infrastructure should unforecasted firm gas demand ever develop

In light of the foregoing, the Energy East Project and the EMP will not compromise the capacity to supply natural gas demand in Québec. The Energy East Project and the EMP will also reduce the costs of gas transportation and provide additional economic benefits to Québec customers

TransCanada hopes that these submissions will be of assistance to the Régie in fulfilling its mandate to advise the Minister.





7.0 SCHEDULE A: GLOSSARY

Asset Transfer: the transfer of existing gas assets to oil service.

EDA: Eastern delivery area

EMP: TransCanada’s proposed Eastern Mainline Project

Energy East Project: TransCanada’s proposed Energy East Pipeline Project.

FT: firm transportation service GMI: Gaz Métro inc. and its affiliates

IFFCO: Indian Farm Fertilizer Cooperative Limited

IT: interruptible service

KPUC: Kingston Public Utility Commission

LDCs: local distribution companies

Mainline: the Canadian Mainline that extends from the Alberta/Saskatchewan border east to the Québec/Vermont border

Minister: Ministre de l’Énergie et des Ressources naturelles

NBSC: North Bay Short Cut NEB Act: the National Energy Board Act

NEB: National Energy Board Open Season: an open season process held from November 2013 to January 2014

Régie Act: the Act respecting the Régie de l’énergie

Request: request for advisement made on July 4, 2014 by the Minister to the Régie de l’énergie

RH-003-2011 Decision: National Energy Board Reasons for Decision, TransCanada PipeLines Limited, NOVA Gas Transmission Ltd., and Foothills Pipe Lines Ltd, RH-003-2011, Tolls and Tariff, March 2013

Settlement Agreement: agreement entered into between TransCanada and Gaz Metro Limited Partnership, Union Gas Limited and Enbridge Gas Distribution Inc. in December 2013.

TQM: the Trans Québec & Maritimes Pipeline

TransCanada: TransCanada PipeLines Limited

WCSB: the Western Canadian Sedimentary basin

MÉRN - Avis sur les approvisionnements en fourniture et transport de gaz naturel nécessaires pour répondre aux besoins en gaz naturel des consommateurs québécois à moyen et long termes Docket # : R-3900-2014



8.0 SCHEDULE B: PLANNED ENHANCEMENTS, NORTHEAST NATURAL GAS PIPELINE SYSTEMS


MÉRN - Avis sur les approvisionnements en fourniture et transport de gaz naturel nécessaires pour répondre aux besoins en gaz naturel des consommateurs québécois à

moyen et long termesDocket # : R-3900-2014


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