CANADA ENERGY REGULATOR

CANADA ENERGY REGULATOR

RÉGIE DE L’ÉNERGIE DU CANADA

Enbridge Pipelines Inc.

Canadian Mainline Contracting Application

Virtual Hearing RH-001-2020

Pipelines Enbridge Inc.

Demande visant les contrats relatifs à la canalisation principale au Canada

Audition virtuelle RH-001-2020

VOLUME 12

Hearing held at

L’audience tenue à

Canada Energy Regulator

517 Tenth Avenue SW

Calgary, Alberta

June 8, 2021

Le 8 juin 2021

International Reporting Inc.

Ottawa, Ontario

(613) 748-6043

Transcript

© Her Majesty the Queen in Right of Canada 2021

as represented by the Canada Energy Regulator

© Sa Majesté du Chef du Canada 2021

représentée par la Régie de l’énergie du Canada

This publication is the recorded verbatim transcript

and, as such, is taped and transcribed in either of the

official languages, depending on the languages

spoken by the participant at the public hearing.

Cette publication est un compte rendu textuel des

délibérations et, en tant que tel, est enregistrée et

transcrite dans l’une ou l’autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l’audience publique.

Printed in Canada Imprimé au Canada

Transcript

IN THE MATTER OF Enbridge Pipelines Inc.

Canadian Mainline Contracting Application

Virtual Hearing RH-001-2020

HEARING LOCATION/LIEU DE L’AUDIENCE

Hearing held via videoconference in Calgary, Alberta, Tuesday, June 8, 2021

Audience tenue par vidéoconférence à Calgary (Alberta), mardi, le 8 juin 2021

COMMISSION PANEL/COMITÉ D'AUDIENCE DE LA COMMISSION

Stephania Luciuk Presiding Commissioner/Commissaire présidant l’audience

Trena Grimoldby Commissioner/Commissaire

Wilma Jacknife Commissioner/Commissaire

Transcript

APPEARANCES/COMPARUTIONS

(i) Applicant/Demandeur Enbridge Pipelines Inc. Ms. Kristi Millar Mr. Bernard Roth Mr. Don G. Davies, Q.C. Ms. Jennifer Nichols Intervenors/Intervenants

Alberta Department of Energy

Mr. Colin King

Ms. Joyce Amiwero

Alberta Petroleum Marketing Commission

Mr. Colin King

BP Products North America Inc.

Mr. John Cusano

Ms. Michelle Voinorosky

Ms. Laura McPhee

Ms. Laura Estep

Canadian Natural Resources Limited

Mr. Martin Ignasiak

Mr. John Gormley

Cenovus Energy Inc.

Mr. James H. Smellie

Mr. Lorne Rollheiser

ConocoPhillips Canada

Mr. Alan Ross

Mr. Bradon Willms

Consumers’ Cooperative Refineries Ltd. & Federated Co-operatives Limited

Mr. Rangi Jeerakathil

Ms. Jessica Buhler

Mr. Douglas Mah

Mr. Warren Cross

Mr. Gurpreet Bhatia

Transcript


(ii) Intervenors/Intervenants (Continued/Suite)

Ducere LLC

Mr. David Nelson

Government of Saskatchewan

Ms. Jessica Kennedy

Mr. Coleman Brinker

Mr. Bruce Wilhelm

Mr. Paul Wagner

Mr. Dylan Gejdos

Imperial Oil Limited

Mr. Brad Gilmour

Ms. Jessica Mercier

Mr. Tim Myers

Inter Pipeline Ltd.

Mr. Sander Duncanson

Ms. Michelle Dawson

MEG Energy Corp.

Mr. Keith Miller

Phillips 66 Canada

Mr. Dennis P. Langen

Ms. Larissa D. Lees

Shell Canada Limited

Mr. Evan W. Dixon

Mr. Evan Dickinson

Mr. Brendan Downey

Suncor Energy Inc.

Ms. Katie Slipp

Mr. Jay Headrick

Mr. C. Kemm Yates

The Explorers and Producers Association of Canada

Mr. Randall Block

Ms. Laurie Ziola

Transcript


(iii) Intervenors/Intervenants (Continued/Suite)

Total E&P Canada Ltd.

Mr. Ron Kruhlak

Mr. Shawn Hinch

Mr. Rusty Miller

Mr. Michael Barbero United Refining Company Mr. Loyola G. Keough Valero Energy Inc. Mr. Dennis P. Langen Ms. Larissa D. Lees Mr. Nathan Murphy Vitol Inc. Mr. Dennis P. Langen Ms. Larissa D. Lees

Canada Energy Regulator/Régie de l’énergie du Canada

Ms. Jessica Gill

Ms. Carol Gagné

Transcript

TABLE OF CONTENTS/TABLE DES MATIÈRES

(i)

Description Paragraph No./No. de paragraphe

Opening remarks by the Presiding Commissioner 10861

Enbridge Pipelines Inc. - Panel 2

Mr. Laszlo Varsanyi

Ms. Ranjana Martin

Mr. Brent Heinz

Mr. John J. Reed

Mr. Greg Belyea

Mr. Larry E. Kennedy

Mr. James M. Coyne

- Examination by Mr. Jeerakathil (continued) 10876

- Examination by Ms. Gill 11394

Transcript

LIST OF EXHIBITS/LISTE DES PIÈCES

No. Description Paragraph No./No. de paragraphe

Transcript

UNDERTAKINGS/ENGAGEMENTS

No. Description Paragraph No./No. de paragraphe


Examination by Mr. Jeerakathil

Transcript

--- Upon commencing at 9:03 a.m./L’audience débute à 9h03

10861. THE PRESIDING COMMISSIONER: All right. Good morning,

everybody, and welcome back to the continuation of the oral portion of the CER's

proceedings regarding Enbridge Pipelines Inc. Canadian Mainline Contracting

Application, RH-001-2020.

10862. My name is Stephania Luciuk. Good morning to everybody.

10863. And I would also like to give an opportunity to my colleagues to say

hello to make sure they -- their connection is stable.

10864. Commissioner Jacknife?

10865. COMMISSIONER JACKNIFE: Good morning, everyone.

10866. THE PRESIDING COMMISSIONER: Thank you.

10867. Commissioner Grimoldby?

10868. COMMISSIONER GRIMOLDBY: Good morning, everyone.

10869. As always, we have our CER staff supporting us. Those staff include

our legal counsel Carol Gagné and Jessica Gill; our regulatory officer, Janet

Foreman; our client service expert, John Nelson; and our process advisor, Susan

Baker.

10870. We continue to have a live audio and video stream of the proceeding

being broadcast from the CER’s website.

10871. Just a few quick updates from the Commission. I would like to advise

parties that a further procedural update, Procedural Update Number 5 will be

coming out today. It will provide some refined estimates as to schedule,

including anticipated cross-examination on a tentative basis. It will also provide

some details of the final argument process.

10872. As I indicated yesterday, we will sit longer today. We will sit until

3:45 today, and I expect that we will do the same tomorrow. We will have a brief

break in the afternoon, just to give everybody a chance to pause with the extended



Transcript

daytime sitting schedule, and if we need to extend further days this week, we can

do that as well.

10873. And as always, I'll remind parties to introduce yourselves before you

speak. If you need to get the Panel's attention, please unmute, turn on your video,

and we will be able to see you.

10874. And before we begin, Mr. Jeerakathil, I'm just going to double check

whether there are any preliminary matters that anybody has for the Panel's

consideration this morning.

10875. Great. Not seeing any, Mr. Jeerakathil, I believe we're ready to

proceed. I see all of the witnesses. Go ahead.

LASZLO VARSANYI: Resumed

RANJANA MARTIN: Resumed

BRENT HEINZ: Resumed

JOHN J. REED: Resumed

GREG BELYEA: Resumed

LARRY E. KENNEDY: Resumed

JAMES M. COYNE: Resumed

--- EXAMINATION BY/INTERROGATOIRE PAR MR. JEERAKATHIL:

(Continued/Suite)

10876. MR. JEERAKATHIL: Thank you, Chair. Good morning, CER

Panel. Good morning, Enbridge panel.

10877. We were chatting about some of the charges applicable to

uncommitted tolls vis-à-vis committed tolls prior to the -- prior to breaking for the

day. And would it be fair to say that given the possible -- given the potential

surcharges and the possible expansion capital, it isn't reasonable -- it isn't -- you

cannot reasonably predict the magnitude of the toll differential between

committed and uncommitted shippers, but that will be when TSAs expire in 8, 12,

15, or 20 years? Is that fair?

10878. MR. VARSANYI: Mr. Jeerakathil, we were asked to provide just that

sort of an estimate based off of some input associated with the Line 5 and other

hypotheticals in one of the interrogatories, and I recall that the percentage

premium of the uncommitted relative to the committed was estimated at about 17



Transcript

or so percent in that interrogatory. And if you wanted, we would probably need a

few minutes to find the specific reference for you on where we provided that

information.

10879. MR. JEERAKATHIL: Certainly, if you could dig up that reference,

that would be helpful.

--- (A short pause/Courte pause)

10880. MR. HEINZ: Good morning, Mr. Jeerakathil.

10881. MR. JEERAKATHIL: Good morning.

10882. MR. HEINZ: It's Brent Heinz. So I'll respond to this one for you.

The reference we were thinking of was in CER IR 1.9 (c), and it's an attachment.

And within that table, we compare the committed toll to the uncommitted toll, and

we incorporate the Line 5 tunnel. And so that will increase the percentage of the

uncommitted toll above the committed toll, a range of approximately 12.4 percent

to 18.2 percent, the difference being discounts to the uncommitted -- or sorry, to

the committed toll, such as the TVDD, for example.

10883. MR. JEERAKATHIL: Thank you. And would you agree with me

that as the uncommitted toll increases or there's upward pressure on the

uncommitted toll, there would also be upward pressure on the price in the

secondary market?

10884. MR. REED: Maybe I should jump in on that one.

10885. MR. JEERAKATHIL: Certainly.

10886. MR. REED: It's Mr. Reed. No, I wouldn't agree with that. I don't

think the secondary market is going to be priced off of the cost of one alternative.

I think it's going to be priced off of all alternatives, and it's going to depend very

much on what's on the margin. I think your question sort of presumes that this

capacity that is uncommitted capacity would be on the margin and essentially

setting the price in the secondary market, but obviously, at different times, it

could be service on competing pipelines or on rail.

10887. MR. JEERAKATHIL: Fair enough. But would you agree that it

would be a component of what would set the price in the secondary market?



Transcript

10888. MR. REED: Again, only if uncommitted capacity on Enbridge is on

the margin. If, for example, by contrast, rail is on the margin at that time, I don’t

think that the uncommitted toll would be a component of the price setting

mechanism for the secondary market.

10889. MR. VARSANYI: Mr. Jeerakathil, it’s Laszlo Varsanyi. I would just

add to Mr. Reed’s example the other sort of end of the spectrum could be a

situation where the contracted capacity is selling at a discount in the secondary

market because there is no utilization whatsoever of the uncommitted portion of

the capacity. And in that case, we would, of course, post an uncommitted toll.

But to the extent that nobody is paying it, it becomes somewhat academic and

would not, in that example, have any factoring into the value or the cost in the

secondary market for committed space.

10890. MR. JEERAKATHIL: Thank you. Mr. Reed, you mentioned that

rail could also be competing in setting the price in the secondary market. And

typically would you agree that the cost of rail would be above the uncommitted

toll? Materially above it?

10891. MR. REED: Yes. Typically I would agree with that.

10892. MR. JEERAKATHIL: Thank you. Mr. Heinz, we had a discussion

about Line 3 before the day break and I had one additional question with respect

to the Line 3 surcharge that’s being charged to Canadian shippers. Can you tell

me what additional service those Canadian shippers are receiving, if any, for the

payment of the charge?

10893. MR. HEINZ: Well, what shippers are receiving with the Line 3

Replacement is safety and reliability, first and foremost. That was the main driver

for the project because it is a replacement. So that’s the first thing.

10894. Second of all, we are restoring the capacity. And that restoration will

take the capacity back up to 760,000 barrels per day.

10895. And so the service is a restoration of capacity, plus the safety and

reliability of the system.

10896. MR. JEERAKATHIL: Let’s unpack that just a little. So the safety

and -- let’s talk about the restoral. That hasn’t occurred yet. Until the U.S.



Transcript

portion is in service, Line 3 is operating in the same volumes -- with the same

volumes as it had previously, right?

10897. MR. HEINZ: It’s slightly higher. So in 100 percent light service, it

had a capacity of 390,000 barrels per day. And now it has a capacity of 430,000

barrels per day in light service. So it does bump up a little bit in Canada.

10898. MR. JEERAKATHIL: Okay. Thank you. And with respect to

safety and reliability, you would agree with me that that is an obligation of

Enbridge, to provide safety and reliability? It isn’t something that shippers should

have to pay an extra charge for? Isn’t that fair? That’s embedded in your

obligation to serve, isn’t it?

10899. MR. HEINZ: Well safety and reliability is something we take very

seriously at Enbridge. But there’s lots of ways to make the system safe and

reliable. And this is just one of those ways.

10900. The way we’ve managed the line on other occasions ---

10901. MR. JEERAKATHIL: Oh, I think I’ve lost -- oh.

10902. MR. HEINZ: Looks like someone is sharing a screen.

10903. MR. JEERAKATHIL: I don’t -- it’s not me. I think I still see

everyone. Oh.

10904. MS. MARTIN: My apologies. My -- I could not get my microphone

to work and I hung up by accident. My apologies.

10905. MR. JEERAKATHIL: No problem.

10906. MR. HEINZ: So maybe I will continue.

10907. MR. JEERAKATHIL: M’hm.

10908. MR. HEINZ: So, you know, one of the ways that we can manage the

system -- and I should just say I’m not an engineer. But we can take pressure

restrictions, for example, on the line. And that’s what we’ve done on Line 3 in

previous occasions, which is why the capacity has decreased over time as you

take pressure restrictions on the line to manage the safety.



Transcript

10909. MR. JEERAKATHIL: Right. But my question was, the safety and

reliability of the pipeline is an obligation of Enbridge regardless. It isn’t

something that requires a separate charge for it. It’s on Enbridge to ensure that its

pipeline is safe and reliable, right?

10910. MR. HEINZ: Yeah, that depends on the commercial agreement on

how you recover costs associated with that. So of course, in a cost of service,

those would be flowed through to the shipper. Under the CTS, Enbridge took

integrity risk. And you will see that in the Line 3 Replacement, in that that was

taken into account when negotiating the surcharge. There was a substantial

integrity credit that’s incorporated into the 15-year surcharge.

10911. MR. JEERAKATHIL: So if I understand your position, what you’re

saying is that in your view, safety and reliability is something that is negotiable?

10912. MR. HEINZ: No, absolutely not. That’s not what I’m saying. Safety

and reliability is something that we will always do. The question is, how are costs

associated with that recoverable?

10913. MR. JEERAKATHIL: Okay. Thank you. If I could refer you to

Exhibit C07648-2? That’s C07648-2, PDF 121 of 171. That’s Enbridge

Response to CER 2.29. I don’t see it up on the screen. Perhaps it’s just taking a

minute. In any event, I’m sure it will be up shortly. There we go.

10914. You were asked an information request by the Commission with

respect to -- I’m sorry, this would be on PDF 121. There we go. Perfect. Thank

you.

10915. And this is the preamble to the information request. And the Board

cited Reference 6. And you don’t need to pull it up, but Reference 6 was the

Enbridge Representative Shipper Group Issue Resolution Sheet, PDF 4 to 6 of 16.

10916. And there, the Board -- or the Commission asked:

“Enbridge sets out negotiated toll principles respecting the

Line 3 Replacement Program, and summarizes these toll

principles in reference vii) as follows:

-the establishment of a Line 3 Replacement Surcharge for 15



Transcript

years from the in-service date of the Line 3 Replacement

Program;

-the recovery…”

10917. Second bullet:

“-the recovery of any undepreciated Line 3 Replacement rate

base upon the expir[ation] of the 15-year term;”

10918. And I had a question about that bullet. And my -- and I’m wondering

whether -- what the meaning of that is. And so in the reference, is Enbridge

indicating that it will have recovered all or a significant portion of the Line 3 Rate

-- Replacement Rate Base in 15 years, as referenced in the preamble of that

information request?

10919. MR. HEINZ: It’s Brent Heinz. So I think that is in reference to the

fact that the negotiated depreciation on Line 3 Replacement is 30 years, and so the

commercial agreement is a 15-year term, which would suggest that there is 15

years left of depreciation on the original cost.

10920. MR. JEERAKATHIL: And what would that additional 15-year term

look like? Is the depreciation taken at a higher rate in the first 15-year term, a

lower rate in the balance, or is it straight line, or do you know?

10921. MS. MARTIN: I believe it's straight line.

10922. MR. JEERAKATHIL: Straight line? Thank you. And what would

be the total of the Line 3 rate base that would be incorporated into the Canadian

Mainline rate base? I believe it comes in over a period of time, starting in 2017,

but what would be the total amount?

10923. MS. MARTIN: Well, we put -- we placed the Line 3 Replacement

Canada into service on December 1st, 2019, and I believe the rate base was

approximately 5 billion Canadian.

10924. MR. JEERAKATHIL: Five billion Canadian? And that’s specific to

the Canadian Mainline?

10925. MS. MARTIN: That’s correct.



Transcript

10926. MR. JEERAKATHIL: Thank you. And what percentage of the

entire Canadian Mainline rate base would that represent at the time it was put into

service, approximately?

10927. MR. BELYEA: Hi, Counsel. It's Greg Belyea. That would be

approximately one third of the total Canadian Mainline rate base after Line 3 was

placed into service in Canada.

10928. MR. JEERAKATHIL: Thank you. And just getting back to my --

the previous question, so then at the end of the 15 years, you would expect there

to be approximately 2.5 billion of rate base left to be depreciated? And that

would be subject to some agreement with shippers on how that would be

depreciated?

10929. MR. BELYEA: Yes, I think that’s a fair approximation, given the 5

billion figure and the 30-year straight line depreciation.

10930. MR. VARSANYI: But Counsel ---

10931. MR. JEERAKATHIL: Thank you.

10932. MR. VARSANYI: --- it's Laszlo Varsanyi -- that would be on the

original rate base associated with the Line 3 Replacement, and to the extent that

they're sustaining capital that needs to be spent during that 15 years, that will

mean that the outstanding rate base will, in fact, be higher.

10933. MR. JEERAKATHIL: Thank you. That’s fair.

10934. And the incremental volumes associated with the Line 3 Replacement

Project are approximately 370,000 barrels per day, correct?

10935. MR. BELYEA: Counsel, it's Greg Belyea. That number refers to

capacity, which is not necessarily the same as throughput.

10936. MR. JEERAKATHIL: Perhaps you can explain what the throughput

then is, increase in throughput?

10937. MR. BELYEA: Should the capacity be fully utilized, then the

increase in throughput would equal the increase in capacity of approximately

370,000 barrels per day.



Transcript

10938. MR. JEERAKATHIL: Okay. So the amount of additional capacity

that has been -- that will result from the Line 3 Replacement Project is 370,000

barrels per day, whether it's utilized or not?

10939. MR. BELYEA: That’s correct.

10940. MR. JEERAKATHIL: Thank you. If I could refer you to Exhibit

C07651-2, that’s C07651-2, and you don’t need to pull it up. Okay, it is pulled

up. Enbridge's Response to -- my apologies -- to CCRL FCL 1.4. It's PDF 8.

10941. We were -- we had asked a question -- CCRL FCL had asked a

question about historical capital expenditures and was directed -- is directed to

Cenovus IR 1.1, and so I'm going to graciously ask the hearing officer to pull up

Exhibit C07657-3, which is Cenovus 1.1 (a). That’s C07657-3, PDF 1. There we

go.

10942. I don’t have a lot of questions on this, but I was wondering about lines

6 and 7, particularly line 7 of the -- just a moment. Would the depreciation

expense that’s taken in each of the years 2011 to 2019 be a typical depreciation

rate for an oil pipeline?

10943. MS. MARTIN: It's Ms. Martin speaking. I guess I'm trying to

understand what you mean by "typical". The depreciation expense that we record

is based on depreciation studies that we filed with the Commission for regulatory

purposes, and the last depreciation study on file with the Commission was a 2009

technical update. We were required under the CTS to use a truncation date of

2039 during the CTS for our Canadian Mainline depreciation expense.

10944. MR. JEERAKATHIL: And are those -- sorry?

10945. MR. KENNEDY: Mr. Jeerakathil, it's Larry Kennedy speaking. I

would say when I reviewed the 2009 study -- in fact, I was involved in preparing

that update -- the parameters resulting from that study and the effective planning

horizon of 30 years was quite typical of large diameter interprovincial and

interstate pipelines.

10946. MR. JEERAKATHIL: Thank you. And is the treatment of

depreciation consistent with the oil pipeline from accounting regulations?



Transcript

10947. MR. KENNEDY: My understanding, it's very typical of the uniform

OPUUAR, and the regulations that would be similar in the States.

10948. MR. JEERAKATHIL: Thank you. You will be happy to know

those are all my questions on depreciation.

10949. If I could have you turn up Exhibit C07651-2, which is the same

exhibit. We had it up previously, but again, you don’t need to pull it up.

10950. We were referred -- we had asked a question around return on equity

and we were referred to in CCRL FCL 1.10 (a) and (b) to Total IR 1.032 (a). And

so if I could have the hearing officer please pull up Exhibit C07658-9, that’s

C07658-9? There are only two pages to that document. Yes.

10951. So the adjusted return on equity figures set out in line 15 range from

approximately 12.2 to 18.84 over the 2011 to 2019 period, correct?

10952. MR. BELYEA: Sorry, Counsel, could you repeat your question?

You were focused in on line 15?

10953. MR. JEERAKATHIL: Yes. If you could just confirm that the return

on equity figures range from approximately 12.2 to 18.84 over the 2011 to 2019

period.

10954. MR. BELYEA: Yes, that’s correct. I will note that that reflects the

Canadian Mainline ROE and not the Enbridge Mainline, which is the Canadian

Mainline plus the Lakehead System. That Enbridge Mainline ROE is displayed

further down the lifecycle ROE in Row 19.

10955. MR. JEERAKATHIL: Yes, thank you. I was -- I wanted to focus

on the Canadian Mainline. But I appreciate the comment.

10956. I’m interested in Footnote 2, which says:

“The Adjusted Return on Equity is calculated inclusive of the

equity portion of the Line 3 Replacement Canada project

during the period in which the project was delayed from 2017-

2019. The Canadian portion of the Line 3 Replacement project

was placed into service in December, 2019.”



Transcript

10957. And I believe Mr. Drazen had noted this in his evidence as well, but

the first question I have is why is the adjustment an equity adjustment as opposed

to an adjustment to average total net plant?

10958. MR. BELYEA: Well, Counsel, the equity adjustment that we’re

referring to is showing what the return on equity for the Canadian Mainline would

look like, had that equity funded portion of the Line 3 Replacement Project CWIP

been included in the calculation.

10959. So because it’s focusing that specific calculation on return on equity,

it’s appropriate only to include the equity funded portion of CWIP in that

adjustment rather than the entire amount of CWIP related to the Line 3

Replacement Project, because doing so would have also included a debt portion of

the construction work in project or CWIP in the denominator of that adjustment.

10960. MR. JEERAKATHIL: Right. I think I understand what you’re

saying there. What I was more -- I was -- my question wasn’t really why didn’t

you include the total amount in the equity adjustment. It was, why wasn’t the

adjustment made at the average net plant level, as opposed -- and then you take

that percentage of that times the ROE, as opposed to just equity adjustment. Is it

just an accounting exercise?

10961. MR. BELYEA: Mathematically, it would have derived the same

result had we included all of the CWIP related to Line 3 in a total equity-based

adjustment and then calculated the adjusted ROE just on that equity portion. The

answer would have been the same had we made the total adjustment to equity

base or had we done it the way we did do it, simply adjusting the equity base and

not the total asset base.

10962. So the net effect is the same either way. Each method will focus only

on that equity funded portion of the Line 3 CWIP as it relates to the return on

equity calculation.

10963. MR. JEERAKATHIL: Okay. Thank you. And why would you

adjust the -- and wait. I understand that the Canadian portion came into service in

December 2019. And my question is, why would you adjust the 2017, 2018 and

2019 Mainline rate base by incremental Line 3 rate base if Line 3 was not in

service until December 2019?

10964. MR. BELYEA: Well, Counsel, it was precisely because of the delay



Transcript

in service of Line 3 that we felt it was important to reflect that in the return on

equity, the return on equity calculation. So it’s important to note that the CWIP

adjustment starts in November 2017. It’s not applicable prior to that. The reason

for that is that November 2017 was the original in-service date estimate of the

Line 3 Replacement Project, and that’s when Enbridge had anticipated realizing

the incremental revenue -- the incremental surcharge revenue and the incremental

volume related to that Line 3 Replacement Project.

10965. So for the period of time in which it was supposed to have been in

service, but was delayed and was creating a drag on the financial performance of

the Enbridge Mainline, it was reflected as a drag in that adjusted return on equity

calculation.

10966. MS. MARTIN: And could I just add to that?


10968. MS. MARTIN: The Commission, in it’s Guide B Reporting

encourages pipelines to provide appropriate performance measures related to the

performance of the pipeline, the financial performance.

10969. So Enbridge felt that it was appropriate to present a more meaningful

information relation to, as Mr. Belyea put it, the drag on financial performance as

a result of the delay in the in-service date of the project.

10970. And I would also add that ultimately we added a number of rows that

Mr. Belyea referred to here, is that we think it’s appropriate to add more than just

the Canadian Mainline’s performance, but under the CTS, which started in 2011,

we felt it was appropriate to provide even more information regarding the

performance of the full Enbridge Mainline, which we think is a lot more

appropriate in this instance, since the IJT was set for the full Mainline, as we’re

proposing to do for Mainline Contracting.

10971. So it’s really ultimately the performance of the Mainline, which is

showed -- which is demonstrated on Row 19, where we provide the life cycle

return on equity for the Enbridge Mainline. We think that’s a more appropriate

performance measure that captures the risks and incentives we undertook during

the CTS.

10972. MR. JEERAKATHIL: Thank you. But would you agree with me



Transcript

that it isn’t typical for a utility to include in rate base plant that is not in service?

10973. MR. BELYEA: But I think it’s important to note, counsel, that the

Line 3 Replacement CWIP is not included in Enbridge’s cost of service rate base

until the time that it was placed in service.

10974. For the purposes of the Guide BB calculation where Enbridge is

presenting the financial performance of the Enbridge Mainline, it’s reflected in

that ROE calculation as an adjustment, but is not included in the Canadian

Mainline’s rate base until it went into service in December 2019.

10975. MR. JEERAKATHIL: Thank you for that. Thank you. Just a

follow-up question to a comment that Ms. Martin made around the adjusted life

cycle to date, average ROE. It appears to me from reviewing this that it’s really

the Canadian Mainline that is improving the financial performance of the entire

Mainline. And isn’t that correct?

10976. MS. MARTIN: I would like to break that down a little bit in terms of

how the returns are calculated. Mr. Belyea will help me if I struggle with this a

little bit.

10977. But so the IJT, as I said, was established for the Mainline. The bulk of

the revenues, I would say about 90 percent of them for the Mainline, come from

that IJT.

10978. We have talked about the underearnings on Lakehead. That is a fact.

And I think in one of the IR responses we provided, that Lakehead is

underearning. And I believe the latest ROE for Lakehead was 5.7 percent.

10979. So what happens when we report the Canadian Mainline is really it

reflects what revenue is allocated to the Canadian Mainline. And that is often a

function of what’s happening on the Lakehead system. And on the Lakehead

system, there is a lot of variability. So if the Lakehead toll changes, it can cause a

corresponding increase or decrease to the Canadian Mainline ROE.

10980. So I’ll give you an example. With the pandemic impact on volumes in

2020, what happened was on Lakehead, prior to us -- we had set the rates for

Lakehead based on a much higher throughput. We had not seen the impact of the

pandemic in February.



Transcript

10981. So what happened in that year was the Lakehead rates were set at a

very low level. And in reality, those rates should have been a lot higher with a

lower throughput.

10982. What happens then is in the next year, we’re going to have a large

true-up for Lakehead, which will then translate into a much lower ROE in the

following year.

10983. So there is this dynamic that happens over the course of the 10 years of

the CTS where the Lakehead toll is changing up and down, the IJT is changing

based on different drivers, and therefore you see this interaction between the

Lakehead ROE and the Canadian Mainline ROE.

10984. So it’s not that the Canadian Mainline is -- that’s why we think that it’s

appropriate to look at the Enbridge Mainline ROE instead of the fluctuations

between the two sets because we took the risk on cost for the entire Mainline

during the CTS. And it's the performance from year to year as you compare

those, that's not -- that doesn't tell the full story.

10985. It's the fact that it's a cumulative life cycle of all of the risks that we

took over that 10-year timeframe. That's what's relevant in evaluating the

performance of the Mainline.

10986. MR. JEERAKATHIL: But when you look at the schedule in the

Total IR, it appears -- and wouldn't you agree that the Canadian Mainline portion

is effectively subsidizing the Lakehead portion for your ROE; it's not subsidizing

it in the sense but it's making up for where it's falling short?

10987. MS. MARTIN: No, I would not agree with that. I would say that the

10 percent ROE is the life cycle, the template. I don't have that up on screen, but

that's more indicative of what the Mainline is earning under the CTS, not the

Canadian -- you can't just focus in on the Canadian Mainline because, to me, it's

just it's math and it's timing differences. And it's not reflecting that one is

subsidizing the other. It's the fact that we're on average making a 10.8 percent life

cycle return on the average Mainline.

10988. MR. REED: Mr. Jeerakathil, just to add one point, this is Mr. Reed,

you used the term driving higher earnings on the Mainline and cross-subsidizing.

I certainly wouldn't accept those characterizations in either case. Now my view is

it is the toll under the IJT that's driving the performance. And of course, that toll



Transcript

is based upon the entirety of the Mainline. It is the revenue allocation and

accounting practice that drives the reporting results on one system versus the

other, but it is the entirety of the Mainline and that level of profitability that is

driven by the revenues collected under the IJT. The rest is where the dollars fall

in one pocket versus the other.

10989. But the level of profitability is, as Ms. Martin said, an across the

system measure. And there is no cross subsidization because the two systems

aren't tolled on a standalone basis under cost of service. If in fact you had two

separate systems tolled individually and then add it together, and you saw that

kind of disparity and earned returns, I could understand your point. But it's

important to understand that's not the way the Mainline is tolled.

10990. MR. JEERAKATHIL: But the CER approves the IJT, right?

10991. MR. REED: Yes, that's my understanding.

10992. MR. JEERAKATHIL: Thank you. I would like to move to an area

around discounts. And if I could have you pull up Exhibit C-03823-2 or refer to

it? Exhibit C-03823-2, PDF 44 and 45 of 86, it's Table 5.2 of the main

application. And here on this Table 5.2 you list a bunch of discounts applicable to

committed tolls, and I will just wait here for a moment. There we go. Thank you

for that. And does this table contain all of the discounts applicable to Mainline

Contracting?

10993. MR. HEINZ: It's Brent Heinz. It does include the discounts that are

available. These are the maximum discounts, and where they're applicable, there

may be discounts that fall in between. So, for example ---

10994. MR. JEERAKATHIL: Sorry, Mr. Heinz, if I might just -- what I'm

saying -- and I understand there may be distance suggested -- discounts, are these

the types -- all of the types of discounts that you can obtain?

10995. MR. HEINZ: Yes, I believe so, yeah.

10996. MR. JEERAKATHIL: Yeah, thank you. And I understand all of

these discounts are distance suggested with the exception of the E2H discount; is

that correct?

10997. MR. HEINZ: Yes, that's correct. Of course, there's no distance



Transcript

adjustment on the E2H because that's just a short movement between two points

on the system that are adjacent to one another.

10998. MR. JEERAKATHIL: Yes, thank you. And I understand these

discounts apply for the initial term of a requirements contract, take or pay

contract, and possibly flex term contract, but flex term, they don't apply to all --

all of the discounts don't apply to flex term, correct?

10999. MR. HEINZ: That is correct. These do not apply to flex term.

11000. MR. JEERAKATHIL: So none of the discounts apply to flex; is that

right?

11001. MR. HEINZ: That is correct.

11002. MR. JEERAKATHIL: Okay. Thank you. And the discounts, are

they inflation adjusted?

11003. MR. HEINZ: Yeah, once the open season concludes, we will know

the toll for -- applicable to each shipper. And that toll, with the exception of the

TVDD, which is the total volume delivered discount, would be adjusted by the

inflator.

11004. MR. JEERAKATHIL: Okay. So if every year the discount is

adjusted up for the -- along with the toll by the inflation mechanism, both are

adjusted up; is that correct?

11005. MS. MARTIN: Could I just say, once the open season results are

available, we will establish the committed tariffs, which will incorporate those

discounts. And then once we have established that, the discounts are

incorporated, and then we would do the GDPP escalator on an annual basis,

which would have already incorporated the discounts. So it's not that they're

separately done, but they're done on a combined basis, yes, effectively, giving you

the same result.

11006. MR. JEERAKATHIL: I see. Thank you. And are all of the

discounts inflation adjusted?

11007. MS. MARTIN: With the exceptions that Mr. Brent -- Mr. Heinz

pointed out, yes, I believe they are.



Transcript

11008. MR. JEERAKATHIL: Sorry, which was that exception?

11009. MS. MARTIN: The TBDD for one. That changes ---

11010. MR. JEERAKATHIL: The TBDD.

11011. MS. MARTIN: Yes. That changes as to the changes on the system.

11012. MR. JEERAKATHIL: And so it is not inflation adjusted?

11013. MS. MARTIN: That's right.

11014. MR. JEERAKATHIL: Thank you. And the discounts, if I

understand correctly, may or may not apply to a renewal term. It will depend on a

discussion between the shipper and Enbridge and a potential application to the

CER; is that correct?

11015. MR. HEINZ: Yes, in terms of the renewal, I believe we have

explained that it's a volume renewal, and so the toll would be negotiated.

11016. MR. JEERAKATHIL: Thank you. And with respect to the high-

volume discount, which is Row 1 of Table 5.2, if I understand correctly, it is only

available to shippers who bid and secure more than 300,000 barrels per day in the

open season, correct?

11017. MR. VARSANYI: Counsel, not quite. It's the application of that

discount is based on their bid, not what they're actually allocated.

11018. MR. JEERAKATHIL: Right. Thank you for that clarification. So if

you bid more than, sorry, 300,000 barrels per day or more, you're eligible for the

discount regardless of whether you get 300,000. That's what you're saying?

11019. MR. VARSANYI: Correct.

11020. MR. JEERAKATHIL: Thank you. And if you bid for space on

more than one haul, would that be combined to achieve the discount, or is that per

haul?

11021. MR. HEINZ: No, I believe it’s a combination. So you can, for



Transcript

example, have some of your contracts in medium haul and some in long haul, for

example, and we will look at both.

11022. MR. JEERAKATHIL: Thank you. And how many shippers do you

think would likely qualify for this discount, given the threshold of 300,000 barrels

per day? Do you have an idea around that?

11023. MR. HEINZ: Well ultimately we will not know who will qualify for

the high-volume discount. Of course, the take or pay is 300,000 barrels per day

and, on its own, could qualify for the high-volume discounts. So ultimately, we

will not know until the open season concludes.

11024. MR. JEERAKATHIL: How many shippers -- would you know how

many shippers, based on your understanding of nominations on the system, might

qualify for such a discount? If they bid, you know, basically their capacity that

they have done in the past?

11025. MR. VARSANYI: If you give us just a few moments, Counsel, we

can give you a ball park estimate of that.



11027. MR. HEINZ: Hello. It’s Brent Heinz. I believe an estimate that, you

know, we quickly came up with is approximately four shippers would qualify for

that.

11028. MR. JEERAKATHIL: It looks like I was on mute somehow. And

my question was, those shippers would primarily have U.S. refining assets? Is

that correct?

11029. MR. HEINZ: Well, we can’t get into specifics. But they would be --

they could be refiners, they could be integrateds. And of course, you know the

open season, you know, will determine who actually subscribes. And this is just

based on, you had asked us to look at historical. So obviously there could be

others in the open season.

11030. MR. JEERAKATHIL: Thank you for that. And with respect to the

third row of Table 5.2, which is the length of term discount, that’s relatively self-



Transcript

explanatory. If I understand, it applies to contracts over 156 months, or 13 years,

and then there’s a higher discount for terms over 17 years, correct?


11032. MR. JEERAKATHIL: And with respect to the cumulative volume

term contracted discount, which is the fourth row in Table 5.2, it’s only available

to shippers that have an open season score equal to 6,000, which is the length of

the term times the bid volume? So for example, you would have to be a relatively

large shipper, or a very large shipper, because you would need about 300,000

barrels per day times 20 years? Do I understand that correctly?

11033. MR. HEINZ: Yes, that’s right. There is an additional small discount

of four cents for bundling a high -- sorry, a long term and a high volume.

11034. MR. VARSANYI: And so, Counsel, just again to reiterate -- it’s

Laszlo Varsanyi. To reiterate, Mr. Heinz’s earlier point that it was specifically

designed to make that incremental discount the cumulative volume term

contracted discount available to any participant should they choose to take out a

take or pay of 300,000 barrels a day for 20 years.

11035. So we wanted to make sure that anybody is eligible for that and it is

not dependent on their specific circumstances as to whether or not they would be

eligible.

11036. MR. JEERAKATHIL: Thank you. But is that different than the

other discounts we chatted about? Are those not available to everyone as well?

11037. MR. VARSANYI: They are. My only point was that we were very

careful to not set up any types of discounts that were not available to any

participant in the open season.

11038. MR. JEERAKATHIL: Thank you. And would it be fair to say that

the number of shippers that could qualify for that discount, the cumulative volume

term contracted discount, would be in the same range of four shippers? Is that

also fair to say?

11039. MR. VARSANYI: It would be, Counsel. But again, that’s based on a

historical view of what they have chosen to ship under the current service

offering. And of course, with the service offering being an improved one, there is



Transcript

no way to know what shippers will choose to do in the future.

11040. And again, with the 300,000 barrel a day opportunity on take or pay,

any shipper can qualify, because again, it’s very important to remember that it’s

not the specific molecules of a shipper that is produced or is refined that is

necessary in order to qualify for a contract.

11041. And so specifically an aggregator, for instance, may choose to take out

a contract and become eligible for all of these and then work with both upstream

and downstream parties and allocate portions of the capacity out to individual

companies that they’ve got contracts with.

11042. So we have tried to be very flexible in the offering and who is able to

qualify for these discounts.

11043. MR. JEERAKATHIL: Thank you. Thank you. And with respect to

the total volume contracted discount, which is the fifth row of Table 5.2, if I

understand that correctly, as long as the medium and long-haul segments are

contracted above 2.45 million barrels per day, there’s a one cent discount per

barrel for every 50,000 barrels per day above 2.45 million barrels per day to a

maximum of five cents?

11044. MR. HEINZ: Yes, that’s correct. And this is an important one

because it really determines the highest committed toll and can reduce that 5.70

down to 5.65 forever. And so this is an important one. And it’s determined by

really the success of the open season and the total amount of subscriptions.

11045. MR. VARSANYI: And just to supplement Mr. Heinz’ response --

this is Mr. Varsanyi. The interesting thing to note about this particular discount is

it again is distance-adjusted. So even participants that sign up for a different haul

-- so let’s use short haul as an example -- would still benefit from the fact that

these thresholds are met. And they would get their distance-based adjustment of

other people’s participation in the open season, even though their specific haul

does not count towards the threshold. So they do benefit from the decision to

contract by others.

11046. MR. JEERAKATHIL: Right. Yes, I understand that. Thank you.

11047. And the reference in the third column that indicates, “except those”

volumes “for a Flex Service Term”, do you mean that the Flex Service Term



Transcript

volumes would not be included in the 2.45 million barrels per day? So in other

words, they’re not counted? It has to be take-or-pay or requirements contracts

that add up to the 2.45 million and the additional 50,000 barrels per day. Do I

understand that correct?

11048. MR. VARSANYI: Counsel, it’s both, in that flex service contracts do

not get counted towards that threshold of 2.45 million barrels a day but also Flex

Service Term contracts are not eligible to receive any discounts associated with

this TVCD.

11049. So in the example of 50,000 barrels a day above 2.45, the Flex Service

Term contract would not be eligible for that penny discount. And its volumes

would not have counted towards the 2.5 million barrels a day in that example.

11050. MR. JEERAKATHIL: Right. But I understood from Mr. Heinz that

the Flex Service Term contract doesn’t receive any of the discounts, correct?

11051. MR. VARSANYI: That’s correct.

11052. MR. JEERAKATHIL: Thank you. And this discount doesn’t just

apply to medium and long-haul shippers, correct? It applies to all shippers that

secure a contract?

11053. MR. HEINZ: Yes, that is correct, on a distance-adjusted basis.

11054. MR. JEERAKATHIL: Right. So lastly, the total volume delivered

discount, if I understand this correctly, it is available when the average of the

monthly deliveries downstream of the Canadian border, over the preceding three

months, is over the greater of 2.75 million barrels per day or 50,000 barrels per

day above the total amount contracted to delivery points downstream of the

Canadian border. And so this is a monthly or -- this is a monthly potential

discount; is that correct?

11055. MR. HEINZ: So it’s a rolling average that we will track and adjust

the invoice tolls accordingly, based on the volume thresholds met on that rolling

average.

11056. MR. JEERAKATHIL: And so this discount differs from the

previous discounts we have discussed in the sense that it is not dependent, per se,

on the open season results but rather utilization of the system throughout of



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Mainline Contracting?

11057. MR. HEINZ: That’s correct. It’s based on the throughput.

11058. MR. JEERAKATHIL: And the throughput of 2.75 million, that

threshold, and then the 50,000 above that -- or sorry; the 50,000 above the total

amount contracted to delivery points downstream of the Canadian border, that

wouldn’t include flex term contracts in that -- they would not be counted in

relation to that threshold, correct?

11059. MR. HEINZ: Well, the flex term wouldn’t receive the discount, but

all throughput is counted in determining the discount.

11060. MR. JEERAKATHIL: Okay. So then the bracketed words:

“…(except those contracted for a Flex Service Term)…”

11061. That’s the same language in the previous row, and I assume that it

meant that in the 2.75 million barrels per day in the other threshold number, you

wouldn’t be including Flex Service Term volumes in the same way as you have

just described in the previous row?

11062. MR. HEINZ: So the TVDD, the Total Volume Delivered Discount,

which is a maximum of 30 cents is based on throughput. And it is throughput of

all barrels; uncommitted barrels and committed barrels, regardless of the type of

contract you have. Or if you don’t have a contract, it’s simply throughput based.

It’s just that simple.

11063. MR. JEERAKATHIL: So is that an error ---

11064. MR. VARSANYI: So Counsel ---

11065. MR. JEERAKATHIL: Sorry.

11066. MR. VARSANYI: No, Counsel, just to clarify your earlier question.

If we’re dealing in the right-hand column ---

11067. MR. JEERAKATHIL: Yes.

11068. MR. VARSANYI: --- under both of the two discounts that are on this



Transcript

page numbered 45 on the paper copy, in the parenthetical, they are both

referencing an exception to receiving the discount. In the left-hand column or the

middle column under “Description”, you will note that in the Total Volume

Contracted Discount it is another parenthetical that says:

“…(excluding post-2022 ramp up and Flex Service Term

contracts)…”

11069. That is the one that is telling us that it -- Flex Service Term, in

particular, will not be counted towards the 2.45 million barrels a day threshold for

the Total Volume Contracted Discount.

11070. But if we move down a row to the Total Volume Delivered Discount,

you will note that there is no equivalent parenthetical carving out Flex Service

Term contracts and therefore they are included volumetrically. It’s just that

they’re not eligible for receiving a discount as per the column one over.

11071. MR. JEERAKATHIL: Thank you. That’s helpful.

11072. If I could have you refer to Exhibit C12447-2. That’s C12447-2,

Enbridge Reply Evidence, PDF 42 of 94. There we go, Table 5. I just have a few

questions around this Table.

11073. And if I could just have you move to just a little bit further down the

page into the paragraph 107. In paragraph 107, you make the comment -- so this

Table, you will agree with me, is CCRL and FCL, in their evidence, illustrated

some toll increases that they would be experiencing due to Mainline Contracting.

And this is a reply to -- and there was also an information response that they

responded to from the Commission. And this is the response by Enbridge to that

evidence.

11074. And I have a few questions about it. The first is, in paragraph 107 --

yes, in paragraph 107 -- in the previous paragraph, you indicate that:

“CCRL and FCL assert that their tolls […] would increase by

nearly 50%...”

11075. And then you’ve done the table here. And in paragraph 107, you say:

“Applying the toll increases reflected in Table 5 to CCRL and



Transcript

FCL’s historical invoiced transportation costs, CCRL and

FCL’s volume-weighted average annual Mainline

transportation costs would increase by approximately 8%.”

11076. Do you see that reference?

11077. MR. HEINZ: I do.

11078. MR. JEERAKATHIL: And my question is, over what period of time

did you calculate the volume-weighted increase of 8 percent?

11079. MR. HEINZ: If you give me a minute, I can confirm that for you.


11081. MR. HEINZ: Thank you.


11082. MR. HEINZ: Thank you. It's Brent Heinz. So it was a three-year

average that we used for that.

11083. MR. JEERAKATHIL: Thank you. And would you agree with me

that did you use 2020?

11084. MR. HEINZ: Yes, we used 2018, 2019 and 2020.

11085. MR. JEERAKATHIL: And would you agree with me that 2020 was

not a typical year for oil refineries in Canada?

11086. MR. HEINZ: It was not a typical year, I would say, but looking at

historical average, that's within the range for CCRL FCL.

11087. MR. JEERAKATHIL: And are you aware that CCRL primarily uses

only certain legs or segments as it indicated in its evidence, particularly, ex-

Hardisty to Regina heavy, ex-Kerrobert to Regina heavy, and Edmonton to

Regina for light? Are you aware of that? It's set out in their evidence.

11088. MR. HEINZ: I am aware of the movements that Co-op has done, yes.



Transcript

11089. MR. JEERAKATHIL: And would you accept that CCRL only uses

the Edmonton to Gretna route in a very limited manner?

11090. MR. HEINZ: Yes, the purpose of this, of course, was to show the

differences in the tolls for all of the receipt and delivery locations within Canada

that are possible, not to isolate the ones that Co-op specifically uses. That was

used in the calculation of that volume weighted average.

11091. MR. JEERAKATHIL: And the volume weighted average included

2019 when the refinery had a strike as well, correct?

11092. MR. HEINZ: It used full years for 2018, '19 and '20.

11093. MR. JEERAKATHIL: And you're aware that the refinery had a

strike in 2019 into 2020 that affected its volumes?

11094. MR. HEINZ: I am aware of that, yes.


11096. MR. VARSANYI: But, Counsel, there's no reason for us to expect

that a drop in volumes would change the receipt and delivery patterns necessarily.

So to the extent that the overall volumes drop but the receipt and deliveries drop

in an equivalent relevant weighting, then this volume weighted average won't

change.

11097. So unless a strike were to impact only volumes from Edmonton but not

volumes from Hardisty, or something like that, we would not expect lower

utilization, or strikes, or anything like that to change the volume weighted

average, because all that does is it takes the relative proportion from each of the

receipt points to Regina and/or from Regina to the ultimate destination point and

does this volume weighting averaging.

11098. And so it would take some event that really disproportionately

impacted one of the, for example, high toll receipt patterns and not a low toll

receipt pattern to make that volume weighted average look smaller than it

otherwise should, and that is not under our understanding of what has occurred

either during the pandemic or the strike.

11099. MR. JEERAKATHIL: But you are aware that CCRL/FCL can do a



Transcript

terminal transfer, correct, off of the Mainline?

11100. MR. VARSANYI: Yes, we are aware of those, yes.

11101. MR. JEERAKATHIL: And that's something that could be utilized

in, for example, a pandemic or a strike event that would impact the heavy

volumes moving from Hardisty or Kerrobert, right?

11102. MR. HEINZ: It's my understanding that those terminal transfers can

occur, and I think they're up to 40,000 barrels per day of heavy.

11103. MR. JEERAKATHIL: Thank you. I would like to ask you a few

questions about the discounts you've applied in Table 5 of the Enbridge reply

evidence, Exhibit 12447-2. If that could just be put on the screen, that would be

helpful.

11104. Thank you. In Column E of the table, you have applied several

discounts, and I would just like to go through those with you. We've talked about

them generally before in my examination, but you have there listed less than 300 -

- just -- if it could just be moved up slightly? There we go. NLC 17-year

committed tolls. I understand that is the -- you have assumed that there's a length

of term discount and that a 17-year contract is obtained; is that correct, in these

calculations in Column E?

11105. MR. HEINZ: Yes, we have incorporated the long-term discount, the

full TVCD, which is a 5 cent discount, the full TVDD, which is the volume

delivered discount of 30 cents, and we have excluded the high volume discount,

and we have excluded the 4 cent discount, which you need to have a high volume

and a long term.

11106. MR. JEERAKATHIL: Thank you. And the first discount -- and

those are -- you distance adjusted those numbers, right?

11107. MR. HEINZ: That is correct, yes. These have been all distance

adjusted for the receipt and delivery periods you see in the first two columns.

11108. MR. JEERAKATHIL: Thank you. And so the first item there, the

MLC17, that would be a 10 cent discount, correct, distance adjusted that you

would have applied in the table, correct?



Transcript


11110. MR. JEERAKATHIL: And what is that amount distance adjusted?

11111. MR. HEINZ: I would have to determine that for you, what each of

those discounts are on a distance adjusted basis.

11112. MR. JEERAKATHIL: Could you ---

11113. MR. BELYEA: Counsel, it's Greg Belyea. In Schedule B of the

TSAs there's a discount conversion factor chart, which shows how those

benchmark toll discounts as expressed, Hardisty to Chicago heavy, how their

distance and commodity adjusted to each receipt and delivery point, so that

appendix, if we pull that up, would have the specific value you're looking for.

11114. MR. JEERAKATHIL: Why don't we just hold off on that for a

moment. Would you be able to give me an undertaking with respect to the

discounts that you have applied on a distance-adjusted basis in Table 5?

11115. MS. MILLAR: Just to confirm, Mr. Belyea, are you saying that those

are set out already in Schedule B of the TSAs?

11116. MR. BELYEA: Yes, that’s correct, in, I believe it's Table 4 in

Schedule B at the committed toll discount conversion factors, so those can be

applied to each of the term and TVCD and TVDD assumptions used in the

derivation of Column E.

11117. MR. JEERAKATHIL: And is that a calculation that I would have to

perform?

11118. MR. HEINZ: You would take, for example, if you were looking to

understand how much that 10 cent, 17-year term discount was. You would

multiply that 10 cents by the applicable conversion factor that you're -- that you

find in that table, and that would yield the result, the multiplication of those two

numbers.

11119. MR. JEERAKATHIL: Okay. I think that’s fine. Thank you.

11120. And if CCRL did not bid on a contract of 17 years or greater, it would

not receive the ten cent per barrel of oil discount distance adjusted, correct?



Transcript

11121. MR. HEINZ: That is correct. So for example, if the CCRL signed up

for a 14-year contract, they would get a five cent discount instead of a ten cent

discount.

11122. MR. JEERAKATHIL: And if they signed up for a 12-year contract

or something less than 13 years, they wouldn't get a term discount, correct?


11124. MR. JEERAKATHIL: And you're not aware of whether CCRL is

going to bid in the open season on a particular contract, are you?

11125. MR. HEINZ: We will not know that until the open season concludes.

11126. MR. JEERAKATHIL: Thank you. And the second discount you

note in Column E of Table 5 in your reply evidence is the full TVCD discount,

right?


11128. MR. JEERAKATHIL: And that’s five cents distance adjusted,

correct?


11130. MR. JEERAKATHIL: And I understand, Mr. Belyea, that I can turn

to that appendix and easily calculate that as well; is that correct?

11131. MR. BELYEA: Yes, that’s correct. I will just add one more point

onto that, a point of clarification. They are distance as well as commodity

adjusted, the discounts that we're discussing.

11132. MR. JEERAKATHIL: Thank you. And if I understand correctly,

the -- I'm going to call it the TVCD discount, which is the Total Volume

Contracting Discount, will only apply if over 2.45 million barrels per day are

contracted in the open season as of the commencement date, correct?

11133. MR. HEINZ: Yes, that’s when the discount starts to be applied.



Transcript

11134. MR. JEERAKATHIL: And so for Table 5 in the Reply Evidence in

Column E, you have assumed that there is 2.7 million barrels per day contracted

in the open season, right, which is 2.45 million barrels per day plus 250,000

barrels per day, which is with a cent discount for every 50,000 barrels per day,

right?

11135. MR. HEINZ: Yes, that’s correct.

11136. MR. JEERAKATHIL: Thank you. And that volume I have just

mentioned of 2.7 million would exclude flex-term volumes bid for in the open

season, right?


11138. MR. JEERAKATHIL: Thank you. And then the next discount you

note in the Reply Evidence is the full TVDD discount, correct, which is the Total

Volume Delivered Discount, correct?

11139. MR. HEINZ: That is correct, yes.

11140. MR. JEERAKATHIL: And that’s available when the average of the

monthly deliveries downstream of the Canadian border over the preceding three

months is over the greater of 2.75 million barrels per day or 50,000 barrels per

day above the total amount contracted to delivery points downstream of the

Canadian border, right?

11141. MR. HEINZ: Yes. That’s when the TVDD starts to become

applicable, yes.

11142. MR. JEERAKATHIL: And you have assumed the full three cent

maximum discount, so you have assumed the full -- the volumes would be 2.75

million barrels per day on that three-month rolling average, correct?

11143. MR. HEINZ: Well, it would be higher than that because you're

taking the full 30 cents.

11144. MR. JEERAKATHIL: Sorry, 30 cents. I'm sorry, I said three. So --

and that’s distance adjusted as well, correct?

11145. MR. HEINZ: Yes, it is.



Transcript


11147. If I could have you pull up paragraph -- so this is the Enbridge Reply

Evidence, Exhibit 12447-2, PDF 8, paragraph 12. Thank you.

11148. So there you say:

"Enbridge is doubtful whether the open season for capacity on

the Canadian Mainline will be over-subscribed. Should the

open season be over-subscribed, though, that would signal that

additional Mainline capacity is required."

11149. Et cetera.

11150. As well, Mr. Varsanyi, you would recall that in discussions with Mr.

Yates -- and you don’t need to pull it up, but I'm sure you will remember, but I'll

give you the exhibit -- it's Exhibit 13218-1, PDF 74, lines 3278 to 3279. You

were indicating that Enbridge was doubtful that the open season -- in those two

references, Enbridge is indicating that it's doubtful that the open season will be

over-subscribed, right?

11151. MR. VARSANYI: That’s correct, yes.

11152. MR. JEERAKATHIL: But you have assumed the full TVCD and

TVDD discounts are applicable in Table 5 of the Enbridge Reply Evidence,

haven't you?

11153. MR. VARSANYI: Yes, we have.

11154. MR. HEINZ: We have, yes -- and this is Brent Heinz -- I would just

note that if you take a look at Table 5, the title is "Corrections to CCRL and FCL

Toll Assertions". And so this is a critique of your evidence, and what we wanted

to show here was what is available for Co-op based on your historical

throughputs. And so it was intended to be a critique and show what is available to

you, not necessarily what will actually happen.

11155. MR. JEERAKATHIL: So what you're saying is your Table 5 is not

supposed to be reflective of what the tolls that CCRL FCL may actually pay; it's a

-- it's to reflect what the total possible lowest toll could be under Mainline



Transcript

Contracting?

11156. MR. BELYEA: Counsel, it's Greg Belyea. I would point out that the

tolls that are reflected in Column E reflect the full TVDD and TVCD discounts.

It should be noted that the open season doesn’t need to be fully subscribed for

those discounts to be fully achieved. So the assumptions that went into Column E

are from the MLC application from the appendix. So those tolls, for example, the

TVDD, we can be less than fully subscribed, for example, at 2.7 million barrels

per day but still be giving that full 30-cent discount because the threshold is based

on -- for the discount is based, as Mr. Heinz said, on all volumes delivered, not

just contract volumes.

11157. MR. JEERAKATHIL: Thank you. But I was wondering if Mr.

Heinz could answer my question, which was what you have done in Table 5 is to

set out the lowest potential toll that’s available to CCRL as opposed to what may

or may not be likely, right?

11158. MR. HEINZ: Yeah, I can't comment on what will actually occur in

the open season, but this is a potential outcome.

11159. And in fact, you know, CCRL could take out a take or pay for 300,000

barrels per day and achieve the high-volume discount as well. But we didn’t

include that in this scenario.

11160. So we can’t predict what will actually happen in the open season, but

this is one potential outcome.

11161. MR. JEERAKATHIL: But if you’re doubtful that the open season

will be fully subscribed, the assumptions you have made around the discounts

applicable to CCRL based on specified volume levels being achieved in the open

season are also doubtful, aren’t they?

11162. MR. HEINZ: Well, again, this is a scenario that we have used to

critique the CCRL view and is not a prediction of what the open season will

actually be.

11163. MR. BELYEA: And, Counsel, if I could add further clarity to my

prior comment? If the open season results are that Enbridge has received bids for

2.7 million barrels per day of extract in our contracts as assumed in this example,

that is less than full subscription. In that event, CCRL will still receive the



Transcript

discounts noted in Column E, the full TVDD and the full TVCD, despite the open

season not being fully subscribed ---

11164. MR. HEINZ: And I think maybe ---

11165. MR. BELYEA: --- in the example I described ---

11166. MR. HEINZ: Maybe ---

11167. MR. BELYEA: --- previous.

11168. MR. HEINZ: --- to highlight that a little bit, we are offering over 2.8

million barrels per day contracted across the border.


11170. MR. HEINZ: And so the 2.7 is below that maximum contracted

amount by over 100,000 barrels per day. So that’s, I guess, the point that we’re

trying to make, is you don’t have to be fully subscribed to get the full five cent

discount.

11171. MR. JEERAKATHIL: And so you’re -- just a follow up question

there. The 90 percent that you’re placing on for contracting in the application, is

that 90 percent of 355,000 barrels per day? Or is it some other higher number? I

thought the capacity after Line 3 was 355,000 barrels per day?

11172. MR. HEINZ: The capacity post Line 3, I believe, is going to be

approximately 3.22 million barrels per day.

11173. MR. JEERAKATHIL: Okay. But the assumptions that you’ve made

in the table are very close to fully subscribed?

11174. MR. HEINZ: Well they assume that you reach the 2.7. Again, the

available capacity to contract across the border is over 2.8 million barrels per day.

But it’s 2.75 -- it’s 2.7 for the TVCD and 2.75 excluding flex for the TBDD?


11176. MR. HEINZ: I’m sorry, I have that backwards. I was referring to the

five-cent discount based on the total volume contracted discount, or the TVCD.



Transcript

11177. MR. JEERAKATHIL: Yes. Thank you. And would you agree with

me that if none of the discounts you have indicated, including term length, TVCD,

and TBDD’s discounts apply, the CCRL response contained in Exhibit C11755-2,

Response to CER 1, Tables 1 to 4, are correct?

11178. I believe that’s set out in your Table 5, Row -- no, I guess you do not

have it set out in your Table 5. So I’ll have to ask you to confirm that.

11179. MR. VARSANYI: Counsel, it’s Laszlo Varsanyi. The problem as

that Column C is calculated is it has the wrong basis against which it’s

comparing. And in particular, it’s missing the fact that there is a substantial toll

surcharge that’s going to be coming into effect with or without Mainline

Contracting, and specifically that has to do with the Line 3 replacement. And

once that Line 3 replacement comes into effect, that’s going to, of course, impact

all of the receipt and delivery tolls that are on this table and will increase the basis

against which the Mainline Contracting tolls should be compared.

11180. MR. JEERAKATHIL: I understand what you’re saying, and I have

a couple questions about that. But my question was actually -- and perhaps it’s

best to pull it up, it’s Exhibit C11755-2, PDF 11 and 12. This was, Mr. Varsanyi,

a response by -- from the -- to the Board IR where CCRL FCL recalculated the

rate increases based on CTS exit tolls, which include the Line 3 Replacement

Surcharge. And that’s PDF 11 and 12.

11181. So these are the tables. Have you had the ability review these when

you prepared your Table 5? And are you able to confirm that if none of the

discounts are applicable, that the numbers contained in Tables 1 through to 4 are

correct?

11182. If we could just scroll up? So there’s Table 2, 3, and 4. Yeah. Thank

you.

11183. MR. VARSANYI: Counsel, if you could just give us a moment, we

should be able to revert with an answer to that.

11184. MR. JEERAKATHIL: Certainly. Thanks.

11185. Madam Chair, I understand I have lost track of time and I’m 10

minutes past the break. Perhaps this is a good time to break and the Enbridge



Transcript

panel could have a bit more time and respond to my question?

11186. THE PRESIDING COMMISSIONER: That would be fine. I don’t

know if we have the attention of the Enbridge panel for a moment, so let’s just

pause until they’re back.


11188. THE PRESIDING COMMISSIONER: Mr. Jeerakathil has

suggested that we break and return to the Enbridge witness panel’s answer after

the break. Let’s do so. I had just noted that you were caucusing and wanted your

attention to alert you to that. We will take our morning break and resume at 11:00

o’clock.


11190. MR. HEINZ: Okay. Thank you.

--- Upon recessing at 10:41 a.m./L’audience est suspendue à 10h41

--- Upon resuming at 11:01 a.m./L’audience est reprise à 11h01

11191. THE PRESIDING COMMISSIONER: Welcome back, everyone.

We are ready to resume with CCRL’s continued cross-exanimation of Suncor

Panel No. 2.

11192. Mr. Jeerakathil, you had posed a question and we were waiting for an

answer from the Enbridge panel.








--- EXAMINATION BY/INTERROGATOIRE PAR MR. JEERAKATHIL:

(Continued/Suite)




Transcript

11194. MR. HEINZ: Yes, thank you for the break. Perhaps you could just

repeat your question for us to ensure we give you a correct response.


11196. MR. HEINZ: Thank you.

11197. MR. JEERAKATHIL: It seems only fair. If I could ask you to

confirm that the CCRL response contained in Exhibit C11755-2, which is CCRL

FCL Response to CER, PDF page 11 and 12, Tables 1 to 4, are correct with

respect to comparing Mainline Contracting tolls to CTS exit tolls?

11198. MR. HEINZ: Yes, thank you. The -- based on the assumptions that

you have provided in your tables in the response, the tolls are correct there, yes.

11199. MR. JEERAKATHIL: Thank you. And we had a discussion just

before the break around the 2018 to 2020 years you used to calculate the volume

weighted average in Table 5 of your reply evidence. And I would just ask you the

question, are you aware that in 2018, CCRL had a very large turnaround, probably

the largest in its history?

11200. MR. HEINZ: Yeah, it’s pretty common for refineries to have

turnarounds, large turnarounds, every five years or so. And so this is one of the

reasons why excused events are important in the TSAs. And so if a shipper, for

example, had a turnaround and that affected the qualification for a requirements

contract in the open season, for example, this would be a situation where the

refiner would want to incorporate some ramp up, potentially, into their

subscription to account for that.

11201. MR. JEERAKATHIL: Okay. Thank you. And I had a discussion,

or I should say, Mr. Varsanyi made a comment around the Line 3 surcharge. And

we’ve, I think, now confirmed that it’s included in CTS exit tolls and was

included in the rate increases indicated in the IR response, which you’ve just

confirmed in Tables 1 to 4 of Exhibit C11755-2. But I had just a couple of

questions around that surcharge, if I might.

11202. If I understand correctly, the Line 3 surcharge is the only difference

between the CTS exit tolls set out in Column D of your Table 5 and the CER

tariff 470 tolls in Column A. That’s in the Enbridge reply evidence, Exhibit 12 --



Transcript

C12447-2, PDF 42 Table 5.

11203. Did you want me to repeat that question or did you have that?

11204. MR. HEINZ: I believe Line 3 Replacement surcharge is the major

difference between those.

11205. I guess I would just also point out that when the CTS started in 2011,

the foreign exchange was approximately at par. And so the relationship between

the CLT and the IJT changed over time as the FX changed. And so what you’ll

see when you compare these percentages is that you’re also incorporating the

changes in FX, which Co-op benefited from in the depreciating Canadian dollar

through time relative to the IJTs.

11206. So that’s one item that’s not seen here, but is covered in paragraph 108

of our reply evidence.

11207. MR. JEERAKATHIL: Yeah, and we’ll get to that. But my question

was, is the difference between Column A and D the Line 3 surcharge?

11208. MR. HEINZ: I think there are some other changes, such as 20.1

surcharges and potentially the Southern Access surcharge, which is also increased

when Southern Access is expanded to 1.2 million barrels per day ---

11209. MR. JEERAKATHIL: Is that ---

11210. MR. HEINZ: --- in align with Line 3 R.

11211. MR. JEERAKATHIL: Is that part of the CTS exit tolls? The

Southern Access charge?

11212. MR. HEINZ: Southern Access to 1.2 million barrels per day

increases the surcharge for volumes, IJT volumes, that transit past Superior. And

that ---

11213. MR. JEERAKATHIL: But these -- sorry.

11214. MR. HEINZ: --- won’t come into effect until Line 3 R is in service.

11215. MR. JEERAKATHIL: Okay. But ---



Transcript

11216. MR. HEINZ: So ---

11217. MR. JEERAKATHIL: But aren’t these tolls -- they’re not IJT tolls.

These are CCRL’s tolls. They don’t move volumes on the IJT, right?

11218. MR. HEINZ: That’s correct. Yeah. I’m just noting that there could

be other changes that may not be incorporated in the assumptions. And 20.1

would be another one.

11219. MR. JEERAKATHIL: Okay.

11220. MS. MARTIN: Yeah, actually, if I could take you to Table 8.1 in our

response to 1.8 (d), in order to calculate the CTS exit tolls, we have included the

full Line 3 surcharge, whereas the July 1st, 2020 tariff had only the 20 cents.

That’s one difference. So there’s about a fairly big difference there.

11221. In the CTS exit tolls, we also provided the benefit of the Line 3R toll

ratchet, which was to -- which was provided here, but there’s no such comparison

in the 5.70 toll that Co-op was using.

11222. So there are some differences ---

11223. MR. JEERAKATHIL: Okay.

11224. MS. MARTIN: --- just because of what was asked of us by the CER

in that IR response.

11225. MR. JEERAKATHIL: Okay. So what you’re telling me is the

difference between A and D is not just the Line 3 surcharge? There’s other

embedded costs that reflect that difference, right?

11226. MS. MARTIN: Yeah, I believe there’s a Line 3 toll ratchet at the

maximum of 17.5 cents that’s in there as well.

11227. MR. JEERAKATHIL: Okay. Thank you.

11228. MS. MARTIN: Which lowers that toll.

11229. MR. REED: Mr. Heinz, go.



Transcript

11230. MR. HEINZ: And I would just note that there’s also the 1.3 billion

integrity recovery as well on Line 3, which is separate than -- separate from the

Line 3 R surcharge. That’s including ---

11231. MR. REED: This is Mr. Reed. If you could actually just scroll down

on the screen so we could see the footnotes? These are all laid out.

11232. MR. HEINZ: M’hm.

11233. MR. REED: You’ll see here in Footnotes 4 through 8, it shows the

other adjustments that are in the CTS exit toll. So I think ---

11234. MR. HEINZ: M’hm.

11235. MR. REED: --- everything that we have just gone through actually is

contained there in those footnotes.

11236. MR. JEERAKATHIL: Okay. Thank you. And so there are -- if I

understand correctly, there are two charges related to Line 3 in the CTS exit tolls,

correct? The integrity credit surcharge and the others, the Line 3 surcharge, or do

I have that wrong?

11237. MR. HEINZ: That is correct. It incorporates the Line 3R surcharge,

which is the 89 and a half cents that we quote on a Hardisty to Chicago basis, plus

the 4 cents, plus the 1.3 integrity recovery, which was part of the same

commercial agreement.

11238. MR. JEERAKATHIL: And is -- what's the 4 cents?

11239. MR. HEINZ: Oh, that’s just the receipt tankage, I believe. And ---

11240. MS. MARTIN: No, it's receipt terminally, sorry.

11241. MR. HEINZ: Sorry, receipt terminally. Thank you, Ranjana.

11242. MS. MARTIN: You're welcome.

11243. MR. JEERAKATHIL: And the integrity surcharge is how much?



Transcript

11244. MR. HEINZ: So it's 1.3 billion Canadian that we would be

recovering.

11245. MR. BELYEA: And that -- Counsel, it's Greg Belyea. That works

out to about 13 cents U.S. per barrel on a Hardisty to Chicago basis.


11247. MR. HEINZ: It's Footnote 5.

11248. MR. JEERAKATHIL: Thank you. And if I understand correctly,

CCRL does not have access to Line -- to move volumes on Line 3, correct?

11249. MR. HEINZ: They do not, but it really is important to note that we

operate the Mainline as an integrated system, so the volumes that we would put

on Line 3, for example, would be volumes that would have otherwise potentially

been on Line 2 or Line 4. And so by offloading those lines, that now has a

volume or capacity, I should say, available for volume to flow, and those two

lines do deliver to Co-op at Regina.

11250. MR. JEERAKATHIL: Right. Those two lines do, but why would it

-- why is it reasonable to charge a shipper for a line which it doesn’t use? And it's

a significant capital expenditure associated with Line 3. Why is that reasonable

from a cost of service type perspective, or is it?

11251. MR. HEINZ: Well, it's an integrated system, and so you're creating

capacity through the entire system, restoring capacity through the entire system,

and that optimizes the ability for volumes to move through the system, including

volumes that would be delivered to Regina.

11252. And I would just invite Mr. Reed to add on to my response.

11253. MR. REED: Certainly. This is Mr. Reed. To broaden that, it is an

integrated system approach. It's a single, system-wide cost pool, which is an

approach that’s used very commonly on online pipelines.

11254. So the other way to ask your question is, why is it appropriate to

reduce the Co-op's toll when volumes increase going to U.S. markets through

market access programs? The answer is the same, because it is a system-wide

pool and when you add additional volumes such as was done through market



Transcript

access, that brings down the toll for everyone, including the Co-op, even though

obviously, the Co-op didn’t contribute to those incremental volumes.

11255. That’s the nature of system-wide tolling, and where you have an

integrated system where the operation and flows on the entire system are basically

a function of the entirety of the system, not a segment from the system, that is the

appropriate tolling methodology.

11256. MR. JEERAKATHIL: Okay, thank you. But it isn't consistent with

the concept of direct assignment. But what you're telling me is that’s not what

they do, right?

11257. MR. REED: That is correct. This is not a situation where direct cost

assignment would be appropriate, nor has it ever been used, as far as I know, on

the Enbridge Mainline. It is a system of allocation, that of a system-wide cost

pool.

11258. MR. JEERAKATHIL: But you would agree with me that the

substantial amount of capital that Enbridge has spent over the term of the CTS

and intends to spend over the next 10 years, as discussed by us yesterday -- so you

got Alberta Clipper, you got Line 3, there's others -- those are primarily lines

which CCRL or short haul shippers don’t have access to, right?

11259. MR. REED: These are facilities that are not in the short haul path, if

that’s what you're asking. But again, it maintains or adds volumes to the system

that brings down tolls for everyone. So again, that’s the basis for system-wide

tolling.

11260. MR. JEERAKATHIL: M'hm.

11261. MS. MARTIN: And if I might add, all of the tolls that were

negotiated or the IJTs that were negotiated with the RSG were ultimately

negotiated with shippers and were provided to the NEB for approval, and they did

approve the Line 3 tolling principles, and those tolling principles included the

impact to both CLT shippers, Canadian Local Shippers, as well as the IJT

shippers. So there was a sharing of that.

11262. And we have an order from the Commission that gives us the authority

to charge those surcharges. So it went through a industry consultation, it went

through a regulatory approval, and that is what it's based on, is that industry



Transcript

supported the restoration of that capacity on the terms that were negotiated.

11263. MR. VARSANYI: Counsel, I would also just like to add with respect

to Alberta Clipper that that particular expansion project occurred prior to the CTS.

I just wanted to make the record clear with respect to that one.

11264. But more generally, I think the escalation in tolls that you're describing

where shippers did not directly plan to utilize the incremental capacity is one of

the reasons that customers were wanting to shift to the contract model. Under a

contracted model, to the extent that there is an expansion of a portion of the

system that a customer does not intend to utilize, there's not necessarily going to

be a toll increase to the party that’s not signing up for that expansion capacity.

11265. So for someone who moves refined products, just to use that as an

example, they would no longer find any type of toll increase attributable to a

heavy crude oil pipeline expansion, for instance, whereas under the CTS, that is

the model that customers had chosen. It was very much a blended overall system,

and to the extent that contracts move away from that, that is one of the benefits of

the current application.

11266. MR. JEERAKATHIL: And that would be, Mr. Varsanyi, with

respect to future expansions, but for Line 3 and Line 5, those costs are embedded

in both the committed and uncommitted tolls, right?

11267. MR. VARSANYI: Right. The existing deals with respect to

historical expansions are not being unwound in the new tolls that were negotiated.

They're being superseded. Those agreements are being superseded.

11268. And with respect to Line 5, the tunnel, you're exactly correct that the

contracted tolls are shielded from those. And with respect to Line 3, both the

uncommitted and the committed tolls do factor in that those facilities will have

been built. That’s a pre-condition of the Mainline Contracting Application.


11270. We have talked quite a bit in the last little while here about the toll

increases for my clients, short haul shippers, but I'm wondering whether you have

information around what the toll increase would be for long haul shippers

compared to CTS exit tolls on an average basis? You calculated a -- in your table,

just under your Table 5, I think it was a 14 percent average increase for the short



Transcript

haul, and I'm wondering whether you have done a similar calculation or if you

have any knowledge about what that increase would be for the long haul shippers,

assuming the same discounts that you have assumed or the most reasonable

discounts that you might assume for long haul shippers.

11271. MR. HEINZ: Well, the starting point toll of $5.70 was an

approximation of our estimate of the July 1, 2021 toll. And then we negotiated

with our shippers and conceded as we have gone through several discounts, which

has resulted in a weighted average Mainline Contracting toll that is substantially

lower than our starting point, which again, was our estimate for where the CTS

toll would have been on July 1, 2021. So we think that with regards to those

assumptions, we think that the weighted average is going to be below where the

July 1st, 2021 extension would be.

11272. MR. JEERAKATHIL: Do you have any idea around magnitude?

11273. MR. HEINZ: Well, I believe we have gone through some of these

calculations in CER IR 1.8.

11274. MR. JEERAKATHIL: Okay. Thank you. If I understand correctly,

none of the discounts apply to terminal transfers from Enbridge terminals, such

that CCRL would potentially do, correct?

11275. MR. HEINZ: The discounts apply to transmission, so moving from a

receipt point to a different delivery point. Terminal transfers are not included in

the offering ---

11276. MR. JEERAKATHIL: Are terminal transfers ---

11277. MR. HEINZ: --- for committed service ---

11278. MR. JEERAKATHIL: I'm sorry, I interrupted you.

11279. MR. HEINZ: That was -- I was just going to end. They are not

included in the offering for committed service.

11280. MR. JEERAKATHIL: Are terminals part of the Canadian Mainline?

11281. MR. HEINZ: Yes, they are.



Transcript

11282. MR. JEERAKATHIL: And so what would be the rationale for not

including them in the discounts?

11283. MR. HEINZ: So, again, the purpose of the discounts was related to

the transmission and the utilization of pipeline capacity, not terminal capacity.

11284. MR. JEERAKATHIL: Okay. Thank you. I have a few questions

around exchange rates. If I could have you refer to Exhibit 12447-2, which is the

reply evidence, PDF page 42 and 43 of 94, in particular, paragraph 108.

11285. Thank you. Here you -- and you mentioned this, Mr. Heinz, I believe

it was you, earlier this morning, and what Enbridge says there at that reference is:

"The reason this toll increase is required is because setting the

Canadian Local Tariff […] tolls in Canadian dollars under the

CTS gave CCRL and FCL a significant foreign exchange

benefit over the 10 years of [the] CTS, as the value of the

Canadian dollar deteriorated from parity in 2011 to $0.71 in

2020."

11286. As the Canadian -- or, sorry:

"The distance relationship between CLT and IJT tolls was

established in 2011 at parity. As the Canadian dollar lost value

relative to the US dollar, the intended toll differential based on

distance degraded, and CLT shippers, like CCRL and FCL,

benefited from a growing discount relative to IJT tolls."

11287. Do you see that reference?

11288. MR. HEINZ: I do see that.

11289. MR. JEERAKATHIL: Thank you. And I have a few questions

around that. Are all of the costs of the Enbridge Canadian Mainline incurred -- I

mean, they're not incurred in U.S. dollars, are they?

11290. MR. BELYEA: Counsel, it's Greg Belyea. Most of the costs incurred

by the Canadian Mainline are in Canadian dollars. However, most of the revenue

received by the Canadian Mainline is in U.S. dollars.



Transcript

11291. MR. JEERAKATHIL: Even today?

11292. MR. BELYEA: Even today under CTS, yes, that's correct.

11293. MR. JEERAKATHIL: But aren't the CTS tolls charged in Canadian

dollars?

11294. MR. BELYEA: With respect to the CLT tolls, those are charged in

Canadian dollars, but IJT revenues are over 90 percent of revenue on the Enbridge

Mainline.

11295. MR. JEERAKATHIL: I see. Thank you. And so the rate base of

the Canadian Mainline, I think you confirmed, is largely incurred in Canadian

dollars?

11296. MR. BELYEA: Yes, that's correct. The rate base of the Canadian

Mainline is reflected in U.S. dollars, in Enbridge's Guide BB reporting as well as

in the additional written evidence of Concentric.

11297. MR. JEERAKATHIL: Sorry, you said U.S. dollars. I asked is the

rate base incurred in Canadian dollars.

11298. MR. BELYEA: Sorry, yes, the Canadian Mainline rate base is in

Canadian dollars.

11299. MR. JEERAKATHIL: Thank you. And what about O&M related to

the Canadian Mainline, that would be predominantly Canadian dollars; is that

fair?

11300. MR. BELYEA: Yes, that's correct.

11301. MR. JEERAKATHIL: Thank you. And you would agree with me

that CCRL operates, and you have no knowledge to the contrary, operates

exclusively in Canada?

11302. MR. BELYEA: That is my knowledge, but I would have to take that

subject to check.

11303. MR. JEERAKATHIL: That's fine. Thank you.



Transcript

11304. Mr. Heinz, you indicated earlier in our discussion that CCRL could go

out and take a 300,000 barrel per day take or pay contract; do you recall that

discussion?

11305. MR. HEINZ: I do recall that, yes.

11306. MR. JEERAKATHIL: Is that consistent with the advice you have

been giving shippers about not over bidding in the open season?

11307. MR. HEINZ: I think there's a difference between what you're able to

do and what may be right for you to subscribe for in the open season.

11308. MR. JEERAKATHIL: But you wouldn't suggest that CCRL FCL go

out and bid 300,000 barrels per day in the open season, would you, given that

their capacity is 135,000 barrels per day and the short haul segment is capped at

200,000 barrels per day, which is the segment that they use?

11309. MR. HEINZ: I would not offer advice, but I would not expect that

Co-op would sign up for 300,000 take or pay exclusively for their refinery ---

11310. MR. JEERAKATHIL: And so ---

11311. MR. HEINZ: --- in Regina.

11312. MR. JEERAKATHIL: So your comment of them going out and

getting a 300,000 barrel per day wasn't a serious suggestion then? You were just

using it as an example; is that fair?

11313. MR. HEINZ: It was not a suggestion. It is an option that is available

to Co-op. And should you decide to do that, that is something that is available to

you and available to all others, but Co-op will have to make that decision, not

Enbridge.

11314. MR. JEERAKATHIL: But, Mr. Varsanyi -- and he might be able to

pitch in here -- indicated that Enbridge is telling its shippers that they should bid

for what they need and not more than what they need, right?

11315. MR. VARSANYI: Yes, Counsel, that has been what we've been

conveying in our conversations when people were thinking about speculating with

respect to the open season and how much they would subscribe for. I think the



Transcript

struggle we have though is we don’t know customers’ future plans and what their

business needs would be. So to the extent that through additional mergers or

acquisitions the Cooperative intends to expand its footprint, maybe a 300,000

barrel a day might be enticing, but to the extent that it doesn’t, it probably would

not be.

11316. MR. JEERAKATHIL: Thank you. I have a few questions about

your rate base. I understand the current rate base of the Enbridge Mainline is $30

billion. And I take that number from Exhibit C07648-2, Enbridge Response to

CER IR 2.9 (a) and (a). Can you confirm that? You might be able to confirm that

off the top of your head. That would be at the end of the CTS.

11317. MR. BELYEA: Counsel, I can confirm that with the caveat that

that’s post Line 3 replacement in service. So that number includes the capital

that’s not yet in service. But it’s expected to be later this year, related to the U.S.

portion of the Line 3 replacement. So the 30 billion is post ---


11319. MR. BELYEA: --- Line 3, by estimate.

11320. MR. JEERAKATHIL: Okay. And that’s -- so that’s a full system

rate base Canadian Mainline and Lakehead together?

11321. MR. BELYEA: That’s correct.

11322. MR. JEERAKATHIL: And that figure, is that -- we had chatted, Mr.

Belyea, about whether that -- certain figures were in Canadian or U.S. dollars.

And is this a blended Canadian/U.S. dollar number as well?

11323. MR. BELYEA: This figure, the 30 billion figure, is Canadian dollars.

So it represents the Canadian Mainline rate base in Canadian dollars and the

Lakehead System rate base, which is tracked in U.S. dollars, but converted to

Canadian dollars for the purpose of that $30 billion quote. So $30 billion

Canadian.

11324. MR. JEERAKATHIL: Thank you. We were referred -- we had

some questions around rate base and we were referred to a Total response. Are

you aware -- and it’s Exhibit C07658-9, Total IR 1.032 (a). Are you able to -- just

a moment. Yes.



Transcript

11325. Are you able to tell me which two numbers add up to the 30 billion in

that response? The 30 billion.

11326. MR. BELYEA: So the response to Total 1.032 (a) is the Canadian

Mainline and the Lakehead System income statements, as filed with the NEB and

then the CER as part of Enbridge’s Guide BB reporting. Those attachments only

go through to the end of 2019. So you would need to add the subsequent capital

additions expected for 2020 and 2021 to derive the $30 billion figure.

11327. Another place on the record where you can see the $30 billion is in the

Guide P submissions that Enbridge filed. I believe it was September 15th of last

year. And Guide P2 shows a break down of Canadian Mainline and Lakehead

System rate base.

11328. MR. JEERAKATHIL: Thank you. That’s helpful. And I

understand the rate base at the end of Mainline Contracting’s initial term of 20

years is expected to be $26 billion. Can you confirm that?

11329. MR. BELYEA: I believe that reference is referring to the net plant

remaining in the simplified Mainline Contracting earnings model that Concentric

provided. So at the end of 2041, that expected Enbridge Mainline rate base in that

model is approximately, I believe, $25 billion, give or take some percentage

points either way.

11330. MR. JEERAKATHIL: Thank you. And is -- do you know whether

that’s a Canadian or a U.S. dollar figure? The 26 billion.

11331. MR. BELYEA: I believe that is Canadian dollars, but I would want

to take that subject to check.

11332. MR. JEERAKATHIL: Certainly, I take that subject to check. And

that’s also a blended number -- or it’s a complete number including the Canadian

and the Lakehead System, given the size of it, correct?

11333. MR. BELYEA: That’s correct. It represents the Enbridge Mainline,

so both the Canadian Mainline and Lakehead System.

11334. MR. JEERAKATHIL: Thank you. I had a question with respect to

some of the discussion yesterday. If I could refer you, Ms. Martin, to Exhibit



Transcript

C1345-1, which is yesterday’s transcript? I might have that exhibit number

wrong. PDF page 45. But it’s yesterday’s transcript, PDF 45. I believe it’s

Exhibit C1345-1. PDF 45. There we go.

11335. At Line 10426, you had a discussion with Mr. Yates about the

Appendix 35 tolls and you say:

“So, Mr. Yates, the committed tolls that we presented here in

Appendix 35 are based off the 5.70 base toll. As you’re quite

aware, we have not ran [an] open season and we have not filed

a committed toll tariff at this point because until we know the

results of the open season, we cannot know what the committed

toll tariff will look like.”

11336. And I just had a question around that, just so that I understand.

11337. So the tolls contained in Appendix 35 -- you don’t need to pull it up,

but Appendix 35 -- of the Application, Exhibit C03823-37, are those not the tolls

that Enbridge is applying for? Are those subject to change? Or what did you

mean by the statement, “We cannot know what the committed toll tariff will look

like”?

11338. MS. MARTIN: I think we walked through some of the discounts that

would apply in the open season.


11340. MS. MARTIN: And once we know what the discounts are, we would

include those in the tariff that we filed with the Commission. So until we know

what customers choose in the open season, we won’t know what the final tariffs

would look like. That’s what I was trying to convey.

11341. MR. JEERAKATHIL: I see.

11342. MS. MARTIN: Yeah.

11343. MR. JEERAKATHIL: So the final tariff will be dependent, for

example, some of the discounts we chatted about, whether those are achieved or

not, and that’s the delta that we’re talking about, is -- that could be deducted from

the 5.7? It’s not some other number, it’s all set out there in the discounts and



Transcript

Appendix 35?

11344. MS. MARTIN: Yes. And we don’t know which choices the shippers

will make, whether they will opt for the 20-year contracts or whatever. So there

could -- there’s a multitude of possibilities at this stage. So our tariff could be

very simple and we could have five tables depending on the open season, or we

could have a multitude of tariffs that are -- have been signed up for by committed

shippers. So it’s just -- it’s yet to be decided.

11345. MR. JEERAKATHIL: Okay. I thought I understood, but I think I

just got lost. So how could there be a multitude of tariffs? Wouldn’t there just

be, you know, if those trigger points are achieved, for example, the 2.45 million

barrels per day -- I can’t recall the exact name of the discount. But if that’s

achieved, then there’s a toll applicable to all contracts, which get a certain

discount on a distance adjusted basis, right?

11346. MS. MARTIN: So maybe I’ll back up a little bit here.


11348. MS. MARTIN: So the -- all of the possibilities that are right now

available to shippers, there’s a multitude of them. So when we put together the

committed tariffs to file with the Commission, we will look at the results of the

open season.

11349. There may be a table there for eight to 12 years shipper with the

appropriate discounts, and that’s what we will be able to ultimately charge that

shipper. And that is what we need to file with the Commission.

11350. So we may not have anybody, for example, that takes up a 20-year

rate. Then, that table would not be in there. If there’s tables for shippers’ elective

certain discounts, those would be embedded into that toll -- into that tariff.

11351. So there I think we counted with the permutations and combinations,

there could be pages and pages of tariffs, but that will get collapsed down once

shippers have made their choices on what they’re electing for in the open season

and what they have been given in terms of the discounts.

11352. MR. JEERAKATHIL: Okay. Thank you.



Transcript

11353. I have one question about the IJT, and it is the -- for example, in

Appendix 35, and I don’t think you need to pull it up. But in Appendix 35 for a

movement, for example, Hardisty to Lockport, Illinois, heavy, is $5.70 U.S. a

barrel.

11354. Is that the same as the IJT? Is the IJT also $5.70 per barrel from

Hardisty to Lockport, Illinois?

11355. MS. MARTIN: Yes, that’s the base toll that we have applied for in

the Application.

11356. MR. JEERAKATHIL: And so that toll that I’ve just quoted to you is

-- that committed toll is equivalent to what you call the IJT or it is the IJT?

11357. MS. MARTIN: Yes, that’s the negotiated 5.70. And then the

discounts would apply on top of that ---


11359. MS. MARTIN: --- once we know. Yes.


11361. I have one more question, but I’m going to have to back you up a little

bit to Exhibit C07657-3 -- oh, no, I’m sorry; I’ve got that wrong. My apologies.

No, it’s Exhibit C07658-9. That’s C07658-9, which is Total 1.032 (a).

11362. Yes, there it is. Thank you so much.

11363. Just arising out of a comment that Mr. Belyea made around the

difference between rate base and a certain form filed with the CER, I can’t recall

the name of it off the top of my head. And so am I to understand that this

adjusted ROE figure, for example, in 2018, of “18.13%” is not a Return on Equity

portion of a rate-based number. Is that right?

11364. MR. BELYEA: I’m not quite sure I understand the premise of your

question, Counsel. Could you rephrase?

11365. MR. JEERAKATHIL: I can try.



Transcript

11366. I thought I understood you to say that the portion of Line 3 that is not

in service is included in 2019 schedules filed with the Board to give an

approximation of how the pipeline is doing on a ROE basis but that that plant is

not in service and therefore is not included in a rate base for the purposes of your

regulatory books.

11367. Did I understand that correctly?

11368. MR. BELYEA: I think so, Counsel. If you would allow me just to

walk back through and making sure I’m understanding the different parts of your

question.

11369. MR. JEERAKATHIL: Sure.

11370. MR. BELYEA: With respect to regulatory rate base or cost-of-

service rate base, you are correct that the Line 3 Replacement project is not

reflected in regulatory rate base or cost-of-service rate base until such time that

the project is in service.

11371. So for example, the Guide P2 that we were discussing a few minutes

ago, that would reflect the Line 3 Replacement capital being added to rate base at

the time the project goes into service. So that’s the regulatory rate base or the

cost-of-service rate base view.

11372. What you see in the “Adjusted Return on Equity” line in the Guide BB

reporting is the sum of the equity portion of the cost-of-service rate base in the

case of that row for the Canadian Mainline, plus the portion of the Line 3

Replacement, which is not yet in service, the portion of that, which is attributable

to the equity portion of the rate base.

11373. So what you’re seeing as the total equity base on the Guide BB or I

guess this is the response to Total 1.032, which reflects our Guide BB reporting;

what you’re seeing in that total equity base row is the cost of service for the

regulatory rate base plus the CWIP, Construction Work in Progress, related to the

equity portion of the Line 3 Replacement prior to it going into service.

11374. And then just one final note. We see a “2019” column on this page. I

will note that the Line 3 Replacement project, the Canadian portion of it, not the

full project but the Canadian portion, went into service at the end of 2019. So the

equity base adjustment you see for Line 3 ends at that point in time on the



Transcript

Canadian Mainline.

11375. MR. JEERAKATHIL: Thank you. And so would you agree with

me that the 2017 to 2019 return on equity numbers, as set out in the Exhibit

C07658-9, would go up if you were calculating a return on equity portion of your

regulatory rate base?

11376. MR. BELYEA: Yes, that’s correct. They would go up if we were

calculating a return on equity on the regulatory rate base component. They also

would have been higher had the Line 3 Replacement project gone into service in

November 2017, as originally scheduled, which is the purpose for making that

adjustment.

11377. MR. JEERAKATHIL: Thank you. And would it be a simple

exercise of removing the number contained in line 13 from the total equity rate

base, and taking your adjusted Net Income number divided by that Adjusted --

Average Net Plant number to obtain the ROE for regulatory purposes?

11378. MR. BELYEA: Sorry, could you repeat your question, Counsel?

11379. MR. JEERAKATHIL: I certainly can try.

11380. So would it be a simple exercise of taking line 10 and subtracting line

13 to get a rate base for regulatory purposes, and then taking that as the

denominator with the numerator being line 9, “Adjusted Net Income” to obtain

the ROE?

11381. MR. BELYEA: I do that calculation slightly differently. I believe

you’re trying to arrive at an ROE that does not include the Line 3 Replacement

equity adjustment. Am I interpreting your question correctly?


11383. MR. BELYEA: Okay. It’s -- and Enbridge did provide such an ROE

in response to a Total IR, and it’s also a calculation that can be done with the

information presented on this Total 1.032 IR Response as well as our Guide BB

reporting.

11384. MR. JEERAKATHIL: Okay, that’s fine. Thank you.



Transcript

11385. If I might just have a moment to confer with my clients, but I believe

those are probably my questions.

11386. THE PRESIDING COMMISSIONER: That’s fine. Go ahead, Mr.

Jeerakathil.



11388. THE PRESIDING COMMISSIONER: Mr. Jeerakathil, if you were

intending us to hear what you were saying, you’re on mute.

11389. MR. JEERAKATHIL: Yes, I’m sorry. Thank you, Enbridge Panel,

those are -- subject to checks -- there might have been a couple. Those are my

questions.

11390. THE PRESIDING COMMISSIONER: Thank you, Mr. Jeerakathil.

11391. Based on the schedule that I have, I don’t have any further participants

scheduled to conduct cross-examination of Enbridge Panel No. 2, but I'm just

going to double check whether there are any other intervenors parties who wish to

examine Enbridge Witness Panel No. 2?

11392. Very good. So I don’t see any other parties. I understand that our

CER counsel are ready to proceed with their questions.

11393. I was going to let them do so and go for about 15 minutes, but I will

give the witnesses an opportunity in case we need to go to break earlier. Can I

take about 15 minutes and get started? All right. Just checking in. I know we're

at the end of the morning, but I'll give Ms. Gill an opportunity to begin and then

we will have our usual break for lunch a little bit later. Please go ahead, Ms. Gill.

--- EXAMINATION BY/INTERROGATOIRE PAR MS. GILL:

11394. MS. GILL: Thank you, Madam Chair.

11395. Good morning, Panel. As you heard, my name is Jessica Gill. I'm co-

counsel to the Commission for the Canada Energy Regulator in this proceeding.


Examination by Ms. Gill

Transcript

11396. I will have some questions for you today, and I expect my questions

will take us at least to the end of today, and I will be happy to provide an update

later today, based on where we're at.

11397. So I would like to start with discussing the proposed tolling

methodology. And my first line of questions is regarding the system that the

tolling methodology applies to.

11398. So in the Application and the proceeding, Enbridge has referred to the

two systems. There is the Canadian Mainline being the Canadian portion, and the

Lakehead System being the U.S. portion.

11399. And I don’t propose to pull up this exhibit. I don’t think you will need

it for my questions, but in Concentric's Reply Evidence, Concentric has said that

the Mainline Contracting tolling methodology applies to the entirety of the

Mainline, across both the Canadian Mainline and the Lakehead Systems.

11400. Concentric also acknowledges that the CER's jurisdiction is limited to

the toll for the Canadian Mainline, and it states that this is reflected in the

Mainline Contracting tolling methodology.

11401. Can you please confirm that Enbridge is seeking approval from the

Commission for a tolling methodology for the entire Enbridge Mainline, which

includes the Canadian Mainline and the Lakehead System?

11402. MS. MARTIN: Ms. Gill, I will start off here and perhaps Mr. Reed

can join me.

11403. So as in our prior for belief, we are asking the Commission to approve

the tolling methodologies related to both committed and uncommitted service,

and within those, we have both the IJT as well as the CLT. We are asking the

Commission to ultimately approve the CLT tariffs associated with Mainline

Contracting but to allow us to implement the tolling methodology that

encompasses the Mainline.

11404. MR. REED: And this is Mr. Reed. All I would add to that is that

approach of establishing tolls that are subject to the CER's jurisdiction but based

on the entirety of the Mainline is the same approach that was used in the Line 3R

surcharge which was approved by the Commission.



Transcript

11405. Again, it reflected the entirety of the Mainline. It priced that surcharge

in U.S. dollars. So in many ways, that is the same approach that was used there.

11406. MS. GILL: Thank you.

11407. MS. MARTIN: And I would add, Ms. Gill, the same approach that

we used in -- under the CTS.

11408. MS. GILL: Thank you, Ms. Martin.

11409. And can you please explain how the CER's jurisdiction is reflected

then in the proposed toll methodology, Mr. Reed?

11410. MR. REED: Yes, I can. The tolls that we saw on a lesser basis in the

appendix to the Application reflect a tolling methodology whereby the Canadian

portion of the IJT or the base toll will be established based upon a distance-

adjusted methodology for tolls within Canada and to the border.

11411. So again, the toll that will be established for the Canadian portion of

the Mainline reflects the assets and the distance within Canada. It's based off of,

again, a distance adjustment to the base toll which reflects the entirety of the

system, but as to the methodology that will be used to establish the Canadian

portion, it does reflect essentially the distance and proportionality of the Canadian

Mainline.

11412. MS. MARTIN: I would just add one little nuance to that, that the

Canadian Local Toll to the border would not be based on a distance methodology

because similar to the CTS, the IJT does not provide a service to the border.

Therefore, there would be the adjustment mechanism that we're seeking to be able

to adjust the toll to the border.

11413. MS. GILL: Thank you, Ms. Martin. That’s helpful.

11414. And so Mr. Reed, going back to your response there, can you please

confirm that it does -- the tolling methodology does include service on the U.S.

Lakehead System though, correct?

11415. MR. REED: The entirety of the Mainline Contracting tolling

methodology reflects, yes, a base toll for service to the U.S., to the base toll



Transcript

benchmark destination in Illinois, yes.

11416. MS. GILL: Okay. Thank you, Mr. Reed.

11417. And so I would like to understand then why it would be appropriate

for the Commission to approve a tolling methodology that would apply to that

Lakehead System which is not regulated by the CER?

11418. MR. REED: And again, let's try to be clear on this. The tolls that

we're asking the CER to approve would be for the Canadian portion of the system,

but they will be based upon full path tolling reflecting the negotiated benchmark

toll or base toll of 5.70 minus the discounts.

11419. But again, we're not seeking to have the CER -- Enbridge is not

seeking to have the CER approve a specific toll for Lakehead. That is the FERC's

jurisdiction, and that will continue to be the case.

11420. But as was done under CTS, the Canadian portion of that joint toll

across the border will be established and filed with the CER. So it's important to

understand, it is a, if you will, proportionate responsibility, but it is -- the

Canadian tolls will reflect the proportionate responsibility of the entirety, and the

entirety includes service on both the Canadian and U.S. portions of the Mainline.

11421. And again, as we have said, it is essentially the same methodology that

has been in use for the past 10 years under the CTS and that will be used for the

next 15 years under the Line 3R surcharge.

11422. MS. GILL: Thank you, Mr. Reed. And so you refer to the CTS.

Now, is the National Energy Board's approval of that CTS tolling methodology

relevant here, given that the CTS was an uncontested negotiated settlement?

11423. MR. REED: Well, that’s why I made reference both to Line 3R and

to the CTS. This methodology has been consistently applied in both of those, to

the extent one may consider the approval of the CTS to be non-precedential in

some way. Again, we can look to the fact that that was replicated and approved

by the Commission in the Line 3R surcharge. And again, it has established the

practice on the Mainline for the last 10-plus years.

11424. MS. GILL: But Mr. Reed, is Enbridge's proposed tolling

methodology effectively avoiding the FERC's jurisdiction over Lakehead tolls and



Transcript

toll methodology?

11425. MR. REED: No, not at all. And that is important to understand. And

I'll invite Ms. Martin to join in on this response.

11426. As we have just recently seen, toll -- rate applications will be filed

with FERC for the Lakehead System. That will include the U.S. portion of the

IJT as well as U.S. local tolls. It will continue to reflect the application of the

FSMs and the indexed or cost of service portion of the U.S. rate, and that will

establish essentially a benchmark or a baseline as that component of the IJT. So

those rate applications will continue.

11427. The FERC will continue to have complete jurisdiction over that

portion of the full path toll, just as it does today. And it will be able to apply its

principles to the determination of both the U.S. local service rates as well as the

U.S. portion of the IJT. So, in no way would approval of this application

represent the CER intruding into the jurisdiction of the FERC or vice versa.

11428. But again, let me invite Ms. Martin to join in on that response.

11429. MS. MARTIN: I would agree with Mr. Reed completely, and I

would say that under the CTS, where we had agreed with our shippers that we

would continue to file the local rates for the Lakehead system with the FERC, we

continue to do so, and we would so again based on the agreements that we have in

that jurisdiction. The IJT is a tool that has been widely used since express, and

it's also been used by a number of pipelines under the Commission's jurisdiction.

11430. MS. GILL: Thank you, Ms. Martin. And so to go back then, does the

FERC not have authority over the international joint tariff that the CER does have

the same authority?

11431. MS. MARTIN: So when we file an IJT, as we did under the CTS, we

file it with both regulators. We file it with the Commission, and we file it with

the FERC as well at the same time. So I would say that both regulators have

authority over the IJT.

11432. The only thing the FERC requires to establish an IJT is their FERC

test, which is that the IJT should be equal to or less than the sum of the two local

rates.



Transcript

11433. MS. GILL: Thank you, Ms. Martin. And does the FERC approve the

IJT?

11434. MS. MARTIN: No, the FERC does not approve the IJT. Their

regulations allow you to set up the IJT based on established rates on two or more

systems.

11435. MS. GILL: Thank you. And so, Mr. Reed, you confirmed earlier that

Enbridge is seeking approval of the tolling methodology that applies to the entire

Enbridge Mainline. And as I think I understood you, the actual tolls though

themselves will be applied for under the FERC. But I would like to reconcile --

you know, you've said that that's not avoiding the jurisdiction, but you've

confirmed that the methodology that it's approved by the CER, that that has been

applied for here, will apply to the entire Enbridge Mainline and that includes the

FERC-regulated Lakehead systems. So how would you reconcile those

statements?

11436. MR. REED: The reconciliation is that the FERC, well, as I said

earlier, will continue to have jurisdiction to approve Lakehead rates and those

Lakehead rates will establish two things. One is the rates charged for service on

the local system in the U.S., and secondly, the U.S. component of the -- I'm sorry,

of the IJT. So FERC's jurisdiction is maintained. And even though the CER is

approving a full path tolling methodology, the FERC will then determine what

portion of that full path toll will be essentially attributable to the Lakehead

system. The balance will be attributable to the Canadian system.

11437. So again, your approval, the Commission's approval of the

methodology doesn't tread upon the FERC's jurisdiction for its component, and it

continues to have that jurisdiction just as it does today.

11438. MS. GILL: Thank you, Mr. Reed.

11439. So this will be my final question, I think, I hope, before we break for

the lunch hour, but I would like to understand what would the consequences be if

the Commission were to approve any tolling methodology only insofar as it

applies to the Canadian Mainline and not the entirety of the Enbridge Mainline

system?

11440. MS. MARTIN: So Ms. Gill, could you elaborate on what you're

thinking there because I'm not sure how to proceed to answer.



Transcript

11441. MS. GILL: Sure, Ms. Martin. You know, I would just like to

understand that if the Commissioner were to approve the tolling methodology that

make it specific in its application to only the Canadian Mainline, what would be

the consequences?

11442. MS. MARTIN: I guess I'm trying to understand. They would

approve the IJT only for the Canadian portion; is that what you're trying to say?

11443. MS. GILL: Yes, Ms. Martin, that's right, for service on the Canadian

Mainline only.

11444. MS. MARTIN: So would they be evaluating the IJT to ensure it's just

and reasonable and then recommend an allocation of that revenue for the

Canadian Mainline?

11445. MS. GILL: So Ms. Martin, in terms of how we get to that approach,

you know, I think there might be multiple ways, but I would just like to

understand the impact on the application as a whole if the outcome were that the

tolling methodology was approved only for service on the Canadian Mainline.

Does that help?

11446. MS. MARTIN: Yeah, I'm just trying to see how that would work,

just to get a little bit more information to be able to be responsive to your

question. So I could take an assumption and say the Commission takes the IJT of

5.70 and says, you know, $3 is appropriate to the border. And but still approves

the 5.70, and just says that it wants to allocate $3 to the border.

11447. We could split up the toll that way and implement it that way. But

ultimately, we need the authority to be able to adjust the IJT as well. So the

problem with that approach is that, at the end of the day the shipper would still be

subject to the IJT. So how you allocate it between the Canadian Mainline and the

Lakehead system doesn't change how much the shipper would pay under the IJT.

So I guess that's what I'm struggling with is what you mean by approving it just

for the Canadian Mainline.

11448. MR. REED: Ms. Gill, this is Mr. Reed. This may actually be an

opportunity for us to take that under consideration over the lunch break. You

know, there are a lot of assumptions we would have to make in that hypothetical,

but if you would give us the break to think that through, I think we can come back



Transcript

with a more full answer after the break.

11449. MS. GILL: Mr. Reed, I think that's a great suggestion. I know

sustenance always helps me too so.

11450. Madam Chair, I think this might be a good opportunity for us to break

for lunch.

11451. THE PRESIDING COMMISSIONER: Very good. Let's resume at

1:20.

--- Upon recessing at 12:09 p.m./L’audience est suspendue à 12h09

--- Upon resuming at 1:23 p.m./L’audience est reprise à 13h23








11452. THE PRESIDING COMMISSIONER: Welcome back from our

lunch break. It looks like we are all present and ready to resume with the cross-

examination of Enbridge Panel No. 2 by CER counsel. Ms. Gill, go ahead.

--- EXAMINATION BY/INTERROGATOIRE PAR MS. GILL: (Continued/Suite)


11454. So before we broke for lunch, I believe, Mr. Reed or Ms. Martin, you

were going to consider the question I had proposed.

11455. Would it be helpful if I repeat that?

11456. MR. REED: Either way, or I think we have the question in mind.

11457. MS. GILL: Sure. If you could go ahead then, Mr. Reed?

11458. MR. REED: And I'll start and obviously, Ms. Martin can jump in



Transcript

here as well.

11459. I will start by having my own disclaimer, which is obviously, we're not

providing a legal opinion here, and some parts of this question may be best

reserved for final argument.

11460. But in our discussion over lunch, we were trying to understand, I

think, the problem that we're seeking to address here. In your premise of your

question or the preface to your question, you had talked about the fact that the

CTS was a settlement. Well obviously, today, the IJTs are working, and that’s on

Enbridge, it's on Express, it's on Keystone for uncommitted capacity, that kind of

thing.

11461. And I think the fact that the CTS was a settlement doesn’t change our

view that nothing in that settlement either represented an intrusion by the CER or

NEB at that time into the jurisdiction of FERC or any limitation on FERC's

authority for matters within its jurisdiction.

11462. I would refer you to sections 1, 2, and 7 of the CTS that actually, I

think, make it clear as to what the effect of the CTS and the IJTs are as compared

to FERC's jurisdiction.

11463. And of course, that approval of the NEB of both the CTS and the Line

3 R surcharge, in our view, didn’t represent an expansion of jurisdiction. It really

couldn't, and hasn’t proven to be problematic.

11464. But as I understand your question here, nonetheless, if the Commission

in this case were to impose a limitation or include a limitation in its order to the

effect that the effect of its decision was limited to the Canadian Mainline, or

specifically, the effect of its approval of the Mainline Contracting Application

was limited to -- in effect, to the Canadian Mainline, we don’t think that that

would be problematic if done in the manner that we have thought through. We

thought about a couple of options in which that could be done.

11465. But the first obviously is a simple disclaimer. It could be that you say

the effect is limited to the Canadian Mainline and the CER expressly disclaims

any jurisdiction or intrusion into FERC's jurisdiction with regard to rates and

services on the Lakehead System.

11466. Having that type of disclaimer with regard to not intruding into



Transcript

jurisdiction or creating any jurisdictional conflict, we don’t think would be

problematic.

11467. Secondly, having the CER establish an initial toll for the Canadian

portion of the Mainline in and of itself would not be problematic, and that would,

of course, be limiting the effect of the order to the Canadian portion of the

Mainline. As long as that was subject to the adjustment mechanism specified and

described in the Application in paragraph 144, the effect of that potential

adjustment to Canadian tolls to reconcile to any differences in the IJT is

important.

11468. Of course, the concept here is that the revenue being collected and the

amount being charged to shippers is defined by the IJT, a portion of which relates

to Canadian facilities, a portion of which relates to U.S. facilities.

11469. So as long as there is that adjustment mechanism as specified in 144,

paragraph 144 of the Application, then I think that reconciliation process works

and the CER could state it is approving the toll for the Canadian portion of the

Mainline subject to adjustment as specified in the Application. And once again,

that would not create a problem with regard to either approval of the Mainline

Contracting or administration of tolls pursuant to the TSAs.

11470. To provide one more measure of comfort here, I think it's important to

recognize that what is being asked for in the Application is the approval of the

tolling methodology established in the TSAs. The TSAs are between shippers

and EPI, which is, of course, the Canadian portion of the Mainline. So in

approving those TSAs, you're approving service agreements between shippers and

a Canadian entity with regard to service within your jurisdiction that is provided

by EPI.

11471. So again, we don’t see this express limitation on jurisdiction as

necessarily creating a problem. There may be other ways that we haven't thought

of in which it could create a problem, but at least as to our thought process of

making sure that no one construes this as being an expansion or extension beyond

what is permitted under the CER's jurisdiction or what is required under the

FERC's jurisdiction, we think that is workable and we think that it does not

interfere with the approval of Mainline Contracting.

11472. So hopefully that addressed your question, but let me again pause to

invite Ms. Martin in on any of the points I may have missed.



Transcript

11473. MS. MARTIN: Thank you, Mr. Reed. I think you have covered it

all.

11474. MS. GILL: Thanks very much, Mr. Reed.

11475. So I would like to now move on and talk a little bit more in detail

about the IJT.

11476. So Ms. Foreman, if I could please have you pull up Exhibit Number

C12447-2? This is Enbridge's Reply Evidence, and we're going to PDF page 59,

and para 151 here.

11477. So you will see about in the middle of this paragraph it states:

"...the International Joint Toll methodology establishes tolls for

service from receipt points on the Canadian Mainline to

delivery points on the Lakehead System and in Eastern

Canada."

11478. And you say here:

"There is no IJT for service to the Canada/US border. There is

no Canadian portion of the IJT."

11479. And now, earlier, Mr. Reed, I think I heard you reference both in the

previous question here and before lunch, the Canadian portion of the toll, and then

I believe you provided some additional details previously during cross-

examination by Mr. Miller.

11480. And I will just pull up the transcript so that we can take a look at it,

that Transcript Volume 10, which is Exhibit C13406-1, and Ms. Foreman has it

here. It's PDF page 77, and we're looking at line 9678.

11481. And Mr. Reed, here you state:

"And as you know, the application calls for the Canadian toll,

that is the subject of the CER jurisdiction, to be based upon the

delta, the differential between the IJT, under the MLC’s 20-

year tolling methodology, and the Lakehead toll in effect from



Transcript

time to time."

11482. And thank you, Ms. Foreman. I think we can probably take down

these exhibits for the purposes of my questions, but if they are necessary, Panel,

do let us know and we can get those back up.

11483. Mr. Reed, my question is, could you please explain that statement in

the Reply Evidence that there is no Canadian portion of the IJT?

11484. MR. REED: Certainly. And what I'm talking about there is there is

no separate service under the IJT, for example, to the border. That’s what's

described in that referenced portion of the Application.

11485. And while we have a distance-adjusted toll for the CLT, it is the initial

toll adjusted by paragraph 144's adjustment mechanism that establishes this, if

you will, theoretical toll to the border. So there is a Canadian portion in terms of

what will be approved by the CER, but there is no separate service. There is no

separate element of the IJT that is for service on the Canadian Mainline, again,

under the IJT. And this is, again, an area where I would invite Ms. Martin to

jump in here.

11486. It’s a complicated matter. And obviously what is in the tariff and what

is in the application defines what we’re asking the CER to do. And it is important

to understand that we don’t see any of that as being an extension or, again, an

intrusion by the CER into jurisdiction over the Lakehead System. It really is

intended to be approval of the Canadian portion of the IJT from a regulatory

perspective, even though there is no separately identifiable or divisible service

under the IJT to the border or on just the Canadian facilities.

11487. MS. MARTIN: I agree with Mr. Reed. Just similar to the CTS, I

think I had this exchange yesterday, that there is no delivery to the border under

the IJT. It’s a through movement. And it’s a matter of an allocation of the IJT

revenues that go to the Canadian Mainline versus the Lakehead system, which is

what we talked about with Mr. Yates yesterday, the Joint Tariff Sharing

Agreement.

11488. So I think what we’re trying to say in our reply evidence, that there is

no service to the border, but we do need that paragraph 144 in the application to

be able to address the tolls in order to meet the FERC test.



Transcript

11489. So that’s the entirety of how the IJT works, along with meeting the

regulations of the FERC, which require the IJT to be less than or equal to the sum

of the locals.

11490. MR. REED: And if I could just weigh back in. Again, this is Mr.

Reed. Ms. Martin made reference to the discussion yesterday under the

International Joint Tariff Agreement that you may recall was Suncor’s aid to cross

C13338-2. And perhaps it would be helpful to have reference to that, because that

shows the implementation of the IJT through a FERC approved tariff and a CER

approved tariff.

11491. What you see in that document is, first, at page 53 of that exhibit, the

NEB tariff, which at that time was number 248 ---

11492. MS. GILL: Sorry, Mr. Reed, would it be helpful if we pulled that up

on the screen as you’re ---

11493. MR. REED: It probably would, thank you.

11494. MS. GILL: Sure.

11495. MR. REED: And it was C13338-2. And if we could go to page 23 of

that? You see in the upper right-hand corner, this is Tariff NEB 248? If we go to

the next page, to the definition of carrier, you see here, appropriately -- oh, too

far. That carrier means Enbridge Pipelines Inc., the Canadian portion of the

system.

11496. And if we could turn to the next page, I’m sorry, a couple of pages

later, to page 27 PDF, we see here the billing process within the NEB

jurisdictional portion in paragraph 9, where:

“The shipper shall pay…”

11497. This is second sentence of the first paragraph.

“The Shipper shall pay such charges and costs upon receipt of

the Carrier’s invoice respecting such charges …”

11498. So this is the billing process by the Canadian portion by Enbridge

Pipelines Inc.



Transcript

11499. And then corresponding to that, if we go to page 55, PDF 55 of this

document, they have here the FERC tariff, as you can see in the upper right-hand

corner. And again, if we go to the next page, page 56, we see carrier here defined

as Enbridge Energy Limited Partnership. That is the U.S. owner/operator of

Lakehead.

11500. And again, continuing to page 59 in section 8(a), we see here again the

sentence in 8(a) that -- the second sentence:

“The Shipper shall pay such charges and costs upon receipt of

the Carrier’s invoice …”

11501. And again, carrier there is Enbridge Energy Limited Partners.

11502. So you see separate billing according to the terms of each individual

nation’s jurisdiction and tariff. And as was done under CTS, the Canadian toll is

subject to adjustment to reconcile and balance to the IJT.

11503. So it has been workable. It is embodied, if you will, within the two

tariffs of the Canadian Mainline and the Lakehead system. And again, separate

tariffs, separate billing processes, but with the reconciliation at the end of the day

to the IJT.

11504. So I think that speaks to both the workability and to the actual

mechanics of how it has been done before.

11505. And as I said at the earlier answer, we don’t see the fact that the CTS

was a settlement is in any way changing or augmenting the jurisdiction of the

CER or of FERC, for that matter. And obviously we think what was done there

was appropriate.


11507. And Ms. Foreman, I think we can take the exhibit -- oh, she’s already

on it before me.

11508. Look, Mr. Reed, I think I heard you earlier acknowledge, you know,

the Commission does not have jurisdiction over tolls on the FERC regulated

facilities. And you have walked us through that. But I would like to understand,



Transcript

given that, how does the Commission have the authority to oppose the IJT toll?

11509. MR. REED: I think really that’s the same question as we had before.

It’s approving a methodology, a tolling methodology as contained in the TSAs.

The TSAs are between shippers and EPI, the Canadian pipeline. That tolling

methodology establishes a base toll, adjustments to that base toll that does provide

for the potential reconciliation to the IJT.

11510. But what the CER is approving is the tolling methodology contained in

the service agreement subject to its jurisdiction. And again, that is the same as

what has happened under CTS and, to my knowledge, on the other pipelines that

employ the IJT.

11511. MS. GILL: My next questions will be regarding the impacts of the

Lakehead System earnings. And, Ms. Martin and Mr. Reed, I know you’ve

discussed some of this earlier with Mr. Jeerakathil. I -- we’ll turn back again to

Concentric’s reply evidence, Ms. Foreman. That’s at Exhibit C12447-6. We’re

going to page PDF 67, which we have on screen here. Answer 68, starting at Line

15.

11512. And here Concentric states:

“Lakehead’s filed rates have been allowed by Enbridge to

diverge from what cost-based rates would be because the filed

Lakehead rates currently have almost no impact on the amount

of revenue Enbridge actually receives.”

11513. And Ms. Martin, earlier you discussed that the Lakehead

underearnings were on this record. I think this is the next exhibit we’ll pull up.

So this is Exhibit C12447-2. This is Enbridge’s reply evidence. We’re going to

PDF page 62 please, Ms. Foreman. And down to paragraph 161.

11514. So here we see in the latter part of paragraph 161, Enbridge states that

it --

“...reported [the] U.S. $444 million under-earning on the

Lakehead System for 2019 [as per] its [FERC] Page 700

filing."

11515. And then for 2020, the FERC filing reported an under-earning of $696



Transcript

million.

11516. Ms. Foreman, if we could take down the exhibits again? The numbers

won't be important for the questions in terms of the exact quantums, but if the

witnesses need the -- to put this back up, do let us know.

11517. Is Enbridge using the proposed Canadian Mainline tolls to compensate

for under-earnings on the Lakehead system?

11518. MS. MARTIN: Sorry, you broke up a little bit, Ms. Gill. Could you

repeat that?

11519. MS. GILL: Sure. Is Enbridge using the proposed Canadian Mainline

tolls to compensate for under-earnings on the Lakehead system?

11520. MS. MARTIN: I'll let Mr. Varsanyi add a bit more, but, no, I don't

think we are -- actually, we're definitely not doing that. We went back and

negotiated a tolling methodology with our shippers to try to come up with a long-

term methodology to provide service on the Enbridge Mainline with priority

access on the Canadian Mainline. So there's no objective here to try to make up

for Lakehead's under-earnings.

11521. We, in fact, have filed tariff filings at the FERC, which have been

brought into the record here, to try to address those under-earnings. We filed a

cost of service for the base system on May 21st for rates to go into effect July 1st.

We have also filed some higher ROEs for some of our FSN projects effective

April 1. So we're continuing to address that under-earning at the FERC.

11522. MR. REED: And perhaps I could just jump in here. This is Mr.

Reed. It almost seems like the question goes to the issue of cross-subsidization.

When you talk about or ask about is the Canadian portion of the Mainline being

used to compensate for under-earnings on Lakehead, the under-earnings and the

divergence between cost of service and rates on the Lakehead System really

affects the Lakehead local tolls more than anything, which, of course, is not a

CER matter. It's a matter of service perhaps to a small subset of shippers on the

U.S. System who take service exclusively on the U.S. System, perhaps needing to

see a rate increase.

11523. But with regard to the 90-plus percent of the system that is under IJTs,

again, that balancing mechanism is such that while you can increase, and



Transcript

Enbridge is increasing tolls on the Lakehead System, seeking authority to increase

tolls on the Lakehead System, that does balance out in the form of, again, a lower

attribution of revenue to the Canadian Mainline. So it balances back to the IJT.

That's the key point. There is no cross-subsidization in that shippers will pay the

IJT full stop.

11524. While there is a revenue attribution issue, and a reporting issue, and an

accounting issue, and potentially even, you know, it delves into taxation across

the border and things like that, the fundamental economics are that the IJT drives

what is collected from shippers, what shippers pay. And without regard to what

portion may be first deducted under the Lakehead revenue allocation, again, there

is no cross-subsidization here. Shippers pay the totality of the toll. So there is no

real or even potential use of the Canadian portion of the system to compensate for

under-earnings on the U.S. portion of the system. The total earnings are what

total earnings are. Total tolls are what total tolls are under the IJT and that's what

is charged to shippers.

11525. MS. GILL: Mr. Reed, you pre-empted where I wanted to go next, but

maybe I'll ask you a follow-up question here. You know, you said in response to

the issue around cross-subsidization I heard you say that, you know, well, in fact,

there's a balancing out, and you referred to looking at the IJT system as a whole.

So I would like to ask you whether nevertheless, if you were to look at the two

individual systems, the Canadian Mainline and the Lakehead system, is there

cross-subsidisation as between the two systems themselves?

11526. MR. REED: I think the answer to that is no. I'm reminded of the

NEB's adage that there's always some degree of cross-subsidization in any set of

approved tolls, so you could never say there is none. Here, with the most recent

filings by Enbridge, the small amount of revenue shortfall that I think is

potentially attributable to the U.S. local tolls service is being addressed, but that

doesn't represent cross-subsidization in the sense that under CTS, for example,

you don't see tolls under IJT or tolls under the Canadian local tolls going up

because the Lakehead system may be charging a rate for local service that is

below the full cost-based rate. So no, I don't think there is cross-subsidization to

any meaningful degree. And there isn't under CTS and there certainly isn't under

the proposed MLC tolling methodology.

11527. MS. GILL: And Ms. Martin, just to go back to the question around

compensation for under-earnings on the Lakehead system, I think your answer

was, that, no, there isn't such compensation occurring. Are under-earnings on the



Transcript

Lakehead accounted for by having a higher Canadian Mainline local toll to the

border?

11528. MS. MARTIN: No. So the way the Canadian local toll to the border

works today, as I said, is that toll is not charged to any shipper, because all the

barrels from Western Canada that do cross the border travel on the IJT. So they

don't pay the local toll to the border. The local toll to the border under section

10.3 of the CTS was provided to us to be able to adjust the toll so that it met the

FERC's local test -- some of the local's test. So that -- there is no cross-

subsidization because it's the full path toll that's charged.

11529. And then we have described how the revenue does get allocated under

the IJT sharing agreement, which was -- we just discussed a moment ago. So

there's no impact of us making rate filings at the FERC. They may affect the

allocation of the IJT revenue between the two, but there's no cross-subsidization if

that's what you're asking.

11530. MS. GILL: So, Ms. Martin, just to clarify, even if, you know, the

Canadian Mainline local toll to the border isn't paid by any shipper, is there any

relationship between the under-earnings on the Lakehead and the Canadian

Mainline local toll to the border?

11531. MS. MARTIN: I don't believe there is, no.

11532. MS. GILL: Well, Ms. Martin, I heard you speak earlier about that

Enbridge has filed a recent filing with the FERC to update the Lakehead tolls.

But what I would like to understand is whether this methodology that Enbridge is

seeking, is it, in fact, you know, not incenting Enbridge to seek approval from the

FERC, which regulates that Lakehead system, for tolls that reflect actual

Lakehead system costs over the period of time of the Mainline Contracting

proposal?

11533. MS. MARTIN: Could you try that with me one more time, please?

11534. MS. GILL: Sure.

11535. MR. REED: And just to weigh in with my question as well, could

explain what you mean by "this system"? I wasn't sure what that referred to.

11536. MS. GILL: Well, I'll try my question again here for both Mr. Reed



Transcript

and Ms. Martin. I would like to understand why the Commission should approve

a methodology where Enbridge is not incented to seek approval from the FERC

which regulates the Lakehead system, for tolls that reflect actual Lakehead system

costs.

11537. MS. MARTIN: So let me start off with that, Ms. Gill. So what

precipitated us going to an IJT at the time of the CTS was really -- and I'll go back

a little bit in time to explain why the IJT is so appealing to shippers. It's -- it

works for Enbridge as well and it has worked really well for the last 10 years, and

that our shippers continue to want that. It's not to avoid costs or avoid the right

set of price signals. We agree we should be working towards costs for both parts

of our system.

11538. But what was happening prior to the CTS was there was a relatively

long period where the tolls were quite stable in Canada, they were quite stable in

the U.S. And then we started to see some fairly significant expansions on the

system, and we certainly see a lot more toll instability.

11539. And in fact, as we were negotiating the CTS, we had gone in, and we

thought that we would have another Canadian Mainline type of settlement that we

had had for 15 years on our system. And what we were told was that the shippers

would have wanted toll stability. There was not only a lot of expansions, there

was a lot of competitive pipelines coming in. And with an uncommitted service,

you know, with throughput volatility potentially, shippers wanted toll certainty

both, on the Canadian Mainline as well as on Lakehead.

11540. So that, the IJT was really a shipper -- shippers wanted that. And

Enbridge, at that time, was surprised that they did. So we worked out the CTS,

and we felt that the benefits gained from instituting the IJT, were there for both

Enbridge as well as for shippers.

11541. So I just wanted to provide you that background. And then going into

negotiations now, the IJT provides the type of toll certainty that’s very difficult to

provide on a system like ours when you’ve got a lot of capital that’s gone in on

both the Canadian Mainline and the Lakehead system.

11542. So it’s not a means to skirt our responsibilities. It’s -- and we are

taking steps for sure to try to get Lakehead’s rates back into closer to cost as much

as we can.



Transcript


11544. And I will just ask, is the IJT approach the only way to get toll

certainty that you discussed, Ms. Martin?

11545. MS. MARTIN: I think I will ask Mr. Varsanyi to comment on that.

11546. MR. VARSANYI: Ms. Gill, it’s the only methodology that was under

any serious discussion with shippers. I can’t think of another methodology that

came up in the negotiations that would achieve that level of toll certainty.

11547. But setting aside what was discussed with shippers, just from a

commercial perspective, I’m not aware of a way to implement across the two

sides of the system, across the entire Mainline, the type of toll certainty that

shippers were desiring through some other means.

11548. MS. GILL: Thank you, Mr. Varsanyi.

11549. I would like to go and talk a little bit more about the revenue allocation

methods and understand that.

11550. So Ms. Foreman, if we could go back to the Concentric Reply

Evidence here, Exhibit C12447-6.

11551. THE REGULATORY OFFICER: Sorry for the delay. It won’t be

long.

11552. MS. GILL: Thank you, Ms. Foreman.


11553. MS. GILL: Perhaps what I can do is -- it’s a short paragraph that I

am going to read from the Concentric Reply Evidence. It’s been raised many

times. So perhaps I’ll just try to read it and the Panel can let me know if they’re

comfortable to answer the questions based on that, while we’re having some

technical issues with the exhibits. So we will try this way if that’s okay.

11554. So again, in Concentric’s Reply Evidence, and for the panel that has it

front of them, it’s at PDF page 65, and I’m looking at answer 67, starting at line

23, and I will just read it out here. Concentric says that:



Transcript

“…the proposed Mainline Contracting tolling methodology

will establish the pricing mechanism for the entirety of the

Mainline, which will be used to establish periodic Canadian

Mainline tolls, based on a revenue attribution mechanism (that

allocates the portion of the IJT revenue assumed to be

attributable to Lakehead and the portion assumed to be

attributable to the Canadian Mainline) that is important only

for accounting purposes.”

11555. I would just like to confirm that Enbridge intends to allocate the IJT

revenue to the Lakehead system, based on the Lakehead local tolls.


11556. MS. GILL: Hello, are you able to hear me? You may be caucusing

to determine who would like to answer, but I just want to make sure that you can

still see and hear me.

11557. MR. REED: Yes, we can hear you. Your question was about

Enbridge’s intention in the future under MLC, as to whether that revenue

attribution would change or remain the same?

11558. MS. GILL: That’s right, Mr. Reed. And to understand whether it’s

based on the Lakehead local toll.

11559. MR. BELYEA: Counsel, this is Mr. Belyea. As explained in

Concentric’s evidence, the current allocation of the IJT is based on the Lakehead

local toll, as we saw in the revenue sharing agreement in the Suncor aids to cross.

11560. At this time, Enbridge hasn’t made a final decision about how that

revenue allocation or attribution will be done under Mainline Contracting. Part of

the information that will be important to that decision will be, of course, the open

season results. As well, it will be important to understand whether there is any

remaining gap between the Lakehead local toll and the cost of providing service

on the Lakehead system.

11561. To the extent that gap is closed by the filings that Ms. Martin

mentioned, then that Lakehead local toll will be close to the cost to providing

service on the Lakehead system, in which case, allocating or continuing to



Transcript

allocate revenue based on the Lakehead local toll would provide a result that

Enbridge would be satisfied with.

11562. MS. GILL: Thank you very much, Mr. Belyea. And my apologies, I

didn’t intend to rush the panel there. I just wanted to make sure we weren’t

having technical issues. You can never tell -- on this side, anyways.

11563. So Mr. Belyea then, if it were determined that the revenue allocation

under Mainline Contracting would be on the basis of the Lakehead local toll,

would the intention then be to allocate the remaining IJT revenue to the Canadian

Mainline?

11564. MR. BELYEA: Yes, that’s correct.

11565. MS. GILL: And would the Canadian local toll to the international

border be affected by this revenue allocation method?

11566. MR. BELYEA: No, it would not. Shippers would not be invoiced

based on the toll to the Canadian border. They would be invoiced the total

amount equal to the IJT. And then a revenue attribution exercise, if based on the

Lakehead local toll, would attribute to the Canadian Mainline the remainder of the

IJT toll.

11567. MS. GILL: Thank you. And Mr. Belyea, could you just walk me

through a simplified example of how this revenue allocation would operate?

11568. MR. BELYEA: Sure. So if we imagine an IJT toll, we can use $5.70

as a simplified example. Although we explained there’s ---

11569. MS. GILL: Sorry -- I think we’re missing a member of our Panel

here. I’ve just gotten word. So maybe we’ll just pause here.

11570. MR. BELYEA: Okay.

11571. THE PRESIDING COMMISSIONER: Thank you, Ms. Gill. Let’s

just stand by for a moment.


11572. THE PRESIDING COMMISSIONER: All right. We do have the



Transcript

whole Panel here. And just based on the brief caucus we’ve had, I believe that the

Panel was able to hear all of the evidence that the Enbridge panel was giving a

moment ago.

11573. So, Ms. Gill, you can continue on.


11575. And, Mr. Belyea, I believe you were going to provide us -- you were

just starting to walk us through a simplified example of that revenue allocation

method?

11576. MR. BELYEA: Yes, that’s correct. So if we think about a simplified

example of revenue allocation under Mainline Contracting, it works like it does

today under CTS. So if a shipper moves, for example, from Hardisty to Chicago

and the toll associated with that movement is an IJT of $5.70, then the way that

revenue is allocated is that Lakehead would get its applicable local tariff rate for

that barrel and then the remainder, the 5.70 IJT minus, if we want to use a

simplified example of a $3 Lakehead toll, then of the 5.70, after the $3 is paid to

Lakehead, there would be $2.70 left over, which would be attributed to the

Canadian Mainline.

11577. MS. GILL: Thank you, Mr. Belyea. Can you tell us why the IJT

revenue would be allocated in this manner from Enbridge’s perspective?

11578. MR. BELYEA: I think I would probably benefit from a moment

caucusing with my fellow panel members before responding to that question.

11579. MS. GILL: Certainly.

11580. MR. BELYEA: Thank you.


11581. MR. BELYEA: Counsel, would you mind repeating the question?

11582. MS. GILL: Sure. I would like to understand why Enbridge intends to

allocate the international joint toll revenue in this manner?

11583. MR. BELYEA: I think the response should start with why it was



Transcript

important at the outset of CTS to allocate revenue between the Canadian Mainline

and the Lakehead system.

11584. We’ve spoken in recent days about how when the CTS first started

there was a separate ownership structure for the Lakehead system and for the

Canadian Mainline system. As a result of the rollup transaction in 2018 that is no

longer the case. Both systems are 100 percent owned by Enbridge Inc.

11585. So as we think about revenue allocation of the IJT, on a consolidated

basis, it doesn’t make a material difference to Enbridge how that IJT revenue is

allocated to the Canadian Mainline versus the Lakehead system.

11586. Now, that’s not to say that revenue allocation isn’t important. It’s

important for, for example, tax purposes to make sure we have a reasonable

allocation. And a big part of that is making sure that to the extent that the

Lakehead toll is increasing through our recent filings to recover an amount closer

to its cost of providing service or an amount equal to its cost of providing service,

then that revenue allocation, where we’re basing it off the Lakehead local toll, we

feel, would be appropriate.

11587. MS. MARTIN: And Ms. Gill, I guess one thing I should point out is

that we refer to the Lakehead underearning. It wasn’t underearning throughout

the CTS term. The substantial divergence that you mentioned earlier started to

really show up in 2018. And you have to hit a certain threshold of divergence at

the FERC to be able to make a cost of service filing.

11588. So we were monitoring that statistic to make sure that we can bring

Lakehead up to its costs, and we finally took some action on that, as you know, in

May. But it wasn’t underearning the entire time. It started to underearn during

the course of the CTS and then it hit substantial divergence and we were

monitoring that, and then ultimately took action.

11589. MS. GILL: And Mr. Belyea, in response to my first question on this

about whether Enbridge intends to allocate IJT revenue based on the Lakehead

local toll, I think I heard you say that Enbridge hasn’t decided that yet and that it

would depend, in part, on the open season. I would just like to understand how or

why the open season would have bearing on how revenue is allocated.

11590. MR. BELYEA: The results of the open season will provide insight

into not only the amount of contracts that the shippers are seeking, but also the



Transcript

type of their requirements contracts or take or pays and in term lengths. And all

these factors will determine Enbridge's outlook or Enbridge's view on how the

financial performance of the Enbridge Mainline under Mainline Contracting

might look.

11591. But without a clear indication of what those total Mainline economics

might look like during the term of Mainline Contracting, it's not possible to make

a decision about how that revenue might get allocated.

11592. MR. REED: And Ms. Gill, this is Mr. Reed. If I could add one

aspect to that, which is, of course, remember that the open season will determine

where in the spectrum of committed tolls the system will be. The benchmark toll,

as we know, is 5.70 but the minimum toll is 5.11, as I recall.

11593. So where you fit within that spectrum of 59 cents of differential

certainly as well will attribute the totality of the revenue that you're allocating and

could affect the propriety of one allocation methodology versus another.

11594. So it begins with the open season defines the totality of what's being

allocated, and that’s a pretty significant swing, depending upon what the result of

the open season is.

11595. MS. GILL: Well, I would like to discuss a particular attribute of the

tolls. This is the market access revenue adjustment.

11596. So in the evidence of the Brattle Group that was filed by Suncor,

Brattle states that Enbridge attributes 100 percent of the market access discounted

revenue as a cost to be recovered. I can provide the reference for the witnesses. I

don't think we need to pull it up on the screen here, but it's Exhibit Number

C10215-3. That’s the written evidence of the Brattle Group filed by Suncor.

11597. And the part I'm focusing on, just for your reference, is at PDF page

51, Answer 66, which starts at line 7.

11598. So as I was saying, Brattle states that Enbridge attributes 100 percent

of the market access discounted revenue as a cost to be recovered within the

Canadian Mainline revenue requirement, and it does not apportion any of the

discount to the Lakehead System or downstream market access pipeline. Brattle

also states that Enbridge provides no justification for this decision.



Transcript

11599. I would like to confirm whether in the Concentric cost of service

analysis the market access revenue adjustment, the MARA, is allocated entirely to

the Canadian Mainline revenue requirement?

11600. MR. BELYEA: So within the Concentric modelling, the Mainline

portion of the market access revenue adjustment or the market access discount is

allocated 100 percent to the Canadian Mainline.

11601. MR. REED: But adding to that -- this is Mr. Reed -- and I will invite

Mr. Varsanyi to add to this as well -- the notion that there is no, if you will, no

below full tariff rate adjustment for the downstream pipelines is not correct, as I

understand it. Those pipes are not securing their full rate either. So when we talk

about the totality of the MARA adjustment fitting into one bucket, that’s the

entirety of the MARA adjustment on the Mainline, but not from the downstream

pipelines.

11602. MR. VARSANYI: Yes, this is Mr. Varsanyi, and I can confirm that

on those downstream assets, you can see the level of under-earning on the FERC

Form 6, Page 700 that we were referencing earlier as a compliance filing that

Enbridge provides all of our shippers in the FERC to be able to see what the level

of returns are, and for those U.S. downstream assets, they're in that low -- sorry,

mid-to-high single digit range, and substantially below the mid-double digit range

that would be expected to be earned on assets with that risk profile.

11603. MS. GILL: So why is it appropriate to allocate that cost of the

MARA entirely to the Canadian Mainline and not also to the Lakehead system or

other downstream market access pipelines?

11604. MR. REED: Because I think, as our prior answer just said, it -- a

portion of the inability to collect the full path toll did fall to some of the

downstream pipelines as well. For that portion that was incurred on the Mainline,

we looked to the issue of the origin of the market access program and its

beneficiaries. The beneficiaries are the entirety of the system that are using the

Mainline to reach downstream markets that is the access to WCSB producers to

higher-value markets, and the increment of volume added to the Mainline

associated with the expansion to downstream markets as well.

11605. And remember, essentially, the way the model works, the Concentric

simplified earnings model or even the cost of service, simplified cost of service

methodology, we're looking at the earned returns for the entirety of the system as



Transcript

compared to the cost of the entirety of the system.

11606. If one were to theoretically suggest that the portion of those discounts

should be recognized on the Lakehead system as opposed to the Canadian system,

it doesn’t change the conclusion, the conclusion with regard to either the

appropriateness of the Mainline Contracting tolling methodology or the

conclusion that MLC's tolls are likely to be lower than cost of service tolls

because again, that looks at costs across the Mainline, not just on one portion of

the Mainline.

11607. So attribution of those discounts within the Mainline, again, putting

aside the issue of downstream pipelines which did take their share of the lower

revenue stream, across the entirety of the Mainline, attribution of those discounts

to one segment or the other doesn’t have any impact on the conclusion.

11608. MS. GILL: I would like to now move on to look at a specific

provision that’s in the TSAs, and I will provide the panel one of the references;

however, the same provision is across all of the TSAs. And I don't think we will

need the exact content here, but I'll provide you the reference so you can look at

it.

11609. It's at Exhibit 03823-11. So this was a Pro-Forma Producer

Requirements Contract TSA, which I'll use as the example here. And I'm going to

PDF page 58. That’s clause 7.4, titled "Toll Adjustment for Change of

Applicable Laws and Regulatory Matters".

11610. For the purposes of my question, I will refer to it as a change in law

position, and that’s clause 7.4.

11611. So looking at clause 7.4, at the third sentence there, it states that it

applies to the carrier. And as Mr. Reed walked us through another document,

here also carrier is defined as Enbridge Pipeline Inc. earlier on. And it also

applies to EELP, the Enbridge Energy Limited Partnership.

11612. As I stated in my review, I think each of the TSAs contain an identical

provision at clause 7.4.

11613. Now in Enbridge’s reply evidence, Enbridge has stated that this

change in law provision:



Transcript

“...allow[s] Enbridge to increase tolls if any Governmental

Authority issues or changes any laws that require Enbridge to

incur additional capital or operating expenditures or to

recover additional charges, taxes or levies in respect of the

Mainline…”

11614. I would like to understand how cost increases that are incurred in

Canadian dollars as a result of a change would be reflected in an increased toll

that’s stated in U.S. dollars? Do you use an exchange rate, for example?

11615. MR. BELYEA: Counsel, it’s Greg Belyea. So we would treat that

the same way we do with regulatory changes that have occurred under CTS. So

the CTS agreement has a similar clause, section 20.1, which allows for the

recovery of extraordinary costs related to regulatory changes.

11616. Under CTS, when those regulatory changes happen in Canada, the

Canadian dollar costs are converted at the then current exchange rate to convert

those costs to U.S. dollars to add to a U.S. dollar IJT toll. So that’s the manner in

which the change in applicable law clause and the Mainline Contracting TSAs

would be implemented as well.

11617. MS. GILL: And does clause 7.4 allow Enbridge to increase Canadian

local tolls because of a change in law that increases costs in the U.S.?

11618. MS. MARTIN: Ms. Gill, let me try that one. Under the CTS, what

we have done for the 20.1 clause is we have limited the -- if there was a cost

incurred in the U.S. under that clause, it would only be charged to the IJT barrels.

If it was an item that affected the Canadian Mainline, it would be charged to the

CLT, as well as the IJT barrels in order to complete that.

11619. What Enbridge would like to see is to maintain the system-wide toll

design that it’s now established. So we would work with our shippers, of course,

on these types of changes, work with them to implement before we filed them

with the regulator, and we would, at that time, determine what the best way to

allocate the costs would be, including exchange rate and other issues that might

come up.

11620. MS. GILL: Thank you, Ms. Martin. And in those circumstances,

would Enbridge be required to file an application with the CER or do those

increases operate automatically?



Transcript

11621. MS. MARTIN: We would be filing an application. Unless, of

course, we’ve gotten word from our shippers that they’re happy with the changes

and we’ve negotiated it. We would make the Commission aware of that and may

make a filing and not an application. It would just depend on the circumstances.

11622. MS. GILL: Thank you, Ms. Martin. If you’ll just give me a moment,

I’m just going to review my notes here for a moment.

11623. THE PRESIDING COMMISSIONER: Given the time, Ms. Gill,

maybe we will take 10 minutes now and resume thereafter with the benefit of a bit

of a break for you to go over notes, and we’ll get ready with exhibits if there are

any. We can proceed without delay after, as I said, a short break of 10 minutes.

11624. MS. GILL: Thank you very much, Madam Chair.










11625. THE PRESIDING COMMISSIONER: Ms. Baker, I just heard the

tail end of that, but I won't -- just going to confirm that the little bit that I heard

means everybody is back on and all of the connections are good?

11626. MS. BAKER: Yeah, that's correct. I was just checking on one person

was missing, but we're good to go now. Thank you.

11627. THE PRESIDING COMMISSIONER: Excellent. Thank you so

much, Ms. Baker.

11628. Ms. Gill, go ahead.



Transcript



11630. So I have some further questions now about the toll to the border, and

there's a number of exhibits I will be walking through and then get to my

questions here. And I believe, Ms. Comte, you're going to assist us now. So, Ms.

Comte, if you could please pull up Exhibit C03823-2? That's Enbridge's

application.


11631. THE PRESIDING COMMISSIONER: I'll just let everybody know

we're standing by to ensure that we're able to get the exhibit up. It will just take

us an extra moment here. Thank you.


11632. THE PRESIDING COMMISSIONER: Ms. Gill, would you mind

repeating the exhibit information and we'll see if we can get it up now?

11633. MS. GILL: Certainly, Madam Chair. So we're looking at Exhibit

C03823-2. This is Enbridge's application. Thank you, Ms. Comte. If we could

go to PDF page 57? If you could just scroll down a bit so we can see the full

paragraph 144, that's perfect. Thank you.

11634. So, Panel, I believe this paragraph has been referred to previously.

This paragraph describes the adjustment of the Canadian local transmission toll to

the border. And here Enbridge states, and I'll just read it out for the record:

"To ensure that the uncommitted IJT is maintained in

accordance with requirements of the Federal Energy

Regulatory Commission (“FERC”), Enbridge will adjust the

uncommitted Canadian local tariff ([the]CLT”) tolls from

receipt points in Canada to the International border, near

Gretna, Manitoba in the future in the event that the sum of the

uncommitted CLT and Lakehead local rates is not greater than

or equal to the uncommitted IJT tolls in effect in any given

year."



Transcript

11635. And then, Ms. Foreman [sic], if we could -- oh, and then it says -- I do

want to get that last sentence? My apologies.

"In such an instance, Enbridge will file with the CER to adjust

only the uncommitted CLT from receipt points in Canada to the

International border, near Gretna, Manitoba."

11636. And then, Ms. Comte, if we could go to the next exhibit, Exhibit

C07656-2. This is Enbridge's response to ConocoPhillips IR 1.9 (a). We're going

to PDF 19, please, Ms. Comte.

11637. So in response to 1.9 (a) here, Enbridge states:

"The only Canadian local tolls that will be increased to ensure

that the sum of the Canadian local tolls and the Lakehead local

tolls is equal to or greater than the applicable International

Joint Tariff […] are the tolls from each Canadian receipt point

to the Canada-US border. When there is an IJT in place, tolls

from Canadian receipt points to the Canada-US border are not

paid by any shipper. Enbridge currently uses this method to

ensure alignment between the Canadian Mainline and [local --

] Lakehead local tolls and the Competitive Toll Settlement

([the]“CTS”) IJT."

11638. Thank you, Ms. Comte. If we could take down the exhibits

momentarily? We'll come back to some other ones, Panel, but it's nice to be able

to see you all.

11639. So, Panel, can you explain specifically how Enbridge calculates the

tolls from each Canadian receipt point to the Canada-U.S. border in its CER tariff

filings under the CTS?

11640. MS. MARTIN: Ms. Gill, I will -- I'll start off here. So when we

established the tolls for the CTS on July 1, 2011, as you will recall, the exchange

rate was fairly close to par. We have different drivers that cause the IJT to

increase over time during the CTS. And on the other side of the border, we have

Lakehead local rates that are adjusted for different methods under the FERC's

regulations. So when the Lakehead rate changes and the IJT rate changes, and

they can change at different times, that causes us to often have to adjust the rate to

the border.



Transcript

11641. More of the adjustments during the CTS had to do with the

depreciation of the Canada-U.S. exchange rate. Less of them were more related

to the fact that the IJT tolls were increasing at different times versus the Lakehead

tolls in order to maintain that relationship that we talked about, what I call the

FERC test.

11642. So what we would do is we would look at whether we would be

offside on that relationship and then adjust the toll accordingly to provide us, for

the most part, a bit more of a cushion as the exchange rate continued to decline, so

when you converted that Canadian toll to a U.S. dollar toll that it met the test.

The reason we were able to do that was under CTS section 10.3, and when we

changed those tolls, it did not affect what shippers were being charged.

11643. So the shippers were completely agnostic to the toll change at the

border, and they were paying the IJT in accordance with the CTS. So that's how

we would make it. We would make proportional changes to account for exchange

rates, and then to make sure that we had enough of a cushion with the exchange

rate fluctuating, that we could -- we wouldn't have to make multiple changes. We

found the exchange rate was changing a lot faster than we were able to keep up

with the changes at times so. So that's how it works today.

11644. MS. GILL: Thank you, Ms. Martin. And is that the same manner

that would be used to adjust the Canadian local toll to the border under the

Canadian Mainline Contracting proposal?

11645. MS. MARTIN: Yes, it would be. It would facilitate the

implementation of the IJTs as we do today. And the one difference I would add is

that because we have proposed that all the tolls be charged in U.S. dollars, that

whole monitoring of the exchange rate would not be needed. So I would see

much fewer adjustments to that toll to the border than we experienced during the

CTS.


11647. And Ms. Comte, I don’t think we’ll need this next Exhibit up for the

panel, but I’m just going to refer back to Enbridge’s Reply Evidence of

Concentric. And this is again where Enbridge was referring to the proposed

Mainline Contracting tolling methodology that would establish the pricing

mechanism for the entirety of the Mainline, which will be used to establish



Transcript

periodic Canadian Mainline tolls based on a revenue attribution mechanism.

11648. Is this adjustment that Ms. Martin just described from each Canadian

receipt point to the Canadian U.S. border, what Concentric is referring to when it

states:

“...periodic Canadian Mainline tolls, based on a revenue

attribution mechanism…” ?

11649. MR. REED: Ms. Gill, I am going to ask you to give me the reference

for that, so I can be clear.

11650. MS. GILL: Sure, Mr. Reed. We’ll go ahead and pull it up on the

screen. I think Ms. Comte has it ready. It is Exhibit C12447-6. This is the

Concentric Reply Evidence. And we’re going to PDF page 65, Ms. Comte. If

you just scroll down, we’re looking at lines 23 to 27.

11651. And Mr. Reed, you will see here, it says starting at the end of line 22:

“…the proposed Mainline Contracting tolling methodology…”

11652. And that’s the statement that I’m referring to with respect to:

“…the periodic Canadian Mainline tolls, based on a revenue

attribution mechanism.”

11653. MR. REED: And the answer to your question as to whether this is

referring to the adjustment of the uncommitted toll to the border, the answer is

“No”; this is referring to the Drazen methodology of using one toll to add to

another toll to examine their propriety of Mainline Contracting tolling.

11654. So as we answer that question, beginning at line 20:

“…we believe that it is essential to understand two key points:

1) any analysis that begins from the assumption that the […]

Lakehead rate is a proxy for the […] cost of service is

fundamentally flawed; and 2) the [ …] Mainline Contracting

tolling methodology will establish the pricing […] for the

entirety of the Mainline…”



Transcript

11655. And what is perhaps left out as sort of an elliptical reference here,

which is:

“…which will be used to establish periodic Canadian Mainline

tolls, based on a revenue attribution…”

11656. That’s under the methodology that both, Drazen and Brattle used of

using one section of this implied cost of service toll on one segment to be part of

the derivation of the entirety of the Mainline Contracting toll. But this is not

referring to the adjustment mechanism in paragraph 144 of the application.


11658. And what is the last Canadian delivery point on the Enbridge Mainline

before product is transported across the international border?

11659. MR. HEINZ: This is Brent Heinz. I believe it would be Gretna,

Manitoba. That is the last delivery point on the Canadian Mainline.

11660. MS. GILL: Thank you, Mr. Heinz.

11661. And so I would like to now look at some of the specific NEB tariffs

and CER tariffs that have been filed under the CTS. And if you could walk me

through some of things under them.

11662. So Ms. Comte, if we could go ahead and pull up Exhibit C13426-8.

And to confirm, we provided these to questioning earlier. So hopefully, the Panel

has had a chance to review.

11663. Thank you, Ms. Comte. And if we could go ahead to PDF page 3

here. Just scroll a bit lower here, Ms. Comte. That’s perfect. Thank you. Just a

little bit higher so we can see the header of the table as well. That’s perfect, thank

you.

11664. So Panel, what we have here is the “Light Petroleum Transmission and

Terminalling Tolls”, in Canadian dollars per cubic metre. And this is under Tariff

No. 448 -- for the record.

11665. And I am going to focus on the first column here, the “Edmonton

Terminal, Alberta” column. And I would like to take a look at -- if you look at



Transcript

that column, the toll for the Edmonton Terminal to the last station, Gretna,

Manitoba, was $15.307, here, in this table. Is that correct?

11666. MS. MARTIN: That’s right. From Edmonton to Gretna, light, the

CLT is $15.307 per cubic metre, in Canadian dollars. Yes.

11667. MS. GILL: Canadian. Right. And Ms. Martin, if we look at the

same delivery from Edmonton Terminal to the International Boundary near

Gretna, Manitoba, so the cell right below, it states that that’s $21.141; is that

right?

11668. MS. MARTIN: That’s right.

11669. MS. GILL: Okay. And we’re going to repeat the slight math quiz

here from earlier in our questioning, but I hope this one will be simpler for us,

both you and I.

11670. But I would just like to look at the difference between the tolls. And

my calculation would be that the difference between the tolls at those two points

would be $5.834. Do I have that right, Ms. Martin? Canadian dollars per cubic

metre.

11671. MS. MARTIN: I haven’t done the math, but I’ll take it, subject to

check.

11672. MS. GILL: Perfect. Thank you, Ms. Martin.

11673. And now, Ms. Comte, we could go ahead to the subsequent tariffs. So

this is C13426-7. And this was CER Tariff No. 458 -- thank you. Can you just

scroll down again? Perfect. Thank you.

11674. And so this tariff cancelled the previous tariff, NEB Tariff No. 448.

And again, we’re looking at the “Light Petroleum Transmission and Terminalling

Tolls” from Edmonton Terminal, Alberta. And again, the values in this chart are

in Canadian dollars per cubic metre.

11675. And Ms. Martin, you will see here that the toll from the Edmonton

Terminal to the Gretna Station, Manitoba, under this Tariff, was $16.181; is that

right?



Transcript


11677. MS. GILL: And then to the International Boundary near Gretna,

Manitoba, it was $29.290?


11679. MS. GILL: And so maybe you can take it, subject to check, but the

difference between these tolls was $13.109 -- Canadian dollars per cubic metre.

11680. MS. MARTIN: Okay. I’ll take that subject to check.

11681. MS. GILL: And then finally, I’d like to look at Tariff No. 466. So

this is Exhibit C13426-6. Thank you, Ms. Comte.

11682. This Tariff superseded Tariff 458 that we were just looking at.

11683. We’ll go to PDF page 3, please Ms. Comte. Thank you.

11684. And again, we’re looking here at the “Light Petroleum Transmission

and Terminalling Tolls” from Edmonton Terminal, Alberta, which is in Canadian

dollars per cubic metre. And if we were to look at that toll from Edmonton

Terminal to Gretna Station, Manitoba, under this Tariff, it was $16.181. Is that

right, Ms. Martin?

11685. MS. MARTIN: Yes, thank you. Subject to check, yes.

11686. MS. GILL: And then to the International Boundary near Gretna, it

was $37.620?

11687. MS. MARTIN: Right.

11688. MS. GILL: And then you can take this subject to check, but the

difference between the tolls, by my calculation, would be $21.439 in Canadian

dollars per cubic metre.

11689. MS. MARTIN: Okay. Subject to check.

11690. MS. GILL: Thank you, Ms. Martin. And so what I would like to

establish here is that the difference between that toll from Edmonton Terminal to



Transcript

Gretna Station, Manitoba, that the magnitude increased under these tariffs through

the years, right?

11691. And Ms. Comte, perhaps we could take down the exhibit here,

11692. We went from a difference of approximately six dollars under that first

tariff, Tariff 448, then up to approximately $13 under Tariff 458, and then $21,

approximately, under Tariff 466.

11693. Can you please tell us, what caused the Canadian local toll to the

border in these examples to vary by these magnitudes?

11694. MS. MARTIN: So Ms. Gill, it’s specifically the application of CTS

Article 10.3 that were applying here. That was our authority to do it. But I did go

back and review the tariffs, so thank you for supplying those.

11695. Earlier in CTS, as the exchange rate was fairly stable, there was very

little reason for us to change the tolls to the border, as I had mentioned earlier.

With the tariff number 458, what had happened is that we had instituted the

Canadian -- the Line 3 Canada Surcharge on the IJT and on the CLT, but we

didn’t have a corresponding facility edition in the U.S. that would have increased

the local toll on Lakehead because that project -- part of the project is not in

service.

11696. So we had to quickly use this to make sure that we were on side with

that relationship of the FERC test.

11697. Normally we would have had the IJT go up at the same time as our

U.S. toll would have come up, but because the Line 3 U.S. project was delayed,

we were unable to add that significant amount of capital. So we had to use this

mechanism to increase the tolls at that time. So that would explain a bit of a

mismatch. And this mechanism was absolutely essential to make sure that we met

the FERC test.

11698. As we move into Tariff number 466, we had made a change for -- to

the receipt and delivery points for the Line 10 sale. What was going on at that

time, as you know, in 2020 was -- there was a lot of volatility in the markets due

to the pandemic. The exchange rate had dropped quite significantly from .77 in

January to .71 in May. And that was going to take us offside with our relationship

on the FERC tests.



Transcript

11699. So absent any other adjustment, we actually had to kind of see where

the exchange rate might land so that we wouldn’t be out of compliance. And we

made sure we put in enough cushion in that toll to pass the test to an exchange

rate of say .67. So that’s what it was meant to so that we wouldn’t have to make

multiple filings to be on side with the FERC test.

11700. So it was a little bit of planning ahead. And now what has happened is

the cushion is probably a bit too large, as you know, because the exchange rate

has now appreciated again. And that is a problem with having the CLT tolls in

Canadian dollars and using the CLT tolls in Canadian dollars to do the FERC test.

If they’re both in the same currency, it certainly makes these adjustments or

tracking the exchange rate to keep the FERC test in order. It makes it less

problematic.

11701. So that’s what was going on. There was some specific reasons why

we had to increase that border toll.

11702. But just as a reminder, none of those tolls are actually paid by

shippers. They pay the IJT. So that would be sort of the history around how we

came from a very small difference to a very large difference.

11703. MS. GILL: And, Ms. Martin, are any other tolls on the Enbridge

Mainline determined in the same manner as these tolls that are from each

Canadian receipt point to the border?

11704. MS. MARTIN: No, those are the only ones that we had -- we had

authority to do others, but this is the means that we used for -- to pass the FERC

test for the IJT.

11705. MS. GILL: Did the tolls from each Canadian receipt point to the

border have any relationship with the costs of the Canadian Mainline?

11706. MS. MARTIN: Well, none of the tolls -- well, I guess the CLT tolls,

when they were established did; they were negotiated tolls as well with the 2011

negotiating team. As you know, those tolls were escalated over time. So I would

say that they were an incentive-based toll and therefore right now, the tolls to the

border certainly do not have any relationship to the cost of the Canadian Mainline.

11707. MS. GILL: Ms. Martin, is it possible though that the Canadian local



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tariff tolls to the border tolls, rather, diverge from underlying costs more so than

other Canadian local tolls?

11708. MS. MARTIN: Ms. Gill, the mechanism that we applied for was not

there to actually reflect costs. It was an adjustment mechanism we negotiated

with our shippers. And ultimately that was approved in the settlement to -- as I

said, to ensure that we were complying with the FERC test for the sum of the

locals test.

11709. So there was never meant to be a cost relationship there. And so that’s

where I would say that there was never meant to be a cost relationship there. It

was simply a mechanism to ensure that we were able to facilitate the

implementation of the negotiated IJTs.

11710. MS. GILL: Ms. Martin, would the Canadian Mainline costs have

varied in a similar manner over this time period?

11711. MS. MARTIN: Well, I’ll let Mr. Reed speak to that, because he has

done a complete analysis of the Canadian Mainline costs. We weren’t tracking

the costs of the Canadian Mainline during the CTS because we were under a

negotiated settlement. So we are looking at costs, obviously, on a go forward

basis.

11712. So I would just like to emphasis that the toll to the border is -- has no

relationship to the costs of the Canadian Mainline and it has never been charged

to any shipper. Therefore, you know, we consider it a mechanism that doesn’t

hurt any shipper. It facilitates the implementation of the IJT, and that is why

we’re requesting the same mechanism under Mainline Contracting.

11713. MR. REED: And, Ms. Gill, this is Mr. Reed. No, there is not a

corresponding change in the underlying cost of service on the Canadian Mainline

in this period from July 2019 to July 2020 or even later. And again, as Ms.

Martin said, most importantly, there also was not a change in the amount actually

being charged to shippers during that period of time, other than the specified

escalation of the IJT.

11714. So to re-emphasize that point, the toll to the border is disconnected

from cost of service. It was not intended to be connected to cost of service. It is a

compliance mechanism to basically check the box and that’s it. So it ensures

compliance with the FERC test. It provides that reconciliation without it having



Transcript

any function or any impact other than ensuring compliance.

11715. MS. GILL: I would like to now move on to this gas projected returns.

Is the revenue earned by Lakehead based on the FERC approved tolls for that

system?

11716. MR. BELYEA: Counsel, this is Greg Belyea. Do you have a specific

time period in mind? During CTS or during MLC as reflected in Concentric’s

additional written evidence?

11717. MS. GILL: Could you provide it under both, Mr. Belyea?

11718. MR. BELYEA: Sure. So under the CTS, that revenue split is based

on the Lakehead local toll. And under the Concentric Revised Additional Written

Evidence, that revenue allocation is based on the cost of providing service for the

Lakehead system as calculated within the model.

11719. MS. GILL: Mr. Belyea, why is there a difference between the two?

11720. MR. BELYEA: I think there’s two primary reasons. And I’ll invite

Mr. Reed to add on to that.

11721. One reason would be that Enbridge believes that the proper evaluation

of the cost of providing service in order to compare to Mainline Contracting

proposed tolls is to look at the cost of providing service rather than an estimated

tariff rate. The other reason is that because Enbridge does not have a forecast of

the long-term Lakehead toll over that 20-year period that was examined in the

additional written evidence, the initial 20-year term of Mainline Contracting.

11722. MR. REED: And this is Mr. Reed. Your -- I think your question

started with why is one different from the other? And the answer is quite simply

because one is a matter of financial reporting and the other is a matter of

examining the appropriateness of a tolling methodology and the underlying costs

of serving the loads on the system.

11723. So the issue for which the Concentric model, both the earnings model

and the tolling model were developed was for the assessment of the

reasonableness of Mainline Contracting's tolling methodology. It wasn’t for

predicting the reported earnings of Lakehead or the reported earnings of the

Canadian Mainline.



Transcript

11724. So on that basis for which it was -- the purpose for which it was

developed, in my view, unquestionably, the right approach is to examine the cost

of service, not to try and predict the reported financial results.

11725. MS. GILL: And Mr. Reed, perhaps I will start with you, but if you

need to have another panel mate answer, you can let me know. But are the

Lakehead local tolls lower than what Lakehead cost of service tolls would be?

11726. MR. REED: Yes. The current approved level of Lakehead rates is

below the full cost of service level. And as you know, and you have heard a

number of times today, there are recent applications which seek to narrow that

gap substantially, but currently, it is the case that the approved tolls are well

below the full cost of service level.

11727. And I think you heard earlier today references to the earned returns on

the Lakehead system being somewhere in the 5, 6, 7 percent range recently. And

that is certainly indicative of how far below the full cost-based level they are.

11728. MS. MARTIN: And Ms. Gill, if I can add, we had a discussion with

Mr. Miller a few days ago about the Page 700. I don't know if you recall that, but

that is a compliance form that we provide to the FERC where the pipeline

companies show their revenues that they have earned under the FERC-approved

tariffs and they compare them to what would be a cost of service showing, a

presentation of cost of serving.

11729. So what they do is, they take for each historical year the actual cost,

like, actual O&A, actual power, and so on, and as Mr. Miller walked me through

it, there is a return assumption as well that the company gets informed by. And

they put together that cost, compare that to the revenues, and if you look at, that is

what the substantial divergence I was talking about which you referred to as well

as the 444 and 696. That’s a means to demonstrate that the costs and the revenues

are off kilter.

11730. MR. COYNE: And if I could just add in for a moment before you

move on on that topic -- this is Mr. Coyne -- is to summarize, the earned returns

on Lakehead, they are provided in response to the Total 1.032 (a). And just to put

that into perspective, the adjusted cumulative life cycle today average ROE for

the Lakehead system was 7.2 percent through 2019, so well below what anybody

would deem to be a reasonable cost of capital for operating a system.



Transcript

11731. MS. GILL: Thank you, Mr. Coyne and Ms. Martin and Mr. Reed.

11732. I'll have some follow-up questions here for you regarding these

projected returns that I mentioned. I'm going to walk us through a number of

exhibits for reference, and then I'll get to my questions.

11733. Ms. Comte, if we could go ahead and pull up Exhibit C08084-2? This

is Enbridge's Response to CER IR 3.17 (c).

11734. Thank you, Ms. Comte. And if we could (technical difficulty) page

76, and if we could just scroll down to sub (c) here? Thank you. That’s great.

11735. So as part of their Response to this IR, Enbridge provided an analysis

of (technical difficulty) returns on equity for the Canadian Mainline only, as was

requested. But I'm more interested in the methodology here.

11736. So in the second full paragraph on the screen, Enbridge stated in this

Response that the methodology for allocating the International Joint Tariff, IJT

revenues to the Canadian Mainline System was as provided in Total IR 1.059. (b)

attachment, revenue allocation, Mainline Contracting.

11737. And Ms. Comte, if we could just go ahead to that exhibit, so that’s

Exhibit C07658-15.

11738. THE REGULATORY OFFICER: Ms. Gill, do you see it on the

screen?

11739. MS. GILL: Ms. Comte, no, I don’t see it on the screen here. I have a

black screen. I'm not sure if that’s just me.

11740. Check in with the Panel. Panel, are you able to see an exhibit here?

11741. THE PRESIDING COMMISSIONER: Ms. Gill, we do see an

exhibit. Maybe just by nods, I'll ask the witness panel, are you able to see the

exhibit up?

11742. UNKNOWN SPEAKER: Yes.

11743. THE PRESIDING COMMISSIONER: Okay. I'm seeing nodding



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across the videos that I can see at the moment.

11744. MS. GILL: Sure. So that works for me, Madam Chair. As long as

the witnesses can see it, I'm happy to proceed with that.

11745. So Panel, I'm going to focus on the row that’s labelled "Enbridge

Mainline IJT". I'm looking at Column 3 here first. So Column 3, at Column 3.

11746. THE PRESIDING COMMISSIONER: Actually, Ms. Gill, can you

just give us a moment? It appears that not everybody does, in fact, have access, I

have advised here. I'm just going to see if our Regulatory Officer can maybe take

it down and reshare and see if that pulls it up for everybody more successfully.

11747. THE REGULATORY OFFICER: I pulled it up on the screen. Can

everyone see it?

11748. UNKNOWN SPEAKER: I can see it.

11749. THE PRESIDING COMMISSIONER: Just a moment. I don't think

that everybody can see it yet, so we're just going to try a couple of things here.

Please stand by.


11750. THE PRESIDING COMMISSIONER: All right. Enbridge Witness

Panel, I'm going to suggest that we take a five-minute break away. There was a

bit of a frozen moment there for our CER counsel. Oh, no, Ms. Gill, I see that

you're back.

11751. MS. GILL: I am back, Madam Chair. I did have a moment where

Teams decided to -- I was no longer part of this proceeding, but I am back and

ready to proceed if everyone else is.

11752. THE PRESIDING COMMISSIONER: So I'm still going to suggest

that we take five minutes and make sure everybody's back. And it's important that

the panel and the witnesses and counsel can see the documents that we are

expected to understand and that you're expected to speak to.

11753. So we'll take five minutes, we'll resume. We'll try and get to our 3:45

so that we use our time effectively. And I will just add, I sure miss the live



Transcript

hearing room. It would be nice to see everybody in person and be handling this

all in the same place. So thank you for bearing with us. We'll see everybody in

five minutes.



11754. THE PRESIDING MEMBER: All right. I see Ms. Gill and I see

my colleagues on the Panel and I see the witnesses.

11755. We will use the time that we have left, Ms. Gill, to get as far as we can

get through your remaining questions.

11756. Just because we will be stopping at 3:45, I don’t really have any

significant administrative announcements to make, but I did want to remind

everybody that with Procedural Update 5 having been issued, I think this

afternoon, there are revised cross-examination estimates. And I will just invite

parties to update the Commission tomorrow morning if there are further

refinements that we have not yet captured.

11757. I believe we might have been getting refinements coming in even as

the Procedural Update was being published, but I would ask parties to take a look

and advise if there’s anything that the Commission should be aware of in terms of

the cross-examination estimates on the schedule that has been published in the

most recent procedural update.

11758. So with that, Ms. Gill, as I said, I haven’t forgotten I’ve made that

announcement. Please go ahead.












Transcript

11760. So, Ms. Comte, if we could just go back to that exhibit? That’s

Exhibit C07658-15. It’s the Attachment to Enbridge’s Response to Total IR at

1.059 (b).

11761. I would like to focus, as I was saying, on the first row labeled

Enbridge Mainline IJT.

11762. So Column 3 here shows that the Enbridge Mainline IJT revenue is

allocated to Lakehead based on the Lakehead cost of service toll, and in Column 2

provides that the IJT revenue is allocated to the Canadian Mainline based on the

IJT, less the Lakehead cost of service toll.

11763. Ms. Comte, I think we can go ahead and take down the exhibit for the

purposes of my questions.

11764. Panel, would the returns on equity for the Canadian Mainline be higher

than what’s been represented in Enbridge’s response to that IR, IR 3.17 (c),

because the IJT revenues are not in fact allocated based on the Lakehead cost of

service, they’re done on the basis of the Lakehead local toll?

11765. MR. REED: Ms. Gill, could we have that question again? You lost

me half way through.

11766. MS. GILL: Sure. It’s pretty lengthy here, Mr. Reed. We’ll try it

again.

11767. I would just like to understand whether the returns on equity for the

Canadian Mainline, as were represented in Enbridge’s response to CER IR 3.17

(c) would in fact be higher than what was represented there, because the IJT

revenues are not allocated based on the Lakehead cost of service; they’re based on

the Lakehead local toll.

11768. MR. REED: Thank you for that. Let me begin by first noting one

thing. If we could go back to Exhibit C08084-2? And if we could go to the

bottom of PDF page 76 on that?

11769. I just want to bring to your attention that there was an important

correction filed to this response which isn’t reflected here in the original source

document. This table is actually -- has been corrected to read “CER Table 3.17.3-



Transcript

Canadian Mainline After Tax ROEs”, not “Enbridge Mainline”. So I think it will

help in our discussion here to have that correction in mind.

11770. As I understand your question, it is whether the reported returns, and

I’m going to stress the word reported returns, for the Canadian Mainline would be

higher if, going forward, again, this analysis is forward-looking 20 years, the

revenue allocation were based upon the Lakehead toll, not the Lakehead cost of

service. And that would depend on a number of things.

11771. First, whether the revenue allocation methodology remained the same

for the next 20 years.

11772. Second, whether the Lakehead toll in the future was above or below

the cost of service at that time.

11773. If we had a continuation of the current structure in which the Lakehead

toll is below the cost of service, then switching to the revenue allocation that you

mentioned, where the allocation is based upon the approved toll, not on the cost to

service, would cause the reported Canadian Mainline ROE to go up.

11774. If that became inverted, where the toll was above the cost of service at

that time, switching to that revenue allocation based upon the toll would cause the

Canadian Mainline ROE to go down on a reported basis.

11775. So your question involves many assumptions, but you are correct that

the reported returns on equity are a function of the revenue allocation in place

from time to time and on the delta between cost of service and approved tolls

from time to time on the U.S. portion of the system.

11776. It is that instability that really caused us to want to focus on cost of

service, not on approved tolls. And I think that more appropriately addressed the

Commission’s question, in the issues list at Issue 3, which was whether the tolls

were reflective of cost of service, that is the MCL proposed tolling methodology

was reflective of cost of service and whether it should be.

11777. Reported returns are a function of the accounting revenue allocation

methodology and of that relationship between approved tolls and the underlying

costs of service.




Transcript

11779. And, Ms. Comte, if we could go ahead and take down the exhibit? Oh,

thank you very much.

11780. So I think we will do one more question here. That should give us

enough time, Madam Chair, but if we’re running into 3:45, the Panel may need

until tomorrow.

11781. So, Mr. Reed, in providing the Commission these possible returns on

equity on the Canadian Mainline, why did Enbridge allocate IJT revenues based

on the Lakehead cost of service toll when this is not how revenues are currently

allocated by Enbridge under the CTS?

11782. MR. REED: The question that we were responding to was to prepare

an analysis of the earned returns on equity that could occur on the Canadian

Mainline in a form analogous to, I think it was reference 3. We took that down.

But I think it was reference 3 in the preamble to the question. So that

methodology was responsive to that request. That methodology is analogous to

what was done in the referenced prior examination.

11783. MS. GILL: Thank you, Mr. Reed. And under the CTS, has Enbridge

earned higher returns on the Canadian Mainline to account for under-earnings on

the Lakehead system?

11784. MS. MARTIN: So Ms. Gill, I think I attempted to explain the Guide

BB ROE that we filed with the Commission and why it’s very important to look

at the Enbridge Mainline returns as opposed to returns driven by the allocation of

the IJT between the Canadian Mainline and Lakehead, because that is a function

of if you have an under-earning one part of the system, then automatically with a

zero-sum gain, it’s going to look like the Canadian Mainline returns are higher.

11785. So it’s a function of the revenue allocation of the IJT, so therefore it

makes -- in my mind, it makes more sense to look at the Enbridge Mainline

returns and how the CTS has performed because the IJT contributes 90 percent of

the revenues associated with the Mainline.

11786. MR. VARSANYI: Ms. Gill, if I could just add -- it’s Mr. Varsanyi --

that ultimately though, in terms of the tolls that are charged, which is what the

shippers pay, the allocation that was just described is irrelevant. It’s not as if a

Canadian toll gets increased if we’re under-earning in Lakehead. There is no



Transcript

cross-subsidization of that nature whatsoever.

11787. MS. GILL: Thank you, Ms. Martin and Mr. Varsanyi.

11788. Madam Chair, I think that is probably an appropriate spot to stop for

the day today.

11789. THE PRESIDING COMMISSIONER: Very good. Thank you,

Ms. Gill. Thank you, Enbridge Panel No. 2.

11790. We will resume tomorrow morning at 9:00 with the usual technical

check in at 8:45.

11791. Good evening to everybody and we’ll see you tomorrow.

--- Upon adjourning at 3:45 p.m./L’audience est ajournée à 15h45

CANADA ENERGY REGULATOR

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