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  1. 1. 1 1 2 3 4 5 6 7 8 9 ONTARIO 10 ENERGY 11 BOARD 12 FILE NO.: EB-2005-0551 VOLUME: 13 DATE: July 19, 2006 BEFORE: Gordon Kaiser Presiding Member and Vice Chair Cynthia Chaplin Member Bill Rupert Member
  2. 2. 1 1 EB-2005-0551 2 3 4 THE ONTARIO ENERGY BOARD 5 6 7IN THE MATTER OF the Ontario Energy Board Act, 1998, 8S.O.1998, c.15, Schedule B; 9 10AND IN THE MATTER OF a proceeding initiated by the 11Ontario Energy Board to determine whether it should 12order new rates for the provision of natural gas, 13transmission, distribution and storage services to 14gas-fired generators (and other qualified customers) 15and whether the Board should refrain from regulating 16the rates for storage of gas; 17 18 19 Hearing held at St. Andrews Conference Centre, 20 150 King Street West, 27th Floor, Toronto, Ontario, 21 on Wednesday, July 18, 2006, 22 commencing at 5:00 p.m. 23 24 25 -------------- 26 Volume 13 27 -------------- 28 29B E F O R E: 30 31GORDON KAISER PRESIDING MEMBER and VICE CHAIR 32 33CYNTHIA CHAPLIN MEMBER 34 35BILL RUPERT MEMBER 36 37
  3. 3. 1 1 A P P E A R A N C E S 2 3 4 5DONNA CAMPBELL Board Hearing Team 6PASCALE DUGUAY 7LAURIE KLEIN 8 9KRISTI SEBALJ Board Support Team 10RUDRA MUKHERJI 11RON MAN 12 13GLENN LESLIE Union Gas Limited 14 15DAVID STEVENS Enbridge Gas Distribution 16FRED CASS 17 18ROBERT WARREN Consumers Council of Canada 19 20PETER THOMPSON IGUA and AMPCO 21 22MICHAEL JANIGAN Vulnerable Energy Consumers 23 Coalition 24 25PAT MORAN APPrO 26 27DAVID BROWN Sithe Global Power, 28 TransCanada Energy, 29 Portlands Energy Centre 30 31JASON STACEY Natural Gas Consultant 32 33LOUIS-ANDRE LECLERC Gaz Métropolitain 34LOUIS-CHARLES RATELLE 35 36JOHN DeVELLIS School Energy Coalition 37 38BRIAN DINGWALL Canadian Manufacturers 39 & Exporters 40 41ALICK RYDER City of Kitchener 42JIM GRUENBAUER 43 44LAURIE SMITH Market Hub Partners Canada 45KAREN ILLSEY 46TOBY BISHOP 47 48VALERIE YOUNG Aegent Energy Advisors
  4. 4. 1 1 A P P E A R A N C E S (Cont’d) 2 3 4CHERYL WORTHY BP Canada 5DAVID BRETT 6 7PAT KEYS TransCanada PipeLines 8 9MALCOLM JACKSON LIEN 10 11GEORGE KATSURAS IESO 12 13 14
  5. 5. 1 1 I N D E X O F P R O C E E D I N G S 2 3Description Page No. 4 5--- Upon commencing at 5:00 p.m. 1 6 7Preliminary Matters 1 8 9BP CANADA – PANEL 1: 10 10C. Worthy, S. Acker; Sworn 11 Examination by Mr. Brett 10 12 Questions from the Board 26 13 Cross-examination by Mr. Leslie 43 14 Cross-examination by Mr. Cass 47 15 Cross-examination by Mr. Warren 49 16 17--- Recess taken at 6:30 p.m. 54 18--- On resuming at 6:49 p.m. 54 19 20 Cross-examination by Mr. Thompson 54 21 Cross-examination by Mr. Brown 66 22 Cross-examination by Mr. Moran 76 23 Further Questions from the Board 78 24 25--- Whereupon the hearing adjourned at 7:28 p.m. 79
  6. 6. 1 1 E X H I B I T S 2 3 4Description Page No. 5 6EXHIBIT NO. J13.1: BACKGROUND INFORMATION OF 13 7STEPHEN ACKER 8 9EXHIBIT NO. J13.2: BACKGROUND INFORMATION OF 13 10CHERYL WORTHY 11 12EXHIBIT NO. J13.3: QUESTIONS FOR BP 13 13 14 16 17 18 19 20 21
  7. 7. 1 1 U N D E R T A K I N G S 2 3Description Page No. 4 5 No undertakings were entered during the hearing 6
  8. 8. 1 1 1 Wednesday, July 19, 2006 2 --- Upon commencing at 5:00 p.m. 3 MR. KAISER: Please be seated. 4 Mr. Brett. 5 MS. SEBALJ: As I understand, Mr. Chair, there may be 6a few preliminary matters. 7 MR. KAISER: All right. Any preliminary matters? 8 PRELIMINARY MATTERS: 9 MR. THOMPSON: Yes, Mr. Chairman. I have one. It 10will take me a few minutes to outline it to you, but my 11clients, both IGUA and AMPCO, Mr. Fournier of IGUA and Mr. 12White of AMPCO, have concerns with what has happened 13procedurally since your ruling on Monday, and I'm 14instructed to record these concerns and register a 15reservation of rights with what, to my clients, appears to 16be emerging as a lack of objectivity with respect to the 17secondary market issue. 18 If you would bear with me a few moments, I'll just put 19the circumstances on the record that gives rise to these 20concerns. 21 In your ruling on Monday, as I understood it, BP was 22to attend and give its evidence publicly, except to the 23extent there would be rulings dealing with items that BP 24thought should be conducted in camera. 25 I didn't sense any restrictions on questions by those 26opposite in interest to BP, and you indicated that if 27fairness dictated there might be adjournments. 28 When I received the procedural notice yesterday, I had 2
  9. 9. 1 2 1received some e-mails -- I think Mr. Brown had indicated 2that as a result of his conversations with Ms. Sebalj, BP 3had questioned the ruling and that there were some efforts 4being made to respond to that. And I took it that the 5procedural notice issued yesterday was the result of those 6discussions between your counsel and BP's counsel. 7 That notice indicates now that there has been a 8variance, as I see it, to the ruling that you made on 9Monday. The current process now is not to deal with 10objections with respect to public hearing of certain 11responses to questions on an ad hoc basis; they're going to 12be dealt with at the front end. And now, as I read the 13notice, BP will have an option to refrain from 14participating in the process if they don't like the ruling 15that is made with respect to the in camera versus public 16process. And the notice appears to indicate that there 17will be constraints on questions by those opposite in 18interest to BP, confining them to the list of questions 19that the Board has circulated, and perhaps imposing time 20constraints on them. 21 So this appears, to my clients, to be a rather 22extraordinary procedural result, where the Panel, through 23its lawyer and a particular party that the Panel wishes to 24hear from have in effect negotiated terms for the party's 25appearance before you today. And in addition, that party 26appears to have an option to refuse to testify if they 27don't like the ruling that you plan to make at the outset 28of the process. 2
  10. 10. 1 3 1 Now, the other aspect of the matter that is of concern 2to my clients is the questions; the questions that have 3been framed, for example, with respect to the geographic 4market for storage. There's a paraphrase made in the first 5bullet of what some parties have said and what other 6parties have said, and then a series of questions follow. 7To my client, the questions appear to proceed on the basis 8of some assumptions or presumptions that, as far as my 9client is concerned, are not substantiated in the record. 10 First, there appears to be a presumption that a 11secondary market in “X” Ontario storage capacity and 12related transportation to Dawn actually exists, and we 13question whether there's evidence to support that premise. 14The questions assume that such a secondary market prevents 15the exercise or can prevent the exercise of market power by 16someone operating in the primary market at Dawn; namely, 17Union. And the third thing that these questions appear to 18assume is that BP is qualified to have some expert opinion 19on the depth and the liquidity of this secondary market if 20it exists. 21 The problem we have there is, is someone going to 22qualify the BP witnesses as having sufficient expertise to 23express these opinions? We doubt it. 24 So what we have, as far as my clients see it, in these 25questions, and in particular the question under secondary 26market view -- do you think there is a deep and liquid 27secondary market -- that strikes my clients as rather 28leading. And the document as a whole, in the context of 2
  11. 11. 1 4 1these circumstances that I describe, evidence a questioner 2in search of evidence to support a pre-conceived conclusion. 3 So we don't know where this is all going to lead us. 4But I am instructed to record that my client suggests that 5there is now information in the record to cause reasonable 6people to question the objectivity of the Panel with 7respect to matters pertaining to these secondary market 8issue, and we reserve our rights to rely on this state of 9affairs if necessary. 10 Thank you. 11 MR. KAISER: All right. Thank you. Any other 12comments? 13 MR. WARREN: Mr. Chairman, very briefly. I adopt the 14submissions that my friend Mr. Thompson has made, and I 15have a somewhat different submission on the questions 16themselves. 17 In my respectful submission, the questions, 18particularly in the first two subject headings, "Geographic 19Market” and “Secondary Market Overview," call for an 20opinion from an expert. And to the best of my knowledge, 21the representatives of BP do not have the necessary 22expertise. 23 I acknowledge, Mr. Chairman and members of the Panel, 24that a regulatory agency can call whatever evidence it 25feels is relevant, and I also acknowledge that, within the 26limits imposed by the law with respect to bias, that a 27Panel is free to ask, essentially, any questions it wants. 28 The submission I make is whether or not this Panel 2
  12. 12. 1 5 1should ask the questions. 2 If, for example, I were to put forward the BP 3witnesses and without qualifying them as experts ask those 4questions, there would be objections, legitimate 5objections, which I suspect would be sustained. 6 And the reason that they would be sustained is because 7they're not experts and because at this stage of the 8proceeding the answers to the questions may be deeply 9prejudicial, and in the circumstances, we have no 10opportunity to respond to them in the form of reply 11evidence. 12 Therefore, my submission, Mr. Chairman, is that I 13would invite the Board to exercise its discretion not to 14ask the questions in the first two headings and to confine 15the questions only to the experience of BP, what it does in 16the market. 17 Those are my submissions. Thank you. 18 MR. KAISER: Thank you. Any other submissions? 19 Yes, sir? Mr. Moran. 20 MR. MORAN: Thank you, Mr. Chair. 21 I simply wish to record some concern on the part of 22APPrO as well. 23 The first concern is with respect to how the evidence 24from this witness would unfold. It strikes me that it's 25possible that the witness or BP may be fine with some 26evidence, some questions, and may be not fine with other 27questions. And in effect, a witness who is in front of you 28is being given the option of choosing what evidence, 2
  13. 13. 1 6 1perhaps, it wishes to give and avoiding evidence it doesn't 2want to give, which strikes me as different from how it 3would normally go for most other witnesses. 4 You're on the stand; you have to speak to what you 5know, and you have to answer the questions whether you like 6giving the answer or not. So I have some concern about 7that part of the process. 8 Secondly, there are aspects to the proposed questions 9which, in my submission, do go beyond the experience, the 10factual experience, that BP would have in the marketplace, 11and in the absence of being qualified appropriately, it 12would be, in my submission, inappropriate to solicit those 13kind of answers from a witness who really should only be in 14a position to speak to his own experience in that 15marketplace and what actually happens with them in the 16market ass opposed to what happens generally or whether 17it's deep and liquid, or whether there's even a secondary 18market. 19 Those would be my submissions. 20 MR. KAISER: Thank you. Any other comments? 21 Mr. Brett, before we deal with the submissions, can 22you help us, and all of us, I guess -- the Board, of 23course, has provided you with these questions to give you 24some advance notice as to the matters that we want to 25examine on tonight. 26 My understanding through counsel, and not having heard 27from you, is that your client was prepared to answer these 28on the public record? Do I have that right? 2
  14. 14. 1 7 1 MR. BRETT: Mr. Chairman, I was going to say, and 2perhaps I should give at least part of what I was going to 3say, that it may be helpful with regard to this other 4issue. 5 In fairness, for the record purposes, at least, when 6we were apprised of Monday's ruling, BP made a 7determination that it was not prepared to come down on that 8basis. And I advised your counsel accordingly. 9 Yesterday, subsequently, during the day, I was in 10telephone contact with your counsel, who indicated that was 11there a way where this could happen and made a proposal to 12me. It was essentially the proposal that was subsequently 13issued to all parties. 14 I indicated that I would seek instructions on that. 15 Subsequently, about, probably, an hour and a half 16before all parties received them copies of the questions 17were forwarded to me. I can indicate I had been asking for 18questions since Wednesday, shortly after you extended the 19invitation, only because BP witnesses wanted to sort of 20prepare themselves for what parties or at least the Board 21would be interested in. 22 Having reviewed the questions briefly, I communicated 23to your counsel that BP was prepared to appear on the basis 24set out in Ms. Sebalj's e-mail; namely, submissions on what 25should be dealt with confidentially in camera, what should 26be public, and if we didn't like the ruling, in effect, BP 27was free to decline while sitting here the invitation to 28go, proceed, further. 2
  15. 15. 1 8 1 Since then BP has had an opportunity, and Mr. Acker in 2particular has had an opportunity to go over the questions 3in detail, formulate responses. 4 And what I was going to say to you at the opening of 5the proceedings today is that BP is prepared to respond to 6the questions in, substantially, the form set out in the 7ones provided, in public session. 8 The issue, therefore, wasn't the questions themselves; 9it was the follow-up, it was the desire of parties, 10including the Board, to drill further into certain details 11of some of the matters that would be testified to by Mr. 12Acker where matters of a -- deal-specific or strategic 13importance, commercially sensitive, potentially prejudicial 14might arise. And what I was going to propose in those 15circumstances is that, in effect, we create a parking lot 16for those issues and deal with them to the extent parties 17still felt they should be or wanted to deal with them in 18camera, at the conclusion of the public session. 19 And I can't anticipate specifically what they might 20be, and there might be none. There might be none. 21 Certainly in light of the objections, I mean, BP is 22prepared not -- I mean, we have come down here at the 23request of the Board prepared to respond to questions of 24the Board and parties, but we are also prepared to leave if 25that is your desire. 26 MR. KAISER: Thank you. Well, I think that will help. 27The submissions have been made that the questions 28themselves, the form of the questions, constitute some 2
  16. 16. 1 9 1apprehension of bias. The Board doesn't accept that 2proposition. 3 Nonetheless, that's not something that we are prepared 4to deal with at the moment. As I understand Mr. Thompson 5and Mr. Warren, they're putting us on notice, as it were, 6that these matters may be raised, and I guess as things 7unfold we'll delve further into that. 8 As to whether these witnesses are experts, they, of 9course, are appearing at the Board's invitation not as 10experts but as company representatives of a market 11participant. And as in all of these things the Board will 12have to give weight to their evidence on the basis of their 13qualifications, as no doubt Mr. Brett will outline for us 14shortly. 15 So, on that basis, Mr. Brett, we would propose to turn 16it over to you. 17 MR. BRETT: With regard to, in effect, my proposal, 18sir, I have given you my pitch, as was originally 19contemplated, in terms of proceeding in public session and 20deferring to an in-camera proceeding to the extent that 21subsequent follow-up questions require that. If that's 22satisfactory to you, then -- 23 MR. KAISER: Yes, I think that will allow everyone an 24opportunity to deal with that issue. And what I would 25suggest, Mr. Brett, rather than us -- I know this is a bit 26unusual, but we've laid out the areas and the questions, 27and perhaps it would be easiest if you just took the 28witnesses through those and gave what responses they feel 2
  17. 17. 1 10 1comfortable giving on the public record. And if that's all 2right with you, we'll have the witnesses sworn. 3 MR. BRETT: It will, sir. Perhaps I can introduce 4them to you. Sitting closest to you is Mr. Stephen Acker, 5who is the director of marketing and origination for an 6area including Eastern Canada. Beside him is Ms. Cheryl 7Worthy, who is director of regulatory affairs for BP 8Canada. 9 MR. KAISER: Thank you. 10 BP CANADA – PANEL 1: 11 Cheryl Worthy; Sworn. 12 Stephen Acker; Sworn. 13 EXAMINATION BY MR. BRETT: 14 MR. BRETT: Mr. Chairperson, I have distributed 15documents entitled "Ontario Energy Board docket number BP 16Canada Energy Company," background information for each of 17Mr. Acker and Ms. Worthy. I propose to very briefly lead 18them through that, given that no parties have seen it 19before now, just so that we can establish their positions 20and background. 21 MR. KAISER: Thank you. 22 MR. BRETT: Ms. Worthy, first of all, I understand 23that most recently -- that is to say, from 1996 to the 24present -- you have been employed by BP Canada and have and 25have had increasing responsibilities related to the 26management of all regulatory issues in respect of natural 27gas. 28 MS. WORTHY: Yes. 2
  18. 18. 1 11 1 MR. BRETT: Prior to that time, you held similar 2positions with other gas companies going back to 1975? 3 MS. WORTHY: That's correct. 4 MR. BRETT: And you have, in connection with that 5position, testified either on behalf of your then-employer 6or on behalf of associations with which you were aligned 7before the Ontario Energy Board, the National Energy Board, 8the Régie in Quebec and the Alberta Energy & Utilities 9Board? 10 MS. WORTHY: That's correct. 11 MR. BRETT: All right. Thank you. 12 Mr. Acker, you are currently the director of marketing 13and origination with respect to specific geographical 14responsibilities with respect to BP Canada's direct natural 15gas sales in Eastern Canada? 16 MR. ACKER: That's correct. 17 MR. BRETT: Mr. Acker, I did not tell you I was going 18to ask you this question, but that title is a little bit 19intriguing and might be a little bit different, given BP's 20own nomenclature, than some parties are used to. Can you 21just explain what the director of marketing and origination 22deals with? 23 MR. ACKER: I'm responsible for the commercial sales 24of natural gas for BP Canada into the areas of Manitoba, 25Ontario, Saskatchewan, and Quebec, and for a period of time 26when we were active in the Maritimes, also for gas produced 27off Sable Island. 28 MR. BRETT: And, Mr. Acker, it is the case, is it not, 2
  19. 19. 1 12 1that you have been involved in positions like the current 2one for in excess of two decades? 3 MR. ACKER: I've been employed by Dome Petroleum, its 4acquirer, Amoco Canada, and its subsequent acquirer, BP 5Canada, since 1981. I spent some time when with Dome 6Petroleum in the 1980s with natural gas, and then full time 7in natural gas since 9990. 8 MR. BRETT: Now, Mr. Acker, in connection or as a 9result of the position you have, I gather you have some 10familiarity with what is being referred to generally in 11these proceedings as the secondary market for natural gas? 12 MR. ACKER: I have some familiarity with the secondary 13market as it exists in Ontario. 14 MR. BRETT: And, Mr. Acker, flowing out of the Board's 15invitation for a witness or witnesses from BP to attend 16before the Board, and as you've just heard in an exchange 17among counsel, a series of questions were sent to all 18parties indicating that the Board and/or Board Staff would 19be interested in hearing BP's response to those questions. 20And at the Chair's invitation, rather than him or the Board 21or Board Counsel taking you through those questions, I 22will, if that is satisfactory. 23 Do you have those questions in front of you, sir? 24 MR. ACKER: I do. 25 MR. BRETT: All right. And I am not going to, 26Mr. Chairman, editorialize these questions at all. The 27question, as delivered to all parties, I will read into the 28record, and Mr. Acker can respond as he sees fit. 2
  20. 20. 1 13 1 MS. SEBALJ: If I could, Mr. Brett, just mark the two 2background information papers that you've given? 3 MR. BRETT: Certainly. 4 MS. SEBALJ: Mr. Acker's background information is 5J13.1 and Ms. Worthy's is J13.2. And, Mr. Chair, did you 6want the questions marked as well? 7 MR. KAISER: Yes, thank you. 8 MS. SEBALJ: That will be J13.3. 9 EXHIBIT NO. J13.1: BACKGROUND INFORMATION OF STEPHEN 10 ACKER 11 EXHIBIT NO. J13.2: BACKGROUND INFORMATION OF CHERYL 12 WORTHY 13 EXHIBIT NO. J13.3: QUESTIONS FOR BP 14 MR. BRETT: So, for the record, then, Mr. Acker, you 15have a copy of Exhibit J13.3, headed "Questions for BP" in 16front of you? 17 MR. ACKER: Yes, I do. 18 MR. BRETT: The first heading on there is “Geographic 19Market for Storage”, and the first bullet is this: 20 "In this hearing, a key issue has been 21 defining the geographic scope of the storage 22 market in which Union and Enbridge operate. 23 Some parties maintain that storage facilities 24 outside Ontario cannot be considered to be 25 part of the market if the pipeline capacity 26 connecting Ontario and the other storage pools 27 is fully or substantially reserved. Others 28 maintain that secondary markets in 2
  21. 21. 1 14 1 transmission capacity are deep and liquid, 2 and therefore allow market participants to 3 consider storage in Michigan and other U.S. 4 states to be substitutes for Ontario storage. 5 What is BP's experience?" 6 MR. ACKER: Mr. Chair, if I might, I will be referring 7to notes I wrote on the airplane this morning flying to 8Ontario, as I only received the questions late yesterday, 9so I ask your indulgence. 10 MR. KAISER: That's fine. 11 MR. ACKER: We at BP do have access to, or do hold, or 12have held Union storage. We at BP do have access or have 13held Michigan storage. We also have held or do hold 14transport capacity between the two. And as well, we have 15held and do hold transportation capacity to and from the 16two storage fields. 17 Marketers are generally attempting to generate revenue 18from their ownership or control of assets and do so by 19creating or selling services to the marketplace. 20 We at BP have been successful in both buying and 21selling these services, but we've always had to compete 22with others in the marketplace, also buying and selling 23these services. 24 I can't comment that we have never been frustrated by 25our ability or access to services or assets. At times we 26have been frustrated by what we see in the cost of those 27assets, but in a competitive marketplace, we believe that's 28the way it should operate. 2
  22. 22. 1 15 1 MR. BRETT: Thank you, Mr. Acker. The second bullet 2under that heading, I understand, Ms. Worthy, you will 3respond to, and the question is: 4 "Do you have any concerns arising from the 5 integrated operation of Union's storage and 6 transmission business?" 7 MS. WORTHY: We did have a question with respect to 8the actual intent of the question arising -- concerns 9arising from the integrated operation of Union's storage 10and transportation business. We weren't quite sure what 11the intent of the question was. But on the assumption that 12we're dealing with the issue of the fact that they are 13affiliates, and that as affiliates there could be issues 14that arise with respect to things like transfer of 15information or preferential treatment, any of those kinds 16of things, certainly whenever transmission and storage are 17held by the same party there can be concerns. 18 Those concerns, however, can be mitigated, and 19particularly through the appropriate codes of conduct, 20affiliate relationships, and to the extent necessary 21oversight and complaint mechanisms that would allow for any 22issues to be addressed on a timely basis. 23 So my answer to the question, do you have concerns 24arising? I think we always have concerns when elements of 25the market, in fact, are held by one party and operated in 26tandem when, in fact, the pieces have value separately 27-- and how they're allocated and what the fair and 28equitable treatment of those are for all users of the 2
  23. 23. 1 16 1system. I hope that's helpful. 2 MR. BRETT: Second heading is, "Secondary Market 3Overview." The first question, Mr. Acker, is: 4 "Do you think there is a deep and liquid 5 secondary market? What is the evidence of 6 this?" 7 MR. ACKER: I do want to state initially that both 8Mr. Thompson and Mr. Warren are correct. I am not offering 9myself as an expert. I am a commercial participant in the 10secondary marketplace and offer only personal opinions. 11 That being said, if you're asking me specifically 12about the Dawn hub, which I define as not only the Dawn 13storage field but areas around the Dawn storage field, 14including Michigan, my personal opinion is that the 15secondary market is deep and liquid. My personal evidence 16for this is that BP has been beaten on numerous occasions 17by other buyers of services. We've also been beaten by 18other sellers of services in a secondary market. 19 We believed our offer to sell or our offer to buy 20services and assets was competitive. But other options 21were apparently available to buyers and sellers. That 22being said, we have enjoyed some reasonable success in 23either buying or selling services and assets. And so, in 24my opinion, that is evidence of a competitive and 25relatively liquid secondary market. 26 MR. BRETT: Mr. Acker, if we could back up a bit, the 27second bullet under the second heading is: 28 "Describe the evolution of the secondary 2
  24. 24. 1 17 1 market since the early 1990s." 2 MR. ACKER: I don't offer myself as a historian 3either. However, the primary markets have fully bundled 4services -- as that market, fully bundled services, as 5provided by pipelines and LDCs have matured and unbundled, 6there was increasing access to physical assets that ended 7up in the hands of end-users and marketers. These entities 8strove to mitigate the cost of these assets by using access 9to the secondary markets in order to generate revenue 10opportunities to mitigate their costs. 11 The marketers per se went one step further, and 12developed services that they hopped that they could offer 13to the marketplace in order to generate a profit or a 14return on their personal investment. 15 To the extent that the market has found these services 16attractive and affordable, they were successful. 17 MR. BRETT: The third question under the second 18heading is the following, and I will read the entire 19question. It's, in effect, a number of subsections, though 20the question is the following: 21 "What is your assessment of each of the 22 following on the depth and liquidity of the 23 secondary market: NYMEX futures contract and 24 other financial instruments; Alliance-Vector 25 Pipeline and the Dawn hub; collapse of Enron; 26 entrance of banks and other financial 27 institutions?" 28 MR. ACKER: When we're speaking about the NYMEX 2
  25. 25. 1 18 1natural gas futures contract, it is my understanding that 2this is the most liquid and highly traded commodities 3contract on the NYMEX. Hence, by its very definition, it 4is extremely liquid. 5 Financial instruments are also very liquid, but they 6become less liquid as they become either longer dated or 7more complex. A simple financial instrument might be 8swapping an index sale for one year to a fixed price for 9one year. That is a very simple financial instrument, and 10available from many parties. 11 Swapping an index price to a fixed price for 10 or 20 12years is a product that is offered by far less counter- 13parties for a variety of reasons, and, hence, is defined as 14being far less liquid. 15 When we get into very exotic derivative products, of 16course, there are even fewer people that can offer those, 17so that by definition is less liquid. 18 I personally have very little experience on the 19Alliance pipeline, but I am aware that there is vigorous 20competition among many marketers to secure management 21contracts on the Vector Pipeline corridor; that is, 22marketers are looking to acquire the right to manage 23services that are held by primary shippers, and for that 24right have been known to offer compensation in return for 25taking the risk to either make or lose money for managing 26that service. 27 Obviously they would only make that offer if they 28thought they could generate a profit. 2
  26. 26. 1 19 1 The Dawn hub, in my mind, is also very liquid, 2although some critics of the Dawn hub say it will not truly 3be deemed to be a world-class liquid hub until it has a 4more reliable first of the month index, and that index is 5evolving as trading volumes increase at the Dawn hub. 6 That being said, in my opinion, -- well, I should say 7in my experience, BP has never been frustrated in either 8being able to sell gas or to buy gas at the Dawn hub for 9any reasonable amount of volume, for any reasonable amount 10of time. And I would suggest that reasonableness is in the 11eye of the beholder. 12 Now, the Enron collapse, of course, obviously served 13to decrease liquidity in the financial markets and the 14physical marketplace for natural gas in North America, as 15many players were either forced financially to exit the 16merchant business or chose to decrease voluntarily their 17participation in that marketplace. 18 The result of that lack of liquidity, of course, 19created increased gas price volatility, which then 20attracted participants back into the marketplace, as 21volatility is usually presumed to be a trader's friend. 22 Of course, as more market players entered into the 23business again, that volatility was somewhat smoothed out, 24as evidenced now by increasingly tight bid/offer spreads at 25places like the Dawn hub. 26 The opportunity to generate profit, of course, 27eventually enticed financial institutions, and specifically 28banks, into the natural gas business. It is my 2
  27. 27. 1 20 1understanding that one can now buy natural gas from most if 2not all of the Canadian chartered banks, at places like 3Dawn or AECO in Alberta. 4 MR. BRETT: Thank you, Mr. Acker. 5 The third subject matter heading is "Secondary Market: 6Specific Services and Pricing." And the first question is 7the following: 8 "What sort of products do you offer” - you 9 being BP – “on the secondary market?" 10 MR. ACKER: The secondary market products that we 11offer our customers include commodity sales, which is just 12the straight sale of natural gas. And we sell that in a 13base load, a spot or a peaking fashion. 14 We also offer financial services, which are usually 15defined as price-shaping tools. People willing to change 16their index exposure for fixed price exposure or reverse 17are willing to cap the price of natural gas they might pay, 18or having a call on future price ceilings in order to 19protect their budgets. 20 We also offer transportation management. 21Transportation services, which can be defined as swaps or 22exchanges between two points. We also offer what we call 23"park and loans," which is really short-term lending or 24borrowing of gas in order to balance daily accounts with 25the utilities or the pipelines. 26 We also offer what we call delivery and redelivery 27services, which are both long and short-term. 28 That generally is what we and other market 2
  28. 28. 1 21 1participants offer. 2 MR. BRETT: The second question under this heading is: 3 "Can you provide us with some examples of 4 transactions executed by BP Canada involving 5 storage at Dawn where the transaction could 6 have been done using facilities other than 7 Dawn's storage? How does BP evaluate the 8 economics and risks of various alternatives to 9 using Dawn storage?" 10 MR. ACKER: I'd actually like to use a real-life 11example. However, I'd like to refrain from naming the 12counter-party with which BP conducted this transaction. So 13I'll refer to that party as party A, if I may. 14 So party A was a long-time holder of a firm storage 15contract with Union Gas. Party A is an exfranchise entity, 16that meaning it is not an end-user within the franchise 17area of Union Gas. 18 Through other channels, BP became aware of a pending 19contract renewal option that this party A held with Union 20Gas. So BP approached party A and offered a 21delivery/redelivery service at Dawn that would for all 22intents and purposes be similar to directly holding a Dawn 23storage contract. 24 BP and party A negotiated a price for this service, 25and subsequently entered into a formal contractual 26agreement. Subsequently party A did not renew its Dawn 27storage contract with Union Gas. 28 So, for this service, BP took delivery from party A in 2
  29. 29. 1 22 1the summer of an amount of natural gas, prorated evenly 2over the number of days in the summer season, and 3redelivered that same volume, prorated over the winter 4days, November 1st through March 31st of the following year. 5 This delivery and redelivery all occurred at Dawn. 6 BP used its own suite of assets, at that time, which 7consisted of its access to the financial, the physical, 8natural gas markets; its suite of pipe capacity into and 9out of the Dawn area; and exfranchise storage accounts we 10held in other jurisdictions. It's probably of particular 11interest to the Board to know that we did not hold and did 12not use any access to Union's storage in order to offer 13this service. 14 This arrangement continues today, and, in fact, the 15two parties are now entering into preliminary negotiations 16to extend this deal for another period of time, subject to 17agreement on the price for that service. 18 The price, no doubt, will be renegotiated at least in 19part on the alternative of costs that party A has to the 20price that BP was hoping to acquire or negotiate and 21conclude this deal on. 22 It's up to the customer to evaluate the economics and 23risks of this service in light of holding a physical 24storage contract with Union Gas. 25 MR. BRETT: The next question in this section is: 26 "What types of primary services do you use to 27 create the secondary market products? For 28 example, how much storage do you hold in 2
  30. 30. 1 23 1 Michigan?" 2 MR. ACKER: Specific to Michigan, I know that our 3storage accounts are actually on the record, and I do not 4personally know that, but I believe that you have that 5information, Mr. Brett, and can refer to it. 6 MR. BRETT: Mr. Chairman, for the record, I believe 7the Union Gas Undertaking K5.2 lists the holders of 8Michigan storage positions, which, among other things, lays 9out BP Canada's position. 10 MR. KAISER: And is that accurate, from BP's point of 11view? 12 MR. ACKER: To the best of my knowledge, Mr. Chair, it 13is accurate on the date it was reported. 14 MR. KAISER: Thank you. 15 MR. ACKER: So BP does hold transportation and storage 16accounts, both outright and in its own name, and under 17management for third parties, in both Michigan and Ontario. 18 This suite of assets, as well as our active buying and 19selling of natural gas at various points along the Vector, 20Great Lakes, ANR, Union, and TransCanada systems, create 21opportunities to provide services in the secondary markets, 22and we pursue those opportunities aggressively. 23 MR. BRETT: Mr. Acker, can you describe the 24relationship between the prices of primary products and the 25prices of secondary market products? 26 MR. ACKER: I'm not sure I completely understood the 27question, but in my mind, in the primary market the prices 28reflect the actual costs a shipper or owner must pay to 2
  31. 31. 1 24 1acquire either the transportation or the service from 2parties such as Union or TransCanada or Vector or Enbridge, 3that being the tariffed rate for those services, subject 4only to some potential negotiation for rates with U.S. 5pipelines. 6 In the secondary market, of course, all prices are 7negotiable and may at one point in time under-recover, 8fully recover, or quite often over-recover the full cost of 9that asset or service, subject, again, only to regulatory 10constraints. For example, in the United States, one is not 11able to release or acquire pipeline capacity from a 12principal holder at rates greater than the tariffed maxed 13rate. That is not true in Canada. 14 MR. BRETT: And lastly, under the third section, 15Mr. Acker: 16 “From BP's perspective as a marketer, does 17 the mixed nature of storage pricing in the 18 Midwest, Ontario (some at market, some at 19 cost), significantly affect the nature or cost 20 of transactions that BP wants to execute?" 21 MR. ACKER: As a marketer, I would dearly love to have 22access to cost-based storage but I do not. So I have 23access to market-based storage, whether it be in the United 24States or Canada, and that access is on a competitive 25basis, and of course the price that I end up -- or BP ends 26up paying for that does, in fact, impact the price at which 27we try to remarket that asset and/or associated services to 28third parties in the secondary market. 2
  32. 32. 1 25 1 MR. BRETT: Mr. Acker, the last subject heading is 2“Power Generation Services.” 3 First question: 4 "Is there a difference in your ability to 5 offer intra-day services versus day-ahead or 6 longer-term services?" 7 MR. ACKER: There most definitely is. We can offer 8firm day-ahead and firm longer-term services, but to date 9we are unable to provide firm intra-day service. The 10number of NOM windows is currently restricted to four, and 11other than the first NOM windows the subsequent three 12windows are on a reasonable-efforts basis. So it is very 13fair to say that we are not yet in any position to offer 14firm intra-day services to those market participants 15looking for them. 16 MR. BRETT: And the last question on the sheet, 17Mr. Acker. 18 "Does BP have experience serving dispatchable 19 gas-fired generators? Are the storage 20 services and nomination windows currently 21 available in the market sufficient to permit 22 generators or marketers on their behalf to 23 manage their gas supply without excessive 24 risk?" 25 MR. ACKER: I'm going to restrict my comments only to 26Ontario because I'm unfamiliar with BP's power generation 27services business in the United States. 28 But BP Canada does not have any experience servicing 2
  33. 33. 1 26 1dispatchable gas-fired generators in the Province of 2Ontario. We have been approached by prospective power 3generators in Ontario to provide services in a fashion that 4they deem necessary in order to run their facilities, and 5we have responded to those approaches by stating at this 6point in time BP is unable to provide either high- 7deliverability storage or multiple NOM windows outside 8those that exist today. 9 It's our intention as these services are created and 10eventually made available to the marketplace, hopefully on 11a non- discriminatory basis, that BP will look at acquiring 12and possibly repackaging these services in order to then 13offer them to the secondary marketplace. 14 MR. BRETT: Thank you, Mr. Acker, Mr. Chairman. 15 MR. KAISER: Thank you, Mr. Brett. Thank you, 16Mr. Acker, Ms. Worthy. Any questions? Mr. Thompson? 17 MR. THOMPSON: Well, under the procedural schedule, I 18understand there's questions from the Panel to follow now, 19and then there's a list of parties. I don't know if I'm 20the first up but... 21 MR. KAISER: All right. 22 [The Board confers] 23 QUESTIONS FROM THE BOARD: 24 MR. RUPERT: I guess this would be for you, Mr. Acker. 25I just wondered if you could provide some further detail 26around, I guess it was in response to question 5. You 27talked about the Vector Pipeline and the market in that. 28 I just want to get a sense of what the secondary 2
  34. 34. 1 27 1market and pipeline capacity on a line like Vector 2involves. You have the holders of the space which have 3their contracts or service with the pipeline. 4 In this secondary market for that, how does that 5actually operate? It's not a bulletin board or anything 6like that, I assume, in the pipeline space? Or how to do 7you actually as a marketer procure space from a primary 8holder on that line? 9 MR. ACKER: Well, there are a number of answers to 10that. First off, I'll preface my comments by, BP currently 11is a holder of firm service on the Vector Pipeline. We 12acquired that in an open season from Vector Pipeline, and 13we've also participated in a subsequent open season on 14Vector Pipeline, and will increase our position on Vector. 15 That is what I define as the primary markets. We will 16be preparing a negotiated rate subject to FERC tariff 17provisions to Vector Pipeline. We will then use that 18capacity to service either markets that we contract for 19directly -- i.e., end-users, LDCs, industrial users == or 20we will use that asset and associated assets to attempt to 21trade natural gas for a profit. 22 The secondary market, of course, are those people 23looking to acquire services from us predicated on us having 24acquired the Vector capacity in the primary market. 25 We also participate in the secondary market by looking 26to manage capacity for third parties, subject to FERC 27compliance issues, or take release of excess capacity from 28primary holders. And in the United States, that is done 2
  35. 35. 1 28 1under a FERC-mandated procedure that does require primary 2holders of capacity on U.S. interstate pipelines to post 3them on a bulletin board to make them available for 4bidding, unless two parties have agreed to pay the max rate 5in a pre-determined negotiation, and then that deal is 6posted on a bulletin board for information purposes only, 7to show that the releasing party and the acquiring party 8have agreed to a deal at max rates. 9 To my understanding, the intent of posting pipe for 10release in the marketplace is to allow all participants to 11participate in bidding for that capacity, so that no one 12party is deemed to be in a preferential position. 13 Of course, that is capped by, nobody is able to pay 14more than max rate for release capacity on U.S. interstate 15pipelines. 16 Interestingly enough, that is not the situation in 17Canada, where the secondary market is completely 18unregulated, and any two parties are free to negotiate any 19deal whatsoever, both for the pipe at below -- at or, in 20fact, greater than the tariffed rate. 21 MR. RUPERT: Just a quick follow-up on that. I 22believe we've had some evidence at this hearing from some 23experts about the pipeline capacity releases and the 24pricing and the FERC ceilings along the lines that that may 25be in fact the limit on the pricing for the initial 26release, but if someone takes that and bundles that product 27with something else, then, obviously, there seems to be no 28ongoing obligation to ensure that you always pass through 2
  36. 36. 1 29 1the maximum FERC tariff in whatever the bundled product is; 2i.e., the secondary market would work to in effect make the 3storage component of any bundled products the market price 4as opposed to the tariffed price, if you understand my 5question. 6 MR. ACKER: I do understand it, but I want to make a 7point that one must be completely cognizant and aware and 8adhere to FERC compliance rules, which are extremely 9onerous when compared to the secondary Market Rules in 10Canada. And I am restricting my comments in this forum to 11providing delivery/redelivery services at Dawn, which BP 12may or may not be using exfranchise hard assets such as 13Vector Pipeline, such as Washington 10 storage. 14 I'm not saying that we have to have access to 15Washington 10 storage, for example, in order to provide a 16Dawn delivery/redelivery service, but we may. 17 We also can access pipeline capacity into and out of 18the Dawn area, and we can also use the deep and liquid 19physical gas market at Dawn in order to buy and sell gas to 20meet our obligations. 21 [The Board confers] 22 MR. ACKER: I guess I would like to make one further 23comment, Mr. Rupert. 24 The FERC is extremely diligent in enforcing its rules 25that one does not tie gas sales to pipe capacity release. 26They view that extremely poorly. And, in fact, certain 27parties have been subject to criminal prosecution when 28found to have entered into deals where they have tied the 2
  37. 37. 1 30 1purchase or sale of gas to the lease of acquiring of 2pipeline capacity. 3 MS. CHAPLIN: Thanks. Sorry, I had a follow-on 4question. 5 One of the things you mentioned in your response to 6Mr. Rupert, and also earlier, was a reference to in 7addition to holding capacity on Vector you can also manage 8capacity for third parties. 9 Could you explain that a little bit? 10 MR. ACKER: It's probably an easier example first if 11we look at the Canadian situation, and TransCanada's a very 12nice generic example. 13 Anyone who holds TransCanada capacity is free to 14assign or release or enter into an agency agreement with 15any third party to manage that capacity. So a generic 16example would be if an industrial end-user is a capacity 17holder on TransCanada. If this capacity goes from Empress 18to Dawn, for example, they will be purchasing gas at 19Empress into that capacity. They will be taking gas off of 20that pipe at Dawn. 21 They'll be paying a demand charge to TransCanada, 22whether they use that capacity to its fullest extent, each 23and every day of the term of the contract. 24 Marketers such as BP and competitors to BP, when they 25look at the opportunities along the TransCanada corridor, 26and when they look at that pipeline capacity in a bigger 27picture in association with other capacity and customers 28they have along that line, believe on occasions that they 2
  38. 38. 1 31 1can extract value from managing that capacity that the 2industrial end-user cannot. 3 So generically, they would approach that capacity- 4holder and ask if the owner of the capacity would be 5interested in a situation where they would release the 6capacity to BP; BP would don't pick up their third-party 7acquired gas at Empress in this example, continue to 8redeliver it on a base load basis to the end-user at Dawn, 9but may or may not use that particular capacity at any 10point in time, but would be looking for opportunities to 11exploit or earn incremental revenue by moving that capacity 12around, while at all times firmly honouring the obligation 13to deliver gas at Dawn. 14 Generically speaking, marketers would offer some sort 15of compensation for that opportunity in Canada, whether it 16be a profit-sharing or a straight-out fee; it's left to the 17parties to negotiate. 18 That situation in the U.S. is much more difficult, 19because of FERC compliance issues. Primarily, the one that 20shipper must have title. So you cannot take and nominate 21pipe that has gas in it that you do not own. Those 22obligations do not exist in Canada. 23 So, while, for example, XY company may own TransCanada 24company and have bought gas from anybody, they are free to 25assign that pipe to a third party who will continue to pick 26up the gas from the original supplier and deliver it to the 27end-user, but, in fact, never take title to the gas. That 28kind of situation is not permitted in the United States. 2
  39. 39. 1 32 1 So you tend not to get as many asset management 2opportunities but more what we would call agency 3opportunities. And it's an ongoing challenge to understand 4and remain FERC-compliant. 5 So that kind of activity is not as prevalent in the 6United States as it is in Canada. 7 MS. CHAPLIN: And you've described that that can take 8place on TCPL. Can it also be done for parties that hold 9capacity on Union? 10 MR. ACKER: We have not entered into any distribution 11or transportation capacity management arrangements for end- 12users behind the Union City gate. That being said, the S&T 13capacity, for example, the M12 capacity between Dawn and 14Parkway, very much, that can be handled name exactly in a 15fashion as I have described with TransCanada. And again, I 16should add that that is not a regulated activity. The 17price for that is freely negotiated between buyer and 18seller and is not required by any regulatory body to be 19reported in the public domain. 20 MS. CHAPLIN: Okay. When you were answering the 21questions regarding services to power generators, and you 22indicated that BP's not in a position to offer firm intra- 23day services given the current nomination windows, do you 24expect that that will change, given the settlement proposal 25that we have before us regarding the increasing the 26nomination windows? 27 MR. ACKER: It's my understanding that the settlement 28proposal, if it results in services that are attractive and 2
  40. 40. 1 33 1meet the needs of the power generators as they've been 2described, that BP would then contemplate and evaluate 3entering into that market, either looking to acquire some 4of those services itself in order to repackage and rebundle 5and offer a service to the power generators, or possibly 6approach power generators that have acquired those services 7themselves to see if a negotiation can be concluded that 8would result in those services being managed by BP on 9behalf of the power generator. 10 MS. CHAPLIN: In talking about the Dawn hub, you 11commented that BP had never been frustrated with respect to 12buying or selling reasonable quantities of gas. What sort 13of information can you give us regarding how frequently BP 14trades at Dawn and what sort of volumes are involved? 15 MR. ACKER: I can certainly comment to the frequency. 16 We have a number of traders dedicated to trading the 17Dawn hub each and every day of the week, both bilaterally, 18and also on the NGX platform, which is a computer-based 19commodity exchange. 20 As to the volume, I am not able to give you an exact 21number, but I am comfortable in saying that on any 22particular day there are multiples of the actual physical 23volume that is changing hands, traded at Dawn. And what I 24mean by that, my numbers are very general, but if there's 25500 million a day of actual molecules passing through Dawn, 26there may be 2.5 Bcf a day of volume actually traded. A 27particular molecule may well be traded several times at 28Dawn. However, that molecule can only be burnt once by 2
  41. 41. 1 34 1some end-user. 2 MS. CHAPLIN: Thank you. And coming on to the example 3that you described with entity A, where you entered into a 4delivery/redelivery service, my understanding of your 5description of that -- well, that BP took even -- took even 6summer deliveries, and then provided an even redelivery 7over winter. And you made the comment that either 8coincidentally or whatever the same entity did not enter 9into a Union storage contract. 10 I'm just wondering if you could discuss the nature of 11that delivery/redelivery service, which sounds like it's 12sort of a very flat -- I don't know if flat's the right 13term, but an even profile, versus whether or not a more 14flexible profile might be something that a customer would 15require. Would that be a similar type of service that BP 16would offer, I guess is what I'm asking. 17 MR. ACKER: BP can offer a service that is far less 18than vanilla-like than that service. And I guess the 19initial step in that process would be for the markets to 20describe what they want. And so I guess what we've 21described with party A as the most generic of 22delivery/redelivery services -- we are delivered the same 23amount of gas each and every day in the summer, and we 24redeliver the same volume spread over a shorter number of 25days on an equal basis every day. But party A is free to 26come to the market, and BP is able to provide one-day 27notice. We can take your gas on one day, or we can deliver 28your gas on one day. 2
  42. 42. 1 35 1 If you would like to create a redelivery profile that 2is not flat or uniform, that can be done. It's safe to say 3that the cost of that will probably be different than the 4cost of delivering the same amount of gas each and every 5day. 6 MS. CHAPLIN: And would it be your view that BP's in a 7position to offer the same amount of flexibility or the 8same variety of services or delivery patterns or usage 9patterns that would be afforded by a customer contracting 10directly with Union storage? 11 MR. ACKER: To the best of my knowledge, when you 12contract with Union for storage, you've contracted for a 13particular delivery profile. Once you've entered into 14that, it's my understanding that is the profile that you've 15contracted for. You, of course, are free to use or not use 16that service on any particular day, subject to, I believe, 17Union's obligation for you to either fill up or empty that 18storage over a particular period of time. 19 So it's probably safe to assume that a marketer 20providing these secondary market services has some greater 21degree of flexibility to offer services that are not 22vanilla-like. 23 MS. CHAPLIN: Okay. Thank you. That's it for me for 24now. 25 MR. RUPERT: Unless I was not listening, I'm not sure 26that Mr. Brett asked you the question which is the last 27bullet under the secondary market. Am I wrong about that? 28 This was the one about the mixed nature of the storage 2
  43. 43. 1 36 1pricing in the Midwest/Ontario. And by that, the question 2was intending to mean that in Michigan or New York or Ohio, 3whatever you want to define as the Midwest, some of the 4storage pools have cost-based rates for tariffs, other ones 5have market-based rate authority. 6 And the question really gets to the issue of, in that 7kind of a market sector where some of the available storage 8pools have these tariffs and some of them charge market- 9based rates, how does that affect the nature and cost of 10things you can do in this sort of mixed hybrid market of 11storage? 12 MR. ACKER: I don't believe I'm qualified to speak to 13storage fields that go further into the Midwest than 14Vector. But with respect to the Vector field, once we've 15negotiated a rate with Vector on the pipeline or Washington 1610 DTE for the Washington 10 storage field, we are then on 17the hook for whatever that cost is. Whether that cost was 18market-based or cost-based, I guess, is almost irrelevant 19to the risk we've taken on to try to repackage that service 20and sell it to a third party, hopefully for a profit. 21 To the extent that cost-based is below market-based, 22we, of course, would prefer to have access to the lower 23cost. But we are quite comfortable participating in the 24competitive marketplace in order to acquire access to those 25types of services. 26 MR. KAISER: Mr. Acker, you've indicated that you 27hold, certainly from time to time, storage in both Michigan 28and Dawn. In providing the services that you've described 2
  44. 44. 1 37 1at Dawn, how important is the Michigan storage? 2 MR. ACKER: I think, Mr. Chair, that changes at any 3point in time. Obviously, it's nice to have physical 4storage at the point that you're providing services, but it 5is not necessary. So the decisions that we make about 6whether to hold Union storage at Dawn or Enbridge storage 7at Dawn or Washington 10 storage in Michigan are always 8influenced by the least-cost alternative we face. 9 We don't think we are prejudiced in any way in 10offering delivery/redelivery services by virtue of which 11field we actually may or may not contract for. But 12certainly it's not our intention to offer services that we 13don't think we have the physical ability to honour, whether 14that be transportation and/or delivery/redelivery services. 15 MR. KAISER: If you didn't have access to Michigan 16storage, would your business be substantially impacted? 17 MR. ACKER: We would seek other alternatives. There 18are other storage fields in the area, and as I'd mentioned, 19I think, earlier, to provide storage-like services or 20delivery/redelivery services at Dawn particularly one does 21not have to hold either infranchise or exfranchise storage. 22One can use both the physical and financial markets and the 23suite of transportation assets one holds into and out of 24the area to effect the same kind of service. 25 So it is safe to say that it is not Union storage, but 26it can provide services that are very similar to Union 27storage. The cost and risk associated with those services 28are left to the purchaser to decide if the cost is 2
  45. 45. 1 38 1appropriate and if the risk is acceptable. 2 MR. KAISER: And in your experience, from the 3perspective of your business, have you seen any benefit to 4you of the FERC policies in the U.S. to create an incentive 5for storage to be offered at market-based rates? Has that 6in any fashion impacted your business? 7 MS. WORTHY: I assume you're talking about Order 678? 8 MR. KAISER: Yes. 9 MS. WORTHY: I think the order is just too new to 10determine whether or not what the exact impact of that is 11going to be. I think, knowing the FERC process, there's 12probably more to come. 13 MR. KAISER: And what's been the experience, if any, 14with respect to the Michigan Commission and their -- we've 15heard some evidence, not a great deal, about there being 16both market-based rates and cost-based rates in Michigan. 17Has there been any policy development there in that regard 18that's impacted your business? 19 MS. WORTHY: I'm sorry, we're not -- we actually 20didn't look at that before we came. 21 MR. KAISER: All right. 22 MS. WORTHY: I apologize. 23 MR. KAISER: And, Mr. Acker, looking at what the daily 24trading is or even the annual trading at Dawn, how 25important are marketers in terms of volume? 26 MR. ACKER: It would be my position, Mr. Chair, that a 27substantially large percentage of volume that is reported 28is, in fact, marketers moving gas around that -- obviously, 2
  46. 46. 1 39 1at Dawn there is very little native equity production in 2Ontario so the majority of gas that is traded at Dawn or 3bought and sold at Dawn has been brought in from somewhere 4else. So it's safe to assume that the majority of that gas 5has been brought in by marketers or producer/marketers who 6have actually taken out transportation in order to get gas 7to a liquid point such as Dawn. 8 MR. KAISER: And how big a player would you be in 9that? I mean, what -- are you a major player in that 10market? 11 MR. ACKER: At the Dawn hub? 12 MR. KAISER: Yes. 13 MR. ACKER: We consider ourselves a major player at 14the Dawn hub in the daily business, I think. I am more 15involved in what we call the origination or marketing 16business, where we are selling to actual end-users, be they 17LDCs or industrial end-users. 18 The LDCs both infranchise, being Union and Enbridge, 19exfranchise, being GMI and the U.S. north LDCs that have 20come into Canada recently to purchase gas at Dawn. 21 So we are very active in that marketplace, but because 22it is a competitive marketplace, we certainly face stiff 23competition from our competitors to chase that business. 24 So, while we are big, we are not dominant by any means. 25 MR. KAISER: And who would be the two or three largest 26competitors that you would face as marketers? I don't mean 27the LDCs. Who do you regard as your top competitors? 28 MR. ACKER: I mean, we see the likes of Corals and 2
  47. 47. 1 40 1Nexens and Seminoles and ConocoPhilips as the kind of 2people that we compete with on an origination or marketing 3basis, and then those same players plus the banks and 4several other second-tier players when we get into the 5trading business. 6 Dawn being a very liquid and deep hub, it attracts an 7awful lot of players who enter that marketplace for the 8sole purpose of trading natural gas, as opposed to trying 9to serve an end-use market such as an LDC or an industrial 10end-user. 11 MR. KAISER: Thank you. 12 MR. RUPERT: One other question, Mr. Acker. If I'm an 13entity that currently has storage at Dawn, and I have these 14seasonal load balancing -- you know, seasonal storage 15requirements, besides contracting with a firm like BP 16Canada or other competitors you've just listed, what does 17your experience tell you about the extent of that kind of 18an entity being able to do it themselves, if I could put it 19that way, rather than contracting with you to decide today 20to go out and get some storage space in Michigan, say, to 21get some pipeline space to bring the gas to Ontario? 22 Do you have any sense from your experience of the 23market as to whether that type of transaction -- so it's 24not a marketer now, it's an actual industrial user or 25someone, an LDC, someone that has seasonal storage needs –- 26being able to do this themselves? Or is this a case where, 27from your experience, people have to come to firms like 28yours. 2
  48. 48. 1 41 1 MR. ACKER: I'm going to make the assumption, Mr. 2Rupert, that you're referring to, for example, industrial 3end-users that may reside within either the Union or the 4Enbridge franchise? 5 MR. RUPERT: Well, not so much them as exfranchise 6consumers who currently may have Union storage, because, of 7course, we get into this whole bundling question right now 8here, which is -- I don't want to have that issue -- 9 MR. ACKER: Certainly. 10 MR. RUPERT: -- muddy up the waters with your answer, 11but someone who currently may have access to the storage at 12Dawn who decides: I'm going to check around to see if 13there's alternatives to doing that. 14 MR. ACKER: Well, I'm very familiar with three 15situations that may be of interest to you. One -- and 16again, I'm not going to, except where it's already on the 17public record, use particular company names, but there are 18several exfranchise LDCs who hold Union storage accounts. 19I think that's well known. 20 The example that I gave of party A is an exfranchise 21entity who did hold a storage account and chose, for 22whatever reasons, to let that contract expire and purchase 23a delivery/redelivery service at the same point. And I 24know that Union Gas has put on the record at these 25proceedings companies such as Southern Connecticut, 26Connecticut Natural Gas, Bay State, and Yankee Gas, all 27exfranchise U.S. Northeast utilities who have contracted 28with Union for ten years of transportation take-away from 2
  49. 49. 1 42 1Dawn to Parkway way, and then subsequently contracted with 2TransCanada for ten years of service from Parkway to 3Waddington, which is the interconnect with Iroquois 4Pipeline, and then gone to the market to buy gas. And they 5had the option of buying gas at Dawn. They had the option 6of buying gas further upstream. They had the option of 7purchasing storage from Union at Dawn. They had the option 8of purchasing storage further upstream in Michigan. 9 Those particular companies chose to bypass Dawn as a 10storage location and contracted with Vector, and did 11subsequently contract with Washington 10 to acquire storage 12services and transportation away from that facility, and 13then through the Dawn hub. 14 So those individuals, depending on their Vector 15capacity, will either buy gas into their storage facility, 16delivered into Michigan at Washington 10, or those that 17hold capacity back to Chicago will then buy gas in Chicago 18for injection in the summer to their Washington 10 19facility, and then in the winter will remove that gas and 20redeliver it to themselves at Dawn, and then subsequently 21take it away to their downstream pipelines. 22 As they own that capacity, and if they choose to 23manage it themselves, they have the opportunity of 24optimizing that path, and by that I mean they may well sell 25their Michigan gas in Michigan in the winter, and choose to 26buy gas at Dawn to fill their downstream obligations if the 27costs are outweighed by the incremental revenue. 28 And in that example, they would save the cost on 2
  50. 50. 1 43 1Vector from -- moving gas from Washington 10 to Dawn. They 2would still be subject to their demand charges, but their 3variable or incremental costs, being fuel in this example, 4would be saved. 5 So if they can sell gas in Michigan, buy gas at Dawn, 6and save 5 cents on the fuel, then they are better off to 7do that. 8 But getting back to your question about Union's 9storage, those particular well-seasoned storage purchasers, 10being exfranchise LDCs, chose not to buy Union storage but 11chose to buy storage further upstream. That being said, 12some northeast LDCs have chosen to buy Union storage, and 13some have chosen to let theirs expire. 14 So there's a variety of experience or examples in the 15Dawn area. 16 MR. KAISER: Thank you. 17 Mr. Leslie, do you have any questions? 18 MR. LESLIE: I do, sir. Thank you. 19 CROSS-EXAMINATION BY MR. LESLIE: 20 MR. LESLIE: Mr. Acker, I thought it was -- the 21light's on. Thanks. 22 Mr. Acker, Ms. Worthy, my name is Glenn Leslie, and 23I'm counsel to Union Gas. I have a few questions. 24 The genesis of your appearance here was a phone call 25from a consultant who appeared for one of the parties, 26named Bruce McConihe, and I just wondered whether either of 27you were parties to that telephone conversation. 28 MR. ACKER: Yes, Mr. Leslie, both of us were parties 2
  51. 51. 1 44 1to that conversation. 2 MR. LESLIE: Have you seen the note that Ms. McConihe 3made of that conversation? 4 [Witness panel confers] 5 MS. WORTHY: I saw it when I was in the hearing room 6the other day. I don't have a copy of it right now. 7 MR. LESLIE: No, that's fine. I principally wanted to 8follow up on some of the questions about services to power 9generators. 10 Presently, would BP be in a position to provide a 11power generator with a service that involved delivery of up 12to 20,000 gJs of gas at Dawn with four nomination windows 13on the NAESB nomination standard; on a daily basis, that is? 14 MR. ACKER: Are you asking whether or not that 15nomination would change within the day or whether on a day- 16ahead basis are we able to provide 20,000 a day delivered 17at Dawn. 18 MR. LESLIE: On a day-ahead basis. 19 MR. ACKER: Yes, we can -- 20 MR. LESLIE: As matters presently stand. 21 MR. ACKER: Yes, we can. 22 MR. LESLIE: Yeah. And there has been some discussion 23of intra-day services, and you've made it clear that you 24are not presently in a position to provide those. 25 MR. ACKER: On a firm basis, I would add. We can 26provide them on a reasonable-efforts basis, but it is not 27on a firm basis. 28 MR. LESLIE: All right. Well, we'll note that. 2
  52. 52. 1 45 1 Enbridge, Union, and others, and I'm told Bluewater, 2are developing, as you know, new services, for higher 3deliverability and more nomination windows. 4 When those products become available on the market, as 5I understand your evidence, you would look at them with a 6view to potentially buying such products yourselves, 7repackaging them and selling them if you could make a 8profit? 9 MR. ACKER: That is true. 10 MR. LESLIE: And the question of cost-of-service 11versus market rates: I take it that if the people who were 12using those services, the power generators, were acquiring 13them at cost-of-service rates, and your company, BP, did 14not have access to them at cost-of-service rates, that 15would probably make it more difficult for you to do it at a 16profit? 17 MR. ACKER: I would say that is a very safe assumption. 18 MR. LESLIE: Thank you. Do you think you would be 19able to enter the business if that inequality existed -- 20that is, cost-of-service versus market rates? 21 MR. ACKER: I'm sorry, could you repeat the question, 22sir? 23 MR. LESLIE: Do you think it would be feasible for BP 24to get into that business if the power generators were 25getting the service from Union at cost-of-service rates, 26whereas you were paying something different from cost-of- 27service rates? 28 MR. ACKER: But enter into what business? 2
  53. 53. 1 46 1 MR. LESLIE: The business of providing high- 2deliverability service. 3 MR. ACKER: If the end-use market has already acquired 4that service, I'm not sure what I have to offer. 5 MR. LESLIE: All right. Well, I'll let it go at that. 6 A couple of follow-up questions on the questions that 7the Board asked you, one of which was, and this is the 8third bullet point under "Secondary Market, Specific 9Services and Pricing." And the question was: 10 "What types of primary services do you use to 11 create secondary market products?" 12 I wonder, do you buy services or assets from other 13marketers as well as from primary providers? 14 MR. ACKER: At any point in time, we may or may not 15acquire assets from other market participants and, by 16definition, that would mean we do enter the secondary 17market to acquire services and/or access to assets. 18 MR. LESLIE: Right. So do I take it from that that 19you do, at times, deal with other marketers? 20 MR. ACKER: Yes, we do. 21 MR. LESLIE: Thank you. And, I think this is the next 22question: 23 "Can you describe the relationship between 24 the prices of primary products and the prices 25 of secondary market products?" 26 Do you have any knowledge of the relationship between 27cost-of-service rates and market rates for storage in 28Michigan and/or Ontario? 2
  54. 54. 1 47 1 MR. ACKER: I personally do not. 2 MR. LESLIE: All right. Thank you very much, sir. 3 MR. KAISER: Thank you, Mr. Leslie. 4 Mr. Cass. 5 CROSS-EXAMINATION BY MR. CASS: 6 MR. CASS: Panel, I represent Enbridge Gas 7Distribution. I have only one area of questioning. In 8order to try to avoid getting into anything confidential, 9I'm going to keep it very high-level and try to give it to 10you all in one question, if I can. 11 Could you please comment, from your experience, on the 12responsiveness of the market when new needs emerge or new 13services emerge? 14 MR. ACKER: It's been my experience that the market 15can react very quickly if access to the appropriate assets 16and/or services is available. The suite of assets that BP 17has access to at any one time allows us to respond to 18requests for services. The challenge, of course, is do the 19assets we have access to at any one time result in a 20service that is of value to the counter-party. That 21changes daily. 22 MR. CASS: Yes. I had actually meant, in my question, 23to distinguish between BP and the rest of the market, and 24you did that in your answer. 25 So I would take it that your response would indicate 26your experience on behalf of BP, and also your experience 27from seeing how the rest of the market operates; is that 28fair? 2
  55. 55. 1 48 1 MR. ACKER: It is fair. I mean, my personal 2experience is that we've worked diligently to try to solve 3problems or challenges that are brought to us by our 4customers. 5 MR. SOMMERVILLE: On occasion those challenges have 6been met better by our competitors. Occasionally we are 7successful in meeting our competitors' market challenges 8better than they. 9 MR. CASS: So your experience is that BP works 10diligently to meet those types of challenges and there are 11competitors in the market who do the same thing? 12 MR. ACKER: BP works diligently to attempt to meet 13those challenges. We are not always successful. And there 14are many competitors to us working just as diligently. 15 MR. CASS: Fair enough. Thank you very much, 16Mr. Acker. Thank you, Mr. Chair. 17 MR. KAISER: Thank you, Mr. Cass. 18 Mr. Brown, any questions? 19 MS. SEBALJ: Sorry, there was an order sort of 20suggested in this procedural e-mail that went out 21yesterday. I don't know whether Mr. Smith or Ms. 22Campbell -- 23 MR. KAISER: I jumped over Mr. Smith because he was 24busy talking to Mr. Beck, but I'll ask him. 25 MR. SMITH: I apologize, sir. I don't have any 26questions, as I had indicated yesterday. 27 MS. SEBALJ: And Ms. Campbell? 28 MR. KAISER: Ms. Campbell. 2
  56. 56. 1 49 1 MS. SEBALJ: Then it’s Mr. Thompson. 2 MR. KAISER: Mr. Thompson? 3 MR. THOMPSON: Yes, if it's acceptable to the Board, 4Mr. Warren and I had collaborated and we thought he would 5go in with the factual stuff and then I would come in as a 6follow-up with more theoretical stuff, if that's 7satisfactory to the Board. 8 MR. KAISER: That's fine. 9 Mr. Warren. 10 CROSS-EXAMINATION BY MR. WARREN: 11 MR. WARREN: Members of the panel, my name is 12Robert Warren. I act for Consumers Council of Canada. And 13as Mr. Thompson indicated, my function is to ask the 14prosaic and dull questions. He will occupy a higher plane 15than I do. 16 I have just a couple of questions, sir, and they're 17about the services that you described yourself as 18providing. 19 In the list of services, or the products, you were 20asked, you listed them, and there were six or seven of 21them. Is BP in the business of selling unbundled storage 22at Dawn? 23 MR. ACKER: We are not in the business of selling 24storage. We are in the business of selling delivery and 25redelivery service. 26 MR. WARREN: Are there any services that you provide, 27sir, that are not connected with or do not involve, I guess 28more accurately, the sale of the commodity as well? 2
  57. 57. 1 50 1 MR. ACKER: If we are offering a delivery/redelivery 2service, that easily can be separated from the commodity. 3We are not buying or selling the commodity; we are 4providing a service to the owner of that commodity. And if 5we are also managing transportation on behalf of a client, 6we do not necessarily sell or buy gas from that client, 7although we may. 8 MR. WARREN: The reason I asked the question, 9Mr. Acker, is that when you described your functions with 10the company, they were couched exclusively in terms of 11marketing the sale of the commodity natural gas, which is 12the reason I asked the question. 13 In your business, BP's business, in Ontario, what 14percentage of your business would involve the sale of 15something other than -- or that did not involve the sale of 16the commodity? 17 MR. ACKER: The majority of my business that I am 18responsible for in the Province of Ontario is the sale of 19the natural gas commodity. I have never been approached in 20my 25 years in the industry by any user within the -- end- 21user, within the franchises of Ontario or Quebec, to offer 22delivery/redelivery services. 23 The only persons or entities that I've ever been 24approached by for those services are exfranchise. 25 MR. WARREN: Then what percentage of the business of 26BP -- let me take it beyond the horizon of what you do -– 27what percentage of the business of BP would involve -- in 28Ontario, or perhaps, fairly, in the eastern market as 2
  58. 58. 1 51 1you've described it, would involve the sale -- that do not 2involve -- sorry, it's too convoluted -- do not involve the 3sale of the commodity? 4 MR. ACKER: Well, I don't know the exact numbers or 5percentage. It is safe to say that the majority of our 6business in Ontario, both what I am responsible for and my 7peers -- responsible for Ontario, is the commodity sale. 8The sale of delivery/redelivery so was services is not the 9major component of our services available in Ontario. 10 MR. WARREN: Okay. Would I have, just to drill down a 11little bit further on this, it's a bad pun, but if you'll 12allow me. Would it be fair to say that the 13deliver/redeliver business is a very small portion of BP's 14business in this sector, or in this area, rather? 15 MR. ACKER: It would be fair to say that it's nowhere 16near as large as the commodity sales in the Province of 17Ontario. 18 MR. WARREN: We're one step ahead of how many angels 19can dance on the head of a pin, so I think I’ll leave it at 20that, sir. 21 My next question is with respect to the one 22transaction that you described, and I'll avoid, I hope, 23questions of a confidential nature, can you tell me -- this 24is where you had entity A, and this was the 25delivery/redelivery arrangement -- can you tell me what 26volume was involved in that? 27 MR. ACKER: Actually, Mr. Warren, I don't think I can. 28I think that is what I would say falls in the realm of a 2
  59. 59. 1 52 1competitive bit of information I would prefer that my 2competitors are not aware of. And while we're on the 3record, I believe they would have access to my answer. 4 MR. WARREN: Can you tell me, in one of the first 5answers you gave to the first question, you said you have 6held and do hold storage capacity in Union. I take it that 7you don't hold -- sorry, Michigan. I take it that you 8don't hold storage capacity anywhere beyond Michigan in 9this geographic area; is that fair? 10 MR. ACKER: To be quite honest, I don't know. Any 11storage that BP may hold in the U.S. northeast, to the best 12of my knowledge, is not used to serve the Ontario or Quebec 13market. It's safe to assume that storage we do hold in the 14Chicago area can on occasions be used in part to serve the 15Ontario market that is accessed through Vector. 16 MR. WARREN: But that would be occasional or very 17occasional; is that fair for me to assume that? 18 MR. ACKER: To be honest, I don't know. I think 19economics of the day dictate which fields and which suite 20of pipe assets we have access to we might use on any one 21day. 22 MR. WARREN: Would it be fair for me to assume that 23the further afield you get from Michigan, one of the 24significant economic factors would be the cost of 25transportation. Is that a fair assumption on my part? 26 MR. ACKER: It's a fair assumption, but I would 27further describe it as the value of that transportation on 28any one day versus the cost. 2
  60. 60. 1 53 1 MR. WARREN: Can you tell me, sir, how much capacity 2you hold at the present time, storage capacity you hold, on 3the Michigan market? 4 MR. ACKER: I'll defer to Mr. Brett, who will read the 5evidence. I believe it's already on the record for this 6hearing. 7 MS. CAMPBELL: Mr. Chair, with your leave, I thought 8I'd give the witness a copy of Union Undertaking K5.2, 9which purports to lay out the holders of storage at various 10Michigan storage facilities. 11 MR. KAISER: Thank you. 12 MS. CAMPBELL: If it's on the record, then you don't 13need to answer it, sir. 14 MR. WARREN: The information that's contained in that, 15is that typical of the storage you hold at any given time? 16You say you have held and hold some now. I take it with 17ups and downs, is that typical of the volume of the storage 18you hold in Michigan? 19 MR. ACKER: I'm not sure that there is a typical 20volume. Market prospects as we view them will dictate 21whether we renew or increase our position at this point in 22time. If we believe that the market offers prospects to 23generate revenue, then we will look to increase our 24position. If it doesn't, presumably, then we will let them 25expire as they would naturally. 26 MR. WARREN: And the storage capacity which you hold 27in Michigan at any given time, is that held in connection 28with your delivery and redelivery business? 2
  61. 61. 1 54 1 MR. ACKER: It is not necessary for us to hold storage 2anywhere in order to effect a delivery/redelivery business. 3 MR. WARREN: Because you may use, as you've said, 4other assets, financial assets, or pipeline capacity; is 5that fair? 6 MR. ACKER: At any point in time, that's correct. 7 MR. WARREN: Okay. Those are my questions. Thank you 8very much. 9 MR. KAISER: Thank you, Mr. Warren. 10 MR. KAISER: Mr. Thompson? 11 Mr. Thompson, the reporter would like a little break. 12Is this convenient? 13 Now she says she is ready for a break, so you can have 14a break. Fifteen minutes. 15 --- Recess taken at 6:30 p.m. 16 --- On resuming at 6:49 p.m. 17 MR. KAISER: Please be seated. 18 Mr. Thompson. 19 CROSS-EXAMINATION BY MR. THOMPSON: 20 MR. THOMPSON: Thank you, Mr. Chairman. 21 Panel, I represent the Industrial Gas Users 22Association as well as the Association of Major Power 23Consumers in Ontario. I have a few questions, if I might. 24 Dealing first with this question of your lack of 25expertise in market power analysis, can I take that to mean 26that you have no particular knowledge or expertise in how 27FERC defines market power? 28 MS. WORTHY: The knowledge we would have with respect 2
  62. 62. 1 55 1to how FERC defines -- or at least my knowledge with 2respect to how FERC defines market power all relates to my 3recent reading of Order 678. 4 MR. THOMPSON: All right. And, Mr. Acker, do you have 5any knowledge or reading experience in that connection? 6 MR. ACKER: Mr. Thompson, I'm a lowly gas marketer. I 7have no expertise or knowledge in that area. 8 MR. THOMPSON: Yes, well, as a lawyer, I recognize the 9depths of despair there. 10 Anyway, and does it also follow that, apart from 11reading the material in this case, neither of you have any 12special knowledge or expertise in the framework that FERC 13applies to evaluate whether a particular company lacks 14market power? 15 MS. WORTHY: Mr. Thompson, we aren't experts in that 16area. And I think, to make it very clear on the record, we 17actually are not going to be taking any position on the 18issue of whether or not the OEB should or should not 19forbear from regulating services and whether there is or is 20not market power. That is not going to be part of our 21argument or part of our testimony here in this proceeding. 22 MR. THOMPSON: Thank you. That's helpful to know that. 23 If I could then turn, Mr. Acker, just to get a clear 24understanding of what you mean when you use the phrase "the 25secondary market" -- and perhaps I could do it this way. 26 You did talk about your company having capacity on 27some pipelines -- I think you mentioned Vector and you may 28have mentioned TransCanada pipelines. Did I understand 2
  63. 63. 1 56 1that correctly? 2 MR. ACKER: At any point in time, we have had or do 3hold capacity in our own name on pipelines, such as Vector 4and TransCanada. 5 More particularly, I define the primary market as, 6I've participated in the primary market if I have acquired 7services on those pipelines from the pipeline company 8themselves. 9 MR. THOMPSON: Right. 10 MR. ACKER: If I've acquired services on those 11pipelines by dealing with third parties, then I consider 12that to the secondary markets. 13 MR. THOMPSON: Yes. 14 MR. ACKER: If I were to provide services to, for 15example, members of your association, I would consider that 16or define that as the secondary market. 17 MR. THOMPSON: Right. But I just want to nail this 18down. At the moment, do you have capacity on TransCanada 19in your own name? 20 MR. ACKER: Yes, sir, we do. 21 MR. THOMPSON: Okay. And so you're a primary market 22shipper on TransCanada. You would pay full toll. 23 MR. ACKER: Yes, sir. 24 MR. THOMPSON: All right. And then you also told us, 25I thought you had some capacity as a primary market 26participant on some U.S. pipelines as well as, I think, in 27the Washington 10 storage. Did I understand that correctly? 28 MR. ACKER: Yes, sir, you did correctly. 2
  64. 64. 1 57 1 MR. THOMPSON: Right. And so when you are using those 2assets to provide a service at Dawn, those are primary 3market assets -- they're assets for which you're paying the 4primary market toll? 5 MR. ACKER: I believe what I said, Mr. Thompson, was 6that at any point in time I may use primary market assets. 7I may use secondary market assets. I may, in fact, provide 8those services while using no assets of a physical nature 9whatsoever. 10 MR. THOMPSON: Okay. But you made it clear that what 11your business is is packaging -- I think, you said 12services, and primarily services with commodity. And as I 13understood it, selling them at the Dawn hub. Did I 14understand that correctly? 15 MR. ACKER: We do that at the Dawn hub. We also do it 16at many other points of competition, but it was my 17understanding that this hearing was dealing specifically 18with the Dawn hub and areas close to the Dawn hub. 19 MR. THOMPSON: And what do you call the market at the 20Dawn hub? Are you using the phrase "secondary market" to 21define -- or to describe the Dawn hub? 22 MR. ACKER: Anybody who purchasing natural gas is 23participating in what I would define as the primary market. 24Somebody owns the gas and somebody would like to buy the 25gas. So that I think the commodity business is the primary 26market. That being said, as I said earlier, eventually, a 27molecule can only be consumed by one person, however many 28times it may have changed hands. Where we are also dealing 2
  65. 65. 1 58 1with assets and services, I would define all of those as 2the secondary market. 3 MR. THOMPSON: Right. Well, my clients look at the 4Dawn hub as a delivered gas commodity trading hub. Is that 5the way you look at it? 6 MR. ACKER: From the perspective of your clients, yes, 7it is. 8 MR. THOMPSON: Okay. And I think they would see that 9as a gas commodity hub primarily, gas commodity trading 10hub. Bundled with delivery to get it there but -- 11 MR. ACKER: I guess I would agree, Mr. Thompson. My 12familiarity is deepest with your IGUA clients, and to the 13best of my knowledge, I have never been approached by an 14IGUA member to provide a Dawn storage -- or 15Dawn delivery/redelivery service, but I have dealt with a 16number of your members in the commodity business at the 17Dawn hub. 18 MR. THOMPSON: Okay. And so that, then, takes me to 19Union and the product it sells at the Dawn hub in the 20exfranchise market. 21 My understanding is that what Union is selling there 22is storage space, storage injection, and withdrawal. Do I 23understand that correctly? 24 MR. ACKER: That is my understanding of your 25understanding, yes. 26 MR. THOMPSON: Okay. Well, that's what they're 27selling; it's a product that doesn't include commodity? 28 MR. ACKER: Yes, sir, that is my understanding. 2
  66. 66. 1 59 1 MR. THOMPSON: Okay. And so I then want to understand 2what impacts Union's actions have on what you folks do. 3And this takes me to -- I think Mr. Brett's going to have 4to put this in front of you. This was the notes in the 5conversation that Ms. McConihe had with yourself and 6Ms. Worthy, and it has an exhibit number, but I'm not quite 7sure what it is. Perhaps somebody could help me. 8 MS. WORTHY: J8.3. 9 MR. THOMPSON: Okay. Thanks. And I don't know if the 10J8.3 has attached to it the e-mail that Ms. McConihe 11circulated to, I think she said six marketers, of which you 12were one. Does it? Do you have that in front of you as 13well? 14 MS. WORTHY: We have that as well. 15 MR. THOMPSON: Okay. And she was trying to get a 16handle on quantities and this kind of thing, and asked you 17folks for some assistance. And there was this discussion, 18as I understand it, and the sentence I'm interested in in 19her record, which, as I understand, was based on 20discussions with you, is in the first paragraph at the 21bottom. It reads as follows: 22 "Currently Union's storage rates are high 23 relative to Michigan's storage, and this 24 provides" and there's redaction, which I 25 presume is "BP," "the ability to price 26 secondary products to Ontario customers at a 27 price capped by Union's storage rate." 28 Does that accurately capture what you folks said to 2
  67. 67. 1 60 1her? 2 MR. ACKER: I don't think it does. What we meant with 3that comment was, we were aware that the market-based 4secondary market for Union storage was being priced at 5prices that, in our mind, exceeded the ability to contract 6for storage in Michigan and contract for service from 7Michigan to Union. And as such, given the option, in 8theory, we would look to contract for Michigan storage and 9transportation to Union if we could do it cheaper than what 10we believed the Union storage itself was trading for at 11that point in time. 12 MR. THOMPSON: But are you talking about there a 13bundle that includes commodity in this discussion? It 14sounded to me like you were, and that's where I'm confused. 15 MR. ACKER: Well, if it appears that way, it is a 16mistake. The intent was storage-like services, and 17delivery/redelivery services. 18 MR. THOMPSON: All right. 19 MR. ACKER: And the experience we have is that we have 20bid several times in the recent past in Union open seasons 21for storage service at Dawn. And we have been unsuccessful 22because other parties have been willing to pay more than we 23thought that service was worth. And we would mitigate what 24we would offer Union by the price of alternatives, which in 25that context, and at that point in time, were cheaper than 26what Union was going for. 27 MR. THOMPSON: Sorry, you've lost me. You lost bids 28because your price was too low? 2
  68. 68. 1 61 1 MR. ACKER: We've lost bids because other parties have 2been willing to pay more than we were. 3 MR. THOMPSON: Pay more for what? 4 MR. ACKER: For Union storage. 5 MR. THOMPSON: So your bids were too low. 6 MR. ACKER: I would say others' were too high. And I 7would say that, sir, because we were able to acquire 8service that provided us with almost identical capability 9at a lower price. 10 MR. THOMPSON: Well, I guess Enbridge will have to 11answer for that. 12 In Mr. Stauft's evidence -- and let me just reflect. 13There is a chart. And I don't know if you had an 14opportunity to either hear or review the evidence of GMI, 15but they were asked, when you're looking for options to 16Union's storage, what do you consider? And my recollection 17is that Ms. Brochu said, well, we look at the other 18options, the physical options, and that includes Michigan 19storage and transportation to Dawn. Just stopping there, 20does that seem reasonable, to look at that option? 21 MR. ACKER: I would say that that's a very reasonable 22way of evaluating options available to someone like GMI at 23that point in time. 24 MR. THOMPSON: Right. And she also indicated one of 25their options is to just increase their capacity on 26TransCanada to Dawn and, in effect, bypass Union storage. 27Is that another option? 28 MR. ACKER: I would consider that another physical 2