FORTISBC MIDSTREAM I A S AITKEN CREEK S E A-3 · Fortis Inc. press release dated December 3, 2015;...

ERICA HAMILTON COMMISSION SECRETARY

[email protected] web site: http://www.bcuc.com

SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3

TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385

FACSIMILE: (604) 660-1102

Log No. 51762

PF/FMI-ACGS/GC/A-3_BCUC IR No. 1 to FMI

VIA EMAIL [email protected] January 7, 2016 FORTISBC MIDSTREAM INC. ACQUISITION OF SHARES OF

AITKEN CREEK STORAGE EXHIBIT A-3 Mr. Justin Cha Manager, Corporate Development and Treasury FortisBC Holdings Inc. 10th Floor 1111 West Georgia Street Vancouver, BC V6E 4M3 Dear Mr. Cha:

Re: FortisBC Midstream Inc. Project No. 3698861/Order G-210-15

Application for Approval of the Acquisition of the Shares of Aitken Creek Gas Storage ULC Further to the above noted Application, please find enclosed Commission Information Request No. 1. In accordance with the Regulatory Timetable, please file your responses electronically with the Commission by Friday, January 29, 2016. Yours truly, Erica Hamilton /yl Enclosure

BRITISH COLUMBIA UTILITIES COMMISSION

INFORMATION REQUEST No. 1

FortisBC Midstream Inc. Application for Approval of the Acquisition of the Shares of Aitken Creek Gas Storage ULC

Table of Contents Page No.

A. Net Book Value of the ACGS assets as of the Share Purchase ..................................................................... 1

B. Confirmation of any Acquisition Premium paid and any potential recovery ............................................... 5

C. Confirmation of any Transaction fees/costs to be recovered ...................................................................... 5

D. Impact of the financing of the ACGS purchase on the FEI Cost of Capital ................................................... 6

E. Inclusion of ACGS in the G-49-07 "ring fencing" conditions ......................................................................... 6

F. Impact of delay in Commission or Competition Bureau approvals .............................................................. 6

G. Continuing Service Quality by ACGS regarding the act section 54(9) .......................................................... 7

H. Pricing of ACGS gas storage services to FEI .................................................................................................. 9

I. Transfer Pricing Policy/Shared Service Agreements between ACGS and FHI/FEI ...................................... 10

J. Impact of transfer (or not) of Chevron employees to ACGS (or FMI) ........................................................ 11

A. NET BOOK VALUE OF THE ACGS ASSETS AS OF THE SHARE PURCHASE

1.0 Reference: Aitken Creek Gas Storage (ACGS) Assets Exhibit B-1, Section 7.1.3.1, p. 13; Order G-167-07, Appendix A, page 2 of 5; Order G-71-08; Fortis Inc. press release dated December 3, 2015; Net Book Value of the Storage Facility assets

FortisBC Midstream Inc.'s (FMI) Application on page 13 states: "Consistent with Order G-167-07, FMI will track the historic cost net book value of the Storage Facility assets and this information will be available to the Commission upon request and consistent with Order G-71-08, ACGS will continue to meet the annual reporting requirements to the Commission and other parties."

Appendix A to Order G-167-07 references:

Further to Letter No. L-97-07, on December 6, 2007 the Applicants provided the following information on how Unocal Canada intends to maintain financial data and records within Aitken Creek ULC to facilitate any reporting or other requirements that the Commission may require in the future:

• "Unocal Canada became a wholly-owned indirect subsidiary of Chevron Corporation (Chevron) in August of 2005 when Chevron acquired Unocal Canada's corporate parent Unocal Corporation (Unocal}.

• At the time of acquiring Unocal, Chevron retained Ernst & Young to assist in determining the fair values of Unocal's tangible and intangible assets for the purpose of allocating the aggregate purchase price to assets, including those at Aitken Creek, as required by U.S. accounting standards. The allocations were finalised by September 30, 2005.

FortisBC Midstream Purchase of ACG Shares 1 BCUC Information Request No. 1

• The financial statements of Unocal Canada identify the assets, liabilities, revenues and expenses directly attributable to the assets and operations that are proposed to be transferred to ACGS. The assets proposed to be transferred to ACGS will be identified and valued on the books of ACGS in the same manner as they have been on the books of Unocal Canada."

It would appear that from the second preceding bullet point that upon acquiring Unocal, Chevron increased some or all of Unocal's assets from their depreciated historical cost basis to their fair values.

In Section 1.3 of the Reasons for Decision dated May 14, 2007, in response to Unocal Canada's application for exemption from all provisions of the Utilities Commission Act (Act), the Commission stated "Furthermore, this decision makes no evaluation as to whether cost-based or market-based rates are appropriate for the Storage Facility." In Section 2.3 of the Reasons for Decision, the Commission addressed whether Unocal Canada should be actively regulated. The Commission also discussed regulating rates for the Storage Facility on a cost of service basis compared to the current negotiated rates that reflect market conditions. The Commission found that active regulation of Unocal Canada in its operation of the Storage Facility is not warranted at this time, and that regulation on a reporting or complaints basis is the appropriate method of regulation.

Order G-71-08 in recital B explains: "The Storage Facility refers to the underground reservoir and contained natural gas, wells, on-site equipment and other components of the natural gas storage facility at Aitken Creek that [ACGS] owns or operates, as they may be modified or expanded from time to time."

The December 3, 2015 Fortis Inc. press release states: "The definitive share purchase and sale agreement for the purchase of 100% of the shares of Aitken Creek Gas Storage ULC ("ACGS") from Chevron Canada Properties Ltd. ACGS owns 93.8% ofthe Aitken Creek gas storage site. The remaining share is owned by BP Canada Energy Company. ACGS also owns 100% of the North Aitken Creek gas storage site which offers future expansion potential."

1.1 Please confirm the ACGS utility being acquired by FMI will have the same assets by category, recorded at the same current net book value, on the day of the purchase and sale as Chevron is selling. If not, please explain.

1.2 Please explain if there will be any write-up, additions or adjustments that would change the value of the ACGS Storage Facility assets under FMI ownership.

1.3 Please confirm that, for financial and regulatory accounting, the carrying amount of all assets, liabilities and equity items of ACGS will be unaffected by the Transaction. If not, please explain.

1.4 Please confirm, or otherwise explain, that the definition of Storage Facility, as referred to in recital B of Order G-71-08, includes ACGS' North Aitken Creek gas storage site assets.


2.0 Reference: ACGSASSETS Exhibit B-1, Section 4.1, p. 4; Section 5.2, p. 5; Order G-71-08; Net Book Value of the Working Gas asset

The Application on page 5 states:

Aitken Creek is located 120 km northeast of Fort St. John, and represents the largest gas storage facility in British Columbia, and North Aitken is located 10 km northwest of Aitken Creek. The total working gas capacity of Aitken Creek is 77.1 Bcf plus 9.2 Bcf of cushion gas requirements. Currently, Aitken Creek connects to the Spectra T-North and the Alliance pipelines. ACGS leases storage at Aitken Creek to third parties and engages in commercial proprietary trading of gas inventory.

Order G-71-08 in recital B explains: "The Storage Facility refers to the underground reservoir and contained natural gas, wells, on-site equipment and other components of the natural gas storage facility at Aitken Creek that [ACGS] owns or operates, as they may be modified or expanded from time to time."

2.1 Please provide a definition of the terms "working gas capacity" and "cushion gas".

2.2 Please confirm, or otherwise explain, that the assets being acquired include ACGS's share of the cushion gas in the underground reservoir and the volume of working gas that ACGS has title to on the day of the purchase and sale.

2.2.1 Please confirm that both the total working gas volume and the portion of this working gas volume, that ACGS holds title to, changes from day to day as the parties that hold storage contracts with ACGS withdraw gas from and inject gas into the Storage Facility, and as ACGS conducts its proprietary trading.

2.3 Please confirm, or otherwise explain, the ACGS assets do not include gas held in storage for parties that hold storage contracts with ACGS.

2.4 Please describe any adjustments to the value to the working gas and cushion gas that arise due to the market price of natural gas at the time the Transaction closes.

On page 4 of the Application, FMI describes the terms of the Transaction as set out in the Share Sale and Purchase Agreement and states "[T]he purchase price for the Share Sale and purchase Agreement is US$266.2 million plus customary adjustments."

2.5 Please define "customary adjustments".

2.6 Please explain how the value of the working gas is factored into the purchase price.


3.0 Reference: ACGSASSETS Exhibit B-1, Section 5.2, p. 5; Government of Canada press release dated June 10, 2015 http:/ /news.gc.ca/web/article-en.do?nid=986479&tp=1 Impact of connection to NGTL facilities

The Application on page 5 states:

Aitken Creek is located 120 km northeast of Fort St. John and represents the largest gas storage facility in British Columbia and North Aitken is located 10 km northwest of Aitken Creek .... Currently, Aitken Creek connects to the Spectra T-North and the Alliance pipelines.

The Government of Canada on June 10, 2015, accepted the National Energy Board's (NEB) recommendations, decisions, and reasons in respect of NOVA Gas Transmission Ltd.'s (NGTL) application to construct and operate the North Montney Mainline pipeline, comprised ofthe Aitken Creek and Kahta Sections, an extension of the NGTL System to the North Montney area in northeastern British Columbia, as considered by the NEB in its GH-001-2014 proceeding. The press release states:

The North Montney Mainline Pipeline proposal was submitted by NOVA Gas Transmission Ltd. (NGTL) to the NEB for review in 2013. The $1.7-billion project will transport natural gas from northeastern British Columbia to the existing NGTL system, where it can be sold to markets in Alberta and, through a separate pipeline, to the proposed Pacific NorthWest LNG terminal.

3.1 Please confirm, or otherwise explain, that Aitken Creek is currently the only underground natural gas storage reservoir in British Columbia.

3.2 Please confirm, or otherwise explain, that the North Montney Mainline Pipeline project will connect the Aitken Creek Storage Facility to the NGTL pipeline system and the associated Alberta Nova Inventory Transfer (NIT) market in addition to the current connections to the Spectra T North and Alliance pipelines.

3.3 Please discuss how future connection of the Aitken Creek Storage Facility to Alberta natural gas markets via the NIT pool, is anticipated to impact the value of the ACGS assets, including a discussion of how such a connection would be anticipated to change the value of ACGS storage services relative to storage services from storage facilities in Alberta that are connected to the NIT pool.

3.4 Please discuss how future connection of the Aitken Creek Storage Facility, through a separate pipeline, to the proposed Pacific NorthWest LNG terminal is anticipated to impact the value of the ACGS assets.

3.5 Please describe both the positive impacts and any potential negative impacts that connection of the Aitken Creek Storage Facility, firstly, to the NGTL NIT pool and, secondly, through a separate pipeline, to the proposed Pacific NorthWest LNG terminal might have on the level of service ACGS provides to each of the following groups of ACGS customers:

3.5.1 FEI and its ratepayers;

3.5.2 Other BC natural gas distribution utilities and their ratepayers;

3.5.3 ACGS customers that are not natural gas distribution utilities.


B. CONFIRMATION OF ANY ACQUISITION PREMIUM PAID AND ANY POTENTIAL RECOVERY

4.0

5.0

Reference: Terms of the Transaction Exhibit B-1, Section 4.1, p. 4 Confirmation of Acquisition Premium

FMI's application on page 4 states: "The purchase price for the shares under the Share Sale and Purchase Agreement is US$266.2 million plus customary adjustments."

4.1 Does FMI anticipate allocating any acquisition premium to intangible assets of ACGS or to any item other than Goodwill? If so, please describe.

4.2 Since FMI is purchasing shares of a utility that has certain exemptions under the Act, section 88(3), how will the purchase price be recognized in the FMI books?

Reference: Terms of the Transaction Exhibit B-1, Section 4.1, p. 4; Order C-4-13; Acquisition premium to the account of the shareholder

Order C-4-13, regarding the FortisBC Inc. purchase of the utility assets of the City of Kelowna, contained specific direction for handling the acquisition premium. The difference between the purchase price and the current net book value of the assets has been treated as an acquisition premium, which is to the account of the FortisBC Inc. shareholder.

5.1 Please confirm that FMI would follow the same treatment of the acquisition premium as required by FortisBC Inc. under Order C-4-13. If not please explain.

5.2 Please confirm, or otherwise explain that no part of any acquisition premium representing the amount paid in excess of the current net book value of ACGS assets, will be recovered from ACGS' regulated utility customers at any time.

C. CONFIRMATION OF ANY TRANSACTION FEES/COSTS TO BE RECOVERED

6.0 Reference: Parties to the Transaction Exhibit B-1, Section 5.1, p. 4 Transaction fees/costs to be recovered from ratepayers/customers

6.1 Please confirm that none of the fees incurred in connection with the share purchase agreement will be recovered from FEI ratepayers or ACGS regulated utility customers.

6.2 Please describe how costs related to the share purchase incurred within FortisBC, such as FortisBC Holdings Inc. (FHI)/FortisBC Energy Inc. (FEI)/FMI management and staff time, and consultants and contractors, to deal with matters such as due diligence and regulatory matters, including this application, will be segregated and accounted for to ensure that such costs are not recovered from FEI ratepayers or ACGS regulated utility customers.


D. IMPACT OF THE FINANCING OF THE ACGS PURCHASE ON THE FEI COST OF CAPITAL

7.0 Reference: Sound Financing Capability Exhibit B-1, Section 7.1.1, p. 12 Impact of the ACGS purchase on the FEI cost of capital

On page 12 of the Application, FMI states: "FHI will ensure that ACGS will be adequately funded in accordance with applicable Commission regulations. This Transaction will not have a detrimental effect on ACGS or the users of its services. FHI has significant ability to finance any funding requirements through contributions from Fortis, which had total unused consolidated credit facilities of approximately $2.0 billion as at September 30, 2015, as well as an ability to access debt and equity markets when needed."

7.1 Please confirm any financing provided by Fortis to ACGS, will not affect the ability of FEI or other Fortis affiliates to obtain capital, nor will it affect the cost of such capital that would be recovered from regulated utility ratepayers.

E. INCLUSION OF ACGS IN THE G-49-07 "RING FENCING" CONDITIONS

8.0 Reference: FMI Parent Companies Exhibit B-1, Section 5.3, pp. 5-6; Order G-49-07, Appendix A, p. 15 of 15 Inclusion of ACGS in the "ring fencing" conditions

Extract from Order G-49-07: "Fortis is prepared to accept the continued application of ... Conditions should be imposed relating to ring-fencing, governance and location of functions and data as set out in Commission Decision and Order G-116-05, revised by Commission Order G-75-06 and clarified by Commission Letter L-30-06."

8.1 Please explain if FMI agrees AGCS should be automatically included in the G-49-07 "ring fencing" conditions.

F. IMPACT OF DELAY IN COMMISSION OR COMPETITION BUREAU APPROVALS

9.0 Reference: Terms of the Transactions Exhibit B-1, Section 4.1, p. 4 Impact of delay in approvals

On page 4 of the Application, FMI states: "The principal terms of the Transaction are as follows: ... (b) Closing Conditions: Completion of the Transaction is subject to certain conditions, including the approval of the Commission pursuant to the Act and approval of the Competition Bureau pursuant to the Competition Act (Canada). (c) Closing Date: ... will be no earlier than March 1, 2016."

9.1 Please explain if approval by the Competition Bureau pursuant to the Competition Act (Canada) is dependent on approval by the Commission, or vice versa.

9.2 Please explain if there are specific dates by which the two approvals are required.

9.3 Please confirm if FMI will undertake to inform the Commission as to the actual effective Closing Date and time for the sale/purchase of the ACGS shares.

FortisBC Midstream Purchase of ACG Shares 6 BCUC Information Request No.1

G. CONTINUING SERVICE QUALITY BY ACGS REGARDING THE ACT SECTION 54(9)

10.0 Reference: INTRODUCTION Exhibit B-1, Section 1, p. 1 Continuing Service Quality

On page 1 of the Application, FMI states: "(a) there will be continuity in the services provided by ACGS to its customers; (b) there will be continuity in the business and operations of ACGS".

On page 10 of the Application, FM I states section 54(9) of the Act provides that the Commission may give its approval under section 54, subject to such conditions and requirements it considers necessary and desirable in the public interest, and that the Commission must not give its approval under section 54 " ... unless it considers that the public utility and the users of the services of the public utility will not be detrimentally affected."

10.1 Will existing utility service levels by ACGS be different in any way under the new ownership?

10.2 Please explain if, and how, the acquisition of ACGS by FMI will enhance the service to:

10.2.1 FEI and its ratepayers;

10.2.2 Other BC natural gas distribution utilities and their ratepayers;

10.2.3 ACGS customers that are not natural gas distribution utilities.

10.3 Does FMI plan or expect ACGS asset integrity and maintenance programs or resulting maintenance plans, schedules or the required resources to be different in any way in the next three years? Please explain.

11.0 Reference: INTRODUCTION Exhibit B-1, Section 1, p. 1; Section 7.1.3, p. 12 Continuing Service Quality

On page 1 of the Application, FMI states "the structural integrity of the assets of ACGS will be maintained."

On page 12 of the Application, FMI states "Current technical and administrative services provided by other employees of CCPL (or affiliates) will be replaced by FMI (directly or through arrangements with its affiliates)."

On page 14 of the Application, FMI states "ACGS will operate in the same way under FMI ownership that it has under the ownership of CCPL."

11.1 Does the reference to "structural integrity of the assets of ACGS" on page 1 of the Application include the structural integrity of the underground storage reservoir, and its ongoing capability to contain the natural gas quantities that are injected for storage on behalf of ACGS customers?

11.1.1 If not, why not?

11.2 Is it FMI's understanding that the current technical services provided by Chevron Canada Properties Limited (CCPL) employees includes the geological, geophysical, reservoir engineering and other technical expertise necessary to assess the structural integrity of the underground storage reservoir, and develop plans for maintaining the reservoir's structural integrity?


11.2.1 If not, please discuss how FMI understands this has been addressed by ACGS to date.

11.3 Do FMI and/or its Fortis affiliates have staff with the geological, geophysical, reservoir engineering and other technical expertise necessary to assess the ongoing structural integrity of the underground Aitken Creek storage reservoir?

11.3.1 If not, does FMI agree that in this respect FMI differs from CCPL with regard to services that can be provided by FMI and its affiliates?

11.3.2 If FMI and/or its Fortis affiliates do not have staff with this expertise, please explain how FMI expects to source the technical services required to assess and monitor the structural integrity of the Aitken Creek storage reservoir both during the period of transitioning from CCPL, and on an ongoing basis over the long term.

11.4 Please confirm that FMI intends to regularly assess and take whatever steps are necessary to maintain the structural integrity of the underground storage reservoir and describe the plan for doing so, including the resources FMI will employ.

11.4.1 Please describe the regulatory oversight provided by government or other regulatory bodies such as the British Columbia Oil and Gas Commission, with regard to monitoring the structural integrity of the Aitken Creek underground storage.

12.0 Reference: JUSTIFICATION Exhibit B-1, Section 7, p. 9; Part of Fortis and FHI's broader platform

On page 9 of the Application, FMI states 11Fortis and FHI believe the Transaction provides a broader platform on which to deploy their natural gas industry and management expertise ... "

12.1 Please elaborate on how the acquisition ofthe Aitken Creek Storage Facility fits into a "broader platform" for Fortis/FHI to deploy their natural gas industry and management expertise.

12.1.1 Please describe both the positive impacts and any potential negative impacts, that are anticipated as a result of include ACGS in this 11broader platform", to the level of service ACGS provides to each of the following groups of ACGS customers:

12.1.1.1 FEI and its ratepayers;

12.1.1.2 Other BC natural gas distribution utilities and their ratepayers;

12.1.1.3 ACGS customers that are not natural gas distribution utilities.

12.2 Does FMI anticipate that Fortis, through FMI's commercial activities as part of the "broader platform" will hold greater market power in the British Columbia natural gas marketplace than ACGS currently holds? Please discuss.

12.2.1 If so, please discuss how the Commission might condition the approval of the share purchase to reduce the likelihood that the level of service of ACGS customers and ratepayers of utilities regulated by the Commission is negatively impacted by the share purchase.


H. PRICING OF ACGS GAS STORAGE SERVICES TO FEI

13.0 Reference: COMMERCIAL RELATIONSHIP WITH FEI Exhibit B-1, Section 6.2, pp. 8-9; Commission Order G-71-08, Appendix II; Exhibit A2, Ensuring FEI pays market rates

On pages 8 and 9 ofthe Application, FMI describes the negotiation of pricing between ACGS and FEI and states:

Although these pricing negotiations occur on an arm's length basis, it is recognized that the value of the storage services to each party is reflective of both the market conditions at the time (principally the forward summer and winter price differentials as projected in the forward gas markets} and the other benefits the parties realize from the terms and conditions related to the use of the capacity and injection and withdrawal rights.

FMI further describes how the storage contracting relationship between ACGS and FEI will not change as a result of this Application, and that FMI will establish a commercial team that will be independent from FEI's gas supply planning and operations. FMI further states:

In addition, ACGS expects that FEI will continue to file its storage contracts and undergo the approval process with the Commission each time a new storage contract has been executed between FEI and ACGS.

13.1 Please confirm, or otherwise explain, that the test for acceptance by the Commission of an energy supply contract filed under section 71 of the Utilities Commission Act (UCA} does not include consideration of whether the supplier's pricing is discriminatory and the Commission cannot reject the storage contract on the basis that ACGS provided favourable pricing to FEI relative to other ACGS customers.

Commission Order G-71-08 requires ACGS to file an annual report for the Storage Facility in the format set out in Appendix II to that order and to provide a copy of the report to the parties contracting for service at the facility. Appendix II sets out the required format as follows:

ANNUAL REPORTING REQ1}1R.E."\.f:ENTS

Complaint Overni!l:ht ofUnocal Canada Limited for the Aitken Creek Storn!ile Facility

(Companies are to :file Reports wiih.in 90 days after fiscal year-end)

1.0 Prerious Year A.ctuaJs

• Facility name, location, function, capacity. • Any sign.i:fic&rt changes in capacity during the year. • Throughput during the year, in tenm of gas quantity delivered from storage. • Names, addresses and contact name ll1ld telephone number :fur Uno cal and each storage customer


13.2 Please discuss how the Commission and ACGS customers can be assured the storage rates terms and conditions, negotiated by ACGS with FEI are arrived at through arm's length negotiations, and as such are reflective of market conditions at the time, and the benefits the contracting party will realize from the terms and conditions.

13.3 As part of the annual reporting requirements, for any year that ACGS negotiates a contract with FEI, would FMI be agreeable, as a means of demonstrating that the FEI contract is not discriminatory, to providing, on a confidential basis to the Commission, the details of the FEI contract(s) together with the details of any other contracts negotiated during the same period, and the forward summer and winter price differentials as projected in the forward gas markets at the time?

13.3.1 If not, please elaborate on the reasons why not.

I. TRANSFER PRICING POLICY/SHARED SERVICE AGREEMENTS BETWEEN ACGS AND FHI/FEI

14.0 Reference: Service Agreements and Affiliated Relationships Exhibit B-1, Section 7.1.3.3, p. 14; and Figure 1, p. 3 Transfer pricing policy

On page 14 of the Application, FMI states: "It is expected that FHI will provide corporate services to fulfill administrative functions including Taxation, Legal, Treasury, Financial Accounting and Reporting, Internal Audit and other services as required for the general administration and corporate governance of ACGS through a Shared Services Agreement (Services Agreement). These services are also currently being provided to ACGS by CCPL (or its affiliates)".

14.1 Please explain if, as a result of the acquisition of ACGS, FHI, FEI and/or FMI are contemplating any increases in its staffing requirements to meet the needs of ACGS.

14.2 Please explain if there will be any FHI, FEI or FMI staff dedicated solely or primarily to deal with ACGS needs.

14.3 Please explain how FHI, FEI and FMI will keep track of the costs and demands of staff and contractors in the transition period as new processes and protocols are put in place, how FHI/FEI/FMI will account for this interim activity to ensure it is not being paid for by FEI ratepayers.

14.4 Please explain the basis for charges from FHI to each of the companies, including ACGS, shown in Figure 1 on page 3 of the Application. If the basis is an allocation of time, please explain if these are actual or estimated hours.


J. IMPACT OF TRANSFER (OR NOT) OF CHEVRON EMPLOYEES TO ACGS (OR FMI)

15.0 Reference: ACGS OFFICE, STAFF AND SHARED SERVICES Exhibit B-1, Section 6.2, p. 9 Exhibit B-1, Section 7.1.3.2, pp. 13-14; Section 7.1.3.3, p. 15 FMI provision of commercial services resources for ACGS

On page 9 of the Application, FM I states:

FMI will be establishing a commercial team that will be responsible for negotiating third party storage lease contracts and optimising the rest of the facility for ACGS. FMI is committed to ensuring that this commercial team is independent from FEI's gas supply planning and operations such that there is no impact to the ability and integrity of the parties to negotiate fair market based pricing on an arm's length basis for future storage contracts or renewals.

On pages 13 and 14 of the Application, FMI states:

Other employees of CCPL (or its affiliates) based in Calgary provide supporting services such as commercial, marketing, accounting and reporting, and technical services but are not dedicated exclusively to the Storage Facility. FMI will provide or cause to be provided the same level of services to ACGS by entering into an agreement (the Management Agreement) under which FMI will provide technical, operational and administrative support services at a cost to ACGS in connection with the Storage Facility and other operations at Aitken Creek as generally described below .

.... Currently, ACGS' operations at the Fort St. John office and the plant site are supported by a complement of local engineering, construction, operations and maintenance employees employed by CCPL. FMI will be providing each of these employees with employment offers and anticipates being able to retain these employees following completion of the Transaction.

With respect to commercial services for ACGS currently provided by CCPL (or its affiliates) related to activities such as mitigation, trading and contract negotiation, an independent commercial team will be established by FMI and any employees will become employees of FMI.

FMI expects provide other services to ACGS through the combination of FMI employees and service agreements with other Fortis affiliates.

On page 15 of the Application, FM I states:

FMI will maintain a separation of its employees responsible for commercial activities and will not share the services of FEI employees directly responsible for the portfolio planning and mitigation and related contract negotiation activities at FEI. This separation will provide for arms length negotiations and address conflicts of interest between FMI and FEI. This is relevant as FMI expects that FEI will continue to be a storage leasing service customer of ACGS over the long term.

15.1 Please confirm, or otherwise explain, that FMI's employment offers to CCPL staff only extend to the approximately 20 CCPL employees at the Fort StJohn office and the plant site, and do not include any CCPL staff in Calgary who perform commercial services activities related to mitigation, trading and contract negotiation.


15.1.1 If the employment offers do extend to CCPL staff who perform commercial services activities related to mitigation, trading and contract negotiation, please describe the number of such CCPL employees who have received future employment offers from FMI.

15.2 Where does FMI anticipate it will locate the staff resources it will provide to perform the ACGS commercial services activities related to mitigation, trading and contract negotiation?

15.2.1 To the extent these staff are located at the same offices as the FEI employees responsible for FEI portfolio planning, mitigation and related contract activities (i.e. the Surrey Operations office), please describe how these staff will be kept at arm's length to the activities of FEI.

15.3 Will FMI be utilizing the services of any FEI staff to perform ACGS commercial services activities related to mitigation, trading and contract negotiation?

15.3.1 If so, please describe the extent of these activities.

15.3.2 If so, please describe FMI's plans for maintaining separation of employees responsible for ACGS commercial activities from those of FEI employees responsible for FEI portfolio planning, mitigation and related contract activities.

15.4 Will FMI be extending offers of employment to any FEI staff to perform ACGS commercial services activities related to mitigation, trading and contract negotiation?

15.5 To the extent any FEI staff are allocated to, transferred to or offered employment to FMI for the purposes of performing ACGS commercial services activities related to mitigation, trading and contract negotiation, please describe how FMI will ensure FEI retains adequate expertise and experience to continue to perform FEI's portfolio planning, mitigation and related contract negotiation activities in a manner that does not impact the quality of service currently provided by FEI staff on behalf of its ratepayers.

16.0 Reference: COMMERCIAL RELATIONSHIP WITH FEI Exhibit B-1, Section 6.2, p. 8; Section 7.1.3.3, p. 15 Commission Letter L-15-15 dated April 2, 2015, Appendix A- 2013-2016 GSMIP Term Sheet Impact of FEI and ACGS competing on day to day storage optimization

On page 8 ofthe Application FMI states "ACGS continues to provide storage services to third parties and engages in proprietary trading activities related to any unleased capacity and overall optimization of the Storage Facility."

On page 15 FMI states:

FMI will maintain a separation of its employees responsible for commercial activities and will not share the services of FEI employees directly responsible for the portfolio planning and mitigation and related contract negotiation activities at FEI. This separation will provide for arms length negotiations and address conflicts of interest between FMI and FEI.


16.1 Please confirm, or otherwise explain, that the Aitken Creek storage contracts that FEI holds with ACGS form a key component of the overall portfolio of resources contracted by FEI to ensure the peak day load requirements of FEI's sales gas customers can be reliably met and that the day to day mitigation of these storage contracts is a key element of managing the cost of gas for FEI's sales customers.

Section Don page 5 of the FEI 2013-2016 GSMIP Term Sheet that is attached as Appendix A to Commission Letter L-15-15, describes how FEI mitigates the storage contracts it holds on behalf of FEI's sales gas customers through "park" and "loan" and other transactions.

16.2 Please confirm that, as part of FEI's day-to-day management of the resources that FEI contracts for the FEI sales gas customers, including its Aitken Creek contacts, FEI mitigates these storage assets by entering into transactions that are similar to and in direct competition with the "proprietary trading activities related to any unleased capacity and overall optimization of the Storage Facility" that ACGS engages in.

16.2.1 If not confirmed, please explain.

16.3 Please confirm, or otherwise explain, that, to the extent the proprietary trading and optimization revenue realized by FMI exceeds the cost of providing storage services, this revenue flows to FMI, ACGS' shareholders.

16.4 Please confirm, or otherwise explain, that aside from the GSMIP incentive payment provided for in the GSMIP Term Sheet attached to Commission Letter L-15-15, the revenue realized by FEI from mitigation of the storage contracts it holds with ACGS flows back to the FEI sales customers as a credit against the cost of gas.

16.5 Please describe the policies, internal controls and processes Fortis will establish to ensure that the storage mitigation activities of FEI are kept separate, and at arm's length from the commercial activities of FEI and ACGS.

16.5.1 Please describe how FMI will measure the effectiveness of these policies, internal controls and processes to determine that they are achieving the desired separation.

16.5.2 Please describe the actions that FMI will take in the event a conflict of interest arises between FEI and FMI.


FORTISBC MIDSTREAM I A S AITKEN CREEK S E A-3 · Fortis Inc. press release dated December 3, 2015;...

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Transcript of FORTISBC MIDSTREAM I A S AITKEN CREEK S E A-3 · Fortis Inc. press release dated December 3, 2015;...