NATIONAL ENERGY BOARD

Transcription

1 Hearing Number RH-00-0 File OF-Tolls-Group-P-0-0 NATIONAL ENERGY BOARD IN THE MATTER OF A COMPLAINT BY PEMBINA RESOURCE SERVICES CANADA PURSUANT TO PARTS I AND IV OF THE NATIONAL ENERGY BOARD ACT IN RESPECT OF PLAINS MIDSTREAM CANADA ULC TARIFF NOS.,,, AND WRITTEN EVIDENCE OF PEMBINA RESOURCE SERVICES CANADA FEBRUARY, 0

2 -- TABLE OF CONTENTS I. INTRODUCTION... II. THE EASTERN PIPELINES AND PEMBINA'S OPERATIONS... Ill. THE COMPLAINT... IV. THE MARKET POWER OF PLAINS... V. EASTERN PIPELINE TOLL DESIGN, REVENUE REQUIREMENT AND TOLLS... VI. USE OF US DOLLAR DENOMINATED TOLLS IN THE NEW SDS TARIFF... VII. INFORMATION AND TRANSPARENCY REGARDING CHANGES TO TOLLS... VIII. NEB LIST OF ISSUES... LIST OF APPENDICES Appendix "A" - Written Evidence of Kalyan Dasgupta and Leonard Waverman Appendix "B" - Written Evidence of M.G. Matwichuk of Stephen Johnson Chartered Accountants _ I NA TDOCS

3 I. Q. A. INTRODUCTION What is the nature of Pembina Resource Services Canada's ("Pembina's") interest in this proceeding? Pembina is a regular shipper on each of the Eastern Delivery System - North Pipeline ("EDS-N") and the Sarnia Downstream Pipeline ("SDS") which are owned and operated by Plains Midstream Canada ULC ("Plains"). Pembina's affiliate, Pembina Empress NGL Partnership ("Pembina ENP"), is a joint venture participant, along with Plains, in the Sarnia Fractionation Facility located in Sarnia (Lambton County), Ontario ("Sarnia Facility"). The Sarnia Facility fractionates natural gas liquids ("NGL") mix received at the facility into specification butane, propane and condensate (butane, propane and condensate are collectively "Fractionated Products"). Pembina ships certain Fractionated Products produced at the Sarnia Facility to both proprietary storage and to markets in Canada and in the United States ("US"). Pembina and its predecessors have been a shipper on both the EDS-N and SDS since becoming a part owner of the Sarnia Facility in. The significant increase in the tolls on each of the EDS-N and SDS brought about the toll complaint ("Complaint") Pembina filed with the National Energy Board ("NEB"). Q. A. Please describe the nature and extent of Pembina's written evidence in this proceeding. In early March 0 Plains filed the following with the NEB: 0 (a) NEB Tariff No for service on the EDS-N that is to replace Tariff No (the "New EDS N Tariff"); (b) NEB Tariff No for service on the SDS that is to replace Tariff No (the "New SDS Tariff"); and (c) NEB Tariff No an International Joint Tariff for combined service on the SDS and the Plains LPG Pipelines (the "New SDS IJT") (the New EDS-N Tariff, New SDS Tariff and the New SDS IJT are collectively the "New Tariffs"). Pembina Complaint Pursuant to Parts I and IV of the National Energy Board Act dated March, 0 (A0-) ("Complaint") at paras -; Pembina Reply to the Answer of Plains Midstream Canada ULC in Respect of a Complaint Pursuant to Parts I and IV of the National Energy Board Act dated April, 0 (A -) ("Answer of Plains to the Com plaint") at para. In early March, Plains also filed: NEB Tariff No for service on the Eastern Delivery System - South Pipeline that is to replace Tariff No ; and NEB Tariff No an International Joint Tariff for combined service on the Easter Delivery System - South Pipeline and the Plains LPG Pipelines

4 -- As there is a significant increase in tolls contained in the New Tariffs, Pembina is concerned about how those tolls were derived and what the future tolls will be on both the EDS-N and SDS. This written evidence describes the concerns of Pembina and provides the position of Pembina in respect of each of the issues the NEB is considering in this, the RH-00-0, proceeding ("Proceeding"). Pembina is filing and sponsoring the joint written expert evidence of Dr. Leonard Waverman and Mr. Kalyan Dasgupta ("W-D"). W-D addresses how Pembina is captive to the EDS-N and SDS due to the lack of alternatives to both the EDS-N and SDS. The result of which is that Plains wields market power in seeking to extract the tolls contained in the New Tariffs. The W-D evidence is included as Appendix "A" to this written evidence. Pembina is also filing and sponsoring the written expert evidence of Mr. Greg Matwichuk of Stephen Johnson Chartered Accountants ("SJCA"). SJCA addresses both the cost of service ("COS") model used by Plains to determine the tolls in the New Tariffs and the application of regulatory rate making principles and precedent to that COS model. In doing so, SJCA assesses and opines as to whether or not the tolls in the New Tariffs are just and reasonable, as is required under Part IV of the National Energy Board Act. SJCA also estimates tolls for each of the EDS N and SDS that are consistent with generally accepted toll making principles when applying a COS model and that, in the opinion of SJCA, are just and reasonable. The SJCA evidence is included as Appendix "B" to this written evidence. 0 Pembina relies on the conclusions contained in the W-D and SJCA evidence and adopts this expert evidence as its evidence in this Proceeding. II. Q. A. THE EASTERN PIPELINES AND PEMBINA'S OPERATIONS Please briefly describe the operations of the Eastern Pipelines. The "Eastern Pipelines" consist of the EDS-N, Eastern Delivery System - South Pipeline ("EDS S") and the SDS. Pembina's general understanding of the Eastern Pipelines' operations are as follows: 0 The EDS-N offers bidirectional full-haul transportation service north and south to/from Sarnia from/to Windsor, Ontario. Additionally, EDS-N offers short-haul transportation service from both Sarnia and Windsor to the Nova Chemicals ("Nova") facility at Corunna, Ontario ("Nova Corunna Facility"). The only way that products shipped on the that is to replace NEB Tariff No.. Although Pembina is not a shipper on the Eastern Delivery System - South Pipeline, at the time it filed the Complaint, it was concerned that crosssubsidization may be occurring as between that pipeline and the EDS-N and SDS. RSC, c N-, as amended. _ INA TDOCS

5 - - EDS-N can reach the receipt/delivery point of the EDS-Nat Sarnia is through the Sarnia Interconnecting Pipeline ("SIP"), which itself only interconnects with the Sarnia Facility. The EDS-S offers bidirectional full-haul transportation service north and south to/from Windsor, Ontario from/to the international border, near Windsor and then on to Woodhaven, Michigan. It is unclear to Pembina whether or not the EDS-S is directly interconnected to the EDS-N. The SOS offers bidirectional short-haul transportation service to/from Vidal Street Station valve, near Sarnia, from/to the Sarnia Facility. Additionally, it offers short-haul transportation service from the Sarnia Facility to the Suncor Facility, near Sarnia. It also offers full-haul southbound transportation service from both the Sarnia Facility and the Vidal Street Station valve to the international border and then on to both St. Clair and Marysville, Michigan where storage and/or markets are available. 0 Q. A. Please briefly describe Pembina's understanding of the historical ownership of the Eastern Pipelines. Pembina understands that effective April, 0, Plains acquired all of the shares of BP Canada Energy Company ("BP") which indirectly owned the Eastern Pipelines ("Plains Acquisition"). Pembina understands that subsequently, BP and its subsidiaries were amalgamated - through one or more corporate amalgamations - with Plains. The result of which is that Plains became: the owner and operator of the Eastern Pipelines; the owner and operator of the SIP; a joint interest participant in, and operator of, the Sarnia Facility; and the owner and operator of several other pipelines and storage facilities in eastern Ontario, and the owner or part owner of a number of other facilities in Canada and the US. It is Pembina's understanding that the operation of and transportation service provided on the EDS-N, SIP and SOS, have not substantively changed since those facilities were first placed into operation. Q. A. Please briefly describe Pembina's operations. Pembina is an affiliate of Pembina ENP and as such it markets various products, including Fractionated Products, produced at various midstream and fractionation facilities, some of which are owned and operated by Pembina ENP. Plains response to Pembina information request ("Pembina-Plains IR") No..(b) and (c) (A00-). _ INA TDOCS

6 - - Pembina ENP holds a total of approximately. bcf/day of straddle plant capacity located at Empress, Alberta as well as a portion of an NGL mix storage and logistics facility in Manitoba (collectively "ENP Upstream"). Pembina ENP is also a joint venture participant, along with Plains, in the Sarnia Facility. Additionally, an affiliate of Pembina ENP, Pembina Infrastructure and Logistics LP, owns and operates an underground storage facility at Corunna, Ontario ("Pembina Corunna Facility"). The Pembina Corunna Facility is downstream of the Sarnia Facility. The NGL mix feedstock that is fractionated on account of Pembina ENP at the Sarnia Facility is sourced from ENP Upstream and is transported, in common batches with Plains' NGL mix, from western Canada on the Enbridge Pipelines Inc. pipeline system to the Sarnia Facility. The Sarnia Facility initiated operation in 0 with a nominal NGL mix processing capacity of,000 bbls/day. Since then, it has undergone various capital upgrades and expansions and is currently capable of processing approximately 0,000 bbls/day of NGL mix. Pembina stores Fractionated Products produced at the Sarnia Facility either at the Sarnia Facility itself, when storage capacity is available, or at the Pembina Corunna Facility for subsequent delivery to markets. In addition to shipping certain Fractionated Products from the Sarnia Facility on the EOS-N and SOS, Pembina also transports its Fractionated Products from the Sarnia Facility to markets in Canada and the US using rail and truck. Pembina also sells some of its Fractionated Products directly at the outlet of the Sarnia Facility. 0 Q. A. Please describe Pembina's operations that are served by the EDS-N and SOS. Plains operates the Sarnia Facility on behalf of itself and Pembina. The facility fractionates NGL mix received at the facility by way of pipeline, rail and truck into Fractionated Products for the accounts of Pembina and Plains. The Fractionated Products are separately delivered to each of Pembina and Plains at the outlet from the Sarnia Facility. The Sarnia Facility is directly interconnected to the SOS. Pembina ships certain Fractionated Products from the Sarnia Facility using the SOS to transport those products to markets in Canada and the US. Specifically, in Canada, Pembina uses SOS to transport propane and butane to both the Nova Corunna Facility and to the Pembina Corunna Facility by way of the Vidal Street Station delivery point on the SOS. 0 The Sarnia Facility is not directly interconnected to the EOS-N. To access the EOS-N from the Sarnia Facility, Pembina first ships on the SIP. The SIP is a stub pipe (approximately. Hereinafter "Pembina" includes individually or collectively as applicable: Pembina, Pembina ENP and Pembina Infrastructure and Logistics LP. _ I NATDOCS

7 -- kilometres in length) that interconnects the Sarnia Facility with the EDS-N. The SIP is owned and operated by Plains. It is Pembina's understanding that the SIP only ships EDS-N volumes, and no other volumes, that are leaving or destined for the Sarnia Facility. Pembina uses the SIP and the EDS-N to transport propane and butane to the Nova Corunna Facility. Pembina also uses the SIP and the EDS-N to transport propane and butane, via the downstream interconnecting Genesis Pipeline (owned and operated by Genesis Canada Pipeline Ltd.), to the Pembina Corunna Facility. Pembina stores this propane and butane, shipped via these pipelines from the Sarnia Facility to the Pembina Corunna Facility, for subsequent delivery to Canadian and US markets. Q. A. Please briefly describe the financial impacts to Pembina associated with not utilizing the Sarnia Facility and the Pembina Corunna Facility. There are substantial financial impacts to Pembina associated with not utilizing or under-utilizing either or both the Sarnia Facility and the Pembina Corunna Facility. These financial impacts include: fixed operating costs; disruption of inventory management; disruption of Pembina's NGL mix supply chain; disruption of and to existing wholesale Fractionated Products customers; and disruption to and underutilization of upstream facilities that produce NGL mix in Alberta. 0 Q. A. -Please describe Pembina's understanding of how the SIP relates to the Eastern Pipelines. Pembina is required to transport Fractionated Products on the SIP in order to utilize the EDS-N. Pembina's use of the SIP is not optional and is currently subject to whatever provisions Plains imposes through a commercial contract for use of the SIP. The SIP is currently not a rate regulated pipeline and has at times been operated under a private tariff issued by Plains. The SIP is integral to the operation of the EDS-N in that in absence of the SIP no shipments may be received or delivered by the EDS-N at the "Sarnia Station, Lambton County, Ontario" receipt or delivery point on the EDS-N. 0 Pembina-Plains IR No. (b) and (c). Pembina-Plains IR No. (b) and (c). _INATDOCS

8 -- Q. A. Has integrated transportation service on the EDS-N and SIP ever been offered under a single NEB Tariff? Yes, for at least seven years. From to integrated transportation service on the EDS-N and SIP was offered from the Sarnia Facility to the Novacor (Corunna) delivery point under NEB Tariffs. This was done under Dome NGL Pipeline Ltd. NEB Tariffs No.,, and. Q. In light of the integral nature of the SIP to the EDS-N and the historical offering of integrated transportation service on the EDS-N and SIP, would Pembina prefer to have Plains issue a single NEB tariff, as was first proposed by Plains when it filed the New EDS- N Tariff, for integrated service on both the EDS-N and SIP? A. Yes. Such a tariff would be reflective of the integrated nature of the transportation service that Pembina currently obtains on the EDS-N; it would ensure transparency of the service and the associated tolls; and it would create administrative efficiencies. At the time Pembina filed its Complaint its sole concern with the inclusion of the SIP in the New EDS Tariff was that the SIP was not part of the EDS-N and was not rate regulated. This raised the potential for a lack of transparency as to what portion of the proposed EDS-N toll represented the SIP toll. Based on the historical tariffs referenced in Q/A # above and on the information that Plains has placed on the record of this Proceeding, these concerns have now been addressed. 0 Ill. Q. A. THE COMPLAINT Please briefly describe why Pembina brought the Complaint. In early March 0, Plains filed the New Tariffs which, amongst other things, significantly increased the tolls on both the EDS-N and SDS. The New Tariffs were to take effect on April, 0. The toll increases contained in the New Tariffs were significant, particularly in light of the fact that Pembina had anticipated that tolls on the EDS-N were to decrease from their previous levels as discussed further below in Q/A #. With the filing of the New Tariffs, tolls on EDS-N and SOS were to increase approximately % and %, year over year, on a trued-up basis, respectively. 0 In addition to the substantial increase in tolls on the EDS-N and SDS, at the time of filing the Complaint, Pembina also had concerns with: certain terms and conditions of service introduced in the New Tariffs; how the SIP was to be included in EDS-N tolls given its addition as a receipt and delivery point on the EDS-N; and with the introduction of the New SDS IJT. _ INATDOCS

9 -- Q. A. Did Pembina have concerns with the New Tariffs prior to Plains filing them with the NEB? Yes. Prior to Plains filing the New Tariffs with the NEB, Plains discussed the New Tariffs with Pembina. It was during these discussions that Pembina's concerns first materialized. Those discussions generally consisted of the following: On January 0, 0 through an , Plains confirmed that it was expecting tolls to decrease on the EDS-N - this was consistent with Pembina's understanding given consultations that had occurred a year earlier in respect of EDS-N 0 tolls. On February, 0, Plains first informed Pembina that tolls on the EDS-N and SDS would significantly increase over prior year levels. On February, 0 Plains met with Pembina to discuss the toll increases and during that meeting Plains provided high level information regarding a COS toll methodology and toll true-up mechanism for the EDS-N and SDS. On February, 0 Plains provided Pembina with draft copies of the New Tariffs and some very high level COS information for both EDS-N and SDS. In providing this information, Plains did not specify that it had adjusted the EDS-N rate base. On March, 0 Plains filed the New Tariffs with the NEB. 0 On March, 0 Plains confirmed that it made a decision to write-up the asset value, and rate base, of the EDS-N. In doing so, Plains cited its Audited Financial Statements that it filed annually with the NEB; and that the EDS-N rate base methodology had not significantly changed since the Plains Acquisition. Q. A. Has Pembina had concerns with the Eastern Pipelines tolls and tariffs in previous years? Yes, in particular in respect of the EDS-N. On April, 0 the EDS-N toll increased %, from $. /m to $. /m. Pembina expressed concerns in advance of this significant toll increase. Specifically, Plains informed Pembina of this toll increase in early February 0 and in doing so indicated that it would take effect on April, 0. The reasons provided by Plains for the toll increase was that EDS-N was going to incur, during the 0 tolling period, an increase in operating expense due to internal line inspection ("ILi") runs and associated integrity digs. At that time, Plains indicated that this was a one-time event and that the EDS-N operating expense would decrease for the 0 toll year (April 0 to March 0) - resulting in a reduction in tolls Plains EDS-N NEB Tariff No. 0 - Sarnia Station to Windsor Station filing (AFQ). Plains EDS-N NEB Tariff No. - Sarnia Station to Windsor Station filing (AJW). _ INA TDOCS

10 - - for 0. However, the 0 tolls for EDS-N did not decrease, but instead increased significantly to - on a non-trued-up basis. Q. A. Please summarize how the tolls on the Eastern Pipelines have changed since Plains became the owner and operator of the pipelines. Plains became the owner and operator of the Eastern Pipelines in April 0. At that time, tolls on the EDS-N and SDS did not change. However, approximately one year later, in April 0, tolls on the EDS-N and SDS started to significantly increase and further increases have continued through to 0. Since 0 - the time of the Plains Acquisition - the tolls on EDS-N and SDS have increased as much as - remained unchanged during the same period. and %, respectively. However, tolls on the EDS-Shave Table below, outlines the toll increases on the EDS-N (Sarnia Station to Novacor (Corunna)) since 0. Table EDS-N -Toll History Since 0 Sarnia Station to Novacor Corunna Effective Date Tariff Toll Receipt and Delivery Increase Cumulative (CAD) Points lncrease April, 0 NEB No $0./m Sarnia Station to Novacor Corunna (N/A) (N/A) January, 0 NEB No Sarnia Station to (N/A) (N/A) Novacor Corunna April, 0 NEB No Sarnia Station to % % Novacor Corunna July, 0 NEB No Sarnia Station to % % Novacor Corunna January, 0 NEB No 0 Sarnia Station to 0% % Novacor Corunna April, 0 NEB No Sarnia Station to % % Novacor Corunna April, 0 NEB No (New EDS-N Tariff) Plains Fractionation Plant to Novacor (Corunna) % % Sarnia Station to Novacor (Corunna) Percentage difference between previous toll and new toll. Percentage difference between April, 0 toll. Plains EDS-N NEB Tariff No. filing (ASE). Plains EDS-N NEB Tariff No. filing (AEG). Plains EDS-North NEB Tariff No. filing (AFK). Plains switched to postage-stamp tolling for the EDS North Pipeline in this tariff. Plains EDS-N NEB Tariff No. filing (AYJ). Plains EDS-N NEB Tariff No. 0 filing (AFQ). Plains EDS-N NEB Tariff No. filing (AJW). Plains EDS-N NEB Tariff No. filing (AYR). _ INATDOCS

11 - - Table below outlines the toll increases on SDS since 0. Table SOS -Toll History Since 0 Effective Date Tariff Toll Receipt and Delivery lncrease;l;l Cumulative Points lncrease April, 0 NEB No $0./m" Plains Fractionation (N/A) (N/A) (CAD) Plant to Vidal Street Station January, NEB No $0./m" Plains Fractionation 0% 0% 0 (CAD) Plant Vidal Street Station February, NEB No $0./m" Plains Fractionation 0% 0% 0 (CAD) Plant to Vidal Street Station April, 0 NEB No $./m;:s Plains Fractionation % % (CAD) Plant to Vidal Street Station September, NEB No $./m" Plains Fractionation 0% 00% 0 (CAD) Plant to Vidal Street Station January, 0 NEB No $./m;:s Plains Fractionation 0% 00% (CAD) Plant Vidal Street Station April, 0 NEB No $./m" Plains Fractionation 0% 00% 0 (CAD) Plant Vidal Street Station April, 0 NEB No $./m" Plains Fractionation %";l %"" (USD) Plant Vidal Street (New SDS Station Tariff) Q. What is the import of the historical and current toll increases that Pembina has identified on the Eastern Pipelines? A. 0 0 The significant increases in the EDS-N and SDS tolls with no increase in the EDS-S tolls were a concern to Pembina given that Pembina has remained a regular shipper on both the EDS-N and Percentage difference between previous toll and new toll. Percentage difference between April, 0 toll. Plains SDS NEB Tariff No. filing (ASE ). Plains SDS NEB Tariff No. filing (AEG). Plains SDS NEB Tariff No. filing (AFT). Plains SDS NEB Tariff No. filing (AFK). Plains SDS NEB Tariff No. filing (AZ). Plains SDS NEB Tariff No. filing (AFL). Plains SDS NEB Tariff No. filing (AJA). Plains SDS NEB Tariff No. filing (AYR). The proposed tolls for 0 are in US dollars and in 0 the tolls were in Canadian dollars - a conversion rate of $.0 CAD per USD was used to compare the 0 toll with the 0 toll. Ibid. _ INA TDOCS

12 - - SDS and given that the SDS has in recent years been suffering from apportionment. These concerns caused Pembina to request Plains to provide sufficient financial information supporting the toll increases contained in the New Tariffs. Additionally, it was Pembina's understanding that, other than the ILi work in 0, there have not been any significant capital or operating expenditures required on the EDS-N since 0. Pembina now understands that in 0 the SDS had some capital work completed however the details of that work and impact to the tolls were not provided to shippers until this Proceeding. Q. A. What have been the actual toll impacts to Pembina as a result of these significant increases in EDS-N and SOS tolls over the 0 to 0 period? The toll impacts to Pembina are reflected in the Table, for EDS-N, and Table, for SDS, below Toll year spans April of the listed year to March of the following year. Volume shipped multiplied by difference between current and most recent lower toll. Actual and forecast volumes. Toll year spans April of the listed year to March of the following year. Excluding volumes shipped to Suncor. Volume shipped multiplied by difference between current toll and most recent lower toll. Actual and forecast volumes. _ INATDOCS

13 -- Q. Given the information Plains has filed in this Proceeding, what concerns does Pembina have with the New Tariffs? A. Having had the opportunity to review the evidence and information provided by Plains in support of the New Tariffs, Pembina remains concerned with the following: (a) (b) (c) (d) the market power that Plains holds through its ownership and operation of the Eastern Pipelines; the tolls in the New Tariffs not being just and reasonable; the use of US dollar denominated tolls in the New SDS Tariff; and the level of information that should be provided to shippers when Plains proposes to change tolls on the Eastern Pipelines under a COS toll methodology. IV. THE MARKET POWER OF PLAINS Q. In its evidence Plains provides a comparison of transportation modes and rates for the transportation of Fractionated Products from the Sarnia Facility to Novacor Corunna. Is this comparison accurate? A. No. The comparison is not accurate for a number of reasons. First, Plains provides an inaccurate estimate of the 0-0 volumes of Fractionated Products that Pembina may seek 0 to ship from the Sarnia Facility. In addition to this, the comparison fails to account for physical constraints, capacity constraints and contractual constraints facing Pembina at one or more of the Sarnia Facility, the Pembina Corunna Facility and the Nova Corunna Facility, as outlined further below. The result of these constraints is that truck and rail have not historically been used by Pembina to transport Fractionated Products to either of the Pembina Corunna Facility and the Nova Corunna Facility. Q. What are Pembina's 0-0 volumes of Fractionated Products that Pembina will ship from the Sarnia Facility? A. Toll US$. converted to CDN$ at.0. Expert Report and Direct Testimony prepared by Jeff D. Makholm dated November 0 ("Makholm Evidence") at Q/A and Table (A0-). April, 0 to March, 0. _ INA TDOCS

14 - - Q.0 A.0 What are the physical capacity constraints facing Pembina at the Sarnia Facility? Q. A. What are the contractual constraints facing Pembina at the Sarnia Facility? 0 Q. A. Are there other issues that make the transportation comparison provided Plains in its evidence inaccurate? Yes. The Plains comparison only lists Novacor Corunna as the final destination for certain Fractionated Products and this is not the only point that Pembina uses the EDS-N to deliver products to. Pembina also uses EDS-N to first transport certain Fractionated Products to the Nova Corunna Facility and then, through the Genesis Pipeline, to the Pembina Corunna Facility at the final destination. _ INA TDOCS

15 - - Q. Are there additional physical constraints that make the transportation comparison provided by Plains inaccurate? A. Yes. When propane is loaded into rail cars or tanker trucks at the Sarnia Facility, an additive (ethyl mercaptin) is added to the propane. This additive is detrimental to the operation of storage caverns like those used at the Pembina Corunna Facility and the Nova Corunna Facility and for this reason, Pembina does not use rail or truck transportation to transport propane from the Sarnia Facility to storage at the Pembina Corunna Facility or to the Nova Corunna Facility. Additionally, the Pembina Corunna Facility has no truck unloading facilities and although it has rail loading and unloading facilities for both propane and butane, those facilities are fully utilized for loading during the winter season. That is, no unloading of propane or butane from rail is possible at the Pembina Corunna Facility during the winter. Q. In addition to the inaccuracies outlined above, are there other issues with the Plains comparison of transportation modes and rates for the transportation of Fractionated Products from the Sarnia Facility to Novacor Corunna? 0 A. Yes. The rates cited by Plains for truck and rail transport do not reflect market rates. Specifically, transporting propane or butane by truck (notwithstanding there are no truck unloading facilities at the Pembina Corunna Facility) or rail from the Sarnia Facility to the Pembina Corunna Facility would cost approximately $.00/m and $./m, respectively. This is the cost of transport only and excludes additional costs for loading and unloading. Q. Is Pembina captive to the EDS-N and SOS? A. Yes. As outlined in the expert evidence of W-D (Appendix "A" to this written evidence), based on 0 the both the transportation capacity constraints discussed above and the nature and geographic scope of the EDS-N, SIP and SDS, as well as Plains ownership of these pipelines, Pembina is captive to the EDS-N and SDS with respect to the Fractionated Products it seeks to transport from the Sarnia Facility. _INATDOCS

16 -- v. Q. A. EASTERN PIPELINE TOLL DESIGN, REVENUE REQUIREMENT AND TOLLS Are the tolls, or rates, contained in the New Tariffs just and reasonable? No. As outlined in the expert evidence of SJCA (Appendix "B" to this written evidence), the proposed tolls contained in the New Tariffs are not just and reasonable. Q. A. What tolls are just and reasonable for the provision of service on the EDS-N and SOS? The expert evidence of SJCA (Appendix "B" to this written evidence) estimates tolls for each of the EDS-N and SDS that are consistent with generally accepted toll making principles when applying a COS model. These tolls are shown in Table below and are in the opinion of SJCA, just and reasonable. EDS-N Unadjusted Toll before true-u Toll (after true-up) month amortization Toll (after true-up) month amortization Toll (after true-up) month amortization sos Toll Table SJCA Estimated Tolls EDS-N and SOS (April 0 - March 0 SJCA Estimated Toll CON$) Plains Proposed Toll (CON$) $.0/m SJCA Estimated Toll (CON$) $./m Plains Proposed Toll n/a n/a VI. Q. A. USE OF US DOLLAR DENOMINATED TOLLS IN THE NEW SOS TARIFF The New SOS Tariff charges tolls in US dollars ("USO"), is this of concern to Pembina? Yes. Plains' evidence indicates that tolls in the New SDS Tariff are charged in USD to assist in complying with the requirements of the US Federal Energy Regulatory Commission ("FERC") in respect of the New SDS IJT. Pembina does not understand why tolls for pipeline transportation service provided completely in Canada through the New SDS Tariff, and not the New SDS IJT, would be charged in USD. Particularly, given that those tolls are COS based and the COS is determined entirely in Canadian dollars ("CAD"). 0 Additionally, Pembina is concerned with the lack of information and explanation of how Plains intends to conduct its annual true-up of SDS tolls to account for USD exchange rates. Pembina-Plains IR No.. (a). Pembina-Plains IR No.. (c). _ INA TDOCS

17 -- Specifically, charging rates using a USO toll that will be trued-up puts an additional risk associated with the USO to CAD exchange rate on SOS shippers. A statement in the SOS tariff that the tolls will be trued-up based on actuals and an explanation of the actual applicable reference exchange rate to be used combined with the planned methodology including the timeline for calculating the true-up (i.e. daily, monthly, annually) should be express and transparent. Although Plains provided an illustrative example of how the USO to CAD exchange will be truedup, it failed to confirm what benchmark exchange rate will be used. As outlined in the expert evidence of SJCA, in conducting its monthly true-up as between USO and CAD exchange, Plains should use an objective and independent posted benchmark exchange rate such as that published by the Bank of Canada (closing exchange rate on the last Friday of each month). VII. INFORMATION AND TRANSPARENCY REGARDING CHANGES TO TOLLS Q. Pembina previously touched on the level of consultation and transparency Plains provided Pembina leading up to the filing of the New Tariffs with the NEB, please comment on the level of information provided by Plains. A. In issuing its Notice to shippers in respect of the pending filing of the New Tariffs, Plains 0 described the pending tariff filings as reflecting "major structural and procedural changes". 0 Notwithstanding this description, when Pembina inquired and expressed concerns about the significant rate increases, Plains only provided very high level information contained in a COS summary. No detailed information outlining the reasons for the "major structural or procedural changes" was provided. Q.0 Notwithstanding that Pembina disputes the tolls that are contained in the New Tariffs, what level of information and transparency does Pembina think is appropriate to be provided to shippers when toll changes are pending on a Group Company pipeline? A.0 When a Group pipeline is operating under a COS tolling methodology and is proposing a 0 significant change in tolls, or rates, the minimum level of information that Pembina views should be provided to shippers is the information provided in Confidential Attachments PMC- and PMC- to the Plains evidence. Additionally, Group pipelines should also provide information about the reason and rationale for capital projects and large expense items, or differentials over previous years, that are included in the toll calculations. Supporting financial information for significant toll changes should be provided if requested by shippers, to assist in understanding the basis for and the magnitude of any change. 0 Pembina-Plains IR No. and. {d). Expert evidence of SJCA at, see specifically section. Appendix C to the Answer of Plains to the Complaint dated April, 0 (A-). Written Evidence of Plains at, see specifically "List of Attachments" (A0-). _ INA TDOCS

18 -- Additionally, if a pipeline plans to perform a true-up that will impact the toll being charged to shippers, the pipeline company should provide a clear explanation of the exact methodology that will be used along with the actual calculation and any associated reconciliation. Finally, it should also provide assurance that the NEB has the right to audit the true-up methodology and calculation. VIII. Q. A. NEB LIST OF ISSUES Please summarize the position of Pembina on the issues in the NEB's List of Issues for the Proceeding. Pembina's positions in respect of each of the issues on in the NEB's List of Issues are summarized below: NEB Issue #: Whether the proposed tolls on the Eastern Delivery System - North (EDS N); Eastern Delivery System - South (EDS-SJ and the Sarnia Downstream (SDS) pipelines (collectively referred to as the Eastern Pipelines) are just and reasonable. As outlined in the expert evidence of SJCA, the proposed COS tolls for the EDS-N and SDS in the New Tariffs are not just and reasonable. Rather, the tolls estimated by SJCA for each of EDS-N and SDS, which are consistent with generally accepted toll making principles and a COS methodology, are just and reasonable. Further, as outlined in the expert evidence of W-D, Pembina is captive to the EDS-N and SDS and as a result Plains wields market power in seeking to extract the proposed tolls in the New Tariffs. 0 Should the NEB conclude that the proposed tolls for the EDS-N and SDS are not just and reasonable, then in keeping with past NEB precedent, Plains should not be able to recover the costs associated with this Proceeding from shippers on either or both of the EDS-N and SDS in future tolls. 0 NEB Issue #: Whether the cost of service model and its components, on EDS-N and SDS, including the depreciation model, throughput forecasts and any deferral accounts and true-up mechanisms, are appropriate. As outlined in the expert evidence of SJCA, certain components, inputs and methodologies in the COS model used by Plains are not, or do not appear to be, appropriate. The expert evidence of SJCA has made adjustments to the COS tolls to account for the appropriate components, inputs and methodologies. NEB Reasons for Decision in the Matter of Murphy Oil Company Ltd. (now Plains Marketing Canada L.P.) Concerning Tolls for the Milk River Pipeline, Toll Compliant (August 00) at. _ INA TDOCS

19 -- NEB Issue #: Whether the toll adjustment to remove the Sarnia Interconnect Pipeline from NEB tolls is appropriate. Plains has indicated that the stand alone component of the SIP toll that was included in the COS toll for EDS-N is $0./m. Given the record of the Proceeding, Pembina is not in a position to dispute this amount. Additionally, given that in the past integrated transportation service on the EDS-N and SIP was offered for a substantive period and given the integrated nature of the transportation service that Pembina currently obtains on the SIP and the EDS-N, Pembina would prefer to have Plains issue a single NEB tariff, as was first proposed by Plains in the New EDS-N Tariff, for integrated service from the Sarnia Facility to the Novacor (Corunna) delivery point on the EDS-N. NEB Issue #: Whether the rate bases on EDS-N and SDS reflect a fair book value. As outlined in the expert evidence of SJCA, it is inconsistent with generally accepted toll making principles to write-up plant assets, or rate base, from historical original cost for the purposes of implementing COS tolls. Further, as confirmed by W-D, Plains wields market power and for this reason the historic original cost of plant in service for both the EDS-N and SDS should be used in determining COS tolls on those pipelines. 0 NEB Issue #: Whether the returns on rate base on the EDS-N and SDS are consistent with the Fair Return Standard. As outlined in the expert evidence of SJCA, the after tax weighted average cost of capital ("ATWACC") used by Plains in determining the COS tolls for the EDS-N and SDS is excessive relative to both: the range of return on equity approved by Canadian regulators, including the NEB; and the actual cost of debt of Plains' parent. NEB Issue #: Whether cross-subsidization among the Eastern Pipelines has occurred. In accordance with NEB Order P0-00-RH-00-0, Pembina business personnel have not had access to certain confidential Plains evidence that relates to this issue. In respect of this issue, Pembina relies on and adopts the evidence of SJCA that addresses this issue. 0 NEB Issue #: Whether the interim tolls currently charged to Pembina are consistent with the Board's interim tolls order for the SDS. Having had the opportunity to review the evidence and information provided by Plains in support of the New Tariffs, and although it still appears that the interim tolls Plains has charged Pembina Answer of Plains to the Complaint at para. For clarity, Pembina's business personnel did not, and do not, have access to the Plains' confidential information contained in this portion of the SJCA evidence. Only Pembina's internal and external legal counsel have had access. _ INATDOCS

20 - 0 - are inconsistent with the interim tolls order for the SDS, Pembina views this issue as de minimis in value relative to the other issues in this Proceeding. Issue #: Whether EDS-N and EDS-S should be considered as a single pipeline system; and Having reviewed the record of the Proceeding, Pembina takes no position in respect of this issue. Issue #: The appropriateness of consultations with shippers on the proposed tariffs and the disclosure to shippers of supporting financial information. Pembina's position as to the level of information that should be provided and the amount of consultation expected of Group companies is outlined in Q&A # to 0 above. O Q. Does this conclude the evidence of Pembina? A. Yes, at this time. _ INATDOCS