S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * *

Transcription

1 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the complaint of ) DOMINION MIDWEST ENERGY, INC., and ) DOMINION RESERVES, INC., against ) Case No. MICH CON GATHERING COMPANY and ) MICHIGAN CONSOLIDATED GAS COMPANY. ) ) At the November 8, 2007 meeting of the Michigan Public Service Commission in Lansing, Michigan. PRESENT: Hon. Orjiakor N. Isiogu, Chairman Hon. Monica Martinez, Commissioner Hon. Steven A. Transeth, Commissioner ORDER Procedural History On January 9, 2006, Dominion Midwest Energy, Inc., and Dominion Reserves, Inc. (collectively, Dominion), filed a complaint against Mich Con Gathering Company (MGAT) and Michigan Consolidated Gas Company (Mich Con) regarding the terms and conditions of the agreement between the parties for natural gas transportation services on the Antrim Expansion Pipeline (AEP) owned and operated by MGAT. 1 1 Mich Con assigned its rights and duties respecting the AEP to its subsidiary, MGAT, on or about January 1, Because Dominion made no showing that Mich Con owned or operated the AEP during the time period relevant to the case, the Commission dismissed the complaint against Mich Con in its August 7, 2007 order. With respect to the chronology, this order attempts to use the name Mich Con for time periods when that party was still the owner/operator, and MGAT for time periods after the transfer of the pipeline to the subsidiary.

2 Pursuant to due notice, on March 9, 2006, a prehearing conference was held before Administrative Law Judge Mark L. Eyster (ALJ). The parties appeared and the Commission Staff (Staff) participated. 2 On June 20 and 21, 2006, an evidentiary hearing was held. The ALJ issued a Proposal for Decision (PFD) on February 2, On August 7, 2007 the Commission issued its order. In the order, the Commission found that MGAT had discriminated against Dominion with respect to certain treatment requirements. The Commission directed Dominion to file within 30 days testimony and exhibits supporting its calculation of overpayments resulting from the discriminatory treatment, and MGAT was given 30 days thereafter in which to file opposing testimony and exhibits. If the parties could not agree on the cost differential, the order indicated that the ALJ should set the matter for a prehearing conference. On September 6, 2007, Dominion filed its testimony and exhibits regarding overpayments. See, proposed Exhibits DOM-121, DOM-122. On that date, MGAT filed a petition for rehearing. On September 27, 2007, the Staff and Dominion filed responses to the petition for rehearing. On October 5, 2007, MGAT filed a motion to hold the case in abeyance until the petition for rehearing is resolved by the Commission. Along with that motion, MGAT filed testimony and exhibits disputing Dominion s damage claims. Background In an order dated March 29, 1995, in Case No. U (the 1995 order), the Commission granted Mich Con authority to construct and operate the AEP, and established a transportation rate for gas transported through the AEP. Antrim gas tends to contain high levels of carbon dioxide 2 The Commission s August 7, 2007 order incorrectly indicated that leave to intervene was granted to two parties at the prehearing. No intervention was granted. Page 2

3 (CO 2 ), which can be destructive to the pipeline system. The 1995 order requires Mich Con to deliver gas with a carbon dioxide level of 2% or less at all downstream take-away points and to provide impartial, non-discriminatory access to all take-away transportation systems. The 1995 order, pp To achieve this CO 2 content requirement, much of the Antrim gas requires treatment to remove excess CO 2. In anticipation of construction of the AEP, each producer entered into either an Antrim Gas Service Agreement for Transportation (ASAT) or an Antrim Gas Service Agreement for Transportation and Treatment (ASATT) with Mich Con. Mich Con signed an ASATT with Wolverine Gas and Oil Company, Inc., (Wolverine) on September 12, 1994 (ASATT #1). Exhibit DOM-1, p. 5. On that date Wolverine also executed a Dedication of Antrim Reserves (Dedication). Exhibit DOM-2. The Dedication provides that Wolverine hereby dedicates to the transportation and treating services provided by MichCon on the [AEP] all of the natural gas produced from the Antrim shale formation which it owns or controls. Id. The Dedication contains no termination date. On February 6, 1995, Dominion and Mich Con entered into ASATT #16. Exhibit DOM-3. On the same day, these parties also signed a Commitment Letter, that commits certain quantities of natural gas for Gas Transportation Service on the [AEP] Exhibit DOM-4. The Commitment Letter, by its express terms, expired with the expiration of ASATT #16 on November 8, Id.; Exhibit DOM-3, p. 5. On January 1, 1997, Dominion acquired Wolverine s interest in the gas covered by ASATT #1 and the Dedication. 3 Tr 156. The gas-producing acreage covered by the Dedication (ASATT #1) and the Commitment Letter (ASATT #16) is substantially overlapping, though not apparently identical. 3 Tr 156. Page 3

4 In the fall of 2005 both ASATTs were expiring. After engaging in contract negotiations with MGAT and CMS, Dominion decided to enter into a five-year treatment contract with CMS, and requested to enter into an ASAT (a transportation-only contract) with MGAT. MGAT responded that the Dedication (which covers transportation and treatment) is in perpetuity, and offered only the option of an ASATT (with treatment) for the gas covered by ASATT #1. Dominion did not accept this offer. On November 29, 2005, Dominion signed a Firm Gas Treating Agreement with CMS Antrim Gas, Ltd., (CMS), whereby CMS treated Dominion s gas to the required 2% CO 2 level. Exhibit DOM-6. Despite the inconsistency with the Dedication, MGAT offered Dominion an ASAT in December 2005; however, it contained a new requirement that the shipper show that it has downstream processing agreements for the gas to be treated to a carbon dioxide content of 0.75% (known as supertreatment). Dominion was given the choice of either signing the new ASAT or no longer having its gas nominated for transportation on the AEP effective January No other ASAT contained the 0.75% CO 2 content treatment requirement. See, 4 Tr 352. Dominion filed this complaint on January 9, On January 30, 2006, Dominion executed the ASAT requiring supertreatment under protest. Exhibit DOM-10. In the August 7, 2007 order (Order), the Commission found that the Dedication is a transfer of an interest in real property to Mich Con with no termination date, but with a provision for modification or amendment by a writing duly executed by both parties. The Commission went on to opine that ASATT #16 and the associated Commitment Letter modified the Dedication because Dominion had succeeded to Wolverine s interest. The Commission found that, with respect to the protested ASAT, MGAT had discriminated against Dominion in violation of MCL as a common carrier by giving preference to all other shippers with transportation-only contracts, and all shippers with transportation-and- Page 4

5 treatment contracts. The Commission found that all other shippers with transportation-only contracts were required to treat to the 2% CO 2 level, not the 0.75% level, and thus faced no increased costs; and all shippers who took treatment from MGAT also faced no increased costs. The Commission found that, as a result of MGAT s discriminatory contract requirement, Dominion has potentially overpaid for treatment of Antrim gas volumes produced from acreage covered by ASATT #16 and the Commitment Letter, and that Dominion is entitled to reimbursement of the difference between the amount Dominion would have paid for treatment of the relevant gas volumes to 2% CO 2 content and the amount Dominion paid for treatment to 0.75% during the time period between January 30, 2006, and the date of issuance of its order. Order, p. 16. Petition for Rehearing In the petition for rehearing, MGAT argues that the Commission erred in finding that the Commitment Letter modified the Dedication, because the Wolverine Dedication and the Dominion Commitment Letter represented different interests in the acreage covered by those contracts. Thus, the fact that Dominion later acquired Wolverine could not result in modification of the Dedication. MGAT further argues that the Commission lacks authority to award damages to Dominion based on gas volumes covered by the Dedication. In response to MGAT s petition for rehearing, Dominion argues that the petition is a rehash of previous arguments and does not meet the standard for rehearing. Though not a petition for rehearing, Dominion further argues in its response that the Commission s finding that the Dedication was perpetual is incorrect. Page 5

6 In its response to MGAT s petition for rehearing, the Staff argues that MGAT is correct that the Commission erred in finding that the Commitment Letter modified the Dedication. The Staff avers that Dominion has only overpaid, relative to its working or ownership interest, for the treatment of Antrim gas produced from the acreage covered by the Commitment Letter. Staff s response to petition for rehearing, p. 2. The Staff recommends that the Commission clarify its August 7, 2007 Order by requiring that Dominion identify Antrim gas volumes attributable to the February 6, 1995 ASATT the Commitment Letter, and clarify that the Commitment Letter and Dedication represent two different ownership interests. Id., p. 6. The Commission grants MGAT s petition for rehearing with respect to the issue of the relationship between the Dedication and the Commitment Letter. MGAT is correct that the Commission erred in opining that the Commitment Letter modified the Dedication, because the two contracts represent different interests in the gas covered by those contracts, despite the overlapping acreage. Though this does not affect the finding and ordering paragraphs of the August 7 order, it does affect the analysis contained in the text and may affect the calculation of the difference in treatment costs resulting from the discrimination. To that end, the Commission finds that Dominion should, within 30 days, resubmit testimony and exhibits in support of its calculated reimbursement, and MGAT will have 30 days within which to file responsive testimony and exhibits. Again, if the parties cannot agree, the matter should be set for a prehearing. In calculating the amount Dominion seeks as reimbursement, Dominion should include gas volumes attributable to the January 30, 2006 ASAT. The Commission notes that, in proposed Exhibits DOM-121 and DOM-122, Dominion did not demonstrate how it arrived at the difference between the cost of treatment to 2% and the cost of treatment to 0.75%. This shortcoming should be addressed in Dominion s next filing. Page 6

7 The Commission FINDS that: a. Jurisdiction is pursuant to 1929 PA 9, MCL et seq.; 1919 PA 419, MCL et seq.; 1939 PA 3, MCL et seq.; 1969 PA 165, MCL et seq.; 1969 PA 306, MCL et seq.; and the Commission s Rules of Practice and Procedure, 1999 AC, R et seq. b. MGAT s petition for rehearing of the issue of the effect of the Commitment Letter on the Dedication should be granted. c. The Dedication of Antrim Reserves executed on September 12, 1994, by Wolverine and Mich Con is for the life of the reserves so dedicated, and was not modified by the Commitment Letter and ASATT # 16 executed on February 6, 1995, by Dominion and Mich Con. d. Dominion is entitled to reimbursement of the difference between the amount Dominion would have paid for treatment of gas volumes associated with the January 30, 2006 ASAT to 2% CO 2 content and the amount Dominion paid for treatment to 0.75% during the time period between January 30, 2006, and August 7, Within 30 days of the date of this order Dominion may file prepared testimony and exhibits demonstrating the extent of the overpayment. MGAT will have 30 days from the date of that filing to either pay the claimed amount or file evidence disputing the amount. THEREFORE, IT IS ORDERED that: A. Mich Con Gathering Company s petition for rehearing is granted with respect to the issue of the effect of the Commitment Letter and ASATT # 16 executed on February 6, 1995, by Dominion Reserves, Inc., and Michigan Consolidated Gas Company on the Dedication of Antrim Reserves executed on September 12, 1994, by Wolverine Gas and Oil Co., Inc., and Michigan Consolidated Gas Company. Page 7

8 B. The Dedication of Antrim Reserves executed on September 12, 1994, by Wolverine Gas and Oil Co., Inc., and Michigan Consolidated Gas Company is for the life of the reserves so dedicated, and was not modified by the Commitment Letter and ASATT # 16 executed on February 6, 1995, by Dominion Reserves, Inc., and Michigan Consolidated Gas Company. C. Dominion Midwest Energy, Inc., and Dominion Reserves, Inc., are entitled to reimbursement of the difference between the amount they would have paid for treatment of gas volumes associated with the January 30, 2006 ASAT to 2% CO 2 content and the amount they paid for treatment to 0.75% during the time period between January 30, 2006, and August 7, Within 30 days of the date of this order Dominion Midwest Energy, Inc., and Dominion Reserves, Inc., may file prepared testimony and exhibits demonstrating the extent of the overpayment. Mich Con Gathering Company will have 30 days from the date of that filing to either pay the claimed amount or file evidence disputing the amount. The Commission reserves jurisdiction and may issue further orders as necessary. Page 8

9 Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, under MCL MICHIGAN PUBLIC SERVICE COMMISSION ( S E A L) /s/ Orjiakor N. Isiogu Chairman /s/ Monica Martinez Commissioner By its action of November 8, /s/ Steven A. Transeth Commissioner /s/ Mary Jo Kunkle Its Executive Secretary Page 9

10 Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, under MCL MICHIGAN PUBLIC SERVICE COMMISSION Chairman Commissioner By its action of November 8, Commissioner Its Executive Secretary Page 10