STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION. In the matter of the complaint of DOMINION MIDWEST ENERGY, INC. Case No.
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1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the complaint of DOMINION MIDWEST ENERGY, INC. Case No. U and DOMINION RESERVES, INC. against (e-file paperless) MICHCON GATHERING COMPANY and MICHIGAN CONSOLIDATED GAS COMPANY. / THE MICHIGAN PUBLIC SERVICE COMMISSION STAFF S RESPONSE TO MICHCON GATHERING COMPANY S PETITION FOR REHEARING The Michigan Public Service Commission Staff ("Staff"), through its counsel Emmanuel B. Odunlami, files this response to MichCon Gathering's ("MGAT") Petition for Rehearing. I. Introduction Pursuant to Commission Rule 403, Michigan Administrative Code R (2) ("Rule 403"), Staff recommends that the Commission should clarify its findings in the Commission Order issued on August 7, Staff believes that the following findings are incorrect and as such, should be corrected. 1. The Commission findings that "the Commitment Letter unambiguously cancelled the Dedication as to the acreage" 2 covered in the Commitment Letter is incorrect because these agreements are two distinct agreements executed by different parties. And because Dominion had not succeeded to Wolverine interest at the time the Dedication of Antrim Reserves ("Dedication") was executed, the Commission findings that the acreage covered by the executed Commitment Letter or ASATT #16 (executed between MichCon and Dominion) "cancels and 1 Opinion and Order, Case No. U-14754, issued August 7, Supra, note 1, page 14. 1
2 supersedes" the overlapped acreage covered by the Dedication agreement (executed between MichCon and Wolverine) is erroneous and should be corrected Staff agrees with the Commission that the "acreage covered by the Dedication and the Commitment Letter appears to substantially, but not entirely, overlap." 4 However, Staff believes that the controlling issue regarding the Dedication and the Commitment Letter does not depend on the fact that the acreage covered by both agreements overlapped. Rather, it is the working or ownership interest in Antrim gas reserves owned by both Wolverine and Dominion within the counties or acreage specified in both the Dedication (executed between MichCon and Wolverine in September of 1994) and the Commitment Letter (executed between MichCon and Dominion in February 1995) Based on the Commission findings in this case, Staff submits that as a result of MGAT's discriminatory contract requirement, 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. Therefore, the Commission findings that "Dominion, as a result of MGAT's discriminatory contract requirement, has overpaid for Antrim gas produced from acreage that is no longer covered by the Dedication including the acreage covered by ASATT #16" 6 is unclear. 3 TR 3, p 139, Line Opinion and Order, Case No. U-14754, issued August 7, 2007, p For example in a Wellhead (W), producers A, B, and C may have a working interest of 45%, 35%, and 20% respectively. Even though producers A, B, and C may recite in their Dedication Agreement that the acreage covered by Wellhead (W) is dedicated for transportation, Staff contends that, unless proven otherwise, producers A, B, and C would have the right to commit or dedicate "only" their respective percentage working or ownership interest for transportation. 6 Opinion and Order, Case No. U-14754, issued August 7, 2007, p 16. [Emphasis added.] 2
3 II. The Dedication and the Commitment Letter are individual agreements executed by different parties covering their identifiable ownership interest in the acreage specified in those agreements. Therefore, Dominion's ownership interest in the gas reserves subject to the acreage covered by the Commitment Letter does not "cancels or supersedes" Wolverine's ownership interest in the reserves subject to the acreage covered by the Dedication. The Commissions findings in its August 7, 2007 Order that "any acreage covered by the Commitment Letter unambiguously cancelled the Dedication as to that acreage" 7 is in error for the reasons stated below. The Dedication of Antrim Reserves was duly executed between Wolverine Gas Oil Company and MichCon on September 12, 1994 ("Dedication"). Exhibit A attached to the executed Dedication provides, as follows, a description of the Antrim Reserves dedicated 8 : Producer hereby dedicates all Antrim Reserves it owns or controls located within the counties of Alcona, Alpena, Antrim, Crawford, Montmorency, Oscoda, Otsego and Kalkaska, Michigan. {Emphasis added.] The language above that "producer" dedicates all Antrim reserves it owns... [in] the counties of Alcona, Alpena..." should be construed that Wolverine at the time of executing the Dedication agreement dedicated or could only have dedicated its working or ownership interest of Antrim gas reserves in the acreage that are within the counties specified. Therefore, the executed Dedication agreement covers "only" Wolverine's percentage ownership interest of Antrim gas produced from the real property described in Exhibit A that was attached to the Dedication of Antrim Reserves the dedication agreement. As correctly found by the Commission, the language of the Dedication is unambiguous and the Dedication is a transfer of interest in real property to MichCon with no termination date. As a consequence, the gas produced, relative to Wolverine's ownership interest, from the acreage 7 Opinion and Order, Case No. U-14754, issued August 7, 2007, p Exhibit DOM-2, Attachment A to MGAT's Petition for Rehearing. 3
4 covered by the Dedication is dedicated to the AEP and must be transported and treated for CO 2 by MGAT. 9 The February 1995 Commitment Letter was duly executed between Dominion Reserves and MichCon on February 6, 1995 and likewise, the exhibit ("Exhibit A") attached to the Commitment Letter described the committed Antrim gas as follows 10 : Committed Antrim Gas Subject to the terms of the foregoing letter, Producer shall utilize the Gas Transportation Service of MichCon in accordance with the terms of the foregoing letter and the Service Agreement with respect to all Antrim Gas produced during the terms of the Service Agreement, which Producer owns or has the right to commit, which has not been previously committed under another agreement,... [Emphasis added.] A proper reading of the attached Exhibit A, above, to the Commitment Letter indicates that Dominion has the right to commit "only" its percentage ownership interest in Antrim gas produced from the specified Counties/Township/Sections or Wellheads referenced in Exhibit A. Thus, the Commitment Letter covers "only" Dominion's percentage ownership interest of Antrim gas produced from the real property indicated in Exhibit A that was attached to the February 1995 Commitment Letter. Although the September 1994 Dedication and the February 1995 Commitment Letter indicate that both Wolverine and Dominion dedicated or committed their percentage operating or ownership interest in the gas produced from the counties, of Alcona, Alpena, Otsego, Crawford, Oscoda and Montmorency or from Wellheads as indicated in the Commitment Letter, Staff contends that the fact that the counties/acreage covered by the Dedication and the Commitment Letter appears to substantially, but not entirely, overlap does not lead to the conclusion that 9 Opinion and Order, MPSC Case No. U-14754, issued August 7, 2007, p Exhibit DOM-4, Attachment B to MGAT's Petition for Rehearing. 4
5 Wolverine's ownership interest in gas reserves subject to the acreage covered by the Dedication is the same as Dominion's ownership interest in the same acreage covered by the Commitment Letter. Wolverine's percentage working interest in Antrim gas reserves subject to the dedication agreement and Dominion's percentage working interest in Antrim gas reserves, subject to the Commitment Letter, are two distinct separate interests at the time of executing the Dedication or the Commitment Letter. Therefore, Dominion's working or ownership interest in the Commitment Letter does not "cancels or supersedes" Wolverine's interest in the same acreage covered by the Dedication. The following questions and answers on cross-examination supports Staff's conclusion that the volume of gas covered by the executed ASATT #1 and its associated Dedication agreement is a distinct and separate gas volume from the gas volume covered by ASATT #16 and its associated Commitment Letter 11 : MR. ODUNLAMI: MR. ODUNLAMI: THE WITNESS: MR. ODUNLAMI: THE WITNESS: I'm asking the witness..., from what [he] read in those two documents whether ASATT #16 nullifies ASATT #1? * * * I'm asking him does he think those two contracts are separate or they are one contract, ASATT #16 and ASATT #1? * * * It's my opinion when ASATT #16 was executed, that Dominion's portion, or Dominion's interest in the acreages that were described in ASATT #1, now fall under the jurisdiction of ASATT #16. Dominion signed the contract to represent that ASATT. This is my opinion. That ASATT #1 contract was never [part] of the discussion, was it in your opinion? No, at the time ASATT #16 was executed, Wolverine still had ownership and a need for a contract. 11 TR 3, p 159, Lines 5-18; p 160, Lines [Emphasis supplied.] 5
6 Staff's position (that the Dedication and Commitment Letter are two different and distinct agreements and relates to different volumes of Antrim gas) is further supported by MichCon's October 12, 2005 letter to Dominion 12 : Enclosed for your review is a draft of an ASAT to replace the ASATT dated February 6, The gas committed under this ASATT expires concurrently with the term of the ASATT. The reason the ASAT had not yet been submitted for your review was that the volumes, if any, attributable to the ASATT dated February 6, 1995 need to be identified. It was my understanding that Mr. Ray Barnhart could provide the necessary documentation for our review. Please provide me with any comments that you may have for the ASAT replacing the ASATT dated February 6, We still need to reach agreement on the production to be included in the ASAT contract prior to executing the agreement. [Emphasis added.] As evidenced from the above quote, the gas committed under the Commitment Letter expires concurrently with the term of ASATT #16, and the volume of gas attributable to the Commitment Letter is different from the volume of gas subject to the Dedication. Therefore, 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. Staff further recommends that the Commission should clarify its order that Dominion's ownership interest in gas reserves subject to the executed ASATT #16/Commitment Letter is a distinct and separate ownership interest from Wolverine's ownership interest in the executed Dedication of Antrim Reserves. 12 Exhibit DOM-7, see Attachment A. 6
7 III. As a result of MGAT's discriminatory contract requirement, Dominion has only overpaid, relative to Dominion's working or ownership interest, for CO 2 treatment of Antrim gas produced from the acreage covered by the Commitment Letter. The Commission, in its August 7, 2007 Order, stated as follows 13 : To the extent that there is a cost difference between treatment to the 2% CO 2 level and treatment of the 0.75% level, since January 30, 2006, Dominion, as a result of MGAT's discriminatory contract requirement, has overpaid for treatment of Antrim gas volumes produced from acreage that is no longer covered by the Dedication, including the acreage covered by ASATT #16. It is not possible, on this record, to determine the amount of the overpayment. The Commission does not find that MGAT's conduct in this matter requires the imposition of a penalty. However, the Commission is persuaded 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 actually paid for treatment to 0.75% during the time period between January 30, 2006, and the date of issuance of this order. MCL [Emphasis added.] Staff submits that the Commission's conclusion that Dominion "has overpaid for treatment of Antrim gas volumes produced from acreage that is no longer covered by the Dedication, including the acreage covered by ASATT #16" 14 is unclear and confuses the issue in regards to the determination of damages. Staff recommends that the Commission should clarify this language by stating that Dominion has overpaid for treatment of Antrim gas volumes produced from the acreage covered by the Commitment Letter. Thus, Dominion is only entitled to damages, relative to Dominion's working or ownership interest, for CO 2 treatment of Antrim gas produced from the acreage covered by the Commitment Letter. disagrees. As to MGAT's contention that the Commission erred in awarding damages, Staff 13 Opinion and Order, Case No. U-14754, issued August 7, 2007, p Supra, note 13. 7
8 IV. Conclusion Based on the foregoing arguments, Staff recommends that the Commission should clarify the August 7, 2007 order regarding "only" the issues discussed by Staff in this response. Respectfully submitted, MICHIGAN PUBLIC SERVICE COMMISSION STAFF Dated: September 27, 2007 Emmanuel B. Odunlami (P66255) Assistant Attorney General Public Service Division 6545 Mercantile Way, Suite 15 Lansing, MI Telephone: (517)
9 ATTACHMENT A
10 TRANS. ENGINEER I NG PAGE 02/82 Michip Cmsolidarcd Gas Company 2060 ZM Ave., Suite 534 GO Detroit MI DTE Energy October 12,2005 Mr. Jim Weyland Dominion Exploration & Production, Inc Northchase Drive, Suite 1750 Houston, TX 77060, Mr. Jim Weyland: I have received your letter dated October 11,2005 regarding your request for an Antrim Gas Transportation Agreement ("ASAT") contract to replace the Antrim Gas Transportation and Treating Service Agreement ('ASATT") dated September 1.2,1994 and the ASATT dated February 6,1995. As indicated in your letter, you have already received an extension tbr the ASA'IT dated September 12,1994. It is MichCon Gathering Company's position that the gas covered under this contact is dedicated for transportation and treating on MichCon Oathekg's Antrim Header System. Enclosed for your review is a draft of an ASAT to replace the ASATT dated February 6, The gas committed under this ASATT expks concumntl.y with the term of the ASATT. The reason the ASAT had not yet been submitted for yom review was that the volumes, if any, attributable to the ASATT dated Febxuary 6, 1995 need to be identified. It was my understanding that Mr. Ray Barahart could provide the necessary documentation for our review, Please provide me with any comments that you may have for the ASAT replacing the ASATT dated February 6,1995. We still need to reach agreement on the production to be included 3n the ASAT contract prior to executing the agreement. As far as your statement regatding releasing controlled gas, 1 am not sure what you mean. MichCon Gathering Company has not agreed to release any controlled gas previously dedicated. As discussed above, our position remains that any gas dedicated under the ASATT dated September 12, 1994 continues to be dedicated. Sincerely, Edward T. owli in^ 1
11 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the complaint of DOMINION MIDWEST ENERGY, INC. Case No. U and DOMINION RESERVES, INC. against (e-file/paperless) MICHCON GATHERING COMPANY and MICHIGAN CONSOLIDATED GAS COMPANY. / STATE OF MICHIGAN ) ) ss COUNTY OF INGHAM ) PROOF OF SERVICE Linda Andreas, being first duly sworn, deposes and says that on September 27, 2007, she served a true copy of The Michigan Public Service Commission Staff s Response to MichCon Gathering Company's Petition for Rehearing upon the following parties by depositing the same in a United States postal depository enclosed in an envelope bearing postage fully prepaid, plainly addressed as follows: Richard J Aaron Honigman Miller Schwartz & Cohn 222 N Washington Sq, Ste 400 Lansing, MI Michael G. Oliva Anna Rose Stern Loomis, Ewert, Parsley, Davis & Gotting, PC 232 S. Capitol Avenue, Suite 1000 Lansing, MI Timothy J. Jacquet, Managing Counsel Dominion Resources Services, Inc. Suite Louisiana Street Houston, TX Richard P. Middleton Michigan Consolidated Gas Company nd Avenue, 688 WCB Detroit, MI Linda Andreas Subscribed and sworn to before me this 27th day of September, Tina L. Bibbs, Notary Public State of Michigan, County of Ingham My Commission Expires:
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