DAWSON CREEK AND TUMBLER RIDGE GAS DISTRIBUTION SYSTEMS

Transcription

1 DAWSON CREEK AND TUMBLER RIDGE GAS DISTRIBUTION SYSTEMS IN THE MATTER OF the Utilities Commission Act, ) AND IN THE MATTER OF an Application by Pacific Northern Gas (N.E.) Ltd. For a Certificate of Public Convenience and Necessity to Acquire, Construct, Own and Operate a Compressed Natural Gas Virtual Pipeline between the Communities of Dawson Creek and Tumbler Ridge Submitted to the British Columbia Utilities Commission July 17, 2013

2 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table of Contents 1.0 Application Overview Approvals Sought Requested Regulatory Review Applicant Name, Address and Nature of Business Financial Capability Technical Capability Name, Title and Address of Company Contact Project Description Description, Purpose and Cost Capital Cost Forecast Operating Cost Forecast Construction Timetable and Required Approvals Public Works, Undertakings or Infrastructure Government Approvals, Permits, Licenses and Authorizations Gas Supply Arrangements Back-up CNG Supply Environmental Impacts Public and Stakeholder Consultation and Support Community Support First Nations Potential Customer Demand and Ancillary Services Dawson Creek Tumbler Ridge Alignment with Government Energy Objectives Project Justification Benefits of the CNG Virtual Pipeline Risks Associated with the CNG Virtual Pipeline... 24

3 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Assessment of Supplemental Gas Supply Alternatives Evaluation Criteria Alternatives Recommended Option: Implement CNG Virtual Pipeline from Dawson Creek Alternative One: Seek Contractual Changes with CNRL Alternative Two: Expand Capacity of Tumbler Ridge Gas Plant Alternative Three: Construct Interconnection with Sweet Gas Supply Recommendation Rate Design and Customer Impacts Assumptions Rate Design Customer Impacts Demand Forecast Sensitivity Proposed Disposition of Costs Deferred under the Quintette SSA Conclusion... 52

4 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 List of Appendices Appendix A Appendix B Appendix C Appendix D Appendix E Quintette Security of Supply Agreement - Synopsis Offer to Purchase Dawson Creek Compression Site Land Dawson Creek Compression Site Layout Letters of Community Support News Article CNG Truck Service (Tumbler Ridge News) Appendix F Service Agreement PNG(N.E.) and CNRL (January 1, 2007) Appendix G Appendix H Appendix I Appendix J Appendix K Resource Planning Objectives Evaluation of Gas Processing Plant Upgrades (AltaGas) Tumbler Ridge Area: Regulatory Assessment Report (Solaris) Tumbler Ridge Area: Sweet Gas Pipeline Supply Options (Solaris) Proposed Bulk Compressed Natural Gas (CNG) Service (RS30) Tariff (Dawson Creek)

5 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Application 1.1 Overview In its 2012 Resource Plan filed with the Commission in October 2012, Pacific Northern PNG identified potential forecast demand increases in the Tumbler Ridge service area related to increased mining activity in the region. The 2012 Resource Plan also highlighted a number of constraints to meeting this increased demand with current infrastructure and under current gas supply arrangements. In November 2012, in response to a request for firm supply from Teck Coal Quintette, PNG(N.E.) filed an application with the British Columbia Utilitie to enter into the Quintette Security of Supply Quintette -month period over the winter of 2012/2013. The underlying basis for the Quintette SSA was to implement a supplemental source of gas supply for the community of Tumbler Ridge. The Commission approved the Quintette SSA under Order G , dated November 29, The solution proposed and implemented by PNG(N.E.) under the Quintette SSA involved outsourcing to a trucking service to provide for the delivery of compressed natural gas A synopsis of the Quintette SSA is provided in Appendix A. Both the 2012 Resource Plan and the Quintette SSA application highlighted security of supply issues pertaining to the current single source of supply of natural gas for the Tumbler Ridge system. These documents also included P stated intent to undertake due diligence to evaluate the feasibility of alternate supplemental supply options, including the possibility of a permanent CNG trucking service solution that would act as a virtual pipeline between Dawson Creek and Tumbler Ridge. represents PNG(N.E.), setting forth its recommendation for the implementation of a permanent CNG Virtual Pipeline as the most prudent and necessary supplemental source of supply to meet this division ts. will not only allow PNG(N.E.) to meet Tumbler Ridge customer demands for the winter of 2013/2014, but also provides PNG(N.E.) with significantly greater flexibility in meeting potential load growth in the Tumbler Ridge area in the most cost effective manner in the future. Page 1 of 52

6 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Approvals Sought In this Application PNG(N.E.) seeks the following approvals from the Commission: 1) Approval, pursuant to sections 45 and 46 of the Utilities Commission Act,, for a Certificate of Public Convenience for the acquisition, construction and operation of a permanent CNG Virtual Pipeline between the British Columbia communities of Dawson Creek and Tumbler Ridge consisting of: (i) natural gas compression and dispensing facilities gas distribution system, (ii) receiving and injection terminals located on pecialized trailers for transporting the CNG between the CNG Facility and the receiving and injection terminals; 2) Approval, pursuant to sections 59 through 61 of the Act, for the proposed new Bulk Compressed Natural Gas (CNG) Service (RS30) tariff for Dawson Creek in order to provide CNG service to customers, including CNG supply for the Tumbler Ridge service area; and 3) Pending approval of 1) and 2) above, approval for the disposition of costs deferred under the Quintette SSA, including the transfer of $43,180 in costs to the capital cost of the CNG Virtual Pipeline and the recovery of remaining costs of $286,586 in Tumbler Ridge customer rates over a period of 5 years. The approvals sought in this Application will allow PNG(N.E.) to put in place the infrastructure and rate structure necessary to address on-going security of supply and supply constraint concerns for Tumbler Ridge that presently make it impossible for PNG(N.E.) to meet service requests from current and potential customers for firm service, and will also provide a platform to offer ancillary services in both Dawson Creek and Tumbler Ridge such as bulk CNG sales and a NGV fuelling service. 1.3 Requested Regulatory Review Under the Convenience and Necessity, the Commission has discretion as to whether or not hearings are held on an application. Should the Commission consider it necessary to hold a hearing on this Application, PNG(N.E.) proposes a written review process with one round of information requests, under the timetable proposed in Table 1-1. Page 2 of 52

7 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 1-1 Requested Regulatory Timetable Regulatory Timetable Action Date (2013) PNG(N.E.) Submits Application to Commission Wednesday, July 17 Registration of Interveners and Interested Parties Wednesday, July 24 Commission Information Request No. 1 Wednesday, July 31 Intervener Information Request No. 1 Friday, August 2 PNG(N.E.) Responds to Information Request No. 1 Friday, August 9 PNG(N.E.) Final Submission Monday, August 12 Intervener Final Submission Friday, August 16 PNG(N.E.) Reply Submission Monday, August 19 Anticipated Commission Approval Thursday, August 22 The timeline proposed will allow PNG(N.E.) to meet identified procurement, construction and commissioning milestones in order that a permanent CNG Virtual Pipeline between Dawson Creek and Tumbler Ridge can be in place to meet customer requirements and to provide supply for the 2013/2014 winter season. In anticipation of the necessary regulatory review process, PNG(N.E.) has copied interveners registered in the regulatory proceedings for its 2013 revenue requirements application as well the administrators of the City of Dawson Creek and the District of Tumbler Ridge on this Application at the time it was submitted to the Commission. Page 3 of 52

8 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Applicant 2.1 Name, Address and Nature of Business PNG(N.E.) is a company formed under the laws of British Columbia and is a wholly- PNG). PNG is a wholly-owned subsidiary of AltaGas Utility Holdings (Pacific) Inc., which in turn is wholly-owned by AltaGas Ltd. PNG(N.E.) maintains operating offices at th Street, Fort St. John, British Columbia and at nd Avenue, Dawson Creek, British Columbia, and its head office is located at 950, 1185 West Georgia Street, Vancouver, British Columbia. PNG(N.E.) is a natural gas distribution utility providing sales and transportation services to approximately 19,000 residential, commercial and industrial customers in the north eastern British Columbia communities of Fort St. John, Dawson Creek and Tumbler Ridge. PNG transmission lines, 1,490 kilometres of distribution lines and a gas processing plant located near Tumbler Ridge. PNG(N.E.) is regulated by the Commission and its service area is segregated into two separate divisions: the Fort St. John/Dawson Creek Division and the Tumbler Ridge Division. The Fort St. John/Dawson Creek Division provides service to approximately 18,000 customers and its system is supplied though multiple pipeline interconnections, allowing for diversity and security of supply. The Tumbler Ridge Division provides service to approximately 1,200 customers and is supplied solely by the output of its gas processing plant, which in turn is exclusively supplied by Canadian Natural 2.2 Financial Capability PNG(N.E.) is capable of financing the CNG Virtual Pipeline either directly, or indirectly, through its parent, PNG, and through its association with the AltaGas group of companies. 2.3 Technical Capability PNG(N.E.) has the technical capacity to coordinate and facilitate construction and operation of the CNG Virtual Pipeline. PNG(N.E.) has many years of experience in constructing and maintaining natural gas distribution systems and in providing safe, secure and reliable gas service to its customers in the Fort St. John, Dawson Creek and Tumbler Ridge service areas. PNG(N.E.) will have the backing and support of both PNG and AltaGas in carrying out the Project. PNG also has a long history of constructing and maintaining transmission and distribution assets to provide high Page 4 of 52

9 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 quality gas service. Further, PNG(N.E.) anticipates it will benefit from the valuable knowledge regarding the requirements for operating CNG compression, dispensing, transport and receiving and injection facilities that employees gained through the recent Quintette SSA pilot project. In addition to the resources available internally, PNG(N.E.) will work with external service providers on an as-required basis to assist with engineering, design, construction and procurement. 2.4 Name, Title and Address of Company Contact All notices and other communications in connection with this Application should be directed to: Janet P. Kennedy Vice President, Regulatory Affairs & Gas Supply Pacific Northern Gas (N.E.) Ltd. 950, 1185 West Georgia Street Vancouver, British Columbia V6E 4E6 Telephone: (604) Fax: (604) Page 5 of 52

10 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Project Description 3.1 Description, Purpose and Cost PNG(N.E.) is proposing to implement a permanent CNG Virtual Pipeline between Dawson Creek and Tumbler Ridge to address security of supply concerns and ongoing supply constraint issues in Tumbler Ridge, and to enable PNG(N.E.) to effectively meet the growing needs of residential and industrial customers in this service area. A firm supply option under the CNG Virtual Pipeline will ensure industrial customers remain on natural gas thereby avoiding the potential for negative rate impacts for all Tumbler Ridge customers should these customers select alternative fuel supplies and discontinue the natural gas service presently provided by PNG(N.E.). Fort St. John / Dawson Creek natural gas customers, and the northeast region in general, are also expected to benefit from infrastructure put in place to facilitate the CNG Virtual Pipeline. PNG(N.E.) is proposing a CNG dispensing service for Dawson Creek and is proposing that surplus capacity at the Dawson Creek CNG Facility be made available to third parties for ancillary services, including NGV fuelling and bulk CNG sales. The increase in system throughput from gas volumes sold under these ancillary services is expected to result in lower rates for all Fort St. John/Dawson Creek customers. The CNG Virtual Pipeline project facilities consist of three principal capital components: 1) A compression and dispensing station situated on vacant land located at Lot A, 21 st Street in Dawson Creek comprised of CNG compression equipment and CNG dispensing equipment; 2) Two high-capacity CNG trailers for transporting CNG by truck between Dawson Creek to Tumbler Ridge (a distance of 126 kilometers); and 3) Two CNG receiving and injection terminals located in Tumbler Ridge, the main terminal located at the Quintette Mine gate station and a back-up terminal located at the Tumbler Ridge Town Gate Station. PNG(N.E.) intends to own and operate the above noted facilities Capital Cost Forecast The proposed CNG Virtual Pipeline is interconnected with utility assets in two distinct regulatory jurisdictions within the PNG(N.E.) service area and as such the proposed capital spending has been segregated into two distinct capital projects, namely: Page 6 of 52

11 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY ) Dawson Creek: Compression and dispensing station site and infrastructure; and 2) Tumbler Ridge: Transport trailers and receiving and injection infrastructure. PNG(N.E.) has estimated that the total cost of the capital components would be $3.8 million. Cost estimate amounts are based on budgetary quotes received from suppliers, manufacturers and service providers and are comprised of the following: Table 3-1 Project Capital Cost ($) Dawson Creek Tumbler Ridge Total Compression and dispensing site land 1 345, ,100 Site preparation, mobilization and commissioning 379,730 97, ,430 Compression and dispensing station 946, ,950 CNG transport trailers 2 1,605,000 1,605,000 Receiving and injection sites 3 96,300 96,300 Line heater 53,500 53,500 Subtotal 1,671,780 1,852,500 3,524,280 Contingency (10%) 132, , ,918 Total 1,804,448 2,037,750 3,842,198 1 Includes property transfer tax, closing costs, environmental and permitting 2 Two CNG transport trailers at $800,000 each 3 Two receiving and injection terminals at $45,000 each Included in the site preparation, mobilization and commissioning costs of $477,430 are $43,180 in costs previously deferred under the Quintette SSA that PNG(N.E.) has identified as being related to facilities or improvements that can be utilized on an ongoing basis for the permanent CNG service. Concurrent with Commission approval of the CNG Virtual Pipeline proposed herein, PNG(N.E.) is requesting a transfer of these deferred costs to the capital cost for this project, with the amounts split between the Dawson Creek and Tumbler Ridge sites. The following is a detailed description of the capital components identified above. Page 7 of 52

12 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Compression and Dispensing Site Land PNG(N.E.) has entered into an offer to purchase a 4-acre industrial-zoned site from BC Rail (Appendix B). The purchase offer of $305,000 has been accepted by BC Rail subject to BCUC approval of this CPCN and PNG(N.E.) board approval of this project. The site is located in the northeast corner of Dawson Creek and has direct access to major transportation routes including the Alaska Highway, the John Hart Highway and the Dawson Creek Dangerous Goods Route, as well as access to major roads through the centre of the city. The property is located adjacent to a high-pressure natural gas line presently under construction by PNG(N.E.), reducing the amount of compression required for the CNG Facility as well as reducing interconnection costs. This highpressure line is dedicated to a single customer and the cost of constructing the line will have been fully recovered within two years, however, there is a possibility that after two years the line will no longer be in use. Consequently, the installation of the CNG compression and dispensing infrastructure at this site makes use of and benefits from an asset that might otherwise become idle. The image that follows illustrates the location of the Dawson Creek compression and dispensing site relative to transportation routes. Image 3-1 Location of Dawson Creek Compression and Dispensing Site Page 8 of 52

13 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Site Preparation The proposed land to be acquired for the CNG compression and dispensing station is zoned for industrial use; however, it has not been disturbed or improved in recent history. Site preparation would commence post-acquisition subject to a favourable outcome of an initial phase-one environmental report (of which the closing of the land purchase agreement is subject to). Upon commencement of construction, the work will include clearing existing vegetation, the removal of top soil and the delivering of gravel or shale to be graded and compacted in order to level the site. A suitably sized concrete pad will be poured to accommodate the footprint of the compressor. A high pressure natural gas supply line and valve are located along the north property line and will require minimal work by PNG(N.E.) construction crews to run a short tie-line to the compressor inlet. Similarly, electrical power runs on the north and east sides of the property from which a 3-phase 600V 400 AMP service will be dropped to a transformer shed. Power will run underground from the transformer shed to the compressor. The compressor, transformer and dispensing to trailers areas will be appropriately fenced and include signage as per city code. Dawson Creek Compression and Dispensing Station The CNG compression and dispensing station will occupy a two acre area suitable for the turning radius required for the CNG trailers (53 feet long), and will also have a drive through bay for the fuelling of the accompanying tractors. Included as Appendix C is an image illustrating the proposed layout of the compression and dispensing site. PNG(N.E.) has received budgetary quotations from several suitable vendors for the compression and dispensing station equipment based on required flow rates of up to 2,000 scfd in order to accommodate both seasonal peak volume and modest demand growth. Proposed infrastructure and equipment includes integrated cascading buffer storage in order to accommodate the simultaneous filling of a trailer and a tractor. Final compression and dispensing station equipment purchase decisions and procurement will be determined upon Application approval and final pricing negotiations in keeping with PNG(N.E.) estimated project capital requirements presented herein. Page 9 of 52

14 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 CNG Transport Trailers PNG(N.E.) has reviewed several CNG transport technologies, including those summarized in Table 3-2. Table 3-2 CNG Transport Technologies Characteristic Type II-GTM Amarillo Type III-GTM Technologies Type IV-Titan Weight heavy low low Volume per load (scf) 370, , ,440 Volume per load (GJ) Fast fill capacity 80%-85% 90%-95% 75%-80% Slow fill capacity 95%-100% 95%-100% 80%-90% Discharge rates medium high medium to low Permeation none none yes Heat transfer (surface to volume ratio) Vacuum yes yes no Capital cost (trailer/modules) $428,000 $741,000 $485,000 Capital cost ($/scf) $1.15 $1.56 $1.36 Transport cost ($/GJ) $2.18 $1.70 $2.28 were to identify a solution that provides: the maximum natural gas volume per load; and a balance between capital cost and transportation cost. Based on this review, PNG(N.E.) has determined that Type III (GTM) aluminum cylinders with carbon fiber wrap arranged within a standardized ISO container offer the best solution. In consideration of the evaluation criteria, this solution allows for the shipping of the greatest volume per load (at least 28% greater volume). Though the proposed solution has the highest capital cost, this factor is more than compensated for by significantly lower transport costs relative to the other technologies. Based on es, in making annual shipments of 160,000 GJ of natural gas, the Type III technology will provide annual transportation Page 10 of 52

15 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 cost savings of $91,700 relative to the Type IV technology and savings of $76,600 relative to the Type II technology. Over a period of 10 years, this amounts to undiscounted savings of $917,000 and $766,000 relative to the Type IV and Type II technologies, respectively, providing a benefit well in excess of the higher initial capital cost. Based on the foregoing, The Type III technology is considered to provide the most cost-effective solution to safely transport the greatest possible CNG volume per trailer in order to realize long-term transport savings. In addition to the foregoing, the proposed Type III transport system offers additional advantages including a much higher surface-to-gas ratio which reduces the incident of icing during the unloading process at the receiving and injection terminals. Further, the Type III system results in less transition gas (volume of gas remaining in the modules that cannot be decanted) than the alternatives, proving for a more efficient system. The following image illustrates the transport trailer proposed for the CNG Virtual Pipeline. Image 3-2 Type III (GTM) Transport Trailer The transport trailers will be unloaded in Tumbler Ridge at the receiving and injection terminals on the distribution side of the regulator. The gas is therefore delivered at distribution pressure at a rate determined by the flow in the delivery system. Page 11 of 52

16 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Transportation Route The CNG trailers will be transported over the John Hart Highway and Highway 52 which are both considered safe all-year roads that are appropriate for the expected trailer loads and weights. Highway 52 is rated for the maximum allowable transport weight in BC of 62,500 kilograms. The weight of the CNG trailers and tractor will be well within these limits. PNG(N.E.) notes that the transport of CNG is safer than the transport of propane and diesel as these later fuels have a broader spectrum of ignition. In addition, in the event of a safety incident regarding the transport of these fuels, CNG would have minimal environmental impact as compared to the impact of a diesel spill. The proposed trucking route is illustrated in the following image. Image 3-3 CNG Transport Route Page 12 of 52

17 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Tumbler Ridge Receiving and Injection Terminals CNG will be delivered to receiving and injection terminals located at two locations in Tumbler Ridge, the primary terminal at the Quintette Gate Station and a back-up terminal located at the Town Gate Station. These locations were selected to minimize changes to the existing distribution system. PNG(N.E.) anticipates that most of the CNG would be delivered to the Quintette Gate Station. The Town Gate Station is expected to be used primarily as an emergency back-up injection site in the event of a loss of gas supply due to the planned or unplanned unavailability of the Tumbler Ridge gas processing plant or due to some other outage upstream of this site. Existing easements and rights of way are available at both locations to accommodate the storage of CNG trailers. Site preparation work that was undertaken at the Quintette Gate Station in connection with the Quintette SSA remains in place and would be utilized going forward thus minimizing site preparation costs in Tumbler Ridge. No additional site preparation work is required at the Town Gate Station Operating Cost Forecast Ongoing operating costs for the CNG Truck Service include expenditures related to repairs and maintenance, utilities, property taxes, trucking transportation costs and depreciation. PNG(N.E.) intends to contract for the transportation of the trailers between Dawson Creek and Tumbler Ridge with a local transportation company. This is proposed until such time that PNG(N.E.) trucks for the transport of the CNG indicate sufficient economies of scale can be achieved and that an economic benefit would be gained by operating the transportation service on its own. PNG(N.E.) has prepared the annual operating cost estimates presented in Table 3-3 for the CNG Virtual Pipeline based on discussions with vendors and contractors. Page 13 of 52

18 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 3-3 Annual Operating Cost Forecast (in 2013 $) Dawson Creek Tumbler Ridge Total Compression and dispensing station operations 1 110, ,000 Transportation costs 2 250, ,000 CNG trailer maintenance 5,000 5,000 Receiving and injection terminal operations 3 29,000 29,000 Subtotal operating costs 110, , ,000 Depreciation 34, , ,000 Total 144, , ,000 1 PNG trained staff at average of two hours per day on site performing checks and maintenance at standard hourly rate plus benefit load charge 2 Average cost per trip of $700 based on approximately one trailer per day travelling 250 km round trip over six hours using a CNG powered tractor 3 Allowance for maintenance, snow removal and gravelling 3.2 Construction Timetable and Required Approvals PNG(N.E.) has prepared the following project timetable based on consultation with community leaders in Dawson Creek and Tumbler Ridge, affected industrial customers, suppliers and contractors. Table 3-4 Project Timetable Date (2013) Thursday, August 22 Friday, August 23 Friday, September 27 Monday, September 30 Monday, November 25 Monday, December 2 Milestone Commission approval of CPCN Order long lead time equipment and materials Receipt of necessary permits Commencement of civil works Commissioning of facilities Commencement of operations project completion Page 14 of 52

19 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Public Works, Undertakings or Infrastructure The CNG Virtual Pipeline components will be constructed without the need for any new public works, undertakings or infrastructure. PNG(N.E.) will obtain appropriate authorization to install and connect the compression unit in Dawson Creek and the receiving and injection facilities in Tumbler Ridge on municipal, crown or private lands, as required, in the ordinary course of business. 3.4 Government Approvals, Permits, Licenses and Authorizations The recent Quintette SSA pilot project provided PNG(N.E.) with valuable knowledge regarding the authorizations required to operate a CNG transport service. CNG compression, transport and dispensing do not typically require Oil and Gas pressure natural gas line. The proposed compression site for this project is adjacent to a high-pressure line presently under construction by PNG(N.E.) in Dawson Creek and all required OGC approvals for this line will be obtained as part of the construction of the line. Other required authorizations include: 1) Municipal operating permits PNG(N.E.) has been communicating with the administrations of both the City of Dawson Creek and the District of Tumbler Ridge and believes there is an understanding of the benefits of the proposal herein and does not expect obtaining the necessary permits will be an issue; 2) Land-use zoning the site identified for compression facilities is already appropriately zoned for industrial use; 3) Transport Canada Emergency Response and Assistance Program ) PNG(N.E.) is required to develop an ERAP containing additional specific response measures pertaining to the transport of CNG. PNG(N.E.) will develop an ERAP for approval and registration with Transport Canada that is fully integrated within the existing PNG(N.E.) emergency response program. 4) CSA and WorkSafeBC approved equipment all equipment procured for this project must meet the requirements of the CSA and WorkSafeBC and will be registered for use in British Columbia. This will be addressed in the procurement of equipment and materials. Page 15 of 52

20 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Gas Supply Arrangements As noted, PNG(N.E.) will be sourcing the supply of gas for the compression facilities from a high pressure line on its own system. As such, there will be no requirement to enter into any new Gas Supply Agreements as per Section 71 of the Act. Forecasts of plan to ensure that a cost-effective source of natural gas is secured as feedstock for this project. 3.6 Back-up CNG Supply Under the CNG Virtual Pipeline proposal, output from the CNG compression and dispensing facilities in Dawson Creek will become an integral source of supply to both the Tumbler Ridge Division and to future bulk CNG and NGV fuelling customers in Dawson Creek. Given this importance, PNG(N.E.) has given consideration to the development of contingency plans and back-up strategies to meet CNG demand in the event that facility in Dawson Creek experiences a failure or an extended maintenance event. Based on a preliminary evaluation, PNG(N.E.) has identified the following options for back-up supply: 1) Purchase from third-party CNG supplier: Certarus has a commercial CNG station located in Grande Prairie, Alberta, approximately 2.5 hours east of Dawson Creek. PNG(N.E.) would arrange to source CNG supply for its trailers from this station as a temporary solution; 2) Third-party CNG deliveries: As a variant to 1), PNG(N.E.) would engage CanGas Solutions to source and ship CNG from a third-party supplier as a temporary solution; 3) Third-party compression services: An opportunity exists that would see CanGas Solutions set up temporary compression facilities in or near Dawson Creek as a temporary source of supply for prolonged outages; and 4) Establish back-up CNG compression facilities: In the longer term, PNG(N.E.) would consider establishing CNG compression and dispensing facilities in the City of Fort St John. These facilities would serve the City of Fort St. John and would also be available as back-up supply for Dawson Creek and Tumbler Ridge. Page 16 of 52

21 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Environmental Impacts The CNG Virtual Pipeline will have no deleterious impacts on the environment. The proposed compression and dispensing and receiving and injection sites are preexisting industrial zoned locations and, as previously noted, the CNG will be transported over the John Hart Highway and Highway 52, both considered to be safe, all-year roads that are appropriate for the expected trailer loads. As such, no additional environmental studies or assessments are required for this project. As an added measure to reduce the greenhouse gas emissions resulting from this project, PNG(N.E.) anticipates that the tractors transporting the CNG trailers between Dawson Creek and Tumbler Ridge will be fuelled by CNG. 3.8 Public and Stakeholder Consultation and Support Community Support Of primary importance is the fact that this project will ensure security of supply for the community of Tumbler Ridge, however, it also introduces the potential for the City of Dawson Creek to take advantage of excess CNG compression capacity to fuel a test program for NGV fleet vehicles, and to realize the benefits of new ancillary services such as bulk CNG sales. As such, PNG(N.E.) has been actively reaching out to community leaders to garner support for this CNG initiative on the proposition that it provides a foundation for cost-effective future growth of the important industrial customer bases for both the City of Dawson Creek and the District of Tumbler Ridge. Dawson Creek PNG(N.E.) has been in close collaboration with the City of Dawson Creek on the CNG Virtual Pipeline proposal. Discussions were initiated as part of the planning process for the Quintette SSA project as temporary compression facilities for that pilot program were situated on city-owned land. The City of Dawson Creek has expressed support for the CNG Virtual Pipeline as it anticipates there will be economic benefits to the community. In addition, as part of the ongoing discussions, the City of Dawson Creek has expressed an interest in spare CNG compression capacity that may be available to allow for a pilot NGV vehicle program for the City fleet of vehicles. A letter of support from the City of Dawson Creek for the location of CNG compression and dispensing infrastructure in the city is provided in Appendix D. Other Dawson Creek community stakeholders have also approached PNG(N.E.) expressing interest in NGV fuelling and are supportive of this initiative, including the local school district. A letter of support from School District 59 - Peace River South is also provided in Appendix D. Page 17 of 52

22 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Tumbler Ridge In the community of Tumbler Ridge, the benefits of natural gas service are understood by the community, as is the importance of retaining existing large industrial users as customers of the utility, and the potential future long-term benefits to ratepayers of any incremental demand on the utility system. There is a general dissatisfaction in the community with current rates as they are considered higher relative to other locations in the northeast. However, there is an understanding of the gas supply constraints for the area due to the relative isolation and small size of the community and the lack of availability of sweet gas in the region (see Tumbler Ridge News article in Appendix E). PNG(N.E.) has performed an informal outreach with the community leadership of Tumbler Ridge and met with various members of local government and administration on three separate occasions to discuss the justification for Virtual Pipeline. focused on the location of receiving and injection terminals and whether there would be any adverse rate impacts on the residential and small commercial rate classes. The District s regarding the use of the Town Gate Station as a receiving and injection site due to its proximity to the community. PNG(N.E.) has responded to this concern by indicating that although the Town Gate Station has been proposed as a back-up injection site, the location is not critical to the proposal, and that PNG(N.E.) would work with the District Administration to find an alternative location suitable to all parties. Lastly, the District Administration recognizes that the CNG Virtual Pipeline proposal represents the most cost-effective and flexible solution to stabilize natural gas supply to the community and customer rates and to enable industrial growth in the medium-term, until such time that an evaluation might be made supporting construction of a new pipeline interconnection to a sweet gas supply as an economically viable alternative First Nations All of the proposed facilities for the CNG Virtual Pipeline will be located within the boundaries of established municipalities. Therefore PNG(N.E.) has not identified, nor does it anticipate, any issues or concerns related to First Nations. 3.9 Potential Customer Demand and Ancillary Services The proposed CNG Virtual Pipeline is primarily intended to address security of supply concerns and ongoing supply constraint issues in Tumbler Ridge. However, as previously noted, the offering of new ancillary services has the potential to contribute to the economics of the proposal and to provide a direct benefit for the Dawson Creek Page 18 of 52

23 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 service area through increased load growth and additional revenue which may allow for small rate decreases over time. The following is an overview of potential end-use customers identified by PNG(N.E.) in both of the Dawson Creek and Tumbler Ridge service areas Dawson Creek system. However, the Tumbler Ridge load remains seasonal which affords the possibility to further add value by making excess capacity available to other customers in the community of Dawson Creek through ancillary services, including those that may be interested in NGV fuelling capability or bulk purchases of CNG to supply remote locations such as oil field operations. NGV Fuelling PNG(N.E.) has identified and had exploratory discussions with potential customers, primarily in the public sector, that have requested or expressed great interest in operating NGVs if fuelling infrastructure is put in place. As previously noted, PNG(N.E.) has received letters of support from the following parties expressing an interest in and advocating implementation of NGV fuelling for fleet services include: City of Dawson Creek (30-40 vehicles) School District 59 (up to 35 buses) Preliminary estimates suggest initial potential demand for CNG as fuel for NGV fuelling could be as much as 18,000 GJ per year in the Dawson Creek area and as much as 24,000 GJ per year in the nearby Fort St. John area. The availability of NGV fuelling service will also allow PNG(N.E.) to give consideration to converting some, if not all, of its regional vehicle fleet to NGV. Providing the region with new opportunities to utilize natural gas to displace diesel and gasoline also presents the possibility of PNG(N.E.) offering, in a yet to be determined form, Province of British Columbia OIC 295 vehicle conversion grants to further facilitate the implementation and success of a NGV fuelling service. PNG(N.E.) is in the preliminary stage of considering a separate NGV fuel rate application to be filed in the fall of Bulk CNG Sales PNG(N.E.) has identified several parties interested in the opportunity to make bulk CNG purchases, primarily in the transportation and oil and gas servicing industries. These parties would make use of bulk CNG purchases to fuel either their own Page 19 of 52

24 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 operations or for delivery to customers in remote field production sites. In evaluating the potential for bulk CNG sales, PNG(N.E.) has had advanced discussions with potential customers and is in the final stages of negotiating a memorandum of agreement to supply one such party with an initial volume of 45,000 GJ per year, increasing to as much as 120,000 GJ per year, under bulk CNG service arrangements. A copy of this memorandum of agreement will be filed with the Commission on a confidential basis once finalized, Tumbler Ridge As detailed in the Quintette SSA Application, restrictive terms in the Tumbler Ridge gas supply contract with CNRL requires that large customers with demand in excess of 20,000 GJ per year be subject to curtailment. These restrictive terms ability to meet a request for firm service from Quintette Mine for 40,000 GJ for the winter of 2012/2013. The Quintette Mine is in the process of re-commissioning mining operations and has submitted a formal request for firm natural gas supply of 40,000 GJ for the winter of 2013/2014 and for 160,000 GJ of firm supply for 2015 when the mine is expected to be fully operational. Implementation of the CNG Virtual Pipeline is and for the years ahead. In addition to the Quintette Mine request, PNG(N.E.) has had advanced discussions with HD Mines, a proposed neighbouring mining operation in the permitting phase, and has received a formal request for natural gas service for 500,000 GJ effective The CNG Virtual Pipeline is essential to meeting this service request. PNG(N.E.) will be able to service and supply the expected demand of both Quintette Mine and HD Mines via the CNG Virtual Pipeline on a firm basis with deliveries to the Quintette Gate Station as it is centrally located to these mining operations. In addition to the foregoing, PNG(N.E.) has also had exploratory discussions with other mining operations in the area regarding the possibility of replacing their fuel supply with natural gas if natural gas service were made available to them. Interested parties include Anglo American (operating the Peace River Coal Mine) and Walter Energy (operating the Wolverine Mine). All of the above mentioned mining operations are clustered near each other and are considered a vital pa. Securing service arrangements with any of these operations would represent significant load growth potential for the Tumbler Ridge system and would benefit all customers. The ability to provide this additional service hinges on an economical gas supply to augment the existing local gas supply produced by gas processing plant. Page 20 of 52

25 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Alignment with Government Energy Objectives In its energy policy goals and objectives, the Province of British Columbia has mandated a reduction of greenhouse gases from 2007 levels, of 33% by 2020 and of 80% by The proposed CNG Virtual Pipeline project is in keeping with the policies and goals of overall carbon reduction as natural gas is a lower carbon fuel that is viewed favourably over alternative available fuel sources, particularly propane and fuel oil. Furthermore, provide for certain incentives to qualifying British Columbia persons interested in As noted previously, PNG(N.E.) has identified community support for Appendix D). The compression infrastructure to be installed in Dawson Creek as part of the CNC Virtual Pipeline has the potential to provide a platform for the future offering of a NGV program in support of OIC 295. As mentioned previously, PNG(N.E.) is in the preliminary stage of considering an application for a NGV rate in the Dawson Creek division to be filed in the fall of Page 21 of 52

26 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Project Justification In the 2012 Resource Plan filed with the Commission in October 2012, PNG(N.E.) identified potential forecast demand increases in the Tumbler Ridge service area related to the re-commissioning of established mining operations by Quintette Mine and for new mining operations proposed by HD Mines (Murray River). The 2012 Resource Plan indicated a number of constraints to meeting this increase in demand with current infrastructure and supply arrangements, including: All of the gas supplied to the Tumbler Ridge service area is processed by The Tumbler Ridge gas processing plant, by design, does not have the capacity for increased throughput to meet this demand; All of the gas supplied to the processing plant is from a sole supplier: CNRL; are experiencing high depletion rates and increasing CO 2 and H 2S content, with their suitability as a supply source being constrained by the processing plant 2 and H 2S content design limits of 3.73% and 3.0%, respectively; to Station 2 that it historically offered in its pricing to PNG(N.E.), and by the proposed introduction of a facilities charge added to the commodity pricing for the 2013/2014 gas supply year; and Supply arrangements with CNRL (Appendix F) are such that CNRL takes back approximately all other customers whose demand exceeds 20,000 GJ per year before being subject to curtailment in own requirements in times of constraint. Further, in the fall of 2012, PNG(N.E.) received an official request from Quintette Mine for firm natural gas service for the 2012/2013 winter season. In response to this request, and given the constraints noted above, PNG(N.E.) entered in to the Quintette SSA to provide supplemental natural gas via trucking of CNG from Dawson Creek to Tumbler Ridge as a means to providing firm service on a temporary basis during this period. Page 22 of 52

27 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Based on the foregoing, PNG(N.E.) has concluded that achieving an increased assurance of supply for the Tumbler Ridge service area rests on developing diversity in Both the 2012 Resource Plan and the Quintette SSA application highlighted security of supply and service constraint issues pertaining to having a single supplier of natural gas for the Tumbler Ridge system and included due diligence in evaluating the feasibility of alternate supplemental gas supply options, including: 1) Implement a permanent CNG Virtual Pipeline between Dawson Creek and Tumbler Ridge; 2) Seek contractual changes with CNRL to allow for firm supply contracts; 3) Expand capacity of Tumbler Ridge gas processing plant; and 4) Construct a transmission pipeline to nearby source of sweet gas. PNG(N.E.) has evaluated each of these alternatives and has presented a summary of the assessments in Section 5 of this Application. of alternatives, the implementation of a permanent CNG Virtual Pipeline has been identified as the most prudent, risk averse and cost-effective solution to provide security and diversification of supply for customers in the Tumbler Ridge service area. 4.1 Benefits of the CNG Virtual Pipeline Benefits to be realized from the proposed CNG Virtual Pipeline solution include: 1) Supply diversification PNG(N.E.) would not be solely reliant on CNRL for gas supply to the Tumbler Ridge division; 2) Supply security CNRL has advised that existing supplies are depleting with some wells forecast to be exhausted as early as In addition, CNRL has stated that it is unable to supply gas at Station 2 prices and that it will institute a facilities charge based on the JP05 calculation beginning November 2013 (in effect a bypass rate for the delivery of the gas to the plant gate); 3) Supply security in the event of a gas supply interruption or that a shutdown of the gas processing plant was required, PNG(N.E.) would be able to provide back-up supply to the Tumbler Ridge division; Page 23 of 52

28 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY ) Supply competition provides a competitive alternative to the CNRL supply which is being sourced from more distant locations leading to higher production and transportation costs for Tumbler Ridge customers; 5) Load retention ability to serve current customer requirements prevents fuel switching to propane, fuel oil or electricity which would inevitably result in rate increases for remaining customers; 6) Load growth potential to serve other residential, commercial and industrial customers in the area, including those that have expressed interest in receiving natural gas service if it were available; 7) Flexible solution and efficient use of capital provides a scalable solution that allows for the ramp up of deliveries and related capital expenditures as required to meet load growth from existing and prospective customers including Quintette Mine and HD Mines; 8) Low risk for stranding of capital investments proposed CNG facilities are mobile and can be re-deployed or sold with relative ease, an important consideration in the event that alternative incremental supply options become more cost effective; 9) Facilitate government objectives opportunity to promote fuel switching from diesel or propane to natural gas as a lower-carbon fuel as per the ; 10) Facilitate government objectives an opportunity to facilitate programs under the government-directed OIC 295 pertaining to NGV programs; and 11) Potential to provide for lower future rates increased volume throughput on the Dawson Creek and Tumbler Ridge systems has the potential to result in lower delivery rates for all customers in these service areas. 4.2 Risks Associated with the CNG Virtual Pipeline, the benefits of the CNG Virtual Pipeline, as previously identified, make this alternative the most prudent and low-risk solution for the Company and customers in Tumbler Ridge. The CNG Virtual Pipeline is the least cost and least disruptive option and can be executed in a very timely manner. This contrasts starkly with the options of building a new pipeline or upgrading the gas plant, both of which have a higher cost and present greater time and execution risk, as well as the potential for stranded capital investment should demand projections not materialize. Page 24 of 52

29 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 The only significant identified risk is failure to achieve timely and successful completion of the project prior to the onset of winter conditions. In this regard the project schedule set forth in Section 3.2 is predicated on receipt of Commission approval of the CPCN on or before August 22, Due to equipment lead times, receiving Commission approval after this date may result in the need to carry out construction activities during the winter months which would incur higher construction costs and would require securing temporary facilities to ensure potential customer curtailments are mitigated. PNG(N.E.) does not anticipate any additional construction risks as it will be acquiring name brand compression and dispensing equipment and will make use of experienced, reliable contractors which it has contracted with in the past. Page 25 of 52

30 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Assessment of Supplemental Gas Supply Alternatives 5.1 Evaluation Criteria The Commission sets out the considerations utilities are to follow as part of the resource planning process in Section 44.1 of the Act. Further, in December 2003, the Commission issued Resource Planning Guidelines in preparing submissions on resource planning. The Guidelines state that resource plann best overall outcome of expected impacts and risks for ratepayers over the long run. Impacts and risks to ratepayers should be associated with the stated objectives of the stability, risk mitigation, and specific social and environmental impacts. Objectives As detailed in 2012 Resource Plan, PNG(N.E.) senior management has determined that the most relevant resource planning objectives include: (i) (ii) (iii) (iv) (v) (vi) Provision of safe, reliable service; Provision of least cost service; Economic viability of the utility; Stability of rates; Environmental and socio-economic impacts; and Al Details on these resource planning objectives, specifically as they pertain to assessment of gas supply alternatives for Tumbler Ridge per this Application, including their weightings, attributes, measurement and targets, are provided in Appendix G. The attributes of the objectives for this Application are a subset of a broader range of measurable criteria to be generally considered in resource planning and have been tailored, as appropriate, to the alternatives under evaluation in this CPCN. Page 26 of 52

31 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Objective Weighting Weighting of individual objectives as they apply to the assessment of gas supply alternatives for Tumbler Ridge have been established by management as follows: Table 5-1 Resource Planning Objective Weightings Objective Weighting (i) Provision of safe, reliable service 30% (ii) Provision of least cost service 30% (iii) Economic viability of the utility 10% (iv) Stability of rates 10% (v) Environmental and socio-economic impacts 10% (vi) Alignmen 10% 100% Given that this assessment of gas supply alternatives is to improve security of supply and to address supply constraint concerns for the Tumbler Ridge service area, PNG(N.E.) has assigned a heavier weighting to objectives (i) provision of safe, reliable service, and (ii) provision of least cost of service. In addition, the weightings are factors, i.e. the weightings are normalized so that a category having say, four criteria cannot not generate a higher score than a category having only one criterion. PNG(N.E.) considers that the resource supply alternatives identified as part of this Application should be evaluated against each of these resource planning objectives, and observes that some trade-offs between fulfilling the requirements of competing objectives may be required. 5.2 Alternatives careful consideration and evaluation of the identified alternatives for best meeting the increased supply requirements for Tumbler Ridge to fulfill requests for additional and new firm service. The evaluation has been made in consideration of local constraints, the needs of existing customers, and in the Recommended Option: Implement CNG Virtual Pipeline from Dawson Creek proposal to implement a CNG Virtual Pipeline as a solution to security of supply and supply Page 27 of 52

32 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 constraint issues in the Tumbler Ridge service area. The following is an assessment of this alternative in consideration of the resource planning objectives. th the Quintette SSA and further evaluation, the CNG Virtual Pipeline is considered to be the best option for providing the necessary gas supply to meet the requests of industrial customers in Tumbler Ridge for firm service. Furthermore, the CNG Virtual Pipeline allows for diversification of supply and offers a competitively-priced supply alternative to the existing service agreement with CNRL, particularly given the increase to the cost of gas supply resulting from the forthcoming new facilities charge that CNRL has stated it will be imposing. Furthermore, the CNG Virtual Pipeline is the only option among those considered that will increase the throughput on the Dawson Creek system, in addition to the Tumbler Ridge system, thereby providing capacity benefits for customers on both systems. PNG(N.E.) analysis and evaluation has not identified any environmental or First Nations matters of concern and has found regional stakeholders, including municipal governments, to be supportive of the proposed CNG Virtual Pipeline. In addition, the CNG Virtual Pipeline has the potential to support a number of BC provincial government energy-related initiatives, including fuel switching opportunities at mining operations in the Tumbler Ridge area and infrastructure in Dawson Creek to facilitate offering of NGV fuelling service. The foregoing assessment is summarized and scored in the context of resource planning objectives in Table 5-2 that follows. Page 28 of 52

33 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 5-2 Scoring of Alternatives Using Resource Planning Objectives CNG Virtual Pipeline Priority / Objective / Attribute Recommended: CNG Virtual Pipeline Measure (Yes / Indif. / No) Evaluation Weight Score 1) Safe, reliable service - adequate capacity Contingent capacity Yes = 2 - diversification of supply portfolio Additional supplier options Yes = 2 - improve system reliability Improved security of supply Yes = 2 Average: 2 30% ) Least cost service - low cost of service Low levelized cost of service Yes = 2 - diversification of supply portfolio Competitive supplier options Yes = 2 - load diversification Increase system load factor Yes = 2 Average: 2 30% ) Economic viability of utility - stable or increasing throughput Increased system throughput Yes = 2 - minimized shareholder risk Earn return on ratebase Yes = 2 Average: 2 10% ) Stable rates - low sensitivity of forecast rates Low range of cost of service impacts Yes = 2 Average: 2 10% ) Environmental and socio-economic impacts - low emissions Low air quality impacts Yes = 2 - low hydrologic/fisheries impacts Low water quality impacts Yes = 2 - minimal acheological/heritage impacts Low First Nations impacts Yes = 2 - positive economic impacts Other stakeholder support Yes = 2 Average: 2 10% ) Alignment with BC Government Energy Objectives - reduction in GHG emissions Reduction in GHG emissions Yes = 2 - promote CNG as an alternative fuel CNG infrastucture Yes = 2 Average: 2 10% Evaluation Yes = 2; Indifferent = 1; No = 0 Greater score = more desirable alternative Alternative One: Seek Contractual Changes with CNRL As noted previously, supply arrangements for Tumbler Ridge with CNRL are such that the supply contract provides tion facilities, and sets limits for the amount of gas any single large customer can take to 20,000 GJ per year without being subject to curtailment. In addition, under current service arrangements, for use as fuel gas for compressor stations in its field operations. The in Article 3 of this service agreement, as reproduced below: Page 29 of 52

34 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 These terms prevent PNG(N.E.) from offering firm service to larger industrial customers requesting such service. The inability to capture this additional potential load denies core market customers the benefits of rate reductions which might be achieved through higher firm volume deliveries and the associated increase in revenues. Further, the inability to serve these customers presents a risk that they may fuel-switch (i.e. to propane) and cease to take natural gas service from PNG(N.E.), thereby putting upward pressure on rates for all ratepayers in Tumbler Ridge. As the most practical alternative for improving supply requirements for Tumbler Ridge customers, PNG(N.E.) examined the possibility of working with CNRL on amendments to the existing service agreement such that PNG(N.E.) would be able to enter firm supply contracts with its large customers. PNG(N.E.) has approached CNRL with a request for amendments to the service agreement to allow for firm service to large customers, however CNRL was not receptive to this request. Regardless of this stance by CNRL, PNG(N.E.) notes that changes to the contractual arrangements with CNRL do not address the basic capacity constraint at the gas processing plant, or the issue that CNRL is increasingly Page 30 of 52

35 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 challenged to find gas supply that matches the feed gas requirements of the gas processing plant. Based on these circumstances, this alternative is considered to have very low potential for success. consideration of the resource planning objectives for this Application as presented in Table 5-3 below. Table 5-3 Scoring of Alternatives Using Resource Planning Objectives Contractual Changes Priority / Objective / Attribute Option One: Contractual Changes Measure (Yes / Indif. / No) Evaluation Weight Score 1) Safe, reliable service - adequate capacity Contingent capacity No = 0 - diversification of supply portfolio Additional supplier options No = 0 - improve system reliability Improved security of supply No = 0 Average: 0 30% ) Least cost service - low cost of service Low levelized cost of service Yes = 2 - diversification of supply portfolio Competitive supplier options No = 0 - load diversification Increase system load factor No = 0 Average: % ) Economic viability of utility - stable or increasing throughput Increased system throughput No = 0 - minimized shareholder risk Earn return on ratebase Indif. = 1 Average: % ) Stable rates - low sensitivity of forecast rates Low range of cost of service impacts Yes = 2 Average: 2 10% ) Environmental and socio-economic impacts - low emissions Low air quality impacts Yes = 2 - low hydrologic/fisheries impacts Low water quality impacts Yes = 2 - minimal acheological/heritage impacts Low First Nations impacts Yes = 2 - positive economic impacts Other stakeholder support Yes = 2 Average: 2 10% ) Alignment with BC Government Energy Objectives - reduction in GHG emissions Reduction in GHG emissions Indif. = 1 - promote CNG as an alternative fuel CNG infrastucture No = 0 Average: % Evaluation Yes = 2; Indifferent = 1; No = 0 Greater score = more desirable alternative Page 31 of 52

36 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Alternative Two: Expand Capacity of Tumbler Ridge Gas Plant In 1997, PNG(N.E.) purchased the franchise rights to serve the community of Tumbler Ridge along with the gas processing plant which presently supplies the division. The output of the Tumbler Ridge gas plant is the only source of marketable gas in the region. The plant has had no significant modifications or updates since it was commissioned in The gas plant was designed to process approximately 6 mmscfd and presently operates at approximately 3 mmscfd. Although the plant was originally designed for greater throughput capacity, external factors have constrained actual production, including. This factor has imped ability to deliver gas at sufficient pressure on the coldest heating days in the winter months and has led to curtailments of industrial customers in the past. A further issue is the risk and uncertainty regarding the availability of suitable gas reserves in the area to meet future supply demands, specifically recent representations of dwindling supply from existing production fields and recent requests to test plant throughput with higher H 2S content inlet gas. The vast majority of the producing gas fields in the Tumbler Ridge area are becoming increasingly sour, which is reflected in the nature of the CNRL gas supply contract which allows the H 2S content delivered to be as high as 2.2% or 22,000 ppm. Under this alternative, PNG(N.E.) has examined the potential to undertake the necessary upgrades to its existing gas processing plant such that higher H 2S content gas could be processed. To facilitate this evaluation, PNG(N.E.) engaged its parent company, AltaGas, to inspect and review the processing plant to determine what modifications would be required to operate the plant at or above its current rated capacity. evaluation (Appendix H), with the Tumbler Ridge processing plant operating at the rated capacity of six mmscfd and processing inlet gas with an H 2S content of 2.2%, as allowed in the CNRL gas supply agreement, the plant would release five tons per day of SO 2 sulfur. This is well in excess of the allowable limit of two tons per day (459 tons per year total) of SO 2 sulfur under the existing permit and plant registration on file with the British Columbia Oil and Gas Commission. AltaGas has estimated that PNG(N.E.) would have to install emissions scrubbing equipment with an estimated capital cost of $7 to $10 million to remediate and eliminate the excess sulfur emissions. As part of evaluating this alternative, PNG(N.E.) commissioned Solaris Management to undertake a review of the regulatory framework under which the gas processing plant presently operates (Appendix I). Based o review, even though the plant emissions are below allowable amounts today, the Page 32 of 52

37 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 current limit of two tons of SO 2 sulfur per day is the threshold for which an environmental assessment application would apply. Should PNG(N.E.) decide to alter the existing facilities, any increase in processing capacity would trigger a new permitting process with the OGC. In addition, any would also result in the requirement to file an EA. Such a situation presents many risks, including uncertainty around the time, cost and outcome of completing the permitting and the EA processes. Based on the foregoing assessment, it is clear that the greatest impediments to increased production from the gas processing plant are environmental concerns and re-permitting risk. PNG(N.E.) has assessed the alternative of expanding capacity at the gas processing plant for meeting future demand and to provide supply security for Tumbler Ridge as too costly, too lengthy and having too many risks, including no assurances of achieving the necessary approvals. Further, these factors will prevent PNG(N.E.) from meeting anticipated customer demands over the next three to five years. Consequently, PNG(N.E.) has concluded that the gas plant should be left as is as a source of supply for the division and that it would not be prudent to undertake any expansion or improvements at this time. This assessment is supported by sideration of the resource planning objectives for this Application as presented in Table 5-4 below. Page 33 of 52

38 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 5-4 Scoring of Alternatives Using Resource Planning Objectives Expand Gas Plant Capacity Priority / Objective / Attribute Option Two: Expand Gas Plant Capacity Measure (Yes / Indif. / No) Evaluation Weight Score 1) Safe, reliable service - adequate capacity Contingent capacity Yes = 2 - diversification of supply portfolio Additional supplier options No = 0 - improve system reliability Improved security of supply No = 0 Average: % ) Least cost service - low cost of service Low levelized cost of service No = 0 - diversification of supply portfolio Competitive supplier options No = 0 - load diversification Increase system load factor Yes = 2 Average: % ) Economic viability of utility - stable or increasing throughput Increased system throughput Yes = 2 - minimized shareholder risk Earn return on ratebase Yes = 2 Average: 2 10% ) Stable rates - low sensitivity of forecast rates Low range of cost of service impacts Yes = 2 Average: 2 10% ) Environmental and socio-economic impacts - low emissions Low air quality impacts No = 0 - low hydrologic/fisheries impacts Low water quality impacts Yes = 2 - minimal acheological/heritage impacts Low First Nations impacts Yes = 2 - positive economic impacts Other stakeholder support Yes = 2 Average: % ) Alignment with BC Government Energy Objectives - reduction in GHG emissions Reduction in GHG emissions Indif. = 1 - promote CNG as an alternative fuel CNG infrastucture No = 0 Average: % Evaluation Yes = 2; Indifferent = 1; No = 0 Greater score = more desirable alternative Alternative Three: Construct Interconnection with Sweet Gas Supply As a third alternative, PNG(N.E.) considered the possibility of constructing an interconnection to the nearest sweet gas source of supply. This proposal would potentially mitigate identified risks related to existing sour gas supply and related emissions constraints at the gas processing plant. PNG(N.E.) commissioned (Appendix J) to identify nearby sweet gas supplies and to assess the feasibility of constructing a new pipeline to connect to these potential sources of supply. The study Page 34 of 52

39 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 prepared by Solaris concluded that there were several potential options and presented the top five interconnection points to nearby sweet gas pipelines. A significant finding was that the nearest source of supply was 14.7 km from the PNG(N.E.) system. A second significant finding was that all of the potential interconnect options were owned and operated by CNRL. Solaris prepared a Class V (-25%/+50%) estimate indicating that it would cost $6 million to build a 14.7 km pipeline to interconnect with the nearest CNRL sweet gas pipeline. found to be reasonable for a Class V estimate, however, PNG(N.E.) notes that this estimate may be on the low end of the spectrum of cost due to difficult terrain issues likely to be encountered in this region and only considered on a general basis by Solaris in preparing their estimate. On the matter of security of supply by way of diversification of suppliers, none of the identified pipeline options meets the necessary diversification requirement because, as noted, the five closest supply alternatives presented would connect with a supply source belonging to CNRL. PNG(N.E.) has very little visi which supply Tumbler Ridge and has experienced difficulties in obtaining information regarding gas reserves and production forecasts. PNG(N.E.) also has little insight to the economics and depletion of the wells in the area which are prone to being shut in. Based on the foregoing considerations, construction of an interconnection to a nearby source of sweet gas is considered to be a too costly a proposition that will not achieve the objective of supply security through diversification. This assessment is supported objectives for this Application as presented in Table 5-5 below. Page 35 of 52

40 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 5-5 Scoring of Alternatives Using Resource Planning Objectives Sweet Gas Interconnection Priority / Objective / Attribute Option Three: Sweet Gas Interconnection Measure (Yes / Indif. / No) Evaluation Weight Score 1) Safe, reliable service - adequate capacity Contingent capacity Yes = 2 - diversification of supply portfolio Additional supplier options No = 0 - improve system reliability Improved security of supply Yes = 2 Average: % ) Least cost service - low cost of service Low levelized cost of service No = 0 - diversification of supply portfolio Competitive supplier options No = 0 - load diversification Increase system load factor Yes = 2 Average: % ) Economic viability of utility - stable or increasing throughput Increased system throughput Yes = 2 - minimized shareholder risk Earn return on ratebase Yes = 2 Average: 2 10% ) Stable rates - low sensitivity of forecast rates Low range of cost of service impacts Yes = 2 Average: 2 10% ) Environmental and socio-economic impacts - low emissions Low air quality impacts Yes = 2 - low hydrologic/fisheries impacts Low water quality impacts No = 0 - minimal acheological/heritage impacts Low First Nations impacts No = 0 - positive economic impacts Other stakeholder support Yes = 2 Average: 1 10% ) Alignment with BC Government Energy Objectives - reduction in GHG emissions Reduction in GHG emissions Indif. = 1 - promote CNG as an alternative fuel CNG infrastucture No = 0 Average: % Evaluation Yes = 2; Indifferent = 1; No = 0 Greater score = more desirable alternative 5.3 Recommendation Based on the foregoing analysis and evaluation of alternatives, in consideration of the constraints identified, PNG(N.E.) submits that the implementation of a CNG Virtual Pipeline is the most prudent, cost effective solution to provide secure supply for customers in the Tumbler Ridge service area. the identified alternatives in consideration of the resource planning objectives identified for this Application as summarized in Table 5-6 below. Page 36 of 52

41 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 5-6 Scoring of Alternatives Using Resource Planning Objectives Summary Priority / Objective / Attribute Recommended: CNG Virtual Pipeline Option One: Contractual Changes Option Two: Expand Gas Plant Capacity Option Three: Sweet Gas Interconnection Evaluation Weight Score Evaluation Weight Score Evaluation Weight Score Evaluation Weight Score Measure (Yes / Indif. / No) 1) Safe, reliable service - adequate capacity Contingent capacity Yes = 2 No = 0 Yes = 2 Yes = 2 - diversification of supply portfolio Additional supplier options Yes = 2 No = 0 No = 0 No = 0 - improve system reliability Improved security of supply Yes = 2 No = 0 No = 0 Yes = Average: 30% % % % ) Least cost service - low cost of service Low levelized cost of service Yes = 2 Yes = 2 No = 0 No = 0 - diversification of supply portfolio Competitive supplier options Yes = 2 No = 0 No = 0 No = 0 - load diversification Increase system load factor Yes = 2 No = 0 Yes = 2 Yes = 2 Average: % % % % ) Economic viability of utility - stable or increasing throughput Increased system throughput Yes = 2 No = 0 Yes = 2 Yes = 2 - minimized shareholder risk Earn return on ratebase Yes = 2 Indif. = 1 Yes = 2 Yes = 2 Average: % % % % ) Stable rates - low sensitivity of forecast rates Low range of cost of service impacts Yes = 2 Yes = 2 Yes = 2 Yes = 2 Average: % % % % ) Environmental and socio-economic impacts - low emissions Low air quality impacts Yes = 2 Yes = 2 No = 0 Yes = 2 - low hydrologic/fisheries impacts Low water quality impacts Yes = 2 Yes = 2 Yes = 2 No = 0 - minimal acheological/heritage impacts Low First Nations impacts Yes = 2 Yes = 2 Yes = 2 No = 0 - positive economic impacts Other stakeholder support Yes = 2 Yes = 2 Yes = 2 Yes = Average: 10% % % % ) Alignment with BC Government Energy Objectives - reduction in GHG emissions Reduction in GHG emissions Yes = 2 Indif. = 1 Indif. = 1 Indif. = 1 - promote CNG as an alternative fuel CNG infrastucture Yes = 2 No = 0 No = 0 No = 0 Average: % % % % Evaluation Yes = 2; Indifferent = 1; No = 0 Greater score = more desirable alternative To reiterate, specific elements of the CNG Virtual Pipeline recommendation include: 1) The CNG Virtual Pipeline achieves its stated objective of supply security and diversification for the Tumbler Ridge service area by securing a second source of gas supply. 2) This alternative allows for a rate design for CNG service that will have no material impact on Tumbler Ridge or Dawson Creek residential and small commercial service rates. 3) As the capital cost of $3.8 million is allocated between the Dawson Creek and Tumbler Ridge divisions, this alternative is the most cost effective solution for Tumbler Ridge and provides potential benefits for Dawson Creek customers via ancillary service offerings. 4) This project allows for the most efficient use of capital as it allows for a gradual ramp-up of operational activities in conjunction with demand growth. Page 37 of 52

42 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY ) The risk of potential stranding of assets is greatly diminished as the CNG facilities are mobile and can be redeployed or sold. 6) The alternative provides the greatest flexibility in that it will allow PNG(N.E.) to have firm service in place for the 2013/2014 winter season in order to meet Quintette Mine requirements. In addition, there is flexibility in the ability to add capacity and volume by increasing the number of tanker shipments each day to meet additional demand that may materialize from existing or new customers. Page 38 of 52

43 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Rate Design and Customer Impacts assumptions, pro forma rate design and customer impacts. The evaluation that follows is based on calendar year impacts, comparing future years to 2013 as a base year. 6.1 Assumptions rate design and customer impacts analysis incorporates a number of assumptions as detailed below. Rate Base Additions PNG(N.E.) proposes attributing the capital costs according to the location and use of the assets: The land, site improvements, compression and dispensing facilities located in Dawson Creek are estimated to cost $1.7 million. These facilities will be included in the Dawson Creek rate base; and The cost of the transport trailers and receiving and injection terminal facilities is estimated to be $2.1 million. This equipment and facilities will be included in the Tumbler Ridge rate base. Operating Costs Costs incurred for the operation and maintenance of the required infrastructure will follow the assets to which they relate, specifically: The operating costs related to the compression and dispensing facilities will be included in the Dawson Creek cost of service; and The costs associated with transporting the CNG trailers and the operating costs related to the receiving and injection terminals will be included in the Tumbler Ridge cost of service. Demand Forecast Table 6-1 provides a summary of the forecast natural gas demand for Tumbler Ridge and forecast CNG demand for Dawson Creek. The reference case filed in the PNG(N.E.) 2012 Resource Plan was used as the starting point for this forecast, as amended for provisions included in the PNG(N.E.) 2013 Revenue Requirements Application, including the following assumptions: Page 39 of 52

44 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Modest growth forecast in residential customer additions averaging 1.0% per year in Dawson Creek and 0.5% in Tumbler Ridge; Modest growth in small commercial customer additions of 1.5% in both divisions; A continued decline in residential use per account in Dawson Creek due to conversion to high-efficiency appliances and a continued increase in residential use per account in Tumbler Ridge as the community continues resettlement with improved economic conditions; Existing large customer forecast annual deliveries are generally held constant unless there is information to the contrary; A new industrial park being developed near the Dawson Creek airport is expected to be fully occupied by the end of 2013 creating added demand from these customers of 115,000 GJ by 2014; In Tumbler Ridge, Teck Resources has requested firm service of 40,000 GJ in 2013 to serve space heating requirements at its Quintette Mine, and forecasts demand to increase to 160,000 GJ per year in 2015; and For 2013, volumes to be provided under the Quintette SSA of 15,000 GJ have been excluded from the annual demand summary for Tumbler Ridge as the margin related to these volumes have been recorded in amounts deferred under this project. As noted, for Tumbler Ridge the demand forecast anticipates Quintette Mine will ramp up from 40,000 GJ in 2013/2014 to demand of 160,000 GJ by In this evaluation demand forecast amounts in excess of 20,000 GJ (the CNRL service agreement threshold) is to be supplied by the CNG Virtual Pipeline from Dawson Creek. Due to a conservative approach to the analysis, no provision has been made for additional industrial load growth (i.e. HD Mines, Anglo American, Walter Energy, residential and commercial growth) in Tumbler Ridge. For Dawson Creek, the demand forecast in this evaluation anticipates 77,000 GJ in new demand from the offering and uptake of new ancillary services (i.e. NGV fuelling and local bulk CNG sales). Page 40 of 52

45 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 6-1 Forecast Annual Demand (TJ/year) Tumbler Ridge (REFERENCE) 2012 (Act) Residential Small Commercial Large Commercial Sales Industrial Sales (Quintette) Industrial Sales (HD Mining) Industrial Sales (Peace River Coal) Industrial Transport (CNRL) Total Deliveries 1, ,093 1,158 1,161 1,164 1,164 1,164 1,163 1,164 1,165 Company Use Process Plant Fuel+Lineheaters 6.48% Blowdowns and Losses 0.01% UAF 0.00% (4) Total Tumbler Ridge 1,044 1,021 1,118 1,182 1,185 1,188 1,188 1,188 1,188 1,189 1,190 CNRL Supply 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 CNG Supply Average Number of Deliveries per day Number of Trailers required Number of Trucks required Dawson Creek CNG Only 2012 (Act) CNG deliveries to Tumbler Ridge Local CNG Deliveries Total CNG Rate Design Rate Design Principles PNG(N.E.) has adopted the following rate design principles in establishing a proposed rate structure for the CNG Virtual Pipeline: 1) Minimize the rate impacts to Tumbler Ridge customers and maintain competitive industrial rates; and 2) Negligible or no rate impacts to Dawson Creek customers, plus provide the potential for future rate reductions and other benefits through additional load growth and throughput on the system via ancillary service offerings at the Dawson Creek compression station. Dawson Creek Based on the identified rate design principles, for Dawson Creek, PNG(N.E.) is proposing a CNG compression and dispensing charge of $1.50 per GJ to be included in a proposed new bulk CNG sales RS see discussion that follows under the section New Rate Schedule Dawson Creek). This C&D charge allows for Page 41 of 52

46 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 the recovery of incremental capital and system operating costs for the proposed CNG compression and dispensing station located in Dawson Creek and it also establishes a rate for Tumbler Ridge customers at a level similar to the cost of gas delivered from the Tumbler Ridge gas processing plant that is forecast for An illustration of the Dawson Creek revenue requirement underlying the computation of this levelized rate for the period 2014 to 2016 is illustrated in Table 6-2. Table 6-2 Dawson Creek CNG Service Revenue Requirement ( ) Revenue Requirement ($000) Growth Cost of Electricity for Compression 1% $ 26 $ 38 $ 39 Other Operating Expenses 1% $ 101 $ 102 $ 103 Allocation from A&G and Corp O/H (10%) $ 10 $ 10 $ 10 Total OMAG $ 137 $ 150 $ 152 Depreciation & Amortization $ 24 $ 49 $ 49 Property Taxes 1% $ 25 $ 25 $ 25 Interest $ 23 $ 45 $ 44 Return on Equity $ 35 $ 70 $ 68 Income Tax $ - $ 0 $ 0 Total Revenue Required $ 245 $ 338 $ 338 Volumes (TJ) Average Rate Impact ($/GJ) $ 1.62 $ 1.57 $ 1.55 Levelized Rate Calculation Discount Rate 6.54% 20-Year NPV Revenue Requirement $ 3, Year NPV Volumes 2,379 TJ Levelized Rate $ 1.50 /GJ The C&D charge is based on a 20-year levelized-cost forecast that includes the anticipated demand from the Tumbler Ridge Quintette Mine as well as 77,000 GJ of demand for ancillary CNG services in Dawson Creek, primarily bulk CNG sales. New Rate Schedule Dawson Creek PNG(N.E.) does not presently have an approved Rate Schedule to provide for bulk CNG sales in Dawson Creek. PNG(N.E.) proposes providing this service under the proposed new RS30 Bulk Compressed Natural Gas (CNG) Service (see Appendix K). PNG(N.E.) has set a minimum threshold of eligibility for RS30 at an annual demand of 10,000 GJ per year. RS30 would apply to supply for the Tumbler Ridge CNG Virtual Page 42 of 52

47 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Pipeline and would also be available to any other third party customer that meets the load criteria of the tariff. At this time, PNG(N.E.) has used the Dawson Creek Large Commercial Service (RS3) tariff as the proxy for RS30 due to the anticipated commercial consumption and the minimum volume requirement for sales under the proposed RS30 tariff. This will be reevaluated in the future based on the nature of customers taking service under this tariff. PNG(N.E.) proposes to establish a RS30 tariff price at the dispenser that is defined by a formula comprised of the following elements: Compression and Dispensing Charge Company Use Rider (from RS3) Subtotal Compression and Dispensing Charges Commodity Cost Recovery Charge (from RS3) GCVA Rider (from RS3) Subtotal Commodity Charges Total Compression, Dispensing and Commodity Charges $1.50/GJ $X.XX/GJ $X.XX/GJ $X.XX/GJ $X.XX/GJ $X.XX/GJ $X.XX/GJ In this formula, Compression and Dispensing, Riders and Commodity Costs will be updated and changed in the normal course through revenue requirements applications and the quarterly review of gas costs. Sales under RS30 would be subject to a 3% franchise fee charge. In addition, end users of the CNG purchased (i.e. parties who are not resellers) will be subject to carbon taxes on the above purchases. The above charges will also be subject to GST and PST. In the future, PNG(N.E.) may give consideration to other compression service options, for example, to customers wishing to arrange their own gas supply. In this instance, PNG(N.E.) may consider offering a standalone compression and dispensing service under a rate similar in nature to those presently in place for transportation service. Tumbler Ridge For Tumbler Ridge, PNG(N.E.) is not proposing any rate design changes. The cost of supplemental gas supplied under Dawson Creek RS30 would become part of Tumbler transportation and receiving/injection infrastructure costs would become part of the revenue requirement for the Tumbler Ridge division and would be recovered in rates of all customers, whether sales or transportation. An illustration of the Tumbler Ridge revenue Page 43 of 52

48 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 requirement effects of the transportation and operating costs related to the CNG Virtual Pipeline for 2014 to 2016 are illustrated in Table 6-3. Table 6-3 Tumbler Ridge CNG Service Revenue Requirement ( ) Revenue Requirement ($000) Growth CNG Transport Cost (third party) 1% $ 118 $ 222 $ 229 Other Operating Expenses 1% $ 30 $ 31 $ 31 Allocation from A&G and Corp O/H (10%) $ 3 $ 3 $ 3 Total OMAG $ 151 $ 256 $ 263 Depreciation & Amortization $ 129 $ 187 $ 187 Property Taxes 1% $ $ $ Interest $ 35 $ 59 $ 53 Return on Equity $ 44 $ 74 $ 67 Income Tax $ $ 0 $ 0 Total Revenue Required $ 359 $ 576 $ 571 Volumes (TJ) 1,093 1,158 1,161 Average Rate Impact ($/GJ) $ 0.33 $ 0.50 $ 0.49 As noted above, the proposed Dawson Creek C&D rate has been determined on a levelized-cost basis in consideration of a 20-year forecast period and proposed Rate Schedule 30 results in Tumbler Ridge s blended weighted-average cost of gas being slightly higher compared to the existing cost as supplied solely by CNRL. This is illustrated in Table 6-4 that follows, and also under section 6.3 Customer Impacts. Page 44 of 52

49 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 6-4 Tumbler Ridge Weighted-Average Cost of Gas Status Quo (TR RS3) CNRL Facilities TR RS3 Status Quo (TR RS3) Charge Cost of Gas (ni Carbon Tax) $ C&D Charge Cost of Gas injected in TR $ $ $ Gas Supply Costs $ GJ Cost of Gas from CNRL (ni Carbon Tax) $ Add: CNRL Facilities Charge Total from CNRL $ ,900 Cost of Gas injected in TR $ ,811 Weighted average cost of gas $ ,710 CNRL Supply for Core Market CNG Supply in 2014 Total Status Quo (TR RS3) CNRL Facilities TR RS3 Status Quo (TR RS3) Charge Cost of Gas (ni Carbon Tax) $ C&D Charge Cost of Gas injected in TR $ $ $ Gas Supply Costs $ GJ Cost of Gas from CNRL (ni Carbon Tax) $ Add: CNRL Facilities Charge Total from CNRL $ ,900 Cost of Gas injected in TR $ ,063 Weighted average cost of gas $ ,963 CNRL Supply for Core Market CNG Supply in 2015 Total PNG(N.E.) considers this approach to be fair, reasonable and transparent, and will allow for all Tumbler Ridge customers to benefit from potential positive rate impacts of increased demand from large industrial customers in the service area. 6.3 Customer Impacts Customer impacts of the proposed CNG Virtual Pipeline have been evaluated in comparison to 2013 tariffs as the base case and are presented in the following discussion. Page 45 of 52

50 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Dawson Creek As illustrated in Table 6-5, the impact of adding CNG compression facilities is expected to have a negligible effect on rates for Dawson Creek customers in 2014 (0.1% increase) and 2015 (no change) in comparison to 2013 customer rates. This outcome is predicated on PNG(N.E.) realizing additional (i.e. non-quintette) CNG sales at the Dawson Creek compression facility of 77,000 GJ. The impact on Dawson Creek customers from shortfalls or additional sales over this level are evaluated below. PNG(N.E.) s assessment of its ability to realize these additional sales is also discussed below. Table 6-5 Burner Tip Impacts Dawson Creek Dawson Creek Residential Small Commercial Large Commercial (RS3) Delivery (CNG Facilities) Burner Tip Impacts (2014) CNG Addition Status Quo CNG Addition Status Quo CNG Addition Status Quo CNG Addition Cost of gas (ni Carbon Tax) $ 3.53 $ 3.53 $ 3.54 $ 3.54 $ 3.44 $ 3.44 $ 3.44 Delivery Charge $ 4.23 $ 4.23 $ 2.59 $ 2.59 $ 1.65 $ 1.64 $ Total Commodity + Delivery $ 7.76 $ 7.76 $ 6.13 $ 6.13 $ 5.08 $ 5.08 $ 3.44 Impact wrt Status Quo + Facilities Charge (2013) 0.1% 0.1% 0.0% Dawson Creek Residential Small Commercial Large Commercial (RS3) Delivery (CNG Facilities) Burner Tip Impacts (2015) CNG Addition Status Quo CNG Addition Status Quo CNG Addition Status Quo CNG Addition Cost of gas (ni Carbon Tax) $ 3.53 $ 3.53 $ 3.54 $ 3.54 $ 3.44 $ 3.44 $ 3.44 Delivery Charge $ 4.23 $ 4.23 $ 2.59 $ 2.59 $ 1.64 $ 1.64 $ Total Commodity + Delivery $ 7.76 $ 7.76 $ 6.13 $ 6.13 $ 5.08 $ 5.08 $ 3.44 Impact wrt Status Quo + Facilities Charge (2013) 0.1% 0.1% 0.0% Tumbler Ridge CNRL has recently indicated it will be adding a facilities charge estimated at $1.20 per GJ effective 2014 to recover the cost of securing new sources of gas to supply PNG(N.E.) s processing plant. Therefore, the comparative 2013 tariffs for Tumbler Ridge used to evaluate customer impacts from the proposed CNG Virtual Pipeline for Tumbler Ridge are the 2013 rates plus a provision for a $1.20 per GJ facilities charge from CNRL. As illustrated in Table 6-6, the weighted average cost of the CNG/CNRL gas portfolio is slightly higher than the cost of CNRL gas only ($4.93 vs $4.84 per GJ in 2014 and $4.98 vs $4.84 per GJ in 2015). There is also a small increase in the delivery charge Page 46 of 52

51 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 due to the additional cost of owning and operating the CNG Virtual Pipeline (from $7.07 to $7.25 per GJ in 2014 and to $7.11 per GJ in 2015). Table 6-6 Burner Tip Impacts Tumbler Ridge (with Quintette Volumes) Tumbler Ridge Burner Tip Impacts (2014) Residential Status Quo (TR RS3) + CNRL Small Commercial Status Quo (TR RS3) + CNRL Large Commercial Status Quo (TR RS3) + CNRL CNRL Status Quo (TR RS3) + CNRL CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge Weighted average cost of gas (ni Carbon Tax) $ 4.93 $ 4.84 $ 4.93 $ 4.84 $ 4.93 $ 4.84 Delivery Charge TR $ 7.25 $ 7.07 $ 5.32 $ 5.20 $ 4.29 $ 4.19 $ 0.48 $ 0.47 Total Commodity + Delivery $ $ $ $ $ 9.22 $ 9.02 $ 0.48 $ 0.47 Impact wrt Status Quo + Facilities Charge (2013) 2% 2% 2% 2% Tumbler Ridge Burner Tip Impacts (2015) Residential Status Quo (TR RS3) + CNRL Small Commercial Status Quo (TR RS3) + CNRL Large Commercial Status Quo (TR RS3) + CNRL CNRL Status Quo (TR RS3) + CNRL CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge Weighted average cost of gas (ni Carbon Tax) $ 4.98 $ 4.84 $ 4.98 $ 4.84 $ 4.98 $ 4.84 Delivery Charge TR $ 7.11 $ 7.07 $ 5.22 $ 5.20 $ 4.21 $ 4.19 $ 0.47 $ 0.47 Total Commodity + Delivery $ $ $ $ $ 9.18 $ 9.02 $ 0.47 $ 0.47 Impact wrt Status Quo + Facilities Charge (2013) 1% 2% 2% 1% It is anticipated that the addition of CNG to the gas supply portfolio will enable PNG(N.E.) to service growth in industrial demand due to the ability to offer firm service to customers. Increased throughput on the system is expected to have positive rate impacts on all customer classes in the form of lower delivery charges. As an example, the positive rate effects from anticipated increased load related to HD Mines is evaluated below under section 6.4 Demand Forecast Sensitivity. 6.4 Demand Forecast Sensitivity For illustrative purposes, PNG(N.E.) has evaluated the rate implications related to both the risk of losing customers due to the inability to provide requested service, and the potential benefits resulting from the identified load growth opportunities. Impact of Losing Quintette Mine to Propane Service As noted previously, PNG(N.E.) has identified a risk that should it not be able to meet the request for firm service from Quintette Mine, the mine may convert to propane service. As an illustrative example, PNG(N.E.) has evaluated the impact of this scenario on the demand forecast and summarizes the outcome in Table 6-7 below. This table compares two scenarios: 1) where PNG(N.E.) does not implement the CNG Page 47 of 52

52 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Virtual Pipeline and loses Quintette as a customer, and 2) where PNG(N.E.) implements the CNG Virtual Pipeline and retains Quintette as a customer. As illustrated, by not implementing the CNG Virtual Pipeline, PNG(N.E.) customers would see the reduction in the cost of gas more than offset by an increase in delivery charges due to the loss of Quintette. The net effect would be an increase in the rates of Tumbler Ridge customers by an estimated 4 to 12% as compared to 2013 rates due to the increased delivery charges. Table 6-7 Customer Rate Impact of Losing Quintette Mine to Propane Service Tumbler Ridge Burner Tip Impacts (2014) Residential Small Commercial Large Commercial CNRL No CNG No CNG No CNG With CNG Service and Retain Quintette Service and Lose Quintette to Propane With CNG Service and Retain Quintette Service and Lose Quintette to Propane With CNG Service and Retain Quintette Service and Lose Quintette to Propane No CNG Service and Lose Quintette to Propane With CNG Service and Retain Quintette Weighted average cost of gas (ni Carbon Tax) $ 4.84 $ 4.93 $ 4.84 $ 4.93 $ 4.84 $ 4.93 Delivery Charge TR $ 7.99 $ 7.25 $ 5.87 $ 5.32 $ 4.73 $ 4.29 $ 0.53 $ 0.48 Total Commodity + Delivery $ $ $ $ $ 9.57 $ 9.22 $ 0.53 $ 0.48 Impact wrt Status Quo + Facilities Charge (2013) 5% 4% 4% 10% Tumbler Ridge Burner Tip Impacts (2015) Residential Small Commercial Large Commercial CNRL No CNG Service and Lose Quintette to Propane With CNG Service and Retain Quintette No CNG Service and Lose Quintette to Propane With CNG Service and Retain Quintette No CNG Service and Lose Quintette to Propane With CNG Service and Retain Quintette No CNG Service and Lose Quintette to Propane With CNG Service and Retain Quintette Weighted average cost of gas (ni Carbon Tax) $ 4.84 $ 4.98 $ 4.84 $ 4.98 $ 4.84 $ 4.98 Delivery Charge TR $ 7.97 $ 7.11 $ 5.86 $ 5.22 $ 4.72 $ 4.21 $ 0.53 $ 0.47 Total Commodity + Delivery $ $ $ $ $ 9.55 $ 9.18 $ 0.53 $ 0.47 Impact wrt Status Quo + Facilities Charge (2013) 6% 5% 4% 12% Impact of HD Mines Proceeding and Adding to Demand As noted previously, the demand forecast for Tumbler Ridge only includes a provision for Quintette Mine load growth. PNG(N.E.) has identified additional potential load growth opportunities in this service area that would have a positive effect on all customer rates. For illustrative purposes, PNG(N.E.) has evaluated the impact on the demand forecast of a scenario where additional demand from HD Mines is realized. The outcome of this scenario is summarized in Table 6-8. As anticipated, the additional load from this customer is projected to decrease rates to all Tumbler Ridge customers by 17 to 29% in 2015, as compared to 2013 rates. Page 48 of 52

53 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 6-8 Customer Rate Impact of Additional Demand from HD Mines Tumbler Ridge Burner Tip Impacts (2014) Residential Status Quo (TR RS3) + CNRL Small Commercial Status Quo (TR RS3) + CNRL Large Commercial Status Quo (TR RS3) + CNRL CNRL Status Quo (TR RS3) + CNRL CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge Weighted average cost of gas (ni Carbon Tax) $ 4.72 $ 4.84 $ 4.72 $ 4.84 $ 4.72 $ 4.84 Delivery Charge TR $ 7.25 $ 7.07 $ 5.32 $ 5.20 $ 4.29 $ 4.19 $ 0.48 $ 0.47 Total Commodity + Delivery $ $ $ $ $ 9.01 $ 9.02 $ 0.48 $ 0.47 Impact wrt Status Quo + Facilities Charge (2013) 0% 0% 0% 2% Tumbler Ridge Burner Tip Impacts (2015) Residential Status Quo (TR RS3) + CNRL Small Commercial Status Quo (TR RS3) + CNRL Large Commercial Status Quo (TR RS3) + CNRL CNRL Status Quo (TR RS3) + CNRL CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge CNG/CNRL Portfolio Facilities Charge Weighted average cost of gas (ni Carbon Tax) $ 4.49 $ 4.84 $ 4.49 $ 4.84 $ 4.49 $ 4.84 Delivery Charge TR $ 5.00 $ 7.07 $ 3.68 $ 5.20 $ 2.96 $ 4.19 $ 0.33 $ 0.47 Total Commodity + Delivery $ 9.49 $ $ 8.16 $ $ 7.45 $ 9.02 $ 0.33 $ 0.47 Impact wrt Status Quo + Facilities Charge (2013) 20% 19% 17% 29% Impact of Failing to Secure Additional CNG Demand in Dawson Creek PNG(N.E.) has based the C&D charge of $1.50 per GJ on an annual demand of 237,000 GJ resulting from the provision of gas supply to Tumbler Ridge, as well as providing ancillary services such as bulk CNG sales and CNG refuelling. The impact to the rates of Dawson Creek customers resulting from actual demand from ancillary CNG services that vary from the forecast is illustrated in the Table 6-9, including the effects under differing scenarios for CAPEX (on budget and +/-10% of budget). Page 49 of 52

54 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Table 6-9 Customer Rate Impact of Failure to Secure Additional CNG Compression Demand Impact of Volume and Capex on Levelized Compression Charge Volume Levelized Total Revenue Quintette Ancillary Required (Shortfall)/ Compression Benefit/ (Risk) Levelized (Shortfall)/ Volume Services Total Volume Volume Surplus Tariff to DC/FSJ Charge Surplus (TJ) (TJ) (TJ) (TJ) (TJ) ($/GJ) ($/GJ) ($/GJ) ($) CAPEX in DC as Budgeted (77) 2.15 (0.65) 1.50 (115,500) (37) 1.90 (0.40) 1.50 (55,500) (17) 1.71 (0.21) 1.50 (25,500) , , , % CAPEX in DC (88) 2.22 (0.72) 1.50 (132,000) (48) 1.97 (0.47) 1.50 (72,000) (28) 1.77 (0.27) 1.50 (42,000) , , ,000-10% CAPEX in DC (67) 2.07 (0.57) 1.50 (100,500) (27) 1.84 (0.34) 1.50 (40,500) (7) 1.65 (0.15) 1.50 (10,500) , , ,500 Dawson Creek customers stand to receive long-term benefits from this new service in the form of future rate reductions due to increased throughput on the system resulting from the supply of CNG to meet the incremental load growth on the Tumbler Ridge system, and to meet customer demand for ancillary services in Dawson Creek. PNG(N.E.) believes it acceptable to implement the service with only 60% to 70% of the required economic load for the facility secured (i.e. supply to Tumbler Ridge) as it is recent expressions of interest and current negotiations, the remaining required economic load will be secured from potential new bulk CNG customers in the near term. Page 50 of 52

55 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Proposed Disposition of Costs Deferred under the Quintette SSA PNG(N.E.) submits that the Quintette SSA benefited all customers in the Tumbler Ridge service area and submits that the deferred direct third-party costs of $329,766 should be approved for recovery in the cost of service for the Tumbler Ridge system. Pending Commission approval of the permanent CNG Virtual Pipeline, PNG(N.E.) requests approval to transfer $43,180 in deferred costs to the capital cost of the CNG Virtual Pipeline as these costs relate to facilities and improvements that can be utilized on an ongoing basis for the permanent service. PNG(N.E.) seeks Commission approval to recover the remaining deferred costs of $286,586 in Tumbler Ridge customer rates applying a straight-line amortization over a 5-year period. Page 51 of 52

56 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY Conclusion PNG(N.E.) has an obligation to provide fair and reasonable service to its customers and believes that it is in the best interest of all customers that it be in a position to serve this additional load. However, the customers of Tumbler Ridge have been subject to supply constraints for several years. The situation was manageable during the economic downturn, however with recent increases in economic activity in the region and the recent requests from industrial customers for firm gas supply the current arrangements are not sustainable. This situation has been aggravated by continued uncertainty and a lack of transparency around existing gas supply reserves, as well as the relative remoteness of Tumbler Ridge and small size of the overall rate base. To this end, PNG(N.E.) has identified and evaluated several supply alternatives and proposes the implementation of a CNG Virtual Pipeline between Dawson Creek and Tumbler Ridge as the most prudent supplemental supply option for the Tumbler Ridge service area until further load growth warrants the revisiting of alternative supply options such as the construction of a new supply line. Based on the analysis presented, PNG(N.E.) respectfully submits and seeks Commission approval, pursuant to sections 45 and 46 of the Act, for a CPCN for the acquisition, construction and operation of the proposed permanent CNG Virtual Pipeline between the British Columbia communities of Dawson Creek and Tumbler Ridge. In addition, PNG(N.E.) respectfully submits and seeks Commission approval, pursuant to sections 59 through 61 of the Act, for the Bulk Compressed Natural Gas (CNG) Service (RS30) tariff proposed for the Dawson Creek service area in order to provide CNG service to customers, including bulk CNG supply for the Tumbler Ridge service area. Lastly, precedent on Commission approval of the CNG Virtual Pipeline, PNG(N.E.) seeks Commission approval for the transfer of $43,180 of capital costs deferred under the Quintette SSA to the capital cost of the CNG Virtual Pipeline, as well as approval to recover the balance of $286,586 in costs deferred under the Quintette SSA in Tumbler Ridge customer rates over a period of 5 years. Page 52 of 52

57 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX A Quintette Security of Supply Agreement Synopsis

58 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Quintette Security of Supply Agreement - Synopsis Background In response to a request for firm natural gas supply from Teck Coal Quintette (N.E.) filed an application with the British Columbia Utilitie r 2012 to enter into the Quintette -month period over the winter of 2012/2013. The Quintette SSA initiative arose as a direct result of the gas supply challenges inherent in the Tumbler Ridge gas supply arrangements. Specifically, restrictive terms in the Tumbler Ridge gas supply contract with Canadian Natural Resources Ltd. render large customers requiring supply in excess of 20,000 GJ per year to be restricted to interruptible service and subject to supply curtailments. Quintette Mine is in the process of re-commissioning mining operation and submitted a formal request for firm natural gas supply of 40,000 GJ for the winter of 2012/2013. Quintette Mine uses natural gas for space heating and firm supply is critical to the ongoing operations and safety of the mine. The prospect of future service curtailments such as that which occurred in November of 2011 was not acceptable to the client, and the client indicated that if PNG(N.E.) was unable to meet their natural gas service requirements there was a distinct possibility that they would move to a propane-based supply system. The restrictive terms PNG(N.E.) could not commit to firm supply for the 2012/2013 winter season. Losing a large customer such as Quintette Mine would be detrimental to the rest of the customers in the Tumbler Ridge service area. Consequently, PNG(N.E.) made a significant effort to find an alternative solution to the challenge. The underlying basis for the Quintette SSA was to implement a supplemental source of gas supply for the community of Tumbler Ridge specifically to address the Quintette Mine request. The solution proposed and implemented by PNG(N.E.) involved outsourcing a temporary trucking service to provide for the delivery of compressed. The Commission approved the Quintette SSA under Order G , dated November 29, Outcome The Quintette SSA was considered to be beneficial to all customers as it retained Quintette Mine as a natural gas customer and avoided otherwise adverse rate impacts for the remaining customer base. Further, the project allowed PNG(N.E.) to operate a CNG trucking service on a test basis as a pilot, providing invaluable real-world experience and a testing ground to assess the feasibility of this supply option as a

59 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 viable permanent supply alternative for providing the necessary supply security and diversification to Tumbler Ridge. Proposed Disposition of Project Costs Based on the foregoing, PNG(N.E.) submits that the Quintette SSA benefited all customers in the Tumbler Ridge service area and submits that the deferred direct thirdparty costs of $329,766 should be approved for amortization and recovery in the cost of service for the Tumbler Ridge system. PNG(N.E.) seeks Commission approval to recover the deferred direct third party costs applying a straight-line amortization over a 5-year period. PNG(N.E.) notes that, should the Commission approve the permanent CNG Virtual Pipeline, $43,180 in deferred costs would be proposed for capitalization as they relate to facilities and improvements that would be utilized on an ongoing basis for the permanent service. Other Implications The Quintette SSA allowed for PNG(N.E.) to train several members of its operational staff with respect to the safe operation of mobile CNG service, including compression facilities and the filling and unloading of tanker trucks. PNG(N.E.) recently had an opportunity to deploy mobile CNG service to maintain gas service to customers while under-highway repairs to a pipeline were completed. The use of CNG provided significant savings over traditional pipeline bypass methodologies typically deployed during such repair work. PNG(N.E.) believes there is considerable potential to make use of mobile CNG service in emergency repair and maintenance situations where line breaks could interrupt service.

60 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX B Offer to Purchase Dawson Creek Compression Site Land

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74 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX D Letters of Community Support A) City of Dawson Creek B) School District No. 59 (Peace River South)

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77 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX E News Article CNG Truck Service (Tumbler Ridge News)

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80 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX F Service Agreement PNG(N.E.) and CNRL (January 1, 2007)

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103 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX G Resource Planning Objectives

104 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Summary of Resource Planning Objectives for Tumbler Ridge Supplemental Supply Measurement Criteria and Attributes Priority Resource Plan Objective 1 Safe, Reliable Service 2 Least Cost Service 3 Economic Viability of Utility Attributes Weight 1 (Whether the project, program or initiative being evaluated results in:) 30% - Capacity adequate to meet firm demand. - Increased diversification of the supply portfolio. - Improvements to the reliability of the pipeline system. - Improvements to the integrity of the pipeline system. 30% - All alternatives being considered including pipeline capacity and increases to operating pressure, as well as alternatives such as CNG and LNG deliveries, peaking arrangements with large customers, and demand-side measures. - Increased diversification of the supply portfolio strengthens position in negotiations with gas suppliers. - Improvements to the daily and seasonal diversity of loads so as to utilize as fully as possible the available capacity of the system as much of the time as possible. 10% - The cost of natural gas at the point of delivery remaining competitive with other, comparable forms of energy. - The throughput on the system remaining stable or increasing over time. - Minimized shareholder risk such that the utility continues to earn its regulated rate of return. Measurement Measure 2 - Contingent capacity adequate? - Increase in the number of supply options available Yes / Indiff. / No Yes / Indiff. / No - Improved security of supply Yes / Indiff. / No - Improved security of supply n/a - Low levelized cost of service Yes / Indiff. / No - Competitive supplier options Yes / Indiff. / No - Increase in system load factor Yes / Indiff. / No - Ratio of the cost of gas at the point of delivery to the cost of electricity n/a - Increased system throughput Yes / Indiff. / No - Earn return on ratebase Yes / Indiff. / No

105 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 Summary of Resource Planning Objectives for Tumbler Ridge Supplemental Supply Measurement Criteria and Attributes Priority Resource Plan Objective Weight 1 Attributes (Whether the project, program or initiative being evaluated results in:) 4 Stable Rates 10% - Forecast rates having the lowest sensitivity to different forecast scenarios. Measurement Measure 2 - Low range in the levelized cost of service calculated for each forecast scenario Yes / Indiff. / No 5 Environmental and Socioeconomic Impacts 6 Alignment with the B.C. Energy Objectives as set out in British Natural Gas Strategy, Liquefied Natural Gas Strategy and the Clean Energy Act 10% - Project alternatives are compared based on their impact to air and water quality, hydrology, fish, wildlife and vegetation, terrain integrity, land use, archeological and heritage resources, health and the economy. 10% - Reduction in energy consumption in all forms. 100% - Reduction in GHG emissions resulting from energy consumption. - Promoting CNG as an alternative to diesel, gasoline and propane for transportation, off-grid power generation and for isolated communities and large customers unattached distribution or transmission system. - Low particulate and other air emissions effects - Low water quality measurement, wildlife and fisheries disruption - Low First Nations issues and impacts. Yes / Indiff. / No Yes / Indiff. / No Yes / Indiff. / No - Other stakeholder support Yes / Indiff. / No - Effectiveness of a DSM program in promoting natural gas as the appropriate fuel for heating, hot water and cooking n/a - Reduction in GHG emissions Yes / Indiff. / No - Whether the project is related to CNG or LNG infrastructure Yes / Indiff. / No 1 Given that this assessment of gas supply alternatives is to improve security of supply and to address supply constraint concerns for the Tumbler Ridge service area, PNG(N.E.) has assigned a heavier weighting to objectives (i) provision of safe, reliable service, and (ii) provision of least cost of service. In addition, the factors, i.e. the weightings are normalized so that a category having say, four criteria cannot not generate a higher score than a category having only one criterion. 2 neither improves nor degrades the quality of the attribute as compared to the status quo. The reason this

106 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX H Evaluation of Gas Processing Plant Upgrades (AltaGas)

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109 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX I Tumbler Ridge Area: Regulatory Assessment Report (Solaris)

110 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP-01 Rev Date (dd-mmm-yyyy) Status Prepared by Checked by Approved by A 11-Mar-13 Issued for Client Review AKH/ATZ DLM DLM PACIFIC NORTHERN GAS LTD. TUMBLER RIDGE AREA REGULATORY ASSESSMENT REPORT Prepared by: Solaris Management Consultants Inc. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

111 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP-01 TABLE OF CONTENTS 1.0 SUMMARY CURRENT LICENSE/PERMIT REQUIRED UPDATES TO EXISTING LICENSE/PERMIT NEXT STEPS... 7 Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

112 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP SUMMARY This report summarizes the current license and permit for the Pacific Northern Gas Ltd. s (PNG) Tumbler Ridge Gas Plant, the requirements to be compliant with the OGC and Solaris Management Consultants Inc. (SMCI) recommendations go forward. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

113 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP CURRENT LICENSE/PERMIT The regulatory information provided to Solaris from PNG has been evaluated and the following has been determined: BC Oil and Gas Commission The Tumbler Ridge Gas Plant is currently registered with the OGC under Site 13923, which includes facility piping and equipment. This Site was AsBuilt in Feb 1989 and there is no record of any updates since. The OGC Kermit database does not contain any data on the site. BC Ministry of Environment, Lands and Parks This site is currently registered under the Oil and Gas Waste Regulation (B.C. Reg. 208/96) as PA The allowable waste listed in the registration form is 455/tonnes per year of SO 2. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

114 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP REQUIRED UPDATES TO EXISTING LICENSE/PERMIT Referencing an from Rachel Butler dated Feb 04, 2013 The OGC is requesting a historical facility submission on this site; due to the age of the site there is no information in the current system. This application will be submitted and processed through the Kermit system and will require the following information to be included: The "Project Description" must be attached. The "Piping and Instrumentation Diagram (P&ID)" must be attached The "Process Flow Diagram" must be attached The "Gathering System Schematic" must be attached The "Plot Plan" must be attached. Equipment list must be populated. Confirmation that this site is not located in the Agricultural Land Reserve. Further to the , if emission quantities have changed, an amendment to the current waste discharge must be submitted to the Waste Management Division of the OGC. It is advisable to complete this activity as the regulations have changed since from the time of original registration. The current allowable waste of 90 days at 2 tonnes/day requires an Environmental Assessment through the EAO (reference: Reviewable Projects Regulation B.C. Reg 370/2002.) To determine the specific requirement for PNG Tumbler Ridge, a waste discharge analysis would be required. Based on discussions with PNG, it is assumed that the registered SO2 threshold (455 tonnes/year) is significantly over estimated and thus an Environmental Assessment should not be required. However, a waste discharge analysis and air dispersion model should be completed to verify and amend the registered threshold. To complete and submit an amendment and correct the current waste discharge the following will likely be required by the OGC: Applicant Details Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

115 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP-01 Environmental Protection Notice Discharge Details (obtained from Process Stack Table Report) Receiving Environment (included in air quality assessment report) Site Plan and Location Map Technical Assessment (Air Quality Assessment 3 rd party vendor) Application Fee Agent Authorization Following an emissions assessment of this site, if the SO2 is above 2 tonnes/day, the site will require an Environmental Assessment Certificate. It is advised that the proponent investigate different methods of reducing the SO2 emissions as the process to obtain an EAC is very lengthy (one or more years) and costly. Several levels of public, First Nation and industry consultation are required to obtain approval from EAO. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

116 REGULATORY UPDATE REPORT Project: Tumbler Ridge Regulatory Assessment Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-REP NEXT STEPS In order to satisfy the requirements set out in the from the OGC, SMCI recommends that a historical facility submission be completed. From SMCI s perspective, we would recommend that a waste discharge analysis and air dispersion modelling be completed for the site to verify the existing emissions with respect to current regulations. Scenarios for current committed volumes and potential for future capacity can be taken into account. From our experience, if the modelled values approach EA threshold limits, it is possible to implement a control strategy to minimize excessive sulfur emissions and maintain levels below the EA threshold. SMCI has recently been involved in the re-license of a gas plant in BC in a similar scenario where the facility was licensed to a specific inlet H 2S concentration in conjunction with throughput. The OGC recognized that both the maximum concentration and inlet volume would never be achieved simultaneously and licensed based on engineering justification. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-REP-01 Rev A

117 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX J Tumbler Ridge Area: Sweet Gas Pipeline Supply Options (Solaris)

118 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM-01 Rev Date (dd-mmm-yyyy) Status Prepared by Checked by Approved by A 13-Feb-2013 Issued for Internal Review AKH/MT DLM DLM 0 15-Feb-2013 Issued for Client Use AKH/MT DLM DLM 1 3-Jul-2013 Updated Pipelining Installation Costs MT MT MT PACIFIC NORTHERN GAS LTD. TUMBLER RIDGE AREA SWEET GAS PIPELINE SUPPLY OPTIONS ESTIMATE BASIS MEMORANDUM Prepared by: Solaris Management Consultants Inc. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

119 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM-01 TABLE OF CONTENTS 1.0 PURPOSE SCOPE METHODOLOGY ESTIMATE CLASSIFICATION ESTIMATE BASE SOURCES Design Basis Cost Basis Total Installed Cost (TIC) Transportation Cost Contingency EXCLUSIONS DESIGN & ASSUMPTIONS Pipeline Metering Facilities CONCLUSIONS & RECOMMENDATIONS LIST OF ATTACHMENTS ATTACHMENT 1: CLASS V ESTIMATE Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

120 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM PURPOSE This EBM provides capital cost estimates for pipeline infrastructure required to deliver up to 140 e 3 m 3 /day of sweet gas to Pacific Northern Gas Ltd. s (PNG) Tumbler Ridge Transmission Pipeline from various new gas sources in the Tumbler Ridge area. It describes the costing approach, materials used, and assumptions made to develop the Class V estimates from the most practical sources identified. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

121 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM SCOPE Solaris Management Consultants Inc. (Solaris) has been engaged to identify sweet gas sources in the Grizzly Valley area of Northeast British Columbia to augment the existing PNG gas supply and determine the capital cost of transporting those supplies via pipeline to PNG s Tumbler Ridge Transmission Pipeline. Accumap was used to identify potential sources within a 25 km radius of the existing PNG Tumbler Ridge Transmission Pipeline and then the closest 3 of those sources were investigated further to determine capital costs of pipeline infrastructure required to connect them to PNG s existing pipeline. The scope for each pipeline option includes costs for metering and pressure regulation, risers and tie-ins. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

122 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM METHODOLOGY The estimates were developed using the following methodology: Items not procured as of the development of this estimate, used pricing from: On-going bid evaluations Recent project procurement from other projects In some cases a factored cost was applied Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

123 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM ESTIMATE CLASSIFICATION This Estimate consists of a Class V estimate as defined by the AACE International Estimate Classification. A Class V estimate is considered an Order of Magnitude Estimate; therefore, the expected level of accuracy is -20% to +50%. These ranges can be tightened as IFC status for engineering is achieved and procurement activities progress to the point that all items are procured. Figures 1 and 2 outline more detail on the estimate classification definitions. Figure 1 - AACE International Estimate Classification - Class 5 Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

124 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM-01 Figure 2 - General Project Data & Engineering Deliverables for Classed Estimates Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

125 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM ESTIMATE BASE SOURCES 5.1 Design Basis The Class V estimates used a preliminary process flow arrangement for the pipeline, metering facility and respective tie-in arrangements. 5.2 Cost Basis The pipeline estimates are based on budget costs provided by contractors and existing quotes from recent project procurement. The meter and regulating component costs are based on budget quotes provided by equipment vendors for this particular application and cost information from recent project procurement. 5.3 Total Installed Cost (TIC) In addition to capital equipment cost, the total installed cost includes: Front End Engineering Design (FEED) Unloading, inspection, installation and cleanup of procured equipment Additional required instrumentation Above ground pipe material and installation labor Valves Field Labor Buildings and Foundations Spare Parts OGC Permits Labor Productivity Field supervision The TIC does not include: Transportation of materials (which is covered separately in 5.4, below) Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

126 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM Transportation Cost Transportation cost is identified as 6% for the facility components. 5.5 Contingency Contingency is identified as 15% throughout the estimate. It is added to the estimate to account for changes that experience has shown will likely be required based on past projects but is not definite. It does not account for changes in project scope or major events such as strikes or earthquakes etc. Contingency funds are often used to absorb escalation of costs such as minor increases in equipment and material costs, design drawing changes, and labor rate fluctuations due to continuing price level changes over time. The fluctuating price of steel is an example of this. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

127 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM EXCLUSIONS It is assumed there are no communications, electrical or remote shut-in needs for the metering facility or pipeline interconnects. There are no provisions for determining gas composition using neither on-site analyzers nor automatic samplers. It is assumed contractors will secure local accommodation and hence, no camp costs are included. No provisions are made for possible PNG Operations involvement with the construction of this project but it is assumed PNG Operations Measurement and Pipeline personnel would start up the station to facilitate flow of gas. There has been no cost allowance for any vented gas. It is expected any pipeline tie-ins can be facilitated without any significant amount of gas being vented. Provisions for the future addition of pigging barrels included but no barrel costs in this estimate. Pig valves, eliminating the need for future pigging barrels, included for flexpipe options only. No yard preparation expected for metering facility located (for all options) at the Tumbler Ridge Plant. As per Accumap, it is assumed that all sweet gas pipelines within vicinity of the plant and the existing transmission line are owned by CNRL and are already part of the supply network. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

128 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM DESIGN & ASSUMPTIONS 7.1 Pipeline The preliminary pipeline estimate includes costs for a flexpipe option, as well as using bare steel. Flexpipe is a cost effective option for sweet fuel gas pipelines but is not suitable for sour applications. The flexpipe option includes pricing for Argus pig valves to accommodate periodic line cleaning whereas the steel option includes provisions for bolt-up for future pig barrels. Cost for the pig barrels are not included. As the current operating pressure for the identified tie-in location was not known, 80% of licensed MOP was used for preliminary sizing purposes. Since it is understood that PNG generally operates closer to the licensed MOP and the calculated pipeline size for the assumed conditions typically resulted in a NPS 4 line, NPS 4 was utilized for all pipeline cases. It was assumed that intermediate risers along the right of way would not be required. During the initial identification of tie-in candidates, locations with a longer pipeline length were not included due to the projected capital cost. These can be provided upon request. 7.2 Metering Facilities A metering facility comprised of a line pressure NPS 3 rotary meter and two NPS 2, 100% redundant, dual pressure regulating runs housed in a temperature controlled, 2m x 2.5m self-framed, skid mounted building is the basis of the design for the facilities portion of this project. The meter would be equipped with a GasMicro electronic volume corrector for custody transfer measurement, a dry gas filter to protect it from particulates and block valves to allow servicing of equipment while the station remains operational. A natural gas-fired catalytic heater is included for building space heating but electrical services are not included. The pressure regulating runs are required to protect the existing PNG Transmission pipeline from overpressure by the higher pressure supply pipelines that were identified during this investigation. A standby monitor arrangement is proposed to protect the downstream pipeline without allowing any natural gas venting in the event of a pressure regulator failure. All pipeline options identified would tie into the existing PNG Tumbler Ridge Transmission Pipeline at KP 0.0 at the Tumbler Ridge Gas Plant. It is assumed PNG can negotiate with the gas supplier to locate the custody transfer meter at the Gas Plant site where the pressure regulators need to be located to make the pipeline arrangement work hydraulically. Otherwise, a separate metering facility would need to be added at the beginning of the supply pipeline. It is assumed there is a suitable location within the Tumbler Ridge Plant yard to locate the combined metering / regulating building. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

129 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM CONCLUSIONS & RECOMMENDATIONS Of the pipeline options identified in the attached Class V Estimate, the 5 closest sources to PNG s Tumbler Ridge Transmission Pipeline are owned by CNRL. Progress Energy Ltd. had recently owned some of the pipelines and associated gas wells identified but per discussions with their Operations Manager, Mr. Dean Godberson, they divested themselves of holdings in the area in An extension of the Spectra Energy Grizzly Fuel Gas Pipeline could eventually come within close proximity to the existing PNG pipeline but in speaking with Spectra representatives, there are no immediate plans to do such an extension. The geographical extent of the Grizzly Fuel Gas Pipeline has remained static for many years so in the author s opinion it is very unlikely that such an extension could provide a source of gas within the window of time that PNG wishes to increase its delivery capacity in the area. Although Apache Ltd. has confirmed interest in providing fuel gas, the closest sweet gas source they have in the area is at 25.4 km from the PNG pipeline, the eighth closest source identified and too far away to be considered economical. Thus, the recommended pipeline option is to source gas from CNRL at d-31-h/093-i-15 using flexpipe at a cost of $4,880,000 for the pipeline and $315,000 for the metering facility per the attached Class V Estimate for a rounded total cost of $6,000,000 (six million dollars). This 14.4 km, NPS 4 pipeline would run from d-31-h / 093-I-15 to the metering / regulating facility located at the Tumbler Ridge Gas Plant site at b-74-g / 093-I-15. The comparative capital costs of pipelining from the top 3 sourcing locations using both steel pipe and flexpipe are provided for in the attached Class V Estimate. Also provided in the attachment is the capital cost estimate for the metering / regulating facility that is required for each pipelining option and it is to be added to each of the indicated pipeline estimates. Gas source #2 at b-35-a / 093-I-16 is listed in the attached Class V Estimate as a CNRL compressor station. However, there is a possibility to tie into an Apache pipeline at that site as CNRL provides Apache with fuel gas from that location. At 15.1 km away from the existing PNG transmission pipeline though, this option is more expensive than the recommended option. Although Solaris personnel confirmed CNRL s general willingness to sell gas from their sources in the area through discussions with Mr. Richard Calliou, their Senior Production Foreman in the area, production availability would have to be confirmed through a formal application to them. Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

130 ESTIMATE BASIS MEMORANDUM Project: Tumbler Ridge Sweet Gas Pipeline Options Job No.: PN Location: b-074-g/093-i-15 Doc. No.: 1953-G-EBM-01 ATTACHMENT 1: CLASS V ESTIMATE Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0092_ G-EBM-01 Rev 1

131 Project: Sweet Gas Pipeline Options Location: b-074-g/093-i-15 CLASS V ESTIMATE TUMBLER RIDGE AREA Job No.: PN Doc. No.: 1953-G-EST-01 ITEM # TASK QTY UNIT COST TOTAL COST 1 TIE-IN AT CNRL D-31-H/093-I-15 COMPRESSOR STATION NPS 4 Flexpipe 14,400 $40 576,000 Crimp Fittings (600m/reel) 24 $1,530 36,720 Installation 14,400 $100 1,440,000 Rock Blasting and pipe protection (20% of pipeline length) 2,880 $750 2,160,000 Argus Pig Valve 2 $5,600 11,200 Riser & Associated Valves 2 $8,300 16,600 Estimated Cost 4,240,520 Contingency (15%) Estimated Project Cost (Estimated Cost + Contingency) 636,078 4,880,000 Estimate Low Range (-20%) 3,904,000 Estimate High Range (+50%) 7,320,000 2 TIE-IN AT CNRL B-35-A/093-I-15 COMPRESSOR STATION NPS 4 Flexpipe 15,100 $40 604,000 Crimp Fittings 25 $1,530 38,505 Installation 15,100 $100 1,510,000 Rock Blasting and pipe protection (20% of pipeline length) 3,020 $750 2,265,000 Argus Pig Valve 2 $5,600 11,200 Riser & Associated Valves 2 $8,300 16,600 Estimated Cost 4,445,305 Contingency (15%) Estimated Project Cost (Estimated Cost + Contingency) 666,796 5,110,000 Estimate Low Range (-20%) 4,088,000 Estimate High Range (+50%) 7,665,000 3 TIE-IN AT PROGRESS B-100-D/093-I-16 WELLSITE/PIPELINE NPS 4 Flexpipe 18,800 $40 752,000 Crimp Fittings 31 $1,530 47,940 Installation 18,800 $100 1,880,000 Rock Blasting and pipe protection (20% of pipeline length) 3,760 $750 2,820,000 Argus Pig Valve 2 $5,600 11,200 Riser & Associated Valves 2 $8,300 16,600 Estimated Cost 5,527,740 Contingency (15%) Estimated Project Cost (Estimated Cost + Contingency) 829,161 6,360,000 Estimate Low Range (-20%) 5,088,000 Estimate High Range (+50%) 9,540,000 Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0093_0 Page 1 of G-EST-01 Rev 2

132 Project: Sweet Gas Pipeline Options Location: b-074-g/093-i-15 CLASS V ESTIMATE TUMBLER RIDGE AREA Job No.: PN Doc. No.: 1953-G-EST-01 ITEM # TASK QTY UNIT COST TOTAL COST 1 TIE-IN AT CNRL D-31-H/093-I-15 COMPRESSOR STATION 114.3mm x 3.96mm wt CSA Grade ,400 $18 259,200 Installation 14,400 $190 2,736,000 Rock Blasting and pipe protection (20% of pipeline length) 2,880 $750 2,160,000 FP Ball Valve 2 $5,600 11,200 RP Ball Valve 2 $5,000 10,000 Riser 2 $7,500 15,000 Estimated Cost 5,191,400 Contingency (15%) Estimated Project Cost (Estimated Cost + Contingency) 778,710 5,970,000 Estimate Low Range (-20%) 4,776,000 Estimate High Range (+50%) 8,955,000 2 TIE-IN AT CNRL B-35-A/093-I-15 COMPRESSOR STATION 114.3mm x 3.96mm wt CSA Grade ,100 $18 271,800 Installation 15,100 $190 2,869,000 Rock Blasting and pipe protection (20% of pipeline length) 3,020 $750 2,265,000 FP Ball Valve 2 $5,600 11,200 RP Ball Valve 2 $5,000 10,000 Riser 2 $7,500 15,000 Estimated Cost 5,442,000 Contingency (15%) Estimated Project Cost (Estimated Cost + Contingency) 816,300 6,260,000 Estimate Low Range (-20%) 5,008,000 Estimate High Range (+50%) 9,390,000 3 TIE-IN AT PROGRESS B-100-D/093-I-16 WELLSITE/PIPELINE 114.3mm x 3.96mm wt CSA Grade ,800 $18 338,400 Installation 18,800 $190 3,572,000 Rock Blasting and pipe protection (20% of pipeline length) 3,760 $750 2,820,000 FP Ball Valve 2 $5,600 11,200 RP Ball Valve 2 $5,000 10,000 Riser 2 $7,500 15,000 Estimated Cost 6,766,600 Contingency (15%) Estimated Project Cost (Estimated Cost + Contingency) 1,014,990 7,780,000 Estimate Low Range (-20%) 6,224,000 Estimate High Range (+50%) 11,670,000 Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0093_0 Page 1 of G-EST-01 Rev 2

133 Project: Sweet Gas Pipeline Options Location: b-074-g/093-i-15 CLASS V ESTIMATE TUMBLER RIDGE AREA Job No.: PN Doc. No.: 1953-G-EST-01 ITEM # TASK QTY UNIT COST TOTAL COST Metering & Regulating Facility at Tie-In to PNG Transmission Pipeline 1 Measurement & Overpressure Control $60,000 2 Valves & Piping, Including Yard Piping $35,000 3 Temperature Controlled Bldg $20,000 4 Labour & Installation $65,000 Estimated Cost $260,000 Transportation (6%) $15,600 Contingency (15%) Estimated Project Cost (Estimated Cost + Transportation + Contingency) $39,000 $315,000 Estimate Low Range (-20%) $252,000 Estimate High Range (+50%) $473,000 Solaris Management Consultants Inc. Unauthorized use or reproduction prohibited SMC-TMP-PS-0093_0 Page 1 of G-EST-01 Rev 2

134 PACIFIC NORTHERN GAS (N.E.) LTD. CNG VIRTUAL PIPELINE CPCN APPLICATION JULY 2013 APPENDIX K Proposed Bulk Compressed Natural Gas (CNG) Service (RS30) Tariff (Dawson Creek)

135 Pacific Northern Gas General Terms and Conditions - Gas Sales Bulk Compressed Natural Gas (CNG) Service - Rate Schedule 30 Bulk Compressed Natural Gas (CNG) Service (RS30) Available This Rate Schedule is only available in Dawson Creek Service Area. Applicable This Rate Schedule applies to the sale of compressed natural gas (CNG) to Customers from Pacific Northern Gas' compression and dispensing facilities located in Dawson Creek, British Columbia. This Rate Schedule is applicable only to Customers who consume a minimum of 10,000 GJ per year. Rates PNG-West Dawson Creek Fort St. John Tumbler Ridge Compression Charges Service Area Service Area Service Area Service Area Basic Charge Compression Charge Company Use Rider (1) Subtotal of $/GJ Compression Charges Commodity Charges Commodity Cost Recovery Charge N/A $ /GJ N N/A N/A $ /GJ N $ /GJ N $ /GJ N GCVA Rider (1) N/A $ /GJ N Subtotal of $/GJ Commodity Charges Total $/GJ Compression + Commodity Charges $ /GJ N $ /GJ N DRAFT 1. The Riders refund to and/or recover from Customers the credit/debit balances in Pacific Order No: Effective Date: Not Available N/A Not Available Not Available N/A N/A September 1, 2013 N/A N/A N/A N/A N/A N/A Franchise Fee Charge addition to the above charges) as the Gas delivered under this Rate Schedule is located within the boundaries of a municipality to which Pacific Northern Gas pays Franchise Fees. Issued By Janet Kennedy VP, Reg. Affairs & Gas Supply BCUC Secretary: Original Page R30-1