fmi”) (the “application”) · january 29, 2016 . file no.: 240149.00170/16550 . by electronic...

Tariq Ahmed

Direct +1 604 631 4983 [email protected]

January 29, 2016

File No.: 240149.00170/16550

BY ELECTRONIC FILING

British Columbia Utilities Commission

Sixth Floor, 900 Howe Street

Vancouver, BC V6Z 2N3

Attention Erica M. Hamilton, Commission Secretary and Director

Dear Sirs/Mesdames:

Re: Project No. 3698861

FortisBC Midstream Inc. (“FMI”) - Application (the “Application”) for

Approval to Acquire the Shares of Aitken Creek Gas Storage ULC “ACGS”

In accordance with the Regulatory Timetable for the above-noted Application established

in British Columbia Utilities Commission (BCUC) Order G-210-15, FMI submits the

enclosed responses to BCUC Information Request No. 1.

If further information is required, please contact Justin Cha at FortisBC Holdings Inc. at

(604) 443-6543. Email communications with respect to this Application can be directed

to [email protected].

Yours truly,

FASKEN MARTINEAU DuMOULIN LLP

[original signed by Tariq Ahmed]

Tariq Ahmed

Enclosures

cc (email only): Registered Parties

B-3

mailto:[email protected]

markhuds

FMI Aitken Creek

FortisBC Midstream Inc. (FMI or the Company) Application for Approval to Acquire the Shares of Aitken Creek Gas Storage ULC (the

Application)

Submission Date: January 29, 2016

Response to British Columbia Utilities Commission (BCUC or the Commission) Information Request (IR) No. 1 Page 1

Table of Contents Page No. 1 2

A. NET BOOK VALUE OF THE ACGS ASSETS AS OF THE SHARE PURCHASE ............ 2 3

B. CONFIRMATION OF ANY ACQUISITION PREMIUM PAID AND ANY 4 POTENTIAL RECOVERY .............................................................................................. 12 5

C. CONFIRMATION OF ANY TRANSACTION FEES/COSTS TO BE RECOVERED ........ 15 6

D. IMPACT OF THE FINANCING OF THE ACGS PURCHASE ON THE FEI COST 7 OF CAPITAL ................................................................................................................. 16 8

E. INCLUSION OF ACGS IN THE G-49-07 “RING FENCING” CONDITIONS ................... 17 9

F. IMPACT OF DELAY IN COMMISSION OR COMPETITION BUREAU 10 APPROVALS ................................................................................................................. 19 11

G. CONTINUING SERVICE QUALITY BY ACGS REGARDING THE ACT SECTION 12 54(9) .............................................................................................................................. 21 13

H. PRICING OF ACGS GAS STORAGE SERVICES TO FEI ............................................. 32 14

I. TRANSFER PRICING POLICY/SHARED SERVICE AGREEMENTS BETWEEN 15 ACGS AND FHI/FEI ...................................................................................................... 36 16

J. IMPACT OF TRANSFER (OR NOT) OF CHEVRON EMPLOYEES TO ACGS 17 (OR FMI) ....................................................................................................................... 39 18

19


Application)



A. NET BOOK VALUE OF THE ACGS ASSETS AS OF THE SHARE PURCHASE 1

1.0 Reference: Aitken Creek Gas Storage (ACGS) Assets 2

Exhibit B-1, Section 7.1.3.1, p. 13; 3

Order G-167-07, Appendix A, page 2 of 5; 4

Order G-71-08; 5

Fortis Inc. press release dated December 3, 2015; 6

Net Book Value of the Storage Facility assets 7

FortisBC Midstream Inc.’s (FMI) Application on page 13 states: “Consistent with Order 8 G-167-07, FMI will track the historic cost net book value of the Storage Facility assets 9 and this information will be available to the Commission upon request and consistent 10 with Order G-71-08, ACGS will continue to meet the annual reporting requirements to 11 the Commission and other parties.” 12

Appendix A to Order G-167-07 references: 13

Further to Letter No. L-97-07, on December 6, 2007 the Applicants provided the 14 following information on how Unocal Canada intends to maintain financial data 15 and records within Aitken Creek ULC to facilitate any reporting or other 16 requirements that the Commission may require in the future: 17

• “Unocal Canada became a wholly-owned indirect subsidiary of Chevron 18 Corporation (Chevron) in August of 2005 when Chevron acquired Unocal 19 Canada’s corporate parent Unocal Corporation (Unocal). 20

• At the time of acquiring Unocal, Chevron retained Ernst & Young to assist in 21 determining the fair values of Unocal's tangible and intangible assets for the 22 purpose of allocating the aggregate purchase price to assets, including those 23 at Aitken Creek, as required by U.S. accounting standards. The allocations 24 were finalised by September 30, 2005. 25

• The financial statements of Unocal Canada identify the assets, liabilities, 26 revenues and expenses directly attributable to the assets and operations that 27 are proposed to be transferred to ACGS. The assets proposed to be 28 transferred to ACGS will be identified and valued on the books of ACGS in 29 the same manner as they have been on the books of Unocal Canada.” 30

It would appear that from the second preceding bullet point that upon acquiring 31 Unocal, Chevron increased some or all of Unocal’s assets from their depreciated 32 historical cost basis to their fair values. 33


Application)



In Section 1.3 of the Reasons for Decision dated May 14, 2007, in response to 1 Unocal Canada’s application for exemption from all provisions of the Utilities 2 Commission Act (Act), the Commission stated “Furthermore, this decision makes 3 no evaluation as to whether cost-based or market-based rates are appropriate for 4 the Storage Facility.” In Section 2.3 of the Reasons for Decision, the Commission 5 addressed whether Unocal Canada should be actively regulated. The 6 Commission also discussed regulating rates for the Storage Facility on a cost of 7 service basis compared to the current negotiated rates that reflect market 8 conditions. The Commission found that active regulation of Unocal Canada in its 9 operation of the Storage Facility is not warranted at this time, and that regulation 10 on a reporting or complaints basis is the appropriate method of regulation. 11

Order G-71-08 in recital B explains: “The Storage Facility refers to the underground 12 reservoir and contained natural gas, wells, on-site equipment and other components of 13 the natural gas storage facility at Aitken Creek that [ACGS] owns or operates, as they 14 may be modified or expanded from time to time.” 15

The December 3, 2015 Fortis Inc. press release states: “The definitive share purchase 16 and sale agreement for the purchase of 100% of the shares of Aitken Creek Gas 17 Storage ULC (“ACGS”) from Chevron Canada Properties Ltd. ACGS owns 93.8% of the 18 Aitken Creek gas storage site. The remaining share is owned by BP Canada Energy 19 Company. ACGS also owns 100% of the North Aitken Creek gas storage site which 20 offers future expansion potential.” 21

1.1 Please confirm the ACGS utility being acquired by FMI will have the same assets 22 by category, recorded at the same current net book value, on the day of the 23 purchase and sale as Chevron is selling. If not, please explain. 24

25 Response: 26

FMI plans to record assets by category similar to those which are currently recorded in ACGS, 27 however FMI plans to update asset values to current fair market value as required under US 28 GAAP. Please refer to the response to BCUC IR 1.1.2 for more detail on the purchase price 29 allocation process. 30

31 32

33 1.2 Please explain if there will be any write-up, additions or adjustments that would 34

change the value of the ACGS Storage Facility assets under FMI ownership. 35 36


Application)



Response: 1

FMI will be engaging an independent third party valuator to assist in a fair market valuation of 2 ACGS’s tangible and intangible assets for the purpose of allocating the aggregate purchase 3 price to assets owned by ACGS. This is similar to the approach Chevron employed when it 4 acquired Unocal, and allocated the aggregate purchase price to Unocal’s assets, including the 5 assets of Aitken Creek Storage Facility. Please refer to the response to BCUC IR 1.1.1 for a 6 discussion of the use of the report and the allocation of the purchase price. 7

8 9

10 1.3 Please confirm that, for financial and regulatory accounting, the carrying amount 11

of all assets, liabilities and equity items of ACGS will be unaffected by the 12 Transaction. If not, please explain. 13

14 Response: 15

FMI intends to account for the all assets, liabilities, and equity items of ACGS in accordance 16 with US GAAP for financial reporting purposes. All assets acquired will be adjusted to the 17 appropriate fair market value at closing as described in the response to BCUC IRs 1.1.1 and 18 1.1.2. 19

Consistent with Unocal’s letter to the Commission dated January 29, 2008, and the direction of 20 the Commission through Order No. G-167-07, FMI will continue to track the historical cost net 21 book value information of ACGS, and make this information available to the Commission upon 22 request. 23

24 25

26 1.4 Please confirm, or otherwise explain, that the definition of Storage Facility, as 27

referred to in recital B of Order G-71-08, includes ACGS’ North Aitken Creek gas 28 storage site assets. 29

30

Response: 31

Confirmed. 32

33


Application)



2.0 Reference: ACGS ASSETS 1

Exhibit B-1, Section 4.1, p. 4; Section 5.2, p. 5; 2

Order G-71-08; 3

Net Book Value of the Working Gas asset 4

The Application on page 5 states: 5

Aitken Creek is located 120 km northeast of Fort St. John, and represents the 6 largest gas storage facility in British Columbia, and North Aitken is located 10 km 7 northwest of Aitken Creek. The total working gas capacity of Aitken Creek is 77.1 8 Bcf plus 9.2 Bcf of cushion gas requirements. Currently, Aitken Creek connects 9 to the Spectra T-North and the Alliance pipelines. ACGS leases storage at Aitken 10 Creek to third parties and engages in commercial proprietary trading of gas 11 inventory. 12

Order G-71-08 in recital B explains: “The Storage Facility refers to the underground 13 reservoir and contained natural gas, wells, on-site equipment and other components of 14 the natural gas storage facility at Aitken Creek that [ACGS] owns or operates, as they 15 may be modified or expanded from time to time.” 16

2.1 Please provide a definition of the terms “working gas capacity” and “cushion 17 gas”. 18

19 Response: 20

Cushion gas (or base gas) is the volume of natural gas intended as permanent inventory in a 21 storage reservoir to maintain adequate pressure and deliverability rates throughout the 22 withdrawal season. Working gas capacity refers to total gas storage capacity minus cushion 23 gas. 24

25 26

27 2.2 Please confirm, or otherwise explain, that the assets being acquired include 28

ACGS’s share of the cushion gas in the underground reservoir and the volume of 29 working gas that ACGS has title to on the day of the purchase and sale. 30

31 Response: 32

FMI is seeking approval of the acquisition of the issued and outstanding shares of ACGS. 33 ACGS’s assets will include its share of the cushion gas and the working gas for which ACGS 34 has title on the closing date of the Transaction. 35


Application)



1 2

3 2.2.1 Please confirm that both the total working gas volume and the portion of 4

this working gas volume, that ACGS holds title to, changes from day to 5 day as the parties that hold storage contracts with ACGS withdraw gas 6 from and inject gas into the Storage Facility, and as ACGS conducts its 7 proprietary trading. 8

9 Response: 10

Confirmed. The total working gas volume within the facility changes as a party injects or 11 withdraws gas from the facility. The working gas volume to which ACGS holds title will change if 12 ACGS injects or withdraws gas on its own behalf. 13

14 15

16 2.3 Please confirm, or otherwise explain, the ACGS assets do not include gas held in 17

storage for parties that hold storage contracts with ACGS. 18 19

Response: 20

Confirmed. ACGS assets do not include gas held in storage for parties that hold storage lease 21 contracts with ACGS. Such volumes are stored on behalf of the lessees, and are not owned by 22 ACGS. 23

24 25

26 2.4 Please describe any adjustments to the value to the working gas and cushion 27

gas that arise due to the market price of natural gas at the time the Transaction 28 closes. 29

30 Response: 31

This response is being filed confidentially under separate cover as it contains commercially 32 sensitive information. 33

34 35


Application)



On page 4 of the Application, FMI describes the terms of the Transaction as set out in 1 the Share Sale and Purchase Agreement and states “[T]he purchase price for the Share 2 Sale and purchase Agreement is US$266.2 million plus customary adjustments.” 3

2.5 Please define “customary adjustments”. 4 5

Response: 6

Customary adjustments include net adjustments to the purchase price (in favor of seller or 7 buyer) for final working capital and derivative balances on the date of closing compared to a 8 negotiated minimum value. For example, if the agreed upon minimum net closing working 9 capital figure is $0, and the acquired entity has a final working capital balance of $1.0 million on 10 the date of closing, then this difference would be added to the purchase price. Alternatively, if 11 the final working capital position is a net deficit of $1.0 million on the date of closing, this amount 12 would be deducted from the purchase price. 13

Adjustments such as these are typical in share purchase agreements as working capital 14 balances (i.e., cash, inventory, accounts receivable, accounts payable, etc.) and derivative 15 values, which are being acquired as part of the purchase, can fluctuate in the normal course of 16 business. The purpose of this mechanism is to make either party whole based on a clearly 17 defined amount and reduce the potential for dispute upon closing. 18

19 20

21 2.6 Please explain how the value of the working gas is factored into the purchase 22

price. 23 24

Response: 25

This response is being filed confidentially under separate cover as it contains commercially 26 sensitive information. 27

28


Application)



3.0 Reference: ACGS ASSETS 1

Exhibit B-1, Section 5.2, p. 5; 2

Government of Canada press release dated June 10, 2015 3 http://news.gc.ca/web/article-en.do?nid=986479&tp=1 4

Impact of connection to NGTL facilities 5

The Application on page 5 states: 6

Aitken Creek is located 120 km northeast of Fort St. John and represents the 7 largest gas storage facility in British Columbia and North Aitken is located 10 km 8 northwest of Aitken Creek. …Currently, Aitken Creek connects to the Spectra T-9 North and the Alliance pipelines. 10

The Government of Canada on June 10, 2015, accepted the National Energy Board’s 11 (NEB) recommendations, decisions, and reasons in respect of NOVA Gas Transmission 12 Ltd.’s (NGTL) application to construct and operate the North Montney Mainline pipeline, 13 comprised of the Aitken Creek and Kahta Sections, an extension of the NGTL System to 14 the North Montney area in northeastern British Columbia, as considered by the NEB in 15 its GH-001-2014 proceeding. The press release states: 16

The North Montney Mainline Pipeline proposal was submitted by NOVA Gas 17 Transmission Ltd. (NGTL) to the NEB for review in 2013. The $1.7-billion project 18 will transport natural gas from northeastern British Columbia to the existing NGTL 19 system, where it can be sold to markets in Alberta and, through a separate 20 pipeline, to the proposed Pacific NorthWest LNG terminal. 21

3.1 Please confirm, or otherwise explain, that Aitken Creek is currently the only 22 underground natural gas storage reservoir in British Columbia. 23

24 Response: 25

Aitken Creek is the only underground natural gas storage reservoir located in British Columbia 26 that provides third party storage services. However, it is not the only storage facility that serves 27 the region. There are a number of underground storage facilities that provide third party storage 28 services in both Alberta and the US Pacific Northwest. In addition, there are other alternatives 29 to the use of storage services from Aitken Creek to meet the different and varying needs of 30 existing or potential of customers. Please refer to the response to BCOAPO IR 1.2.1 for a 31 discussion of some of these alternatives. 32

33 34

35


Application)



3.2 Please confirm, or otherwise explain, that the North Montney Mainline Pipeline 1 project will connect the Aitken Creek Storage Facility to the NGTL pipeline 2 system and the associated Alberta Nova Inventory Transfer (NIT) market in 3 addition to the current connections to the Spectra T North and Alliance pipelines. 4

5 Response: 6

Confirmed. The proposed North Montney Mainline Pipeline (NMML) extends to the Aitken 7 Creek facility and would connect to NGTL’s existing system at Saturn. This will provide greater 8 access to the NIT market by Aitken Creek users as well as producers and other players in the 9 region. It should be noted that Aitken Creek and other regional players already have access to 10 the NIT market through the interconnection between Spectra’s T-North system and the NGTL 11 system at Gordondale and to the Groundbirch mainline at Sunset Creek. 12

13 14

15 3.3 Please discuss how future connection of the Aitken Creek Storage Facility to 16

Alberta natural gas markets via the NIT pool, is anticipated to impact the value of 17 the ACGS assets, including a discussion of how such a connection would be 18 anticipated to change the value of ACGS storage services relative to storage 19 services from storage facilities in Alberta that are connected to the NIT pool. 20

21 Response: 22

The ACGS Storage Facility is currently connected to BC markets via Spectra’s T-North system, 23 to the NIT Market via T-North to NGTL and other markets via the Alliance pipeline. The 24 proposed NMML project will provide greater access for potential flows to and from the NGTL 25 system therefore increasing the overall market for to which ACGS could offer storage services. 26 At the same time, it will increase ACGS’s competition for the provision of storage services due 27 to the number of storage facilities in Alberta that already offer third party storage. FMI believes 28 that the greater access to markets can benefit ACGS by allowing it to more fully optimize its 29 facility and offer more services (for example by addressing any infrastructure constraints it may 30 be able to offer more seasonal storage capacity to the market). This may also help to support 31 future expansion through the development of North Aitken Creek. At the same time, however, 32 ACGS would face greater competition which could result in downward pressure on the market 33 price of storage. The balance and impact on value of these factors will depend on a number of 34 factors and the prevailing market conditions at the different downstream locations and the 35 relative tolling structures of the third party pipelines as well as the service characteristics that 36 potential storage lease customers may require. 37


Application)



1 2

3 3.4 Please discuss how future connection of the Aitken Creek Storage Facility, 4

through a separate pipeline, to the proposed Pacific NorthWest LNG terminal is 5 anticipated to impact the value of the ACGS assets. 6

7 Response: 8

It should be noted that the reference to a “separate pipeline to the proposed Pacific Northwest 9 LNG terminal” refers to TransCanada’s Prince Rupert Gas Transmission (PRGT) project. This 10 pipeline project, of approximately 900 km, is being developed to transport gas to the proposed 11 Pacific Northwest LNG terminal from a delivery point on the proposed North Montney Mainline 12 (NMML) pipeline referred to as Mackie Creek, approximately 100 km south of Aitken Creek. 13 Aitken Creek Storage Facility would not be directly connected to the PRGT or to the proposed 14 PNW LNG terminal. 15

Currently both PRGT and NMML are dependent on Pacific Northwest LNG making a decision to 16 proceed with the terminal. If the Pacific Northwest LNG project proceeds, the natural gas 17 markets served by the production in Northeastern BC will be significantly expanded. The 18 increase of activity in the region could create another opportunity for ACGS to expand its 19 storage services, however, as described in the response to BCUC IR 1.3.3, the impact on the 20 value of the ACGS assets depends on a number of factors irrespective of the ownership of the 21 Storage Facility. 22

23 24

25 3.5 Please describe both the positive impacts and any potential negative impacts 26

that connection of the Aitken Creek Storage Facility, firstly, to the NGTL NIT pool 27 and, secondly, through a separate pipeline, to the proposed Pacific NorthWest 28 LNG terminal might have on the level of service ACGS provides to each of the 29 following groups of ACGS customers: 30

31 Response: 32

Overall FMI believes that the expanding access to existing and new markets for British 33 Columbia’s significant natural gas resources will benefit all British Columbians and industry 34 stakeholders, including FEI and its customers, other natural gas distribution utilities and their 35 customers, and ACGS’s other customers. It will stimulate investment in new production and 36 regional infrastructure and generate significant new revenues for government. New pipeline 37


Application)



connections will promote greater marketplace access and market growth at competitive prices 1 to all parties operating in the region. 2

ACGS’s customers will continue to negotiate storage leases based on market conditions. As 3 described in the responses to BCUC IRs 1.3.3 and 1.3.4, greater market access will provide 4 ACGS opportunities to expand its storage service offerings while at the same time greater 5 connectivity will increase competition from other storage service providers and could improve 6 the cost effectiveness of other alternatives for ACGS’s customers to consider when assessing 7 storage options. 8

9 10

11 3.5.1 FEI and its ratepayers; 12

13 Response: 14

Please refer to the response to BCUC IR 1.3.5. 15

16 17

18 3.5.2 Other BC natural gas distribution utilities and their ratepayers; 19

20 Response: 21


23 24

25 3.5.3 ACGS customers that are not natural gas distribution utilities. 26

27 Response: 28


30


Application)



B. CONFIRMATION OF ANY ACQUISITION PREMIUM PAID AND ANY POTENTIAL 1 RECOVERY 2

4.0 Reference: Terms of the Transaction 3

Exhibit B-1, Section 4.1, p. 4 4

Confirmation of Acquisition Premium 5

FMI’s application on page 4 states: “The purchase price for the shares under the Share 6 Sale and Purchase Agreement is US$266.2 million plus customary adjustments.” 7

4.1 Does FMI anticipate allocating any acquisition premium to intangible assets of 8 ACGS or to any item other than Goodwill? If so, please describe. 9

10 Response: 11

FMI has not yet determined what amount, if any, will be allocated to intangible assets. As 12 discussed in the responses to BCUC IRs 1.1.1 and 1.1.2, FMI intends to engage an 13 independent third party valuation company to assist in conducting a fair market value analysis, 14 in order to allocate the purchase price to the appropriate asset categories. From this analysis, 15 FMI will determine whether any intangible assets exist that require recognition. 16

17 18

19 4.2 Since FMI is purchasing shares of a utility that has certain exemptions under the 20

Act, section 88(3), how will the purchase price be recognized in the FMI books? 21

22

Response: 23

FMI intends to recognize the full value of the purchase price in FMI’s books. As discussed in 24 the response to BCUC IR 1.4.1, FMI will allocate the purchase price to various tangible and 25 potentially intangible asset categories according to the fair values of these assets. 26

27


Application)



5.0 Reference: Terms of the Transaction 1

Exhibit B-1, Section 4.1, p. 4; 2

Order C-4-13; 3

Acquisition premium to the account of the shareholder 4

Order C-4-13, regarding the FortisBC Inc. purchase of the utility assets of the City of 5 Kelowna, contained specific direction for handling the acquisition premium. The 6 difference between the purchase price and the current net book value of the assets has 7 been treated as an acquisition premium, which is to the account of the FortisBC Inc. 8 shareholder. 9

5.1 Please confirm that FMI would follow the same treatment of the acquisition 10 premium as required by FortisBC Inc. under Order C-4-13. If not please explain. 11

12 Response: 13

Not confirmed. The circumstances regarding Order C-4-13 were specific to that acquisition with 14 respect to the cost of service based rate making in place for FortisBC Inc. and the nature of the 15 accounting that had been in place for the acquired assets. Thus, the goodwill or acquisition 16 premium associated with the City of Kelowna asset purchase by FortisBC Inc. was identifiable 17 as a shareholder cost because the acquisition premium was not approved to be included in rate 18 base and recovered through the cost of service. 19

In accordance with Order G-71-08, it is FMI’s expectation that market negotiated rates will 20 continue to be the form of pricing for services provided by ACGS. FMI holds this expectation 21 because ACGS has been operating for more than 20 years with market based pricing and the 22 exemptions held by ACGS and the form of regulation for ACGS were the subject of a separate 23 Commission proceeding wherein the Commission found that active regulation for the services 24 that ACGS provides was not warranted. Further, to the extent that market pricing is available, 25 the Commission has noted that it1: 26

…sees the traditional cost of service rate-base model as the ‘model of last resort’ that 27 was initially developed for traditional utilities with natural monopoly attributes 28

29 Service contracts provided by ACGS have always been negotiated based on the type of service 30 requested and the market conditions at the time. Thus, over time FMI would expect to recover 31 the full investment of the assets through such market negotiated rates; however, this is market 32 dependent. 33

1 Reasons for Decision, Order G-31-12 pertaining to An Application by the FortisBC Energy Inc. for a Certificate of Public Convenience and Necessity for Approval of Contracts and Rate for Public Utility Service to Provide Thermal Energy Service to Delta School District Number 37, page 83.


Application)



1 Finally, FMI believes that the guidance that led to the conclusion that active regulation of the 2 Storage Facility is not required continues to remain applicable today. As noted by the 3 Commission on page 18 of Appendix B to Order G-167-07: 4

…regulating rates on a cost of service basis runs the risk of creating mixed market 5 conditions, recognizing that the summer/winter gas price differential is a determinant of 6 the value of the services provided by Unocal in its operation of the Storage Facility, 7 acknowledging the fact that the public interest in regards to the safe operation of the 8 facility is adequately preserved at this time by regulation under that Petroleum and 9 Natural Gas Act, and in the absence of specific concerns regarding the availability and 10 reliability of storage services…regulation on a reporting or complaints basis is the 11 appropriate method of regulation. [Emphasis in original] 12

For financial statement purposes, and in accordance with US GAAP, FMI will record the 13 acquisition of ACGS at the fair market value of the acquired assets based on an assessment by 14 an independent third party valuation firm. Any excess between the assessed fair value of the 15 assets and the purchase price will be recorded as goodwill. 16

17

18

19 5.2 Please confirm, or otherwise explain that no part of any acquisition premium 20

representing the amount paid in excess of the current net book value of ACGS 21 assets, will be recovered from ACGS’ regulated utility customers at any time. 22

23 Response: 24


26


Application)



C. CONFIRMATION OF ANY TRANSACTION FEES/COSTS TO BE RECOVERED 1

6.0 Reference: Parties to the Transaction 2


Transaction fees/costs to be recovered from ratepayers/customers 4

6.1 Please confirm that none of the fees incurred in connection with the share 5 purchase agreement will be recovered from FEI ratepayers or ACGS regulated 6 utility customers. 7

8 Response: 9

Although FMI will not directly recover the transaction fees, as with the share purchase price, the 10 fees incurred in connection with the share purchase agreement are a component of the 11 acquisition cost of ACGS. As such, FMI expects to recover its investment; however, since 12 service contracts are negotiated based on market conditions the ability to recover the costs of 13 the investment are market dependent. 14

15 16

17 6.2 Please describe how costs related to the share purchase incurred within 18

FortisBC, such as FortisBC Holdings Inc. (FHI)/FortisBC Energy Inc. (FEI)/FMI 19 management and staff time, and consultants and contractors, to deal with 20 matters such as due diligence and regulatory matters, including this application, 21 will be segregated and accounted for to ensure that such costs are not recovered 22 from FEI ratepayers or ACGS regulated utility customers. 23

24 Response: 25

FHI is paying all expenses incurred by FEI, including management and staff time, that relate to 26 the purchase of ACGS. Those costs are being recorded separately in FEI and charged to FHI 27 according to the existing transfer pricing policy. This will be accomplished using separate 28 orders in FEI’s time recording and financial system. 29

With respect to the recovery of costs please refer to the responses to BCUC IRs 1.5.1 and 30 1.6.1. 31

32


Application)



D. IMPACT OF THE FINANCING OF THE ACGS PURCHASE ON THE FEI COST OF 1 CAPITAL 2

7.0 Reference: Sound Financing Capability 3

Exhibit B-1, Section 7.1.1, p. 12 4

Impact of the ACGS purchase on the FEI cost of capital 5

On page 12 of the Application, FMI states: “FHI will ensure that ACGS will be adequately 6 funded in accordance with applicable Commission regulations. This Transaction will not 7 have a detrimental effect on ACGS or the users of its services. FHI has significant ability 8 to finance any funding requirements through contributions from Fortis, which had total 9 unused consolidated credit facilities of approximately $2.0 billion as at September 30, 10 2015, as well as an ability to access debt and equity markets when needed.” 11

7.1 Please confirm any financing provided by Fortis to ACGS, will not affect the 12 ability of FEI or other Fortis affiliates to obtain capital, nor will it affect the cost of 13 such capital that would be recovered from regulated utility ratepayers. 14

15 Response: 16

Confirmed. Please refer to the response to BCUC Confidential IR 1.4.1.1. 17

18


Application)



E. INCLUSION OF ACGS IN THE G-49-07 “RING FENCING” CONDITIONS 1

8.0 Reference: FMI Parent Companies 2

Exhibit B-1, Section 5.3, pp. 5-6; 3

Order G-49-07, Appendix A, p. 15 of 15 4

Inclusion of ACGS in the “ring fencing” conditions 5

Extract from Order G-49-07: “Fortis is prepared to accept the continued application of … 6 Conditions should be imposed relating to ring-fencing, governance and location of 7 functions and data as set out in Commission Decision and Order G-116-05, revised by 8 Commission Order G-75-06 and clarified by Commission Letter L-30-06.” 9

8.1 Please explain if FMI agrees AGCS should be automatically included in the G-10 49-07 “ring fencing” conditions. 11

12 Response: 13

No, it should not, for two primary main reasons. 14

First, the primary justifications for the ring-fencing conditions are not applicable in this context. 15 The ring-fencing conditions were initially imposed as a condition to approval of the Kinder 16 Morgan acquisition of Terasen Inc. in response to concerns that Kinder Morgan ownership 17 would result in a degradation of FEI credit ratings and financial leverage that could negatively 18 impact FEI access to and cost of capital and ultimately impact FEI customers. The Commission 19 expressed the rationale for the conditions as follows on page 49 of the reasons accompanying 20 the approval of the Kinder Morgan acquisition: 21

KMI recognized the importance of the ‘credit rating risk analysis and ring-fencing’ criteria 22 for evaluating the Transaction’s impact on the Terasen Utilities and acknowledged that a 23 downgrade in TGI’s credit rating resulting from the Transaction could increase the costs 24 of borrowing and the cost of service to ratepayers. KMI, therefore, proposed ring-fencing 25 conditions to insulate TGI from credit rating downgrades and related financial risks 26 associated with any affiliates in the larger Terasen/KMI corporate family. After reviewing 27 the ring-fencing conditions proposed by KMI, its responses to information requests and 28 the submissions of Intervenors related thereto, the Commission Panel has revised the 29 ring-fencing conditions. 30

No such concerns exist for ACGS ownership by FMI, and ultimately Fortis Inc. ACGS does not 31 have the same ongoing capital access requirements as FEI in serving its customers, nor does 32 ACGS have a deemed capital structure or credit rating it is maintaining in the same regard. 33

Second, the application of the Order G-49-07 ring-fencing conditions to ACGS would be 34 inconsistent with the exemption granted to ACGS described in section 6.1 of the Application. 35


Application)



Recognizing that active regulation of ACGS was not warranted, the Commission has exempted 1 ACGS from Part 3 of the UCA, with some exceptions. Application of the ring-fencing conditions 2 would run contrary to these exemptions, as it would require ACGS to seek prior Commission 3 approval in circumstances that are not required by operation of Order G-71-08. 4

5


Application)



F. IMPACT OF DELAY IN COMMISSION OR COMPETITION BUREAU APPROVALS 1

9.0 Reference: Terms of the Transactions 2


Impact of delay in approvals 4

On page 4 of the Application, FMI states: “The principal terms of the Transaction are as 5 follows: … (b) Closing Conditions: Completion of the Transaction is subject to certain 6 conditions, including the approval of the Commission pursuant to the Act and approval of 7 the Competition Bureau pursuant to the Competition Act (Canada). (c) Closing Date: … 8 will be no earlier than March 1, 2016.” 9

9.1 Please explain if approval by the Competition Bureau pursuant to the 10 Competition Act (Canada) is dependent on approval by the Commission, or vice 11 versa. 12

13 Response: 14

The approval of the Competition Bureau and the approval of the Commission are independent 15 of each other and neither is dependent on the other. 16

17 18

19 9.2 Please explain if there are specific dates by which the two approvals are 20

required. 21 22

Response: 23

Pursuant to the Share Purchase Agreement the parties are collectively working to obtain 24 regulatory compliance before April 1, 2016. 25

FMI can confirm that it has received regulatory compliance from the Competition Bureau. 26

The remainder of this response is being filed confidentially under separate cover as it contains 27 commercially sensitive information. 28

29

30

31


Application)



9.3 Please confirm if FMI will undertake to inform the Commission as to the actual 1 effective Closing Date and time for the sale/purchase of the ACGS shares. 2

3 Response: 4

Confirmed. FMI will undertake to inform the Commission as to the actual effective Closing Date 5 and time for the sale/purchase of the ACGS shares. 6

7


Application)



G. CONTINUING SERVICE QUALITY BY ACGS REGARDING THE ACT SECTION 54(9) 1

10.0 Reference: INTRODUCTION 2

Exhibit B-1, Section 1, p. 1 3

Continuing Service Quality 4

On page 1 of the Application, FMI states: “(a) there will be continuity in the services 5 provided by ACGS to its customers; (b) there will be continuity in the business and 6 operations of ACGS”. 7

On page 10 of the Application, FMI states section 54(9) of the Act provides that the 8 Commission may give its approval under section 54, subject to such conditions and 9 requirements it considers necessary and desirable in the public interest, and that the 10 Commission must not give its approval under section 54 “...unless it considers that the 11 public utility and the users of the services of the public utility will not be detrimentally 12 affected.” 13

10.1 Will existing utility service levels by ACGS be different in any way under the new 14 ownership? 15

16 Response: 17

FMI’s ownership of ACGS will result in the continuation of the same services as currently 18 provided by ACGS to its customers, and in the business and operations of the Storage Facility. 19 In the past, the contracting of capacity to third parties and proprietary trading activities has been 20 a function of the marketplace, and it is expected that this practice will continue in the future 21 under FMI’s ownership. 22

ACGS, through its acquisition by Fortis, will continue to operate under the ownership of a 23 company whose subsidiaries have a strong proven track record of conducting business in a 24 responsible manner while placing great emphasis on customers, employees, key stakeholders 25 and local communities. Furthermore, ACGS will be owned by a fiscally strong investment grade 26 company with significant regulated businesses operations in BC, Alberta and other parts of 27 Canada. These ownership qualities will ensure that ACGS service levels and operations 28 continue to meet or surpass the standards under which the Storage Facility has operated over 29 the past several years. 30

31 32

33 10.2 Please explain if, and how, the acquisition of ACGS by FMI will enhance the 34

service to: 35


Application)



1 10.2.1 FEI and its ratepayers; 2

3 Response: 4

This response addresses BCUC IRs 1.10.2.1, 1.10.2.2 and 1.10.2.3. 5

The acquisition of ACGS by FMI will not impact the service that ACGS provides or could provide 6 in the future to FEI or other BC natural gas utilities and their ratepayers, or other existing or 7 potential customers. ACGS has provided its customers with a proven track record of gas supply 8 reliability and daily load balancing flexibility over the years at competitive prices. 9

FMI has assessed the value of the ACGS acquisition based on continuing to offer third party 10 storage services and mitigating any unleased capacity through proprietary trading and 11 optimization activities. FMI believes that its acquisition of ACGS should give current and 12 prospective customers greater comfort of its commitment to continue to be a presence in the BC 13 natural gas marketplace for the foreseeable future. 14

15 16

17 10.2.2 Other BC natural gas distribution utilities and their ratepayers; 18

19 Response: 20


22 23

24 10.2.3 ACGS customers that are not natural gas distribution utilities. 25

26 Response: 27

Please refer to the response to BCUC IR 1.10.2.1. 28

29 30

31


Application)



10.3 Does FMI plan or expect ACGS asset integrity and maintenance programs or 1 resulting maintenance plans, schedules or the required resources to be different 2 in any way in the next three years? Please explain. 3

4 Response: 5

FMI will ensure that ACGS continues to operate in a safe, reliable and environmentally 6 responsible manner by maintaining similar asset integrity programs over the next three years 7 and beyond. FMI is developing plans to put in place an organizational structure that that will 8 ensure that Reservoir and Well Integrity related tasks that were previously completed by ACGS 9 and CCPL continue to be completed and are consolidated under FMI oversight. 10

11


Application)



11.0 Reference: INTRODUCTION 1

Exhibit B-1, Section 1, p. 1; Section 7.1.3, p. 12 2

Continuing Service Quality 3

On page 1 of the Application, FMI states “the structural integrity of the assets of ACGS 4 will be maintained.” 5

On page 12 of the Application, FMI states “Current technical and administrative services 6 provided by other employees of CCPL (or affiliates) will be replaced by FMI (directly or 7 through arrangements with its affiliates).” 8

On page 14 of the Application, FMI states “ACGS will operate in the same way under 9 FMI ownership that it has under the ownership of CCPL.” 10

11.1 Does the reference to “structural integrity of the assets of ACGS” on page 1 of 11 the Application include the structural integrity of the underground storage 12 reservoir, and its ongoing capability to contain the natural gas quantities that are 13 injected for storage on behalf of ACGS customers? 14

15 Response: 16

Yes, “structural integrity” refers to the physical surface ACGS Storage Facility and associated 17 pipelines as well as the underground reservoir and the ACGS wellbores that connect the 18 reservoir to the surface facilities necessary to operate the ACGS Storage Facility for injection 19 and withdrawal of natural gas. 20

21 22

23 11.1.1 If not, why not? 24

25 Response: 26


28 29

30 11.2 Is it FMI’s understanding that the current technical services provided by Chevron 31

Canada Properties Limited (CCPL) employees includes the geological, 32 geophysical, reservoir engineering and other technical expertise necessary to 33


Application)



assess the structural integrity of the underground storage reservoir, and develop 1 plans for maintaining the reservoir’s structural integrity? 2

3 Response: 4

Yes. 5

6 7

8 11.2.1 If not, please discuss how FMI understands this has been addressed by 9

ACGS to date. 10 11

Response: 12


14 15

16 11.3 Do FMI and/or its Fortis affiliates have staff with the geological, geophysical, 17

reservoir engineering and other technical expertise necessary to assess the 18 ongoing structural integrity of the underground Aitken Creek storage reservoir? 19

20 Response: 21

Not at this time. However FMI has plans to put an organizational structure in place that will 22 ensure that Reservoir and Well Integrity related tasks that were previously completed by ACGS 23 and CCPL continue to be completed and are consolidated under FMI oversight. 24

Please refer to the response to BCUC Confidential IR 1.5.1 for further detail. 25

26 27

28 11.3.1 If not, does FMI agree that in this respect FMI differs from CCPL with 29

regard to services that can be provided by FMI and its affiliates? 30 31


Application)



Response: 1

Fortis affiliates are committed to and have a long track record of operating its assets in a safe, 2 reliable and environmentally responsible manner. Integrity Management Programs underpin this 3 commitment. Specifically, Fortis affiliates and their employees ensure asset integrity by: 4

• Complying with all applicable laws and industry codes of practice and require the same 5 of their contractors. 6

• Maintaining an Integrity Management Program that defines activities and accountabilities 7 that manage the integrity risk of assets. 8

• Regularly monitoring assets to assess the performance of the Integrity Management 9 Program and to implement a continuous improvement process. 10

• Managing records for integrity management activities to support operational and 11 regulatory requirements. 12

• Ensuring the competency of employees and contractors so that they can meet their 13 responsibility for protection of assets. 14

• Working with industry associations, regulators and other stakeholders to establish 15 standards for integrity management appropriate to Fortis’ business. 16

• Communicating openly with stakeholders about the Integrity Management Program. 17

18 Under FMI oversight, ACGS will adopt a similar philosophy and follow an Integrity Management 19 Program that covers the complete asset life cycle including design, material procurement, 20 construction, operation, maintenance, upgrading and other changes, and abandonment of gas 21 storage related assets. 22

Please also refer to the responses to BCUC IR 1.11.3 and BCUC Confidential IR 1.5.1. 23

24 25

26 11.3.2 If FMI and/or its Fortis affiliates do not have staff with this expertise, 27

please explain how FMI expects to source the technical services 28 required to assess and monitor the structural integrity of the Aitken 29 Creek storage reservoir both during the period of transitioning from 30 CCPL, and on an ongoing basis over the long term. 31

32


Application)



Response: 1

Please refer to the responses to BCUC IR 1.11.3 and BCUC Confidential IR 1.5.1. 2

3 4

5 11.4 Please confirm that FMI intends to regularly assess and take whatever steps are 6

necessary to maintain the structural integrity of the underground storage 7 reservoir and describe the plan for doing so, including the resources FMI will 8 employ. 9

10 Response: 11

Confirmed. 12

Please also refer to the responses to BCUC IR 1.11.3 and BCUC Confidential IR 1.5.1. 13

14 15

16 11.4.1 Please describe the regulatory oversight provided by government or 17

other regulatory bodies such as the British Columbia Oil and Gas 18 Commission, with regard to monitoring the structural integrity of the 19 Aitken Creek underground storage. 20

21 Response: 22

Regulatory oversight with regard to the structural integrity of the Aitken Creek underground 23 storage is established through the British Columbia Petroleum and Natural Gas Act, the British 24 Columbia Oil and Gas Activities Act, and associated regulations and standards. 25

The BC Petroleum and Natural Gas Act covers topics such as definition of, exploration for, 26 licensing of, leasing of, operation of, and vesting of storage reservoirs. This legislation is related 27 to the BC Oil and Gas Activities Act regarding the activities of developing and operating a 28 storage reservoir. Similar to the framework that exists for pipelines, regulatory functions 29 pertaining to permitting, prevention of spillage, control and suspension of activity, development, 30 use and abandonment of storage reservoirs are assigned to the BC Oil and Gas Commission 31 (OGC) through the BC Oil and Gas Activities Act and associated regulations, including the Oil 32 and Gas Activities Act General Regulation. 33


Application)



The OGC, under the Drilling and Production Regulation, requires storage reservoir permit 1 holders to construct and operate the well/facility in accordance with CSA Standard Z341 2 “Storage of hydrocarbons in underground formations”. CSA Standard Z341 sets out minimum 3 requirements for the design, construction, operation, maintenance, abandonment, and safety of 4 hydrocarbon storage in underground reservoir formations and associated equipment. In doing 5 so, it addresses the management of identified hazards with the potential to negatively impact 6 the operation of storage reservoirs. 7

8


Application)



12.0 Reference: JUSTIFICATION 1

Exhibit B-1, Section 7, p. 9; 2

Part of Fortis and FHI’s broader platform 3

On page 9 of the Application, FMI states “Fortis and FHI believe the Transaction 4 provides a broader platform on which to deploy their natural gas industry and 5 management expertise …” 6

12.1 Please elaborate on how the acquisition of the Aitken Creek Storage Facility fits 7 into a “broader platform” for Fortis/FHI to deploy their natural gas industry and 8 management expertise. 9

10 Response: 11

As noted on page 6 of the Application, Fortis is a leader in the North American electric and gas 12 utility industry with approximately 38 years of experience and over $26 billion in assets. The 13 acquisition of ACGS adds a new type of storage asset in the natural gas value chain to the 14 Fortis/FHI portfolio and in this way, provides a broader platform for Fortis/FHI to deploy their 15 natural gas industry and management expertise. 16

17

18 19

20 12.1.1 Please describe both the positive impacts and any potential negative 21

impacts, that are anticipated as a result of include ACGS in this 22 “broader platform”, to the level of service ACGS provides to each of the 23 following groups of ACGS customers: 24

25 12.1.1.1 FEI and its ratepayers; 26

27 Response: 28

Fortis’ extensive operational experience in the BC natural gas industry will contribute to a more 29 seamless transfer of ownership than could be the case with a different purchaser, reducing the 30 likelihood of any service interruption that would negatively impact FEI and its customers. 31

Although it is recognized that Fortis’ ownership of ACGS increases concerns regarding the 32 potential for a conflict of interest as a common owner of FMI and FEI, this should not occur as 33 the potential for a conflict of interest will be mitigated through appropriate segregation of duties, 34 codes of conduct and ethics policies, transfer pricing policies and service agreements. 35


Application)



1 2

3 12.1.1.2 Other BC natural gas distribution utilities and their ratepayers; 4

5 Response: 6

Similar to other current customers, prospective BC natural gas distribution utility customers 7 would benefit from the uninterrupted service and maintenance of current service levels that a 8 seamless transfer of ownership to an experienced operator of BC natural gas facilities would 9 facilitate. 10

Thus, there are not expected to be any negative impacts to any BC natural gas distribution 11 utilities and any available capacity at ACGS will continue to be made available based on 12 competitive market rates. 13

14 15

16 12.1.1.3 ACGS customers that are not natural gas distribution utilities. 17

18 Response: 19

Current ACGS customers will see similar benefits to FEI as Fortis’ extensive operational 20 experience in the BC natural gas industry will contribute to a more seamless transfer of 21 ownership than could be the case with a different purchaser, reducing the likelihood of any 22 interruption of service or reduction in service quality. 23

There are not expected to be any potential negative impact to any ACGS customers. Any 24 available capacity at ACGS will continue to be made available to customers based on 25 competitive market rates. 26

27 28

29 12.2 Does FMI anticipate that Fortis, through FMI’s commercial activities as part of the 30

“broader platform” will hold greater market power in the British Columbia natural 31 gas marketplace than ACGS currently holds? Please discuss. 32

33


Application)



Response: 1

No. FMI does not agree with the premise that ACGS has the ability to exercise market power in 2 the British Columbia natural gas marketplace. Although Fortis may have a greater market 3 presence in BC following the acquisition of ACGS, this does not result in Fortis having the ability 4 to exercise market power with any of its assets. 5

6 7

8 12.2.1 If so, please discuss how the Commission might condition the approval 9

of the share purchase to reduce the likelihood that the level of service of 10 ACGS customers and ratepayers of utilities regulated by the 11 Commission is negatively impacted by the share purchase. 12

13 Response: 14


As ACGS operates in a competitive marketplace where price and service levels are continually 16 assessed by customers, FMI does not believe conditions imposed by the Commission are 17 necessary. Further, pursuant to Directive 5 of Order G-71-08, persons whose interests are 18 affected by ACGS’s exemption from portions of the UCA have the ability to make a complaint 19 with the Commission. 20

21


Application)



H. PRICING OF ACGS GAS STORAGE SERVICES TO FEI 1

13.0 Reference: COMMERCIAL RELATIONSHIP WITH FEI 2

Exhibit B-1, Section 6.2, pp. 8-9; 3

Commission Order G-71-08, Appendix II; 4

Exhibit A2, 5

Ensuring FEI pays market rates 6

On pages 8 and 9 of the Application, FMI describes the negotiation of pricing between 7 ACGS and FEI and states: 8

Although these pricing negotiations occur on an arm’s length basis, it is 9 recognized that the value of the storage services to each party is reflective of 10 both the market conditions at the time (principally the forward summer and winter 11 price differentials as projected in the forward gas markets) and the other benefits 12 the parties realize from the terms and conditions related to the use of the 13 capacity and injection and withdrawal rights. 14

FMI further describes how the storage contracting relationship between ACGS and FEI 15 will not change as a result of this Application, and that FMI will establish a commercial 16 team that will be independent from FEI’s gas supply planning and operations. FMI 17 further states: 18

In addition, ACGS expects that FEI will continue to file its storage contracts and 19 undergo the approval process with the Commission each time a new storage 20 contract has been executed between FEI and ACGS. 21

13.1 Please confirm, or otherwise explain, that the test for acceptance by the 22 Commission of an energy supply contract filed under section 71 of the Utilities 23 Commission Act (UCA) does not include consideration of whether the supplier’s 24 pricing is discriminatory and the Commission cannot reject the storage contract 25 on the basis that ACGS provided favourable pricing to FEI relative to other ACGS 26 customers. 27

28 Response: 29

The test for acceptance by the Commission of an energy supply contract (ESC) filed under 30 section 71 of the UCA is whether the ESC is in the public interest. In determining the public 31 interest, the Commission may consider the supplier’s pricing for the ESC. Section 71(2.1) lists 32 applicable public interest considerations, which include: 33


Application)



(d) the interests of persons in British Columbia who receive or may receive service from 1 the public utility, 2

(e) the quantity of the energy to be supplied under the contract, 3

(f) the availability of supplies of the energy referred to in paragraph (e), 4

(g) the price and availability of any other form of energy that could be used instead of the 5 energy referred to in paragraph (e), and 6

(h) in the case only of an energy supply contract that is entered into by a public utility, 7 the price of the energy referred to in paragraph (e). 8

9 The public interest analysis of an individual ESC with FEI would be context-specific and could 10 consider more than just pricing. 11

However, it is FEI that is required to file its ESCs, including storage and pipeline contracts, with 12 the Commission under section 71 of the UCA and to provide justification for acceptance of those 13 contracts. The Aitken Creek Storage Facility has operated on a market basis, and remains 14 subject to an exemption order that has been in place since 2007. As a result, the Commission 15 does not require ACGS to file its contracts with any customer, including FEI, and does not have 16 access to ACGS contracts with other customers for the purpose of reviewing or accepting FEI’s 17 ESCs with ACGS as being in the public interest. As described in the response to BCUC IR 18 1.13.3, having access to that information would not provide the Commission with an effective 19 tool to evaluate the reasonableness of FEI’s storage agreements in any event. 20

21 22

23 24

Commission Order G-71-08 requires ACGS to file an annual report for the Storage 25 Facility in the format set out in Appendix II to that order and to provide a copy of the 26 report to the parties contracting for service at the facility. Appendix II sets out the 27 required format as follows: 28


Application)



1

13.2 Please discuss how the Commission and ACGS customers can be assured the 2 storage rates terms and conditions, negotiated by ACGS with FEI are arrived at 3 through arm’s length negotiations, and as such are reflective of market conditions 4 at the time, and the benefits the contracting party will realize from the terms and 5 conditions. 6

7 Response: 8

FMI will conduct all business with parties that plan to lease services at ACGS, including FEI, at 9 negotiated prices and terms and conditions that would be reflective of market conditions at the 10 time. FMI assumes that all prospective lease customers, including FEI, would be evaluating 11 the ACGS option to alternatives that are available in the marketplace. Also, embedded within 12 the negotiated price for services will be the value of contracting for certain other benefits 13 available from ACGS such as injection and withdrawal profiles, balancing rights and other 14 features usually associated with storage contracts. 15

Please refer to BCUC IR 1.13.1 for a discussion regarding Commission oversight and 16 determination of whether FEI’s gas contracts are in the public interest and the response to 17 BCUC IR 1.16.5 for further details of the safeguards and oversight processes. 18

19 20

21

22

23


Application)



13.3 As part of the annual reporting requirements, for any year that ACGS negotiates 1 a contract with FEI, would FMI be agreeable, as a means of demonstrating that 2 the FEI contract is not discriminatory, to providing, on a confidential basis to the 3 Commission, the details of the FEI contract(s) together with the details of any 4 other contracts negotiated during the same period, and the forward summer and 5 winter price differentials as projected in the forward gas markets at the time? 6

7 Response: 8

No, FMI is not agreeable to this proposal. FMI does not believe that providing details of other 9 leasing contracts negotiated with ACGS at the same time as FEI’s renewal of a contract will 10 provide the Commission with an effective tool to evaluate the reasonableness of FEI’s pricing 11 for such renewals. FMI expects that FEI would be providing information around market 12 conditions, including the summer to winter differential, to the Commission to justify entering into 13 such a contract as part of a section 71 filing. In addition to the summer to winter differential, 14 there are several factors that would be expected to affect the total pricing of any storage 15 contract when compared to any other storage contract, even if both contracts are negotiated 16 around the same time with ACGS. Examples of such features include items such as the 17 injection and withdrawal profile of a contract, cycling provisions for taking gas in and out of the 18 facility over a season, number of effective days in the winter months for allowing withdrawals, 19 late night nomination abilities, balancing requirements and other elements such as the length of 20 each agreement. Furthermore, the valuation that will be placed on a feature within a storage 21 contract by one party is expected to differ to another party’s valuation of that same feature due 22 to the varying business fundamentals of each party. 23

Therefore, FMI believes that providing another party’s contract to the Commission as part of its 24 annual requirements will not provide a sound basis to evaluate the pricing of a contract between 25 FEI and ACGS. 26

Please also refer to the responses to BCUC IR 1.13.1 and NGTL IR 1.6a. 27

28

29 30

31 13.3.1 If not, please elaborate on the reasons why not. 32

33 Response: 34


36


Application)



I. TRANSFER PRICING POLICY/SHARED SERVICE AGREEMENTS BETWEEN ACGS 1 AND FHI/FEI 2

14.0 Reference: Service Agreements and Affiliated Relationships 3

Exhibit B-1, Section 7.1.3.3, p. 14; and Figure 1, p. 3 4

Transfer pricing policy 5

On page 14 of the Application, FMI states: “It is expected that FHI will provide corporate 6 services to fulfill administrative functions including Taxation, Legal, Treasury, Financial 7 Accounting and Reporting, Internal Audit and other services as required for the general 8 administration and corporate governance of ACGS through a Shared Services 9 Agreement (Services Agreement). These services are also currently being provided to 10 ACGS by CCPL (or its affiliates)”. 11

14.1 Please explain if, as a result of the acquisition of ACGS, FHI, FEI and/or FMI are 12 contemplating any increases in its staffing requirements to meet the needs of 13 ACGS. 14

15 Response: 16

Prior to the transaction, FMI did not have any assets and therefore did not have any employees. 17 As well, all employees currently associated with ACGS are CCPL employees or contractors. 18 Although at this time FMI has not finalized its staffing plan, as discussed below, in general it is 19 expected that any employees that are largely dedicated to providing services to ACGS would 20 become employees of FMI. 21

FMI expects that all employees located in Fort St. John and at the plant site will become FMI 22 employees. In addition, FMI expects to hire or contract for all staff and/or services to manage 23 the commercial activities (e.g. contract negotiation, optimization, gas scheduling) of the Storage 24 Facility and to hire or appoint employees to oversee the field operations and engineering 25 functions and the commercial operations. 26

For corporate services (i.e. Human Resources, Information Technology, Accounting, etc.) and 27 Operations support related activities (i.e. governance, environmental, health and safety), FMI 28 expects to contract for these services primarily from FHI and/or FEI. While the need for 29 incremental staff at FHI to support FMI’s activities is uncertain at this time, FMI expects that the 30 resources required from FEI to perform these activities will represent a minor portion relative to 31 the overall resources available at FEI. Consequently, FMI does not expect that any increases in 32 FEI full time staffing levels would be necessary in order to be able to meet FMI needs for the 33 noted activities. 34

Please also refer to the response to CEC IR 1.8.1. 35


Application)



1 2

3 14.2 Please explain if there will be any FHI, FEI or FMI staff dedicated solely or 4

primarily to deal with ACGS needs. 5 6

Response: 7


9 10

11 14.3 Please explain how FHI, FEI and FMI will keep track of the costs and demands of 12

staff and contractors in the transition period as new processes and protocols are 13 put in place, how FHI/FEI/FMI will account for this interim activity to ensure it is 14 not being paid for by FEI ratepayers. 15

16 Response: 17

As indicated in the Application, the existing FEI Code of Conduct (COC) for Provision of Utility 18 Resources and Transfer Pricing Policy (TPP) for Non-Regulated Businesses (NRBs) will be 19 used to govern the relationships between FMI and FEI for resources provided by FEI and to 20 address the pricing of the resources and services provided. The TPP provides guidance on the 21 process for tracking the costs incurred and the appropriate transfer prices to be charged to 22 ensure that FEI ratepayers are not paying for FMI’s costs. 23

Consistent with the TPP, FEI employees working on activities directly in support of the transition 24 of FMI have been advised to track their time spent along with any non-labour costs (i.e. 25 employee expenses, contractor costs). These costs are recovered from FMI according to the 26 transfer pricing guidelines set out in the TPP. 27

Similarly, FHI employees and costs will follow a similar process to track costs in support of FMI. 28

29 30

31 14.4 Please explain the basis for charges from FHI to each of the companies, 32

including ACGS, shown in Figure 1 on page 3 of the Application. If the basis is an 33 allocation of time, please explain if these are actual or estimated hours. 34

35


Application)



Response: 1

The basis for the allocation of charges from FHI for corporate services to each of the 2 companies, except for FMI/ACGS, is using the Massachusetts Formula. The Massachusetts 3 Formula is composed of the arithmetical average of (1) operating revenue, (2) payroll, and (3) 4 average net book value of capital assets plus inventories. The use of these factors represents 5 the total activity of all business segments as a means to allocate costs that cannot be directly 6 assigned. The Massachusetts Formula is the methodology currently approved for use in 7 allocating FHI corporate services costs to FEI. In the past, the Massachusetts Formula has 8 been accepted as a means of allocating these types of costs to a stable business, such as FEI. 9

As FMI is a new organization to the FortisBC group of companies and is in the process of 10 setting up and confirming its resource requirements, FMI believes that in the interim, using a 11 cost allocation methodology based on actual hours incurred for incremental resources required 12 is appropriate for FHI provided corporate services to FMI. Once the business is stable and 13 operating for a period of time, the Massachusetts Formula would be considered. 14

15


Application)



J. IMPACT OF TRANSFER (OR NOT) OF CHEVRON EMPLOYEES TO ACGS (OR FMI) 1

15.0 Reference: ACGS OFFICE, STAFF AND SHARED SERVICES 2


Exhibit B-1, Section 7.1.3.2, pp. 13-14; Section 7.1.3.3, p. 15 4

FMI provision of commercial services resources for ACGS 5

On page 9 of the Application, FMI states: 6

FMI will be establishing a commercial team that will be responsible for 7 negotiating third party storage lease contracts and optimising the rest of the 8 facility for ACGS. FMI is committed to ensuring that this commercial team is 9 independent from FEI’s gas supply planning and operations such that there is no 10 impact to the ability and integrity of the parties to negotiate fair market based 11 pricing on an arm’s length basis for future storage contracts or renewals. 12

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

Other employees of CCPL (or its affiliates) based in Calgary provide supporting 14 services such as commercial, marketing, accounting and reporting, and technical 15 services but are not dedicated exclusively to the Storage Facility. FMI will provide 16 or cause to be provided the same level of services to ACGS by entering into an 17 agreement (the Management Agreement) under which FMI will provide technical, 18 operational and administrative support services at a cost to ACGS in connection 19 with the Storage Facility and other operations at Aitken Creek as generally 20 described below. 21

…. Currently, ACGS’ operations at the Fort St. John office and the plant site are 22 supported by a complement of local engineering, construction, operations and 23 maintenance employees employed by CCPL. FMI will be providing each of these 24 employees with employment offers and anticipates being able to retain these 25 employees following completion of the Transaction. 26

With respect to commercial services for ACGS currently provided by CCPL (or its 27 affiliates) related to activities such as mitigation, trading and contract negotiation, 28 an independent commercial team will be established by FMI and any employees 29 will become employees of FMI. 30

FMI expects provide other services to ACGS through the combination of FMI 31 employees and service agreements with other Fortis affiliates. 32

On page 15 of the Application, FMI states: 33


Application)



FMI will maintain a separation of its employees responsible for commercial 1 activities and will not share the services of FEI employees directly responsible for 2 the portfolio planning and mitigation and related contract negotiation activities at 3 FEI. This separation will provide for arms length negotiations and address 4 conflicts of interest between FMI and FEI. This is relevant as FMI expects that 5 FEI will continue to be a storage leasing service customer of ACGS over the long 6 term. 7

15.1 Please confirm, or otherwise explain, that FMI’s employment offers to CCPL staff 8 only extend to the approximately 20 CCPL employees at the Fort St John office 9 and the plant site, and do not include any CCPL staff in Calgary who perform 10 commercial services activities related to mitigation, trading and contract 11 negotiation. 12

13 Response: 14

As part of the Transaction, FMI will be extending employment offers to the approximately 20 15 CCPL employees located at the Fort St. John office or at the plant site that are dedicated to 16 providing local engineering, construction, operations and maintenance services. Although FMI 17 will also be establishing an independent commercial team, it is not required to extend 18 employment offers to any other employees of CCPL or its affiliates located in Calgary or other 19 locations. 20

21 22

23 15.1.1 If the employment offers do extend to CCPL staff who perform 24

commercial services activities related to mitigation, trading and contract 25 negotiation, please describe the number of such CCPL employees who 26 have received future employment offers from FMI. 27

28 Response: 29

Please refer to the response to BCUC IR 1.15.1. At this time FMI has not finalized its staffing 30 plan nor made employment offers to any potential employees to perform these services. 31

32 33

34


Application)



15.2 Where does FMI anticipate it will locate the staff resources it will provide to 1 perform the ACGS commercial services activities related to mitigation, trading 2 and contract negotiation? 3

4 Response: 5

At this time, FMI has not finalized its staffing plans. 6

However, as outlined in the response to BCUC IR 1.16.5, in order to create an appropriate 7 separation of activities between FMI and FEI employees, FMI employees will reside at a 8 physical location other than the Surrey facility where the FEI employees responsible for portfolio 9 planning, mitigation and related contract negotiation activities currently reside. 10

11 12

13 15.2.1 To the extent these staff are located at the same offices as the FEI 14

employees responsible for FEI portfolio planning, mitigation and related 15 contract activities (i.e. the Surrey Operations office), please describe 16 how these staff will be kept at arm’s length to the activities of FEI. 17

18 Response: 19


21 22

23 15.3 Will FMI be utilizing the services of any FEI staff to perform ACGS commercial 24

services activities related to mitigation, trading and contract negotiation? 25 26

Response: 27

No, FMI will not be utilizing the services of any FEI staff currently responsible for performing 28 commercial services activities related to mitigation, trading and contract negotiation. 29

30 31

32 15.3.1 If so, please describe the extent of these activities. 33

34


Application)



Response: 1


3 4

5 15.3.2 If so, please describe FMI’s plans for maintaining separation of 6

employees responsible for ACGS commercial activities from those of 7 FEI employees responsible for FEI portfolio planning, mitigation and 8 related contract activities. 9

10 Response: 11


13 14

15 15.4 Will FMI be extending offers of employment to any FEI staff to perform ACGS 16

commercial services activities related to mitigation, trading and contract 17 negotiation? 18

19 Response: 20

At this time, FMI has not finalized its staffing plans. However, in the future, it is possible that 21 FMI may extend offers of employment to FEI staff. 22

Please also refer to the response to BCUC IR 1.15.5. 23

24 25

26 15.5 To the extent any FEI staff are allocated to , transferred to or offered employment 27

to FMI for the purposes of performing ACGS commercial services activities 28 related to mitigation, trading and contract negotiation, please describe how FMI 29 will ensure FEI retains adequate expertise and experience to continue to perform 30 FEI’s portfolio planning, mitigation and related contract negotiation activities in a 31 manner that does not impact the quality of service currently provided by FEI staff 32 on behalf of its ratepayers. 33

34


Application)



Response: 1

Should that occur, FMI’s view is that FEI can be expected to have staff development and 2 succession plans to ensure the quality of service provided by FEI staff on behalf of its 3 customers is not negatively impacted by turnover. 4

5


Application)



16.0 Reference: COMMERCIAL RELATIONSHIP WITH FEI 1

Exhibit B-1, Section 6.2, p. 8; Section 7.1.3.3, p. 15 2

Commission Letter L-15-15 dated April 2, 2015, Appendix A - 2013-3 2016 GSMIP Term Sheet 4

Impact of FEI and ACGS competing on day to day storage 5 optimization 6

On page 8 of the Application FMI states “ACGS continues to provide storage services to 7 third parties and engages in proprietary trading activities related to any unleased 8 capacity and overall optimization of the Storage Facility.” 9

On page 15 FMI states: 10

FMI will maintain a separation of its employees responsible for commercial 11 activities and will not share the services of FEI employees directly responsible for 12 the portfolio planning and mitigation and related contract negotiation activities at 13 FEI. This separation will provide for arm’s length negotiations and address 14 conflicts of interest between FMI and FEI. 15

16.1 Please confirm, or otherwise explain, that the Aitken Creek storage contracts that 16 FEI holds with ACGS form a key component of the overall portfolio of resources 17 contracted by FEI to ensure the peak day load requirements of FEI’s sales gas 18 customers can be reliably met and that the day to day mitigation of these storage 19 contracts is a key element of managing the cost of gas for FEI’s sales customers. 20

21 Response: 22

This response is provided to address both BCUC 1.16.1 and 1.16.2. 23

FMI is aware that storage contracts with ACGS form a key component of FEI’s overall portfolio 24 of gas resources that it contracts for to meet the peak day, seasonal and annual load 25 requirements of its customers. FEI’s gas resource portfolio is summarized in the non-26 confidential executive summary of FEI’s 2015/16 Annual Contracting Plan attached to 27 Commission Letter L-28-15, which provides at page ES-7: 28

FEI is responsible for managing gas supply so that it meets the variability in daily 29 customer demand, including requirements on a peak day. It does this by using seasonal 30 and peaking commodity, storage services, and third party pipeline transportation 31 capacity to meet swings in demand. To determine the appropriate portfolio for 2015/16, 32 including the replacement of any expiring resources and/or meet future growth 33 requirements, FEI assessed several alternatives for 2015/16 including: 34

• Station 2 supply and associated T -South transportation capacity; 35


Application)



• Seasonal storage (Aitken Creek Storage, Alberta Storage); 1 • Market area storage (Jackson Prairie Storage (JPS) and Mist); 2 • Huntingdon and Kingsgate seasonal, spot, and peaking supply; and 3 • Alberta and Stanfield supply with associated firm transportation capacity. 4

5 Similarly, the following excerpts from the 2014 FEU LTRP describe the use of storage in the 6 FEU gas supply portfolio. 7

Page 134 of the 2014 FEU LTRP: 8

‘Supply resources include contracted term and spot supply, gas injected and withdrawn 9 from various leased storage facilities, and company owned on-system LNG facilities. 10 Many of these resources are contracted for the long term if they are cost-effective and 11 reliable, and if there are concerns with their long term availability. 12

… 13

The FEU continuously assess their mix of pipeline, storage and supply options in order 14 to balance security and diversity of gas supply, while attempting to minimize the cost of 15 the total portfolio. Contracting considerations for storage facilities are generally planned 16 to cover a longer time horizon, such as three years or greater, due to risks with limited 17 availability of such resources in the region as a whole.” 18


“Contracting for transportation on Spectra’s T-North and T-South system provides the 20 FEU with access to gas supply from northeast B.C. that is mainly purchased at the 21 Station 2 hub, and supply that is withdrawn from the Aitken Creek storage facility.” 22


“The FEU use their storage resources to balance system loads on a daily basis, 24 particularly during cold snaps in the winter months when intraday fluctuations can be 25 severe. Seasonal storage facilities such as Aitken Creek provide term supply in the 26 winter months and assist in load balancing during normal winter weather.” 27

Pages 140 and 141 of the 2014 FEU LTRP: 28

“The FEU diversify their gas supply portfolios to manage price risk, including taking into 29 consideration the following measures: 30

… 31


Application)



Diversifying storage resources with different facilities and staggered contract expiry 1 dates. The FEU contract for storage capacity at several facilities including Aitken Creek 2 in B.C., Jackson Prairie Storage and Mist in the U.S., and Niska and TGSP 3 (TransCanada Gas Storage Partnership) in Alberta. Storage contract terms and expiry 4 dates are staggered to provide optionality for portfolio shaping, reduce negotiation failure 5 risks, and alleviate the need to contract for large volumes of storage capacity, 6 particularly during periods of high storage prices. FEI recently renewed a portion of 7 expiring Aitken Creek capacity for ten years to provide longer term resource security and 8 to maintain diversity in the portfolio;… 9

10 FMI also understands that FEI actively mitigates its gas supply resource portfolio on an overall 11 basis by entering into market transactions on a day to day or period to period basis, however its 12 primary responsibility is to meet customer requirements while maintaining reliability and security 13 of supply for its customers. As such, FEI’s primary activities related to the Storage Facility are 14 to fill its storage capacity in the summer, and to withdraw in during the winter to support its 15 customers winter supply requirements at Station 2. The majority of any day to day mitigation 16 would be based on the overall supply position in its portfolio of resources versus customer 17 requirements and not specifically to its ACGS storage contracts. Any period to period 18 transaction (such as the Park and Loan Transactions contemplated by the GSMIP term sheet 19 attached to Commission Letter L-15-15) would be entered into only after meeting the 20 requirements to ensure that storage capacity would be filled before entering the heating season 21 in order to meet utility customer winter seasonal supply requirements. 22

On the other hand, the majority of ACGS’s trading activities are focused on generating revenue 23 on the portion of capacity that is not subleased to third parties. As such FMI can be a buyer and 24 seller of supply at any time during the year. FMI can buy supply at Station 2 or plant outlets and 25 inject this supply into storage and enter into firm sales at Station 2, onto Alliance or even at the 26 Aitken Creek outlet throughout the year depending on the market opportunities that present 27 themselves. 28

Both companies could be competing to purchase supply during the summer months at Station 2 29 for their own purposes but generally demand and pricing is lower and supply is generally 30 available. 31

With respect to competition surrounding mitigation or reselling activities by FEI and ACGS, 32 specifically as it relates to ACGS storage, it should be noted that ACGS is typically a reseller of 33 gas at Station 2 through its trading activities, mainly in the winter, for supply withdrawn from the 34 ACGS facility. Whereas, as described above FEI aggregates its supply from its various 35 purchase contracts and gas that is withdrawn from ACGS at Station 2 and uses it to first to meet 36 its core market load requirements. Therefore the potential for any direct competition between 37 the companies with respect to storage mitigation is very limited. 38


Application)



1

2 3

Section D on page 5 of the FEI 2013-2016 GSMIP Term Sheet that is attached as 4 Appendix A to Commission Letter L-15-15, describes how FEI mitigates the storage 5 contracts it holds on behalf of FEI’s sales gas customers through “park” and “loan” and 6 other transactions. 7

16.2 Please confirm that, as part of FEI’s day-to-day management of the resources 8 that FEI contracts for the FEI sales gas customers, including its Aitken Creek 9 contacts, FEI mitigates these storage assets by entering into transactions that 10 are similar to and in direct competition with the “proprietary trading activities 11 related to any unleased capacity and overall optimization of the Storage Facility” 12 that ACGS engages in. 13

14 Response: 15

This is not confirmed. Please refer to the response to BCUC IR 1.16.1. 16

17 18

19 16.2.1 If not confirmed, please explain. 20

21 Response: 22


24 25

26 16.3 Please confirm, or otherwise explain, that, to the extent the proprietary trading 27

and optimization revenue realized by FMI exceeds the cost of providing storage 28 services, this revenue flows to FMI, ACGS’ shareholders. 29

30 Response: 31

Revenue from all of ACGS commercial operations, including revenue from third party storage 32 leases, which results in a profit or loss and is not retained by ACGS will flow to FMI in totality. 33 ACGS operations are not regulated from a predetermined rate of return perspective whereby 34


Application)



costs can be flowed through to customers while a return on the investment is also earned such 1 as is the case for FEI or other regulated utilities. 2

ACGS bears all non-recoverable risks associated with its business operations including demand 3 for its service offerings, marketplace pricing for its revenue, and all costs associated with 4 operating the Storage Facility. Therefore, the operations of ACGS can result in a profit or a loss 5 in any given year. Since ACGS is responsible for all risks associated with its operations, it also 6 the recipient of any profits realized or losses incurred through those operations. 7

8 9

10 16.4 Please confirm, or otherwise explain, that aside from the GSMIP incentive 11

payment provided for in the GSMIP Term Sheet attached to Commission Letter 12 L-15-15, the revenue realized by FEI from mitigation of the storage contracts it 13 holds with ACGS flows back to the FEI sales customers as a credit against the 14 cost of gas. 15

16 Response: 17

It is FMI’s understanding that all mitigation revenues realized by FEI net of the GSMIP incentive 18 payment flow back to FEI customers. 19

20 21

22 16.5 Please describe the policies, internal controls and processes Fortis will establish 23

to ensure that the storage mitigation activities of FEI are kept separate, and at 24 arm’s length from the commercial activities of FEI and ACGS. 25

26 Response: 27

The following is a description of the safeguards and oversight processes that will help to ensure 28 that FMI’s commercial team that will be responsible for negotiating third party storage lease 29 contracts and optimizing the rest of the facility for ACGS remains independent from FEI’s gas 30 supply planning and operations (the FEI Midstream Group), managing potential conflict of 31 interest situations such that there is no impact on the ability and integrity of FMI and FEI to 32 negotiate future storage contracts or renewals. 33


Application)



Limited Sharing of Employees 1

To limit the likelihood of conflict of interest situations arising from sharing of FEI personnel with 2 FMI, FMI will limit the sharing of resources to corporate services including senior management 3 and operating personnel. FMI will not share those FEI employees that reside in the FEI 4 Midstream Group. The sharing of resources between FEI and FMI will be primarily for corporate 5 services (i.e. information technology, accounting, human resources), where the nature of the 6 work performed does not lend itself to a situation where a conflict of interest exists between FMI 7 (receiver) and FEI (provider). 8

Separation of Employees 9

Segregating activities by separating FMI and FEI employees, where required, will be done to 10 create the separation necessary to possible conflict of interest issues. In this regard, FMI 11 employees will be separated and reside at a physical location other than the Surrey facility 12 where the FEI Midstream Group employees currently reside. FMI employees will reside under 13 the FortisBC Midstream Inc. legal entity and not FortisBC Energy Inc. 14

Communication with Employees 15

FEI’s Code of Conduct for Provision of Utility Resources and Services to Non-Regulated 16 Businesses (NRB) (Section 7 (a)) requires FEI to advise all of its employees of their expected 17 conduct with annual updates for employees who may be directly involved with NRB activities. 18 FMI employees also will be updated annually. 19

Oversight and Compliance 20

The responsibility for identifying and managing potential conflict of interest situations within a 21 timely manner is with an appointed senior Director in FEI. Executive oversight of this 22 responsibility will provided by the Executive Vice President, Customer Service and Regulatory 23 Affairs, who will bring the matter to the immediate attention of FEI’s senior management and 24 promptly initiate an investigation into a conflict of interest situation. The position is also 25 responsible for monitoring compliance with the safeguards and the FEI Code of Conduct 26 requirements. This includes advising employees of their expected conduct pertaining to the 27 safeguards and the FEI Code of Conduct. 28

In addition to the regular monitoring performed by the senior Director in FEI the FEI Code of 29 Conduct for NRBs contemplates, an annual compliance review will be performed, the results of 30 which will be summarized in a report and filed with the Commission within 60 days of the 31 completion of the review. 32

As FMI and ACGS are not regulated, there is no Commission approved Code of Conduct that 33 provides guidance on FMI/ACGS sharing of non-public (i.e. customer specific) information from 34 FMI/ACGS to FEI. The same is true for with respect to the relationship between any other 35


Application)



Fortis entities (i.e. other than FEI) and FMI/ACGS, However, FortisBC has a Code of Business 1 Conduct and Ethics Policy that provides guidance to FortisBC and its employees on how to 2 conduct its affairs. The Code of Business Conduct and Ethics describes the specific standards 3 of ethical business practice and conduct expected of employees. 4

Specifically, section 5.0 Proprietary and Confidential Information of the Code of Business 5 Conduct and Ethics Policy states: 6

5.1 Employees shall not disclose any confidential or proprietary information about the 7 Corporation, or any person or organization with which the Corporation has a 8 current or potential business relationship, to any person or entity, either during or 9 after service with the Corporation, except (i) in furtherance of the business of 10 FortisBC, (ii) with the written authorization of a member of senior management or 11 (iii) as may be required by law. Employees shall return all proprietary and 12 confidential information in their possession forthwith upon the termination of their 13 employment with the Corporation. 14

5.3 In addition to the confidentiality obligations contained in the Code of Ethics 15 employees are required to comply with the Corporation's privacy policies related 16 to the protection of confidential employee or customer information. 17

18

This provides further assurance that FHI and its affiliates including FMI/ACGS are conducting 19 themselves in ethical and appropriate manner. 20

Additionally, the Code of Business Conduct and Ethics also outlines compliance requirements. 21 Specifically, section 10.1 states that: 22

Strict adherence to this Code of Ethics and FortisBC’s corporate policies is mandatory. 23 Failure to comply with this Code of Ethics or any other FortisBC corporate policy may 24 result in disciplinary action up to and including termination. 25

26

27

28

29 16.5.1 Please describe how FMI will measure the effectiveness of these 30

policies, internal controls and processes to determine that they are 31 achieving the desired separation. 32

33


Application)



Response: 1


3

4

5 16.5.2 Please describe the actions that FMI will take in the event a conflict of 6

interest arises between FEI and FMI. 7 8

Response: 9


11

fmi”) (the “application”) · january 29, 2016 . file no.: 240149.00170/16550 . by electronic...

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