C-3-93 SIXTH FLOOR, 900 HOWE STREET, BOX 250 TELEPHONE: (604) 660-4700 VANCOUVER, B.C. V6Z 2N3 BC TOLL FREE: 1-800-663-1385 CANADA FACSIMILE: (604) 660-1102 A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY IN THE MATTER OF the Utilities Commission Act, S.B.e. 1980, c. 60, as amended and An Application by Pacific Northern Gas Ltd. BEFORE: M.K. Jaccard, Chair; and ) L.R. Barr, Deputy Chair ) March 24, 1993 WHEREAS: A. On February 18, 1993 Pacific Northern Gas Ltd. ("PNGtf) applied for a Certificate of Public Convenience and Necessity (tfCPCN tf ), pursuant to Section 51 of the Utilities Commission Act ("the Act tf ), to construct and operate 27.4 miles of 12 inch pipeline loop in four sections between Summit Lake and Terrace B.e.; and B. The project is to increase the capacity of the pipeline by 7,000 MCF of gas per day to meet the increased requirements of Ocelot Ammonia Company, Devco International, Inc., and Methanex Corporation (collectively known as tfMethanex") as a result of the expansion of its ammonia plant at Kitimat, B.e.; and C. The looping project will also increase the reliability of deliveries to Methanex and other customers; and D. The Commission has reviewed the Application and has determined that the construction and operation of the proposed transmission line looping project is necessary for the public convenience and properly conserves the public interest. NOW THEREFORE the Commission orders as follows: 1. Pursuant to Sections 51 and 53 of the Act, a CPCN is granted to PNG to construct and operate 27.4 miles of 12 inch pipeline loop in four sections between Summit Lake and Terrace B.e. 2. The Annual Cost of Service of the new pipeline loops will be borne entirely by Methanex. 3. The Commission approves in principle the rate structure for Methanex as illustrated in the Letter Agreement between PNG and Methanex dated February 12, 1993 and attached as Appendix A to this order. 4. PNG will file with the Commission monthly progress reports detailing completion of the service agreement with Methanex, public consultation, bidding, awarding of contracts and capital cost expectations as the project progresses. 5. The Commission approves the removal from service of 6.4 miles of 10 inch pipeline and the recording of its undepreciated net value as an extraordinary plant loss in Account 171 to be amortized over 10 years starting in 1994, pursuant to Section 56 of the Act. DA TED at the City of Vancouver, in the Province of British Columbia, this day of March, 1993. BY ORDER Dr. Mark K. Jac~ard Chair BCUC/Orders/PNG-CPCN -LoopingProj.
J Pacific Northern Gas Ltd. Tab 5 Suite 1400 Page 1 1185 West Georgia Street . Vancouver, British Columbia V6E 4E6 (604) 691·5678 Fax: (604) 69l·5863 R. G. Dyce • Executive Viee President APPENDIX A & General Manager (page 1 of 6) 12 February 1993 Mr. J.F. Babbitt President Devco International, Inc. #808 - 320 South Boston Tulsa, Oklahoma 74103 Dear Jack: Re: Proposed Expansion of Kitimat Ammonia Plant Pacific Northern Gas Ltd. (pacific Northern) has been negotiating with Ocelot Ammonia Company, Devco International Inc. and Methanex Corporation, (collectively referred to as "Metbanex") respecting the firm and interruptible transportation service charges for additional gas deliveries to the Kitimat I methanol/ ammonia complex. A brief summary of the results of our negotiations is as follows: I 1. The planned expansion of the !Gtimat ammonia plant will require an additional 1983 1(i3m 3 (7,000 Mcf) per day of natural I gas. The expansion will require 12 to 13 months to complete and is expected to come on-stream in March or April of 1994. I 2. Pacific Northern analyzed its pipeline system capability for the contract year commencing November 1, 1994 and determined it would have available excess firm capacity of approximately I 93.5 1&m 3 (3,300 Mcf) per day. This capacity, together with capacity made available from time to time from built-in system diversity, is currently being used to transpon interruptible gas I to the methanol/ammonia complex. However, Methanex is prepared to contract for 1133 1(J'm 3 (4,000 Mcf) per day of this I capacity on a firm basis concurrent with the additional 198.3 1<Jlm 3 per day of firm requirements for the increased ammonia production. I I
·]CifiC ,Northern G\iS Ltd. Tab 5 Page 2 ) APPENDIX A (page 2 of 6) - 2-I 3. The looping requirements to deliver the 198.3 1ctm 3 per day and the estimated costs of these loops are projected as follows: I Miles of Estimated Cost Section u· Loop ($000) J R1 to R2 ·63 $3,049 R2 to R3 10.6 -4,453 I R3 to R4 33 1,467 R4 to Terrace· 72 4,253 ~I 27.4 $13,222 * The 7.2 mile loop between R4 and Terrace (Kitnayakwa Loop) is only required for security purposes. 4. Pacific Northern is prepared to seek approval from the B.C. Utilities Commission to maintain the current transportation margin on interruptible gas deliveries and to recalculate the transportation margin on all firm gas deliveries to the methanol/ammonia complex based on current margins plus the recovery of a 15 percent cost burden associated with the new facilities. Based on projected 1993 gas deliveries and using 1993 and 1994 estimated capital costs of $13.222 million, the pre expansion and post expansion transportation margins are . calculated as follows: Energy Transportation Margin Category TJ $/GJ $000 PRE EXPANSION Fmn 18363 0.9099 16,708 i t l Interrupttble 4695 0.1860 873 Total 23 058 0.7625 17,581 ' 1 k ·· 1 POST EXPANSION Flml 22 742 0.8349 18,987 Interrupttble 3103 0.1860 577 Total 25845 0.7570 19,564
,30''''. Nonh,,, G~' Ltd .. Tab 5 Page 3 APPENDIX A I (page 3 of 6) I - 3 -5. These margins result in Methanex paying rates which are in I excess of incremental costs since the cost of the Kitnayakwa Loop is included. The proposed rates would also reduce the ;1 rate increases, if any, otherwise required from Pacific Northern's other customers for 1994, and possibly 1995. The incremental firm deliveries will be made pursuant to a firm II transportation service agreement for a term of 15 years with the same basic terms and conditions as those contained in the present transportation agreement. II 6. The firm transportation service agreement will become effective September 1, 1994 and will include a provision permitting ib,,'·1 Pacific Northern to curtail firm service up to a maximum of !' 113.3 loJm 3 (4,000 Mcf) per day on days when Pacific Northern requires pipeline capacity and gas supply to meet its core JI market peak day requirements. On each such day Methanex will offer to sell to Pacific Northern the curtailed volume of gas at a price equal to Pacific Northern's weighted average fl· commodity cost of gas during the month in which the '* curtailment occurred plus the typical Westcoast firm raw gas .t ransmission, 'processing ,and transportation tolls to Summit , ~ t£ > , ',·,I, Lake calculated at a,100 percent load factor. & You have advised us that it is unlikely the ammonia plant expansion will be completed prior to March or April of 1994. Accordingly, Methanex is prepared to rely on interruptl'ble gas deliveries from March-April through August of 1994 and thereby defer commencement of the incremental firm transportation until September 1, 1994. Since Methanex will be obligated to make relatively large financial commitments on its expansion within the next few months, Methanex has requested that Pacific Northern provide it with a letter stating the general conditions under ' '., I· which Pacific Northern would expand its system for these incremental deliveries and provide details of the pricing arrangements for which it would be prepared to seek B.C. Utilities Commission approval in principle. ' ' · ¢ ' ~ 1 : Pacific Northern confirms that it is prepared to proceed as described above for a V,' I:,; September 1, 1994 commencement date. The excess firm capacity referenced in i ~J .) J
] Pacific Northern Gas Ltd. . Tab 5 Page 4 APPENDIX A (page 4 of 6) - 4 Item 2 above will decline over time, in the absence of further looping, as a result of increased firm requirements for Pacific Northern's core market customers. However, you have confirmed that Methanex will nominate 198.3 1<Ym 3 per day of firm incremental capacity, which is not subject to curtailment, plus 113.3 1<Ym 3 per day, which is subject to curtailment in accordance with Item 6 above. Pacific Northern is prepared to seek B.C. Utilities Commission approval for this arrangement and thereafter to apply for the required certificate to permit construction of the Kitnayakwa Loop during the summer of 1993 and the other loops in the summer of 1994 provided the following conditions are met: i) Methanex provides Pacific Northern with the corporate financial information requested by Pacific Northern in its January 30, 1992 letter to Mr. K.E. Vidalin; ii) Pacific Northern and Methanex negotiate and execute a firm transportation service agreement for these additional gas deliveries on or before May 1, 1993; ill) Pacific Northern is satisfied with the creditworthiness of Methanex or has been provided with financial security sufficient to enable Pacific' Northern to prudently commit the capital funding necessary to expand its pipeline system; iv) To the extent the prime rate of interest charged by the Royal Bank of Canada on February 12, 1994 is greater than 7.5 percent, the 15 percent cost burden shall be increased accordingly; and v) Pacific Northern will use its best efforts to ensure the 27.4 miles of 12 inch looping is installed at or below the estimated cost of 13.222 million $1993.
Tab 5 - . P~ge 5 ] APPENDIX A (page 5 of 6) ] ] If the foregoing arrangements properly reflect. your understallding of our recent discussions, and if you are in agreement with the proposed arrangements, would you ] please so indicate by signing this letter in the place inc1ic.ated below and retuming one copy to 1JlY attention.. ] .Yours truly, ] R.G. Dyce J Executive Vice President and General Manager J cc: Mr. K..E. Vidalin J J Agreed to this !.l day of February, 1993 J .~/ __ d/' Methaii~rp~ ~ J J _Q~~ O~clot Ammo~ tnpany . J
J :);cr'ic Ncrtl1E!r'l G3S L:d. Tab 5 Page 6 ) APPENDIX A (page 6 of 6) 1 .. 5 If tile foregoing arrangements properly ret1ect your understanding of our recent 1 discussjonS t and if YOU are in agreemem with the proposed arrangements, would you please so indicate by :signing thi.-; letter in the place indicated below and returning ) one copy 1.0 my attention. Yours truly, ) I ~ R.O. Dyce Executive Vice Presidem I and General ~1anager cc: Mr. K.c. VidaliJl I I Agreed to rbis l.~~ day of F ebruarv, 1993 I ill I ~ a l ~~----..,.-----' " '-"'. ~ Ocelot Ammonia Company l I 1 ] J J~ j 80'd 998l. 9£1:> £t<;=OI
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.