New Upstream Contracting Requirements for Some Enbridge Customers

August 2009

• The Ontario Energy Board directed interim requirements for upstream transportation contracting be put in place for the 2009/10 winter for some Enbridge customers.
• The interim requirements apply to each direct purchase customer who uses Ontario T-service and Agency Billing and Collection service and has signed an "agent" type gas delivery agreement with Enbridge.
• Enbridge was also directed to develop options for long-term requirements and submit an application that sets out various options for the regulator to consider.

In July, the Ontario Energy Board (OEB) released a decision on an Enbridge proposal to specify requirements for the contracting of upstream transportation by certain Ontario T-service customers. The proposal was prompted by Enbridge's contention that there is a risk to its distribution system reliability under current contracting practices. Enbridge's concern was that the firm delivery obligations of Ontario T-service customers are not underpinned completely by firm upstream transportation and so on a peak day, there is a possibility of non-delivery resulting in a risk to system reliability.

The OEB directed interim requirements for upstream transportation contracting be put in place for the 2009/10 winter, and remain in place until a permanent resolution of the system reliability matter is brought forward and approved.

Who is affected by the interim requirements?

The interim requirements apply to each direct purchase customer who uses Ontario T-service and Agency Billing and Collection (ABC) service and has signed an "agent" type gas delivery agreement with Enbridge (for example, a marketer).

Interim requirements

Under the interim requirements, affected customers must satisfy the following:

• Their obligation to deliver gas to Enbridge is to be met by underpinning a minimum percentage and volume of their deliveries with firm transport for the winter period, defined as January 1 to March 31. The OEB specified that firm transport includes both Firm Transportation and Short Term Firm Transportation on the TransCanada PipeLines system.

• The minimum amounts are to be expressed in volumetric and percentage terms. For the percentage amount, each affected customer is to calculate the annual percentage of deliveries for each of the immediate past three winter periods that were underpinned by firm transport. These three percentages are then to be averaged and 10 percentage points added to the average to establish the minimum amount of deliveries to be underpinned by firm transport for the upcoming winter period. For example, if the average for the past three years is 45%, then the minimum for the upcoming winter would be 55%.

• By November 1 of each year and beginning with November 1, 2009, the customer is to provide written confirmation to Enbridge of their gas delivery plans for the winter period. This confirmation is to include amounts (in volumetric and percentage terms) to be underpinned by firm transport as calculated above. The information is provided to Enbridge in confidence and is to be used for system planning purposes only.

Long-term requirements

The OEB found that the interim requirements may not be sufficient as long-term requirements to ensure system reliability. As a result, Enbridge was directed to submit an application that sets out various options for the OEB to consider. It is the OEB's intention that the outcome of the application be implemented in time for the 2010/11 winter.

Enbridge is to consult with stakeholders on the long-term requirements, and the application is to identify clearly the impacts on direct shippers, their customers, and other stakeholders.

Implications of the new requirements

The new interim requirements have an immediate impact on a subset of Enbridge customers using Ontario T-service; agent-type customers using ABC service. For these customers, for the January to March 2010 period, it will be insufficient to have all of their firm delivery obligations met by means of firm arrangements to purchase delivered gas in the Enbridge delivery area. Instead, they must demonstrate they hold firm upstream transportation in the amount specified by the interim requirements to underpin part of their deliveries.

This may require the unwinding of some portion of an agent's current arrangements and replacing that portion with gas sourced in Western Canada which is then transported using firm transportation on TransCanada. The cost will depend on each agent's particular arrangements, but in general the cost will reflect the difference between the original cost of purchasing the arrangements and the cost of selling them back into the market combined with the cost of substituting them with the Western Canada supply/TransCanada transportation arrangement.

It is possible the long-term requirements the OEB has directed be developed could eventually affect a broader group of Ontario T-service customers, and the requirements themselves could be different than the interim specifications. The ultimate outcome will depend on how the OEB decides the system reliability matter once the long-term options are brought forward and examined.

In Aegent's view, the implementation of contracting requirements for firm upstream transportation represents a fundamental change to the direct purchase market in Ontario; a change that diminishes the robustness of the current market through a narrowing of the options for cost effective supply arrangements.

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