Canada. FortisBC Energy Inc. (FEI) Application for Expedited Interim and Permanent Tariff Changes to Rate Schedule 46 (RS 46)

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1 E-3 (9seaspan Delta, BC V4G 1 B6 November 20, 2018 British Columbia Utilities Commission Suite 410, 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Patrick Wruck, Commission Secretary Re: FortisBC Energy Inc. (FEI) Application for Expedited Interim and Permanent Tariff Changes to Rate Schedule 46 (RS 46) Dear Sir: Further to the Commission's process schedule, Seaspan Ferries Corporation ("Seaspan") writes to suggest several small but critically important refinements to the changes that FEI has proposed for RS 46. While FEl's proposals are well-intentioned, they are based on incomplete facts or assumptions. This submission therefore attempts to correct those facts and suggest more appropriate terms. 1. Overview Seaspan's proposed refinements fall into three categories: a) The label of "dual fuel" ferries appears to have been misunderstood to imply that there is a minimal cost to switch LNG ferries to diesel. This is not the case. A fuel switch implies a potential six-figure impact. Given that inaccuracy, FEI's procedures are unduly discriminatory towards Seaspan, and it should not be targeted for curtailment before other long-term customers. Treating Seaspan the same as other long-term customers would fix the problem, however. b) Several small procedural modifications are necessary to avoid inadvertent and adverse competitive impacts to Seaspan, if curtailing Seaspan is required. c) It is unclear from the RS 46 filing what other efforts FEI is taking to minimize the need for, and impact of, any curtailments, whether under RS 46 or other rate schedules. We suggest that the Commission direct FEI to regularly provide more information about the steps it has taken on its system in the Lower Mainland and Vancouver Island to minimize constraint effects. That may help ensure "low hanging" fruit options to minimize impacts are not overlooked. We explain each of these three items in more detail below. 1

2 \!iseaspan Delta, BC V4G Background FortisBC's application arises in the context of anticipated natural gas shortfalls this winter, resulting from the rupture on the Enbridge-owned Westcoast T-South pipeline that supplies the majority of FortisBC's natural gas. FortisBC has declared "Force Majeure" under RS 46, and now requests tariff changes to curtailment priority (section 5.2) and title transfer (5.4). The proposed amendments will allow FortisBC to (i) curtail RS 46 firm service customers who are willing to be curtailed or who have access to alternative fuels, before other RS 46 firm service customers; (ii) curtail on a customer-by customer basis based on contract demand, rather than pro rata amongst Short-Term and Long-Term LNG Service customers; and (iii) contract with third parties for additional LNG supply. Seaspan is a large, firm, RS 46 customer. The Seaspan Swift and the Seaspan Reliant LNG ferries provide a commercial heavy-duty trailer transport service between the Lower Mainland and Vancouver Island. They are an essential transport link for the movement of freight to and from Vancouver Island. Seaspan will be directly and adversely affected by any curtailments arising from the proposed RS 46 changes. FortisBC's application specifically highlights Seaspan and BC Ferries as its two largest RS 46 customers (note that BC Ferries has more LNG ferries than does Seaspan), and who both operate ferries capable of operating on alternative fuel ( diesel). As potential users of alternative fuel, Seaspan and BC Ferries occupy a preliminary place in the curtailment order, immediately after spot customers and customers who volunteer. 3. Seaspan Refinements We recognize that the disruption to the major natural gas pipeline servicing FortisBC's system is creating challenges for FEI in meeting the needs of all its customers, and wish to work with Fortis BC to minimize the impact of the supply disruption. Seaspan is in general agreement with the proposed revisions to RS 46 that would allow customers to voluntarily curtail supply and have their contract minimums adjusted accordingly. Several refinements to ensure fairness follow. a. The Curtailment Sequence Should Not Discriminate Against LNG Ferries The draft changes would allow FortisBC to cut supply to customers that can operate on an alternative fuel. 1 Seaspan and BC Ferries are both mentioned as having a diesel fuel option, but there is no recognition of the cost, environmental impact or operational impact of switching to diesel. For example, other RS 46 customers may be able to much more economically access alternatives than can Seaspan, such as contracting diesel or gasoline powered trucks in the place of LNG trucks. While FEI notes in an information request ("IR") response that "customers with smaller contracted 1 Ex. B-1, Application, p. S, third bullet. 2

3 O seaspan Delta. BC V4G 186 volumes are more likely to have other non-lng vehicles that they can deploy in the event of a nonvoluntary curtailment", 2 it appears that deploying other vehicles or the like may not be treated as an ''alternative fuel" capability. This aspect of FEI's proposal is therefore of concern. To be clear, using the diesel back-up fuel, even at very recent LNG prices, is much more expensive than continuing with LNG as a fuel source. Operationally, the switch also means a complete change over from natural gas engine oil to oil suitable for diesel engines, and to reverse the change when natural gas operation is restored. This implies vessel downtime, and approximately $75,000 in additional oil costs. The total cost for Seaspan of a curtailment-driven fuel switch could therefore exceed $100,000. Seaspan assumes that FEI was not aware of this level of impact when it suggested preferentially curtailing LNG ferries based on their potential diesel use. In our view, the assumption that a Seaspan curtailment would have less impact relative to other long-term customers because of the diesel option is unduly discriminatory, prohibited by section 59 of the Utilities Commission Act Seaspan therefore proposes either eliminating paragraph 5.2(c), or qualifying it by adding "without significant economic impact" at the very end of 5.2(c). Doing so would ensure the intent of preferentially curtailing alternative fuel customers in the first place is respected, i.e., minimizing overall economic impacts. The practical effect of either option would be to treat Seaspan equal to other long-term customers. Another potential solution, that would require further dialogue with FEI about mechanics, would be to curtail RS 46 customers with alternative sources of fuel without qualification, but provided that the rate class keeps such customers whole from fuel switch impacts. In that manner, treating LNG vessel customers differently than other customers would not have adverse impacts. b. RS 46 Curtailments Must Treat Seaspan and BC Ferries Equally and Maintain Transportation Access In the event that Seaspan Ferries is curtailed, we have some additional concerns with respect to the proposed changes to the curtailment rules noted in article 5.2 of the current RS46 tariff: Fair Treatment -Seaspan and BC Ferries compete in the "drop trailer" ferry sector, and due to the significant cost consequences of being forced to switch a vessel to diesel service, FEI's administration of RS 46 must avoid unequal curtailments between the two. As mentioned above in relation to truck fleets, Seaspan also suggests that FEI should attempt to apply alternative fuel based curtailments equally between RS 46 customers that have alternative fuel options. In this regard, "alternative fuel" must be interpreted broadly to ensure that the overall intent of the provision - minimizing the economic effects of the T South gas constraint - is respected. It would be backwards for a narrow interpretation to cause more economic harm than necessary. 2 Ex. B-2, FEI response to BCUC 3.1 : 3

4 G seaspan Delta, BC V4G 186 Partial Curtailment - Seaspan Ferries believes that in some cases partial curtailment may be more appropriate than a either full or pro-rata curtailment. This is because Seaspan may, in the case of a 50% curtailment, be able to maintain LNG service for one of its vessels rather than cut both. A 25% pro-rata curtailment would have the same effect as a 50% curtailment, for example, and so FEI should have the discretion in these circumstances to curtail by 50%. But being forced into full curtailment through, for example, a pro-rata 60% curtailment, would have a disproportionate impact on Seaspan. Continued Transportation Access -Customers should have continued access to the Transportation section of RS 46 (the LNG Transportation Service Agreement). Specifically, we seek continued access to FEI's LNG transportation assets to make LNG deliveries to our vessels, even if the LNG originates from another supplier. This is a critical point, as FEI tankers incorporate key safety designs that are essential for on board bunkering of Seaspan vessels. Delivery of LNG from other sources can only be made using FEI's tankers (local transfer of LNG from a conventional tanker to the FortisBC tanker for final delivery may be the best use of the limited number of tankers). c. FEI Should Provide Customers Additional Information In its application FortisBC has indicated that the curtailment issue is one that is limited to RS 46 customers, as the Application "does not impact other FEI customers."3 However, Seaspan understands that FEI stores LNG to both service RS 46 demand, and as additional supply for peak demand coverage for all other customers, in the event of an exceptionally cold winter. Seaspan also understands that FEI has encouraged all natural gas customers to engage in more conservation, and that there have been curtailments of some large customers. Seaspan would like further transparency about the following: how much LNG was on hand in total at the time of the Force Majeure event, regular reporting about how much LNG is on hand, what LNG is required to be held in reserve in the FEI tanks, how much is reserved for the cold weather insurance for other utility customers, if more "peak reserve" LNG volumes are available to help manage current constraints, any other LNG-related measures that FEI is taking, and what steps FEI is taking with other rate classes (non-lng) concerning curtailments and additional conservation. There may be other curtailment and/or conservation options available elsewhere in the Lower Mainland that would have less impacts, and that should be explored. Reporting on these practices may help all parties identify new options. 3 Ex. 8-1, Application, p. 2, para. 2. 4

5 G seaspan 4. Conclusion Seaspan Ferries Corporation 7700 Hopcott Road Delta, BC V4G 1 B6 (604) (604) fax In closing, we thank you for the opportunity to comment on the proposed changes to our contracted supply arrangements and are available at your convenience if any questions arise. v.;l,~ ~~er Vice President Seaspan Ferries Corporation 5