EB Union Gas Limited 2019 Federal Carbon Pricing Program Application

Transcription

1 October 9, 2018 Ms. Kirsten Walli Board Secretary Ontario Energy Board 2300 Yonge Street, 27 th Floor Toronto, ON M4P 1E4 Dear Ms. Walli: RE: EB Union Gas Limited 2019 Federal Carbon Pricing Program Application Enclosed is Union Gas Limited s ( Union ) 2019 Federal Carbon Pricing Program Application and prefiled evidence (the Application ). The Application has been filed through the Ontario Energy Board s (the OEB ) RESS and will be available on Union s website at: Union is filing this Application pursuant to the Greenhouse Gas Pollution Pricing Act (the Act ). 1 As part of the Act, a federal carbon pricing program (the Backstop ) applies in any province or territory that requests it or that does not have a carbon pricing system in place by January 1, As Ontario currently does not have a carbon pricing system in place, the Backstop is expected to apply to Ontario effective January 1, As part of this filing, Union is seeking approval of just and reasonable rates effective January 1, 2019 to recover the costs associated with the Act as a pass-through to customers; approval of the Federal Carbon Customer Deferral Account ( FCCDA ); and, approval of the Federal Carbon Facility Deferral Account ( FCFDA ). Union requests the OEB approve Union s rates proposal as filed on an interim basis no later than November 30, Union will file a draft rate order for final rates following the issuance of the OEB s Decision and Order for this Application. If you have any questions with respect to this submission please contact me at (519) Yours truly, [original signed by] Adam Stiers Specialist, Regulatory Initiatives cc: M. Seers (Torys) EB Parties (2018 Rates) EB Parties (2018 Cap-and-Trade Compliance Plan) 1 Greenhouse Gas Pollution Pricing Act, 2 Environment and Climate Change Canada, Technical Paper on the Federal Carbon Pricing Backstop, p.4,

2 EB ONTARIO ENERGY BOARD IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF an Application by Union Gas Limited, pursuant to section 36(1) of the Ontario Energy Board Act, 1998, for an order or orders for rates resulting from the Greenhouse Gas Pollution Pricing Act. APPLICATION 1. Union Gas Limited ( Union ) is a business corporation incorporated under the laws of the province of Ontario, with its head office in the Municipality of Chatham-Kent. 2. Union conducts both an integrated natural gas utility business that combines the operations of distributing, transmitting, and storing natural gas, and a non-utility storage business. 3. On June 21, 2018, the Budget Implementation Act, 2018, No. 1 received Royal Assent. Included in Part V is the Greenhouse Gas Pollution Pricing Act (the Act ). As part of the Act, a federal carbon pricing program (the Backstop ) applies in any province or territory that requests it or that does not have a carbon pricing system in place by January 1, As Ontario currently does not have a carbon pricing system in place, the Backstop is expected to apply effective January 1, The Backstop includes: a levy on fossil fuels (the Carbon Levy ) imposed on distributors, importers and producers; and an output-based pricing system ( OBPS ) for prescribed facilities. 4. Union s operations as an intergrated natural gas utility in Ontario fall under the purview of the Act. 5. Accordingly, Union hereby applies to the OEB, pursuant to section 36 of the OEB Act: 1 Environment and Climate Change Canada, Technical Paper on the Federal Carbon Pricing Backstop, p.4,

3 a. For an order or orders allowing it to charge customers a Carbon Levy on a volumetric basis, in the amount of the Carbon Levy required to be paid pursuant to the Act, effective January 1, 2019; b. For an order approving or fixing just and reasonable rates effective January 1, 2019, to allow Union to recover the other costs (including Union s facility costs) associated with compliance with the Act. 6. To meet this effective date, Union respectfully requests the OEB approve Union s rates proposal as filed on an interim basis no later than November 30, Final rates will be filed with the OEB following the issuance of the OEB s Decision and Order for this application. 7. Union further applies to the OEB for the following: a. Approval of the Federal Carbon Customer Deferral Account ( FCCDA ); and, b. Approval of the Federal Carbon Facility Deferral Account ( FCFDA ). 8. Union further applies to the OEB for all necessary orders and directions concerning pre-hearing and hearing procedures for the determination of this application. 9. This application is supported by written evidence that has been filed with this application and may be amended from time to time as circumstances may require. 10. The persons affected by this application are the customers resident or located in the municipalities, police villages, and First Nations Reserves and Métis organizations served by Union, together with those to whom Union sells natural gas, or on whose behalf Union distributes, transmits, or stores natural gas. It is impractical to set out in this application the names and addresses of such persons because they are too numerous. 11. The address of service for Union is: Union Gas Limited P.O. Box Keil Drive North Chatham, Ontario N7M 5M1 - and Attention: Adam Stiers Telephone: (519) Fax: (519) Torys Suite 3000, TD South Tower 2

4 Box 270 Toronto, Ontario M5K 1N2 Attention: Myriam Seers Telephone: (416) Fax: (416) DATED: October 9, 2018 UNION GAS LIMITED [Original signed by] Adam Stiers Specialist, Regulatory Initiatives 3

5 Filed: EB Exhibit A Tab 1 Page 1 of UNION GAS LIMITED 2019 FEDERAL CARBON PRICING PROGRAM APPLICATION OVERVIEW The purpose of this evidence is to summarize Union Gas Limited s ( Union ) application for just and reasonable rates to recover the costs associated with the Greenhouse Gas Pollution Pricing Act (the Act ) as a pass-through to customers effective January 1, 2019 (the Application ) The evidence is organized as follows: Tab 1: Overview Tab 2: Forecasts Tab 3: Forecast Administration Costs Tab 4: Cost Recovery Tab 5: Deferral and Variance Accounts This section of evidence discusses the changing carbon policy landscape in Ontario, Union s obligations as a natural gas utility, and the approvals sought by Union from the Ontario Energy Board (the Board or OEB ) This Tab of evidence is organized as follows: 1. Background 2. Union s Obligations Under the Act

6 Filed: EB Exhibit A Tab 1 Page 2 of Assumptions Made Within Union s Application 4. Administration BACKGROUND On June 21, 2018, the Budget Implementation Act, 2018, No. 1 received Royal Assent. Part V included the Greenhouse Gas Pollution Pricing Act. As part of the Act, a federal carbon pricing program (the Backstop ) applies in any province or territory that requests it or that does not have a carbon pricing system in place by January 1, The Backstop is composed of two elements: 1. A levy on fossil fuels (the Carbon Levy ), including natural gas, imposed on distributors, importers and producers applicable from 2019 to 2022 and equivalent to $20 per tonne of carbon dioxide equivalent ( tco 2 e ) in 2019 and increasing by $10/tCO 2 e annually, reaching $50/tCO 2 e in 2022 (see Table 1) Table Carbon Levy Rates for Marketable Natural Gas 1 Year $/tco 2 e /m $ $ $ $ Environment and Climate Change Canada, Technical Paper on the Federal Carbon Pricing Backstop, p.7,

7 Filed: EB Exhibit A Tab 1 Page 3 of An output-based pricing system ( OBPS ) for prescribed facilities that emit a specified volume of carbon dioxide ( CO 2 ) emissions annually. 2 Prescribed facilities can purchase fossil fuels Carbon Levy-free and instead, have the following options to satisfy their emissions obligations: 3 (i) pay the carbon price; 4 (ii) submit surplus credits issued by the federal government ( Credits ); 5 or (iii) submit eligible offset credits ( Offset Credits ), 6 for emissions in excess of an output-based emissions limit, to be set at a future date under the Act On July 3, 2018, the government of Ontario filed the Prohibition Against the Purchase, Sale and Other Dealings with Emission Allowances and Credits (Ontario Regulation 386/18) ( Revocation Regulation ) which revoked Ontario s Cap-and-Trade Program (Ontario Regulation 144/16) (the Cap-and-Trade Program ) and prohibited registered participants from purchasing, selling, trading or otherwise dealing with emission allowances and credits. As part of Union s October 2018 QRAM Application, and in accordance with the Board s August 30, For 2019, 50 ktco 2 e per year or more and that carry out an activity for which an Output-Based Standard is prescribed, 3 Environment and Climate Change Canada, Technical Paper on the Federal Carbon Pricing Backstop, p.17, 4 Equivalent to the Carbon Levy rate for marketable natural gas as outlined in Table 1. Rates of charge applicable from are outlined in Schedule 2 of the Act. 5 Credits are issued by the federal government to facilities that achieve annual emissions volumes below their annual output-based emissions limit. Each credit represents one tco 2 e, can be banked for future use against emissions or traded, has a useful life of five years from the period following the year for which the credits were issued, and will be tracked using a centralized system (currently under development). 6 Offset Credits represent greenhouse gas emissions reductions or removal enhancements generated from Canadian voluntary project-based activities that are not subject to carbon pricing and that would not have occurred under business as usual conditions (i.e. the reductions go beyond legal requirements and standard practice). 7 Final output-based emissions limits expected in spring 2019.

8 Filed: EB Exhibit A Tab 1 Page 4 of letter, 8 the Board approved the removal of Cap-and-Trade related charges from customers bills and refunded the projected aggregate net credit balance in Union s Cap-and-Trade related deferral accounts effective October 1, As Ontario does not have a carbon pricing system in place, effective January 1, 2019 the Backstop is expected to apply to Ontario; however, this has not yet been confirmed by the Government of Canada Aspects of the Act that currently remain outstanding include: i. Final determination of the provinces and territories where the Act will apply; ii. iii. iv. Finalization of regulations to implement the OBPS; Establishment of final Output-Based Standards ( OBS ) (percentages of productionweighted national average emissions intensity); and, Certain administrative matters, such as the process for registering entities subject to the Carbon Levy and OBPS, and the issuance of certificates, by the Canada Revenue Agency ( CRA ), exempting certain entities and activities from the application of the Carbon Levy ( Exemption Certificates ). 8 EB , OEB Letter, Direction to Apply for Elimination of Cap and Trade Charges and for the Disposition of Amounts in Related Accounts. 9 Confirmation that the Backstop applies to Ontario is expected in fall Greenhouse Gas Pollution Pricing Act, Schedule 1, Part 1,

9 Filed: EB Exhibit A Tab 1 Page 5 of Union s Application is based on the best information available and is being brought forward at this time in order to be in a position to comply with the Act and to begin charging Union s customers effective January 1, UNION S OBLIGATIONS UNDER THE ACT As a natural gas utility in Ontario, which is expected to be a listed province, Union is required to register under the Act with the Minister of National Revenue as a distributor 11 for volumes of natural gas delivered to its customers. 12 Further, Union is permitted to register under the Act as an emitter since its transmission and storage compressor stations are expected to qualify as covered facilities by the federal Minister of the Environment and Climate Change As the costs to comply with the Act will form part of Union s ongoing operating costs as a distributor, effective January 1, 2019, Union proposes to treat all prudently incurred costs of compliance with the Act as a pass-through to customers. Prudently incurred costs associated with Ontario s Cap-and-Trade Program were identified by the Board as qualifying for pass-through treatment. One of the guiding principles of the OEB s Cap-and-Trade Framework, Cost Recovery, stated that prudently incurred costs related to cap and trade activities are recovered 11 The Act requires registration of distributors of marketable or non-marketable natural gas. The Act defines marketable natural gas as natural gas that consists of at least 90% methane and that meets the specifications for pipeline transport and sale for general distribution to the public. The Act defines non-marketable natural gas as natural gas other than marketable natural gas. Union expects it will be required to register as a distributor of marketable natural gas. 12 The Act, s.55(1). 13 The Act, s.57(1). See footnote 2 above for the expected coverage threshold.

10 Filed: EB Exhibit A Tab 1 Page 6 of from customers as a cost pass-through. 14 The costs associated with Union s implementation of the Act are similar to those covered under the Cap-and-Trade Framework. Similar to the Capand-Trade Program, the Act imposes costs driven by greenhouse gas ( GHG ) emissions generated by Union s business activities that Union cannot avoid and over which Union has no control. For these reasons, Union applies to the Board to treat the costs driven by the Act as a direct pass-through to its customers Volumes Subject to Carbon Levy With the exception of customers that hold an Exemption Certificate, all distribution volumes delivered by Union in Ontario ( Customer Volumes ) are expected to be subject to the Carbon Levy. 15 The Act requires reporting and remittance of the Carbon Levy on a monthly basis. 16 As outlined in Table 1, Union will be required to remit the 2019 Carbon Levy rate of $3.91 cents/m 3 of natural gas consumed for applicable customers. As outlined in Exhibit A, Tab 4, Union will present these charges as a separate line item on customers bills. Customers that hold an Exemption Certificate must provide a copy to Union no later than two weeks in advance of the first day of the month in which they wish to have their consumption volumes exempted from the Carbon Levy EB , Regulatory Framework for the Assessment of Costs of Natural Gas Utilities Cap and Trade Activities, p For the purpose of calculating Union s 2019 customer volume forecast in Exhibit A, Tab 2, Schedule 1, Union excluded customers whose consumption volumes, and related emissions, are expected to qualify them for an exemption certificate, in accordance with Section 17(2) of the Act. This includes wholesale customers within Union s Rate T3, Rate M9 and Rate M10 rate classes that distribute natural gas. 16 The Act, s.68 (2b), s.71 (3).

11 Filed: EB Exhibit A Tab 1 Page 7 of In addition, natural gas volumes consumed in the operation of Union s facilities which are not covered by the OBPS (i.e. distribution buildings and line heaters) will also be subject to the Carbon Levy ( Facility-Levy Volumes ). The costs associated with Facility-Levy Volumes will be recovered from customers as part of the Facility Carbon Charge (see Exhibit A, Tab 4) included in delivery or transportation charges on customers bills Volumes Subject to OBPS Transmission of processed (marketable) natural gas has been identified as an activity which will be covered under the OBPS and includes installations and equipment such as compressor stations, storage installations, and compressor units that have a common owner/operator within a province. 17 For Union, this includes fuel used in transmission and storage compressor facilities ( Facility-OBPS Volumes ). 18 Distribution of natural gas (i.e. the facilities located downstream of the metering station where gas is received by a distribution utility) will not be a covered activity under OBPS OBPS-qualified facilities will have a compliance obligation for the portion of their emissions that exceeds an annual facility emission limit. Under the OBPS, annual facility emission limits will be calculated based on the product of a specific OBS and annual facility production. The 17 Environment and Climate Change Canada, Carbon pricing: regulatory framework for the output-based pricing system, Table 1, 18 The Natural Gas Pipeline OBS is expected to aggregate compressor fuel used in all of Union s stations within the provincial boundary of Ontario for the purposes of calculating Union s obligation under OBPS.

12 Filed: EB Exhibit A Tab 1 Page 8 of initial proposed OBS for the transmission of processed natural gas is 80% of productionweighted national average emissions intensity. The costs associated with Facility-OBPS Volumes will be recovered from customers as part of the Facility Carbon Charge (see Exhibit A, Tab 4) included in delivery or transmission charges on customers bills ASSUMPTIONS MADE WITHIN UNION S APPLICATION The following are the core assumptions that underpin Union s Application: Ontario is a listed province as defined by the Act; Union s storage and transmission facilities qualify as covered facilities as determined by the federal Minister of the Environment and Climate Change; Unaccounted for gas is not subject to the Act; 19 Mandatory participants who emit greater than 50 ktco 2 e and undertake an activity in which OBS applies, including the transmission of processed (marketable) natural gas, will register under OBPS; The OBS for the transmission of processed (marketable) natural gas will be 80% of production-weighted national average emissions intensity; and, No voluntary registration for customers who emit greater than 10 ktco 2 e, but less than 50 ktco 2 e, and undertake an activity in which OBS applies will be made available for Final details on any voluntary registration for 2019 are expected in the fall of Point of regulation is expected to be the customer meter.

13 Filed: EB Exhibit A Tab 1 Page 9 of ADMINISTRATION 1. Table of Contents Please see Exhibit A, Tab 1, Schedule Glossary of Acronyms and Terms 3. Parties Affected by the Application 4. Internet Address for Viewing the Application 5. Primary Contact Information Please see Exhibit A, Tab 1, Schedule 2. The parties affected by this application are the customers resident or located in the municipalities, police villages, and First Nations Reserves and Métis organizations served by Union, together with those to whom Union sells natural gas, or on whose behalf Union distributes, transmits, or stores natural gas. It is impractical to set out the names and addresses of such parties because they are too numerous. Adam Stiers Union Gas Limited Specialist, Regulatory Initiatives 50 Keil Drive North P.O. Box 2001 Chatham, Ontario N7M 5M1 Telephone: (519) Fax: (519) astiers@uniongas.com 6. Bill Impacts The bill impact for a typical residential customer with annual consumption of 2,200 m 3 is an increase of $86.08 per year in Union South and $86.06 per year in Union North. 7. Specific Approvals Requested The bill impact for residential customers exempt from the Federal Carbon Charge with annual consumption of 2,200 m 3 is an increase of $0.07 per year in Union South and $0.05 per year in Union North. Pass-through treatment for the costs to comply with the Act Approval of interim rates effective January 1, 2019 by November 30, 2018 Approval of final rates Approval of two new deferral accounts

14 UNION GAS LIMITED Filed: EB Exhibit A Tab 1 Schedule 1 Page 1 of FEDERAL CARBON PRICING PROGRAM APPLICATION TABLE OF CONTENTS Evidence Exhibit Tab Schedule Appendix Contents A 1 Overview A 2 Forecasts A 3 Forecast Administration Costs A 4 Cost Recovery A 5 Deferral and Variance Accounts Schedules Exhibit Tab Schedule Appendix Contents A 1 1 Table of Contents A 1 2 Glossary of Acronyms and Terms A 2 1 Volume Forecast A 2 2 Carbon Cost Forecast A 4 1 PDCI Costs Updated to Include Carbon Charges A 4 2 Calculation of Supplemental Service Charges A 4 3 General Service Customer Bill Impacts A 4 4 Calculation of 2019 Sales Service and Direct Purchase Bill Impacts Appendices Exhibit Tab Schedule Appendix Contents A 4 A Summary of Changes to Rates A 4 B Black-lined Rate Schedules A 4 C Summary of Average Interruptible Rate and Price Adjustment Changes A 4 D Miscellaneous Non-Energy Charges A 5 A Draft Accounting Orders

15 Filed: EB Exhibit A Tab 1 Schedule 2 Page 1 of 8 UNION GAS LIMITED 2019 FEDERAL CARBON PRICING PROGRAM APPLICATION GLOSSARY OF ACRONYMS AND TERMS The glossary is intended to serve as a reference for the benefit of stakeholders in their overall understanding of the terminology used in Union s Application. It provides guidance to a broad audience; more detailed definitions may apply to specific terms when used by stakeholders in the context of this application. ACT The Greenhouse Gas Pollution Pricing Act, included as Part V of the Budget Implementation Act, 2018, No APPLICATION Union s 2019 Federal Carbon Pricing Program Application and pre-filed evidence. An application for just and reasonable rates to recover the costs associated with the Act as a pass-through to customers effective January 1, BACKSTOP As part of the Act a federal carbon pricing program applies in any province or territory that requests it or that does not have a carbon pricing system in place that meets the 1 The Greenhouse Gas Pollution Pricing Act,

16 Filed: EB Exhibit A Tab 1 Schedule 2 Page 2 of 8 federal benchmark by January 1, The Backstop is composed of a levy on fossil fuels and an output-based pricing system. BOARD The Ontario Energy Board. CAP-AND-TRADE PROGRAM Ontario Regulation 144/16; Climate Change Mitigation and Low-carbon Economy Act, CARBON LEVY As part of the Backstop, a levy applied to fossil fuels imposed on distributors, importers and producers applicable from and equivalent to $20/tCO 2 e in 2019 and increasing by $10/tCO 2 e annually, reaching $50/tCO 2 e in CO 2 Carbon dioxide. CO 2 e Carbon dioxide equivalent. COVERED FACILITY A facility that has been designated by the Minister of the Environment and Climate Change to be qualified to be part of the output-based pricing system. To qualify, facilities must: emit 50 ktco 2 e or more for 2014 or a subsequent year, be located in 2 Environment and Climate Change Canada, Technical Paper on the Federal Carbon Pricing Backstop, p.4, 3

17 Filed: EB Exhibit A Tab 1 Schedule 2 Page 3 of 8 a listed province or Backstop jurisdiction, and during the year of registration undertake an activity or produce a product for which an output-based standard is prescribed. Covered facilities have a compliance obligation for the portion of their emissions that exceeds an annual outputbased emissions limit. CRA Canada Revenue Agency. CREDITS - Issued by the federal government to facilities that achieve annual emissions volumes below their annual output-based emissions limit. Each credit represents 1 tco 2 e, can be banked for future use against emissions or traded, has a useful life of five years from the period following the year for which the credits were issued, and will be tracked using a centralized system (currently under development). CUSTOMER VOLUMES Distribution volumes delivered by Union in Ontario, with the exception of the volumes delivered to customers that hold an Exemption Certificate. DCQ Daily Contract Quantity.

18 Filed: EB Exhibit A Tab 1 Schedule 2 Page 4 of 8 DISTRIBUTOR An entity that imports or delivers marketable and non-marketable natural gas, and/or that measures consumption of marketable natural gas and is required to register as a Distributor under the Act. 4 ECCC Environment and Climate Change Canada. EMITTER An entity deemed by the Minister of National Revenue to be eligible to receive an exemption certificate; the entity must be responsible for a covered facility that has been issued a covered facility certificate by the Minister of ECCC. 5 EXEMPTION CERTIFICATE A certificate issued by the Canada Revenue Agency exempting certain entities and activities from the application of the Carbon Levy. 6 FACILITY CARBON CHARGE The common volumetric charge proposed by Union to recover the total utility facility carbon costs which are generated from distribution buildings and line heaters and transmission and storage fuel. FACILITY VOLUMES Natural gas volumes consumed in the operation of Union's facilities including distribution buildings and line heaters and transmission and storage fuel. 4 The Act, s The Act, s The Act, s.17(2) and s.36.

19 Filed: EB Exhibit A Tab 1 Schedule 2 Page 5 of 8 FACILITY-LEVY VOLUMES Natural gas volumes consumed in the operation of Union's distribution buildings and line heaters. FACILITY-OBPS VOLUMES Natural gas volumes consumed in the operation of Union's transmission compression, storage compression, and dehydration facilities. FCCDA Federal Carbon Customer Deferral Account (proposed Account No ). FCFDA Federal Carbon Facility Deferral Account (proposed Account No ). FEDERAL CARBON CHARGE The federal Carbon Levy rate of cents/m 3, 7 proposed by Union to be charged to customers based on actual distribution volumes. 8 FTE Full-Time Equivalents. GGEIDA Greenhouse Gas Emissions Impact Deferral Account. 7 Equivalent to $20/tCO 2 e for 2019 as determined by the ECCC. 8 Excluding wholesale and OBPS-qualified customers.

20 Filed: EB Exhibit A Tab 1 Schedule 2 Page 6 of 8 GHG Greenhouse Gas including: carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 0), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF 6 ), and nitrogen trifluoride (NF 3 ). ktco 2 e Kilo-tonne of carbon dioxide equivalent. LISTED PROVINCE A province or territory covered under the Act. 9 MARKETABLE NATURAL GAS Natural gas that consists of at least 90% methane and that meets the specifications for pipeline transport and sale for general distribution to the public, as defined by the Act. 10 MW Megawatt. MWh Megawatt hour. NON-MARKETABLE NATURAL GAS Natural gas other than marketable natural gas, as defined by the Act The Act, Part 1, Schedule The Act, s The Act, s.3.

21 Filed: EB Exhibit A Tab 1 Schedule 2 Page 7 of 8 OBPS Output-based pricing system; a component of the Backstop, for prescribed industrial facilities. OBS Output-based standard; a percentage of production-weighted national average emissions intensity applied to annual facility production to determine annual facility emission limits under the OBPS. OEB The Ontario Energy Board. OFFSET CREDITS Represent greenhouse gas emissions reductions or removal enhancements generated from Canadian voluntary project-based activities that are not subject to carbon pricing and that would not have occurred under business as usual conditions. 12 PDCI - Parkway Delivery Commitment Incentive. REVOCATION REGULATION Ontario Regulation 386/18; Prohibition Against the Purchase, Sale and Other Dealings with Emission Allowances and Credits. tco 2 e Metric tonne of carbon dioxide equivalent. 12 Environment and Climate Change Canada, Carbon pricing: compliance options under the federal output-based pricing system,

22 UNION Union Gas Limited. Filed: EB Exhibit A Tab 1 Schedule 2 Page 8 of 8

23 Filed: EB Exhibit A Tab 2 Page 1 of UNION GAS LIMITED 2019 FEDERAL CARBON PRICING PROGRAM APPLICATION FORECASTS The purpose of this evidence is to provide Union s 2019 forecast of volumes subject to the Act, and the associated forecasted costs of complying with the Act This tab of evidence is organized as follows: Volume Forecast and Carbon Cost 2. Customer Volumes and Carbon Levy Cost 2.1. General Service Market 2.2. Contract Market 3. Facility Volumes and Facility Carbon Cost 3.1. Facility-Levy Volumes 3.2. Facility-OBPS Volumes VOLUME FORECAST AND CARBON COST Union s 2019 volume forecast subject to the Act is 7,401,607,804 m 3. This results in an associated forecast total cost of $ million. The details of this volume forecast and associated cost are included in Exhibit A, Tab 2, Schedule 1 and Schedule The forecast employs the same methodologies which underpinned the forecast approved by the

24 Filed: EB Exhibit A Tab 2 Page 2 of OEB in Union s 2013 Cost of Service Proceeding (EB ). Union has also included both utility and non-utility components of forecasted volumes to ensure that non-utility costs are excluded from regulated rates. Non-utility costs are those associated with Union s non-utility storage business CUSTOMER VOLUMES AND CARBON LEVY COST Union s total 2019 Customer Volume forecast subject to the Carbon Levy is 7,236,188,917 m 3. This results in an associated forecast Carbon Levy cost of $ million. Union has included forecast distribution volumes subject to the Carbon Levy for its General Service and Contract Market as detailed below. The cost estimates are subject to change based on actual distribution volumes and final regulations and are meant to be used for informational purposes only. Customers will be charged the Carbon Levy rate on a monthly basis based on actual billed volumes GENERAL SERVICE MARKET Union s General Service volume forecast for 2019 is 5,554,274,744 m 3. This results in an associated forecast Carbon Levy cost of $ million. For the purpose of estimating Union s General Service volume forecast, Union has assumed that there are no mandatory or voluntary OBPS participants in the General Service Market in General Service customers who qualify for OBPS, following registration with Environment and Climate Change Canada 1 Final OPBS regulation is not expected until spring 2019.

25 Filed: EB Exhibit A Tab 2 Page 3 of ( ECCC ), and who receive an Exemption Certificate from the CRA will not be charged the Carbon Levy on an actual basis CONTRACT MARKET Union s Contract Market volume forecast for 2019 is 1,681,914,173 m 3, which excludes wholesale customer volumes, and OBPS-qualified customer volumes with emissions exceeding 50 ktco 2 e. 2 This results in an associated forecast Carbon Levy cost of $ million FACILITY VOLUMES AND FACILITY CARBON COSTS Union s total 2019 Facility Volume forecast is 165,418,887 m 3. This results in an associated forecast facility carbon cost of $0.975 million. Facility Volumes include distribution buildings and line heater fuel (both of which are subject to the Carbon Levy) and transmission and storage fuel (which are subject to the OBPS as Union s transmission and storage system is expected to be a covered facility ). The $0.975 million cost estimate is subject to change based on actual Facility Volumes and final regulations FACILITY-LEVY VOLUMES The distribution buildings and line heaters fuel volume forecast for 2019 is 9,752,764 m 3. This results in an associated forecast facility carbon cost of $0.381 million. The buildings and line 2 The 2019 Customer Volume forecast excludes estimated volumes from assumed mandatory participants under the Act that are expected to be required to register under OBPS. Union understands that ECCC is contemplating voluntary registration for emitters greater than 10 ktco 2 e and less than 50 ktco 2 e which could be effective January 1, Union has not excluded volumes for emitters greater than 10 ktco 2 e and less than 50 ktco 2 e from its forecasts in Exhibit A, Tab 2, Schedule 1 and Exhibit A, Tab 2, Schedule 2.

26 Filed: EB Exhibit A Tab 2 Page 4 of heater fuel volume forecast is based on a three-year average of consumption by location. For new buildings with no historical information, an estimate of volumes is used FACILITY-OBPS VOLUMES The transmission and storage fuel volume forecast for 2019 is 155,666,123 m 3. This results in an associated forecast obligation under OBPS and subsequent facility carbon cost of $0.594 million. The transmission and storage fuel forecast includes transmission compression, storage compression and dehydration fuel. The transmission and storage compression forecast is derived by combining forecasts for in-franchise and ex-franchise transmission and storage activity into an overall physical activity forecast. For dehydration fuel, average historical utilization is used to estimate the monthly forecasted usage Estimate of OBPS Obligation Based on preliminary discussions with ECCC, the emissions intensity for natural gas transmission will be calculated as follows: Facility Emissions Intensity = Emissions (tco 2 e) Energy (MWh) 3 Where: Emissions (tco 2 e) = Total Emissions 4 at the facility (Natural Gas Transmission pipeline system) 3 Amount of work required by a compressor to transport gas.

27 Filed: EB Exhibit A Tab 2 Page 5 of Energy (MWh) = Rated Compressor Brake Power (MW) Load (%) 5 Operating Hours (h) As explained in Exhibit A, Tab 1, under the OBPS, annual facility emission limits are expected to be calculated based on the product of the OBS for the transmission of processed natural gas (initially proposed to be 80% of production-weighted national average emissions intensity) and annual facility production. Based on data collected to date by ECCC, the production-weighted national average emissions intensity target for natural gas transmission is expected to be tco 2 e/mwh. Using data from 2016 and 2017 Union has forecasted the 2019 cost associated with complying with the OBPS target in Table Union Emissions Intensity (tco 2e/MWh) Sector Emission Intensity Target (tco 2e/MWh) Table Forecast OBPS Compliance Cost 2019 Forecast Volumes (m 3 ) (a) (b) (c) 2019 Forecast Emissions (tco 2e) 2019 Forecast Production (MWh) 2019 Forecast Facility Emissions Limit (tco 2e) OBPS Compliance Obligation (tco 2e) 2019 Forecast OBPS Facility Carbon Cost ($20/tCO 2e) (c) = (d) (d) (a)=(e) (b) (e) =(f) (d)-(f)=(g) (g) $20/tCO 2e ,666, , , ,975 29,703 $594,066 4 Excluding emissions covered by ECCC s Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector). 5 When Load is not known, a ratio of speeds (Average Annual Speed (revolutions per minute)/max Rate Speed (revolutions per minute)) may be used. 6 Conversion factor from SQM ON.20.

28 UNION GAS LIMITED Volume Forecast For activity in the 12 month period ending December 31, 2019 Filed: EB Exhibit A Tab 2 Schedule 1 Line No. Particulars (m 3 ) 1 Customer Volume Forecast General Service Market Contract Market Annual Forecast Utility (regulated) Annual Forecast Non Utility (unregulated) Annual Forecast Amount (a) (b) (c) = (a) + (b) (d) (e) = (c) + (d) 2 Volumes Subject To The Carbon Levy 3 Throughput 5,554,274,744 7,364,591,201 12,918,865,945 12,918,865,945 4 Throughput to Wholesale Customers 366,883, ,883, ,883,290 5 Throughput to Mandatory Participants 5,315,793,738 5,315,793,738 5,315,793,738 6 Net Customer Throughput Volumes Subject to the Carbon Levy (line 3 line 4 line 5) 5,554,274,744 1,681,914,173 7,236,188,917 7,236,188,917 7 Facility Volume Forecast 8 Volumes Subject To The Carbon Levy (Facility Levy Volumes) 9 Buildings and Line Heater Fuel Volume 9,479, ,682 9,752, Volumes Subject To Output Based Pricing System (Facility OBPS Volumes) 11 Transmission and Storage Fuel Volume 144,360,487 11,305, ,666, Total Facility Volumes Subject to the Act (line 9 + line 11) 153,839,568 11,579, ,418, Total Forecasted Volume 14 Total Volumes Subject to the Act (line 6 + line 12) 7,390,028,486 11,579,318 7,401,607,804

29 UNION GAS LIMITED Carbon Cost Forecast For activity in the 12 month period ending December 31, 2019 Filed: EB Exhibit A Tab 2 Schedule 2 Line No. Particulars ($000s) General Service Market Contract Market Annual Forecast Utility (regulated) Annual Forecast Non Utility (unregulated) Annual Forecast Amount (a) (b) (c) = (a) + (b) (d) (e) = (c) + (d) 1 Customer Volume Forecast Cost (1) 217,172 65, , ,935 2 Facility Levy Volume Forecast Cost 3 Buildings and Line Heaters Fuel Volume Cost (2) Facility OBPS Volume Forecast Cost 5 Transmission and Storage Fuel Volume Cost (3) Total Facility Volumes Cost (line 3 + line 5) Total Carbon Costs under the Act (line 1 + line 6) 283, ,910 Notes (1) General Service Market: 5,554,274,744 m 3 $ / m 3 = $217,172,142; Contract Market: 1,681,914,173 m 3 $ / m 3 = $65,762,844 (2) Utility Buildings and Line Heaters Fuel: 9,479,082 m 3 $ / m 3 = $370,632; Non Utility Buildings and Line Heaters Fuel: 273,682 m 3 x $ / m 3 = $10,701 (3) Per Exhibit A, Tab 2, Table 1

30 Filed: EB Exhibit A Tab 3 Page 1 of UNION GAS LIMITED 2019 FEDERAL CARBON PRICING PROGRAM APPLICATION FORECAST ADMINISTRATION COSTS The purpose of this evidence is to outline Union s forecast of costs associated with implementation and administration of the Act This tab of evidence is organized as follows: 1. Forecast Administration Costs 1.1. Salaries and Wages 1.2. Consulting 1.3. Bad Debt 1.4. Revenue Requirement on Capital Costs 1.5. Other FORECAST ADMINISTRATION COSTS As outlined below in Table 1, Union has forecast 2019 administration costs of approximately $1.515 million related to the implementation and administration of the Act. Union will record 2019 administration costs in its Greenhouse Gas Emissions Impact Deferral Account ( GGEIDA ) (No ) as described at Exhibit A, Tab 5, until such time that these costs are incorporated into rates. Union is not seeking recovery of its forecast 2018 or 2019 administration costs in this proceeding as they will be brought forward for disposition as part of a future

31 Filed: EB Exhibit A Tab 3 Page 2 of proceeding. Union is providing its forecast of 2018 (Q4) and 2019 administration costs for informational purposes only. A description of the components comprising Union s 2018 (Q4) and 2019 forecast administration costs is provided below. Line No. Table 1 Summary of Q and 2019 Forecast Administration Costs Q Particulars ($000s) Forecast Cost 1 Salaries and Wages Forecast Cost 2 Consulting Bad Debt Revenue Requirement on Capital Costs (billing systems) Other Total 334 1, SALARIES AND WAGES The 2019 estimate of $0.615 million relates to the salaries and wages for 3.0 Full-Time Equivalents ( FTE ) including an allocation of benefits, pension and overhead costs. The forecast level of staffing reflects the incremental level of effort Union expects to require across the organization to comply with the Act in A description of the FTE roles organized by functional area is provided in Table 2 and a description of FTE roles by activity is provided in Table 3.

32 Filed: EB Exhibit A Tab 3 Page 3 of Role and Responsibilities Table 2 FTE Roles and Responsibilities Team Lead, Carbon Leads activities on implementation of carbon policy, establishment of process changes, reporting and monitoring and regulatory requirements. Advisor, Carbon Leads interpretation and analysis of regulations, research of other jurisdictions, response to proposals from ministries, and supports carbon communications content. Technical Manager, Environmental Health and Safety Accountable for all Regulatory reporting of GHG emissions. Advisor, Environmental Health and Safety Responsible for emissions calculations and reporting, and technical support related to GHG emissions including emissions measurement, assessment of emission reduction opportunities and research. Activity Description Table 3 FTE Breakdown by Activity Implementation of the Act FTEs required to support the interpretation and implementation of the Act, including: New and/or updated processes; Governance structures; Reporting and monitoring; Research related to programs and regulations in other jurisdictions; Review and response to draft proposals from regulators; Ongoing dialogue with government regarding program structure and implementation; OBPS program registration; and, Program-related communications for customers, employees and stakeholders. GHG Reporting FTEs required to ensure that Union is compliant with the GHG emission reporting requirements associated with the Act, including: Measurement, verification, and reporting requirements; and, Consultations with government on new GHG reporting regulations. Number of FTEs Number of FTEs

33 Filed: EB Exhibit A Tab 3 Page 4 of In addition to the 3.0 FTE described above, many departments across the organization have adjusted existing workloads to accommodate requirements related to compliance with the Act. If an employee will not be committing greater than 25% of their time to activities related to the Act, then an allocation of that FTE is not completed. In order to evaluate incremental FTE resources required to implement and support compliance with the Act and to ensure that incremental salaries and wages costs related to the Act are properly accounted for, Union has applied the decision tree and process outlined in Figure 1 below. These costs are reviewed on a quarterly basis Figure 1 Decision Tree for Incremental FTE Costs CONSULTING As the Act is expected to be effective January 1, 2019, it is necessary for Union to develop internal expertise and to adapt quickly in order to be prepared to comply. Union s consulting

34 Filed: EB Exhibit A Tab 3 Page 5 of costs for 2019 are forecasted to total $0.150 million for work supporting the development and execution of Union s Application as well as carbon strategy and related analysis, GHG reporting, and legal advice and analysis. A detailed breakdown of the 2019 forecasted consulting costs is provided in Table 4 below BAD DEBT Table 4 Summary of 2019 Forecast External Consulting Costs Line No. Particulars ($000s) 2019 Forecast Cost 1 Carbon Strategy and Analysis 25 2 GHG Reporting Legal Advice and Analysis 25 4 Total 150 Union has estimated $0.425 million in bad debt resulting from compliance with the Act for Union s 2019 forecasted bad debt is estimated using Union s corporate bad debt forecast methodology, and is calculated by taking Union s forecast Customer Volumes subject to the Act and applying Union s average actual write-off factor from the past five years. 1 Union s billing system is able to identify accounts written off to bad debt specifically associated with the Act. Only bad debt specifically related to the Act will be captured in the GGEIDA The product of Union s 5-year write-off factor and General Service Volumes as found at Exhibit A, Tab 2, Schedule 1, Line 6, Column (a).

35 Filed: EB Exhibit A Tab 3 Page 6 of REVENUE REQUIREMENT ON CAPITAL COSTS Union has included a 2019 revenue requirement of $0.225 million in forecast administration costs related to the capital cost of billing system changes. This includes the revenue requirement of $0.002 million on 2019 capital costs of approximately $0.1 million, as forecast at September 30, 2018, for billing system changes as a result of the Act. Union has also included the 2019 revenue requirement of $0.223 million on capital costs incurred under the Cap-and-Trade Program as Union has leveraged the functionality of the billing system changes that were made under the Cap-and-Trade Program to support implementation of the Act. These include functionality for the inclusion of carbon charges in IT systems and customer bills. The 2019 revenue requirement related to these costs has not been previously collected from customers OTHER Included in the category of other costs forecasted for 2019 is $0.080 million for internal/external communications and call centre training, and employee expenses of $0.020 million, totaling $0.100 million Union is currently developing a 2018/2019 communications plan related to the Act and the Backstop which will leverage existing communication methods including: additional training for call centre employees and targeted customer communications (e.g. bill inserts, dedicated webpages, and customer meetings).

36 Filed: EB Exhibit A Tab 4 Page 1 of UNION GAS LIMITED 2019 FEDERAL CARBON PRICING PROGRAM APPLICATION COST RECOVERY The purpose of this evidence is to support Union s request to incorporate the impacts of the Act and Union s Application into rates, effective January 1, Specifically, Union requests approval to introduce: a new Federal Carbon Charge and Facility Carbon Charge (as defined below); to update the PDCI credit and Union South in-franchise delivery rate changes; and to modify applicable rate schedules. Union requests that the OEB approve the proposed rates as interim by November 30, 2018 for inclusion in rates effective January 1, Union will file a draft rate order for final rates following the issuance of the OEB s Decision and Order for this Application This tab of evidence is organized as follows: 1. Federal Carbon Charge 2. Facility Carbon Charge 2.1. Parkway Delivery Commitment Incentive Costs 3. Administration Costs 4. Rate Schedule Changes 5. Customer Bill Impacts 21

37 Filed: EB Exhibit A Tab 4 Page 2 of FEDERAL CARBON CHARGE Beginning January 1, 2019, Union proposes to charge all distribution customers, excluding wholesale customers and OBPS-qualified customers, the Carbon Levy of cents/m 3, which is equivalent to $20/tCO 2 e, as determined by ECCC and described in Exhibit A, Tab 1 (the Federal Carbon Charge ). 1 The Federal Carbon Charge will be a separate line item on customers bills, where applicable Union will track the difference between the amount collected through rates and the actual costs incurred in the Federal Carbon Customer Deferral Account as described in Exhibit A, Tab FACILITY CARBON CHARGE Union will incur costs of compliance with the Act that are associated with its own operations (company use gas). Union s facility carbon costs (those incurred pursuant to both the Carbon Levy and OBPS) are expected to be generated from distribution buildings and line heaters and transmission and storage fuel. In order to recover the cost of the facility carbon costs from customers beginning January 1, 2019, Union proposes to introduce a common volumetric charge to recover the total utility facility carbon costs, estimated at $0.922 million for 2019 as shown in Exhibit A, Tab 2, Schedule 2. Union is proposing to recover the utility facility carbon costs from rate classes based on in-franchise delivery volumes and ex-franchise transportation volumes. The derivation of the common facility carbon charge (the Facility Carbon Charge ) is provided in 1 For the purposes of this Application, Union has assumed that there will be no voluntary registrants.

38 Filed: EB Exhibit A Tab 4 Page 3 of Table 1. All customers in each rate class will be responsible for the facility carbon costs, regardless of whether the customer is exempt from the Carbon Levy. Union proposes to add the Facility Carbon Charge to the current approved delivery and transportation rates on customers bills. 5 Table 1 Derivation of 2019 Facility Carbon Charge Line No. Particulars Total (a) 1 Total Utility Facility Carbon Cost ($000's) (1) Forecast Delivery and Transportation Volumes (10 3 m 3 ) (2) 37,539,804 3 Facility Carbon Charge (cents/m³) (line 1 line 2 100) Facility Carbon Charge ($/GJ) (line ) (3) Notes: (1) Exhibit A, Tab 2, Schedule 2, line 6, column (c). (2) In-franchise delivery volumes as per Exhibit A, Tab 2, Schedule 1, line 3, column (c) plus ex-franchise transportation volumes. (3) Conversion to GJs based on heat value adjustment of GJ/10 3 m 3. Union will track the difference between the amount collected through rates and the actual costs incurred in the Federal Carbon Facility Deferral Account as described in Exhibit A, Tab 5. 9