NATIONAL ENERGY BOARD OFFICE NATIONAL DE L’ÉNERGIE

Hearing OH-1-2009 Audience OH-1-2009
TransCanada Keystone Pipeline GP Ltd. Keystone XL Pipeline Projet de pipeline Keystone XL de TransCanada Keystone Pipeline GP Ltd.

VOLUME 3
Hearing held at L’audience tenue à National Energy Board 444 Seventh Avenue SW Calgary, Alberta September 17, 2009 le 17 septembre 2009 International Reporting Inc. Ottawa, Ontario (613) 748-6043

© Her Majesty the Queen in Right of Canada 2009 as represented by the National Energy Board

© Sa Majesté du Chef du Canada 2009 représentée par l’Office national de l’énergie

This publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the languages spoken by the participant at the public hearing.

Cette publication est un compte rendu textuel des délibérations et, en tant que tel, est enregistrée et transcrite dans l’une ou l’autre des deux langues officielles, compte tenu de la langue utilisée par le participant à l’audience publique.

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HEARING /AUDIENCE OH-1-2009

IN THE MATTER of the TransCanada Keystone Pipeline GP Ltd. (TransCanada) Keystone XL Pipeline Application of 27 February 2009

HEARING LOCATION/LIEU DE L'AUDIENCE Hearing held at Calgary (Alberta), Thursday, 17, 2009 Audience tenue à Calgary (Alberta), Jeudi, le 17 septembre 2009

BOARD PANEL/COMITÉ D'AUDIENCE DE L'OFFICE K. Bateman L. Mercier S. J. Snook Chairman/Président Member/Membre Member/Membre

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APPEARANCES/COMPARUTIONS Applicant/Demandeur TransCanada Keystone Pipeline GP Ltd. - Ms. W.M. Moreland - Ms. E. Swanson Associations Alberta Federation of Labour - Ms. L. Chahley Sierra Club Canada - Mr. J. Custer Companies/Compagnies BP Canada Energy Company - Mr. A.L. McLarty Enbridge Pipelines Inc. - Mr. D. Davies - Mr. T. Hughes Imperial Oil Limited - Mr. J. Landry Keystone XL Shippers Group (Collectively Canadian Natural Resources Limited, ConocoPhillips Canada Marketing & Trading ULC, EnCana Corporation, Shell Trading Canada, Total E & P Canada Ltd., and Trafigura Canada General Partnership) - Mr. G. Nettleton Nexen Inc. - Mr. T.J. Richardson Suncor Energy Marketing Inc. - Mr. D. Armstrong

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APPEARANCES/COMPARUTIONS Companies/Compagnies (Continued/Suite) Valero Marketing and Supply Company - Mr. D. Brett - Mr. A.J. Dalton Governments/Gouvernements Alberta Department of Energy - Ms. C.J.C. Page First Nations/Premières Nations Neekaneet First Nation No. 380 - Mr. C.M. Ozirny

National Energy Board/Office national de l’énergie - Ms. C. Beauchemin - Mr. P. Ouellette

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ERRATA Tuesday, September 15, 2009 - Volume 1 Paragraph No.: 315: “I believe there was a follow-on. I already...” Should read:

“I believe there was a follow on IR response. I already...”

344: “We had attempted to reconcile...” 364: “And the variable toll is thus seen whether the person...” 727, 728 and 729: “... X Alberta...” 737: “...X western Canada...” 756: “...we’re proven businesspeople.” 767: “...on the X Alberta capacity,...” 784: “...would provide the $500,000 a day...” 785: “...to Wood River/Petoka which...” 792: “...to the Wood River-Petoka area.”

“We had not attempted to reconcile...”

“And the variable toll is the same whether the person...”

“...ex-Alberta...”

“...ex-Western Canada...”

“...we’re prudent businesspeople.”

“...on the ex-Alberta capacity,...”

“...would provide the 500,000 a day...”

“...to Wood River/Patoka which...”

“...to the Wood River-Patoka area.”

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ERRATA Wednesday, September 16, 2009 - Volume 2 Paragraph No.: 1859 and Exhibit List: “Pardon me, B-8-1.” --- EXHIBIT NO./PIÈCE No. B-8-1: 1963: “...we will have X Alberta capacity...” Should read:

“Pardon me, E-8-1.” --- EXHIBIT NO./PIÈCE No. E-8-1:

“...we will have ex-Alberta capacity...”

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TABLE OF CONTENTS/TABLE DES MATIÈRES

Description Opening remarks by the Chairman

Paragraph No./No. de paragraphe 2682

TransCanada Keystone Pipeline GP Ltd. - Panel 1 Mr. P. Miller Mr. D. Diakow Mr. T. Wise - Continued examination by Mr. Davies - Examination by Ms. Page 2703 3818

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LIST OF EXHIBITS/LISTE DES PIÈCES
(i) No. B-31 Description Paragraph No./No. de paragraphe

CAPP CEO Group and TransCanada CEO May 1, 2009 meeting summary minutes Slide 17, "Even with slippage, Midwest coker capacity is seen outpacing heavy crude supply", dated March, 2009 Slide of presentation by Mr. Kelly dated July 2009

2708

C-7-12

3570 3586

C-7-13

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Opening remarks Chairman --- Upon commencing at 8:29 a.m./L’audience débute à 8h29 2682. THE CHAIRMAN: Good morning, please be seated.

2683. Welcome back. Are there any preliminary matters before we get started this morning? --- (No response/Aucune réponse) 2684. THE CHAIRMAN: Mr. Davies, we’re ready to continue with your cross-examination. PAUL MILLER: Resumed DAVID DIAKOW: Resumed THOMAS WISE: Resumed 2685. MS. MORELAND: Before Mr. Davies continues, I believe Mr. Diakow has a correction to make to yesterday’s transcript and Mr. Miller had some clarifications that he’d like to put in response to some questioning from Mr. Davies. 2686. I would also note before I sit down, Mr. Chairman, that the panellists have taken off their coat jackets. It’s not any indication of disrespect, sir, it’s just really hot. So I hope that’s satisfactory. 2687. to. THE CHAIRMAN: Just get comfortable; take your ties off if you want

--- (Laughter/Rires) 2688. MR. DIAKOW: Mr. Chairman, referring to -- in the transcript, line 2467, where Mr. Davies had asked me, “as a result of the undertaking of the Cushing expansion, was to increase times to Wood River and Patoka?” I had incorrectly answered increased transit times. That would actually decrease transit times to Wood River/Patoka. That’s my correction. 2689. MR. MILLER: Mr. Chairman, Panel Members, in following on yesterday’s cross-examination from Mr. Davies, we deferred an answer in regard to the remedies that committed shippers on XL would have to the extent that we contracted further committed shippers on XL at a rate lower than the committed rate. 2690. And the remedies for the committed shippers is the same as the remedies for the spot shipper or the uncommitted shipper, in that to the extent that there is a lower rate, the committed shippers will receive back the difference for the period in which that

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Opening remarks Chairman lower rate for the new committed shipper prevails. 2691. There was also some discussion around the provisions of service for the Keystone XL shippers to Patoka and the ability to move the Cushing shipper volumes onto Keystone XL line down to Monchy. There was an invitation to review this overnight. 2692. We did, and our position of yesterday remains. The TSAs as currently structured do facilitate the operating plan as we’ve applied for with the Cushing volumes capable of moving on the Keystone XL line. 2693. And to the extent that the Keystone XL shippers wish to access the Patoka market through Haskett, they can access that pipeline under the current TSAs as they exist today. There is some lack of clarity in regard to the tariff, the pro-forma tariff that we filed with this application in regard to the allocation policy. 2694. That’s something that we will review and we’ll ensure that that ambiguity, if it does exist, is amended and we will file that amended tariff with the Board prior to Keystone XL going into service. 2695. 2696. 2697. 2698. Thank you. Those are my changes. THE CHAIRMAN: Good. Mr. Davies. MR. DAVIES: Thank you, Mr. Chairman.

2699. First of all, let me apologize for detaining you and others in the room unnecessarily yesterday afternoon. I had been under the misimpression when I had started that you wanted me to go to 2:30 as opposed to two o’clock, and so my error, and again, sorry to those whose stomachs may have been grumbling. 2700. THE CHAIRMAN: We found it captivating

--- (Laughter/Rires) 2701. MR. DAVIES: Well, it’s just that Mr. Miller and I were like kids playing on the school playground after dark. We were just having too much fun together. Right, Mr. Miller? 2702. Let the record show at least there wasn’t a scowl.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies --- (Laughter/Rires) --- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite) 2703. MR. DAVIES: Now, Mr. Miller, we left off yesterday discussing the meeting between the CAPP CEO group and TransCanada’s CEO dated May 1, 2009 and you were going to endeavour to get for me a copy of the meeting summary notes. You have, in fact, done that? 2704. 2705. MR. MILLER: I have. I provided those minutes, yes. MR. DAVIES: I hope that Ms. Moreland made copies.

2706. So I wonder, Mr. Chairman, if those could be distributed and we can assign an exhibit number, please. 2707. THE CHAIRMAN: We’ll do so now.

--- (A short pause/Courte pause) 2708. THE REGULATORY OFFICER: That will be Exhibit B-31.

--- EXHIBIT NO./PIÈCE No. B-31 CAPP CEO Group and TransCanada CEO May 1, 2009 meeting summary minutes. 2709. MR. DAVIES: And I understand, Mr. Miller, that you thought it necessary to obtain CAPP’s consent to release a copy of these minutes, as did we when we released a copy of our minutes in response to the KSG information request. So I appreciate you doing that. 2710. Now, when we look at Exhibit B-31, first of all, Mr. Miller, you were not at the meeting? 2711. MR. MILLER: No.

2712. MR. DAVIES: But I assume you had discussions about the meeting with Messrs. Kvisle and Girling? 2713. MR. MILLER: Yes.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2714. 2715. MR. DAVIES: And perhaps even with Ms. Delkus? MR. MILLER: No.

2716. MR. DAVIES: Now, the meeting -- and I’m looking in the third paragraph -- after introductions opened with Mr. Kvisle providing several comments setting the context of the discussion and the first bullet reads: “I want to confirm that CAPP is not acting as agent for Enbridge (CAPP confirmed this) and that CAPP will not represent itself as our agent, should CAPP have further discussions with Enbridge.” 2717. 2718. Do you see that? MR. MILLER: Yes.

2719. MR. DAVIES: And can you tell me, if you know, what was Mr. Kvisle driving at there? What was the concern? 2720. MR. MILLER: I do not know. I haven’t had any conversations with Mr. Kvisle in regard to that point. 2721. MR. DAVIES: Okay. The next bullet -- or in the next bullet we see Mr. Kvisle expressing the view that CAPP’s interim solution concept would create a pipeline path that would be longer than Keystone XL, right? 2722. MR. MILLER: Yes.

2723. MR. DAVIES: And in the bracket we see CAPP confirming that the distance is longer, but it would be less pipe if we use surplus capacity on existing pipe in the ground, right? 2724. 2725. MR. MILLER: I see that, yes. MR. DAVIES: Do you agree with that CAPP observation?

2726. MR. MILLER: To the extent that CAPP -- the proposal would use existing infrastructure would connect to Keystone XL, the distance from Gretna to Steele City is shorter than the distance from Steele City up to Hardisty, but I don’t agree that the distance for Keystone XL, the pipeline that we brought in this application, would be shorter than -- I don’t agree that that distance of Keystone XL would be shorter than the Gretna concept.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2727. In fact, the pipeline ultimately would be longer than using the Enbridge facilities because of the need, we think -- we understand -- given that it’s inferred in the evidence that this would be an interim solution. The ultimate build for Keystone XL would, in fact, be longer and there would be more pipe in the ground. So I don’t agree with that statement. 2728. MR. DAVIES: Okay. And we’re going to come later in these minutes, Mr. Miller, to the proposition that TransCanada was looking for a permanent solution, not an interim solution, right? 2729. MR. MILLER: TransCanada is not looking for any particular solution. Keystone has indicated that to the extent that parties want to bring a proposal to us, we will look at the proposal in its entirety to see if it provides those benefits that are required to our shippers. 2730. MR. DAVIES: We can agree, though, that if the Gretna option were a permanent solution, that the distance from Hardisty to the Gretna area down to the market would be greater than the distance of your proposed XL project, right? 2731. MR. MILLER: Sorry, I don’t agree with the opening assumption. I will state again that the length of -- the distance from Hardisty to Gretna, down to Steele City is longer than Hardisty to Steele City direct, as we’ve applied for. 2732. MR. DAVIES: Thank you. That’s the point I think I was trying to make. I guess I just didn’t phrase my question well enough. 2733. But can you confirm that even though the distance would be longer with the Gretna option, less pipe would be used? 2734. 2735. 2736. MR. MILLER: I cannot confirm that. MR. DAVIES: Do you disagree or you just don’t know? MR. MILLER: I disagree.

2737. MR. DAVIES: Well, when we go back to our discussion yesterday with regard to base Keystone, was it not the case that the longer route from going to Hardisty to Haskett, down to Illinois was justified because you were using existing pipeline assets? Is that not right? 2738. 2739. MR. MILLER: Sorry, can you repeat the question? MR. DAVIES: Sure. When we were discussing the base Keystone

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies project yesterday, did we not agree that while it was longer going from Hardisty to Haskett to Illinois, as opposed to going more directly from Hardisty to Illinois, the longer route in that case was justified because you were using, in Canada, existing pipeline assets? 2740. MR. MILLER: I believe what we agreed to yesterday was that the distance -- direct distance -- direct path, rather, would be longer and I believe we agreed yesterday that the application that was brought before the Board, the application that the market was seeking us to bring before the Board was one in which we used existing pipe, existing pipe which was no longer necessary for declining gas market supply and would be best put into use for a need to provide additional oil capacity. 2741. Based on that, that was the premise for which that existing asset was used in order to provide the service to Wood River/Patoka area and, as such, it took a less direct path. 2742. 2743. MR. DAVIES: Thank you. Now, the next bullet says: “TransCanada intends to build Keystone and to provide pipeline service to markets beyond Chicago.” 2744. 2745. 2746. Do you see that? MR. MILLER: I do. MR. DAVIES: Does that come as news to you?

2747. MR. MILLER: We’re building the pipeline to Wood River/Patoka. We have uncontracted capacity to Wood River/Patoka. To the extent that the market is looking for capacity to the Wood River/Patoka area and beyond, we’ll look for opportunities to move that capacity. 2748. MR. DAVIES: Is it the case that TransCanada intends to build Keystone and to provide pipeline service to markets beyond Chicago? 2749. MR. MILLER: I think the intent is for Keystone to continue to look at market development, and if that market development does involve moving additional volumes past Patoka, something that we would have to go back to the regulator for approval to do, and it’s something that we can do under the existing approved facilities to date.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2750. MR. DAVIES: Go back to which regulator for approval?

2751. MR. MILLER: Whatever regulator has authority based on the project we may choose to pursue. 2752. MR. DAVIES: Well, would this regulator have any say in that?

2753. MR. MILLER: I don’t know. I don’t know what projects may come around to pursue markets in the Chicago area. 2754. MR. DAVIES: We’re not talking about any project, Mr. Miller. We’re talking about Keystone. Mr. Kvisle says: “TransCanada intends to build Keystone and to provide pipeline service to markets beyond Chicago.” 2755. Are you saying that Mr. Kvisle is wrong?

2756. MR. MILLER: I’m not saying that. Mr. Kvisle may have a vision of extending Keystone past the current terminus and, to the extent that that’s the case, we will pursue those opportunities in a fair, open-market environment and, if the market indicates that those opportunities or those facilities are needed, we will pursue them. That’s the business we’re in. 2757. MR. DAVIES: Were you aware, before appearing in this hearing, that that was Mr. Kvisle’s vision? 2758. 2759. 2760. MR. MILLER: Mr. Kvisle has significant vision. MR. DAVIES: That’s not responsive to the question. MR. MILLER: I was pausing, Mr. Davies.

2761. Mr. Kvisle has significant vision. TransCanada is in the business of -- the transportation business and our strategy is to connect supply to market. So to the extent that Keystone is part of that broader overall TransCanada strategy of connecting supply to market, it will potentially move volumes past Chicago, past Patoka. 2762. MR. DAVIES: You’ve made significant filings in this proceeding, Mr. Miller, as you did in the Cushing expansion proceeding and in the base Keystone proceeding. 2763. In any of those filings, did you ever disclose to this Board that

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies TransCanada intended to use Keystone to provide pipeline service to markets to Chicago and beyond? 2764. MR. MILLER: Subject to check, we have provided to the Board in our prior applications, as we have in this application, the necessary filing requirements -- the necessary evidence that we believe was pertinent to the application that we were applying for. That application typically looked at supply, looked at the markets we would be serving and would look at the contractual underpinning for those facilities. 2765. I don’t believe we ever made a filing that we were pursuing markets prior, but again -- past Chicago, but subject to check. PADD II is a big market. To the extent that it has a market requirement and there’s a need for Canadian crude to move down to PADD II, that’s not inconsistent with the goal of ensuring the responsible development of infrastructure. 2766. We are a player in that infrastructure market, and to the extent that there’s an opportunity to pursue those opportunities, we’ll pursue those opportunities, and to the extent that it requires regulatory approval, we’ll come back to the Board for regulatory approval. 2767. MR. DAVIES: Just to be clear, Mr. Miller, because this is an important point, are you telling me that Keystone never disclosed to the Board its intention to provide service on Keystone to markets to Chicago and beyond because you did not think that that information was required by the filing requirements? Is that your evidence? 2768. MR. MILLER: What we provided to the Board was our analysis of the supply in western Canada and our analysis to the refining capacity in the Wood River/Patoka area. 2769. To the extent that we choose to pursue additional markets within the context of that application, we will pursue those additional markets. 2770. To the extent that we pursue markets beyond, we will seek the necessary regulatory approval for those markets beyond. 2771. MR. DAVIES: Well, that sounds like the best answer I’m going to get from you on that. 2772. Now, the next two bullets talk about some of the commercial realities that you and I discussed yesterday and that we’ll be discussing further today: capacity guarantees; terms of service; in-service date; operational implications, et cetera. 2773. You see that in the second-last bullet?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2774. MR. MILLER: Yes.

2775. MR. DAVIES: And then in the last bullet, the proposition is put forward that if Keystone were to consider any alternatives, its shippers would expect to be kept whole, right? 2776. 2777. MR. MILLER: I see that. MR. DAVIES: Okay. The last sentence on the page says, and I quote: “CAPP stated that putting massive capital into the ground when it is not needed is not in industry’s best interest.” 2778. 2779. 2780. Do you see that? MR. MILLER: Yes. MR. DAVIES: Does Keystone object to that statement?

2781. MR. MILLER: Keystone acknowledges that -- I’m not sure that’s a -well, I’m not sure we object to the statement. Again, I would highlight to the extent that CAPP, and CAPP in consultation with other carriers, have chosen to pursue facilities, that is a responsibility of those stakeholders. 2782. Again, we can’t be responsible for whatever decisions preceded Keystone XL. It's not an unreasonable statement to make but, again, it's not one that Keystone had any part of. 2783. MR. DAVIES: If you turn over the page, we see here that TransCanada is identifying several key aspects of the Keystone pipeline that CAPP should bear in mind as it considers alternative approaches, and the first is that the link from Cushing to the Gulf Coast is part of a single application for the entire Keystone XL project and splitting it into parts would create contract uncertainty. See that? 2784. 2785. MR. MILLER: Yes. MR. DAVIES: And why would it create contract uncertainty?

2786. MR. MILLER: We today have contracts in Canada to move volumes to the international border and from the international border to the U.S. Gulf Coast. Our contracts don't contemplate moving volumes from Cushing to the U.S. Gulf Coast. They would necessitate a reopening of those contracts with the shippers.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2787. MR. DAVIES: Well, the alternative that CAPP was talking about was using existing facilities in Canada, having Keystone build from the Gretna area down to Steele City, using the existing 36-inch pipeline from Steele City to Cushing and then having Keystone build the segment from Cushing down to the Gulf Coast; right? 2788. MR. MILLER: That's my understanding.

2789. MR. DAVIES: And under that option Keystone would be building the segment from Cushing to the Gulf Coast, just as it would under its XL proposal; right? 2790. MR. MILLER: Yes.

2791. MR. DAVIES: So explain to me then how the Gretna option would create contractual uncertainty in terms of this segment from Cushing to the Gulf Coast. 2792. MR. MILLER: The contract today -- the complexity of the contract today goes beyond the Cushing to the Gulf Coast piece. The contract's uncertainty relates to the entire structure that's been proposed by CAPP. To the extent that we did look at the scenario that you presented, our contracts don't contemplate anything other than moving product to the international border by way of the applications that we've applied for, and then from Monchy to the Gulf Coast. 2793. To the extent that we've identified a particular segment of that piece that's going to create contract uncertainty is not inconsistent with the broader contract uncertainty, in that our contracts do not contemplate and frankly don't allow anything other than the facilities as applied for. 2794. MR. DAVIES: So what you’re telling me is that your Canadian contracts require you to build new pipe to Monchy and it would be contrary to those contracts to use existing pipe to Gretna? 2795. MR. MILLER: Yes.

2796. MR. DAVIES: Now, there's been a discussion that there's $380,000 a day contracted to the Gulf Coast, and we know that. There is a discussion of your favourite point, Mr. Miller, which is that Keystone is at risk for uncontracted capacity. Then we see in the fourth bullet the statement that any alternative scenario should not leave customers worse off and preferably should leave them better off; right? 2797. 2798. MR. MILLER: I see that. MR. DAVIES: And the two points that are mentioned are no delay

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies beyond 2012; right? 2799. MR. MILLER: Yes.

2800. MR. DAVIES: And first of all, your XL project is scheduled to come in service in late 2012; correct? 2801. MR. MILLER: Yes.

2802. MR. DAVIES: And as well the point is made that Keystone contract shippers need a guaranteed fixed toll. 2803. MR. MILLER: The TSA today provides for a fixed toll over the term of the contract. The expectation of the shippers is that those commercial terms would survive. 2804. MR. DAVIES: And we'll come to that.

2805. Now, if we go down to the last paragraph on the page, TransCanada then identifies the major terms or conditions that Keystone shippers had raised for discussion of this potential alternative service arrangement. You see that? 2806. MR. MILLER: Yes.

2807. MR. DAVIES: So I assume that in between the meeting of March 31st and this meeting of May 1st TransCanada discussed with its shippers requirements that would have to be met by an alternative service arrangement. Is that so? 2808. MR. MILLER: Not as a formal process. We had individual conversations with shippers -- some initiated on our part, some initiated on their part -but we never sat down as a shipper group and said, "What are the specific issues that have to be resolved?" We received those issues back from them on an individual basis. 2809. MR. DAVIES: Okay. So whether it was formal or informal, you certainly canvassed your shippers on what issues they may have with respect to alternatives. 2810. MR. MILLER: And it wasn't necessarily in between the March 31st and the May 1st. In some cases those shippers approached us first before we even knew about the Gretna concept. 2811. MR. DAVIES: Okay, so your contracted shippers were approaching you prior to March 31st, asking about the possibility of using existing facilities as opposed to

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies doing the new build to Monchy. Is that so? 2812. MR. MILLER: No, that's not correct. They approached us and asked us what do we know and wanted briefings on what conversations were occurring between Keystone and CAPP, and we were not aware of any conversations and they were just reacting to information they had heard, either through rumours or through CAPP, but we weren't party to any of those conversations. 2813. They approached us, in some cases with some dissatisfaction that we were conducting these conversations without consulting with them first, which was not the case. 2814. MR. DAVIES: Well, had you engaged in any conversations about this option prior to March the 31st? 2815. MR. MILLER: I don't believe so. Again, we were engaged by shippers who asked us, and we had no information of this concept prior to the CAPP meeting on March 31st. 2816. MR. DAVIES: So what, prior to March 31st they just said, "If you ever happen to get involved in some discussions about alternatives, here are some things you may want to keep in mind"? 2817. MR. MILLER: No. One case in point; ran into somebody on the Plus 15. They said, "So what do you think about this proposal? What can you tell us about it?" And I said I had no information on that proposal. 2818. MR. DAVIES: Well, but, Mr. Miller, we're talking here in these minutes about conditions that Keystone shippers had raised for the discussion of a potential alternative; right? 2819. MR. MILLER: Yes.

2820. MR. DAVIES: You told me that some of those discussions occurred prior to March the 31st. Is that right? 2821. MR. MILLER: What I'm saying is I can't confirm that some of these discussions happened prior to March 31st. We've had ongoing conversations. 2822. Prior to May 1st, as an overarching directive, our shippers gave us indication that they negotiated a deal for which they were very comfortable with, for which they -- in pursuing different alternatives to the Gulf Coast, they spent a lot of time and they spent a lot of money determining what is the best route to the Gulf Coast.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2823. In doing that assessment they made the determination that Keystone XL, as we have applied for here today, was the path that they wanted to pursue. When they started to get wind of this option they presented to us some concern that, "I have a deal. I don't want to pursue another deal, and to the extent that there is, there has to be something in it for us." 2824. When you look at this, these are the items that come to mind that will create issues for our shippers if we pursue the Gretna option, and this is why we believe it's not viable. 2825. MR. DAVIES: Well, did Keystone shippers raise these issues with TransCanada prior to the May 1st meeting or not? 2826. MR. MILLER: They would raise issues in regard to the path is longer. They raised issues in regard to what will this do to product quality, what will this do to transit time. We had no answers for them. 2827. MR. DAVIES: So if we can get back to the question, when we see a discussion of issues being raised by Keystone shippers -- that's the context of the last paragraph on this page; right? These are issues that Keystone shippers had communicated to TransCanada at some point in time prior to May 1st; right? 2828. MR. MILLER: These are issues which would capture conversations we had with shippers in regard to what they need to preserve in the value proposition that Keystone put in front of them --2829. MR. DAVIES: Okay.

2830. MR. MILLER: --- that being the direct path, the lower toll, the higher quality, and the lower transit time. These are the things that they need to preserve. 2831. MR. DAVIES: But where do you see lower transit time in here in terms of issues raised by Keystone shippers? Where do you see that? 2832. MR. MILLER: I don’t necessarily see this in here. To the extent that at a senior executive meeting they provided high-level threshold issues that have to be met before, you know, we can move forward, the intent here, I believe, was these are some high-level issues which to the extent that you can address, then there may be a basis of moving forward. 2833. To the extent that they’re considered insurmountable, then there’s probably not a basis to move forward.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2834. I believe to that point all the focus had been solely on, for example, what would happen to the Enbridge toll without regard to what are the costs of some of the alternatives? 2835. As in the case of any project development, you don’t look at a single variable such as an impact on a variable toll if there is an impact -- sorry, on an Enbridge toll -- if there is an impact on the Enbridge toll. You have to look at everything in its entirety. 2836. These are items that had to be addressed in its entirety.

2837. MR. DAVIES: So let’s look at the major terms and conditions that Keystone’s shippers have raised. 2838. Is that Mr. Kvisle pounding on the table?

--- (Laughter/Rires) --- (A short pause/Courte pause) 2839. MR. DAVIES: So the first issue, Mr. Miller, is the desire to reach a permanent solution, not an interim or temporary solution; right? 2840. MR. MILLER: Yes.

2841. MR. DAVIES: The second issue is that Keystone shippers would require compensation in at least three ways and the first bullet relates to higher capital costs. Yes? 2842. MR. MILLER: Yes.

2843. MR. DAVIES: And is it your understanding that the Keystone shippers were looking to receive a payment for higher capital costs or were they looking to receive a toll that would not reflect any higher capital costs than what would be incurred under the XL project? 2844. MR. MILLER: I’m not sure there was any discussion in regard to the method of compensation. I think as an overarching statement, the feedback is the shippers need to preserve the deal that they have in place today and as part of that deal, to the extent that there’s higher capital cost and higher capital cost risk, who is picking up that risk.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2845. And the point is that we have -- between Keystone and its shippers, we have negotiated a deal. We have negotiated a deal which identified all the risks and assigned the appropriate allocation of that risk. 2846. For example, we talked yesterday about the development cost risk. As part of that deal with Keystone shippers, Keystone said, “We’ll take on the development cost risk. We understand the regulatory environment which we operate in, a regulatory environment which is based on allowing market forces and free market principles to prevail.” So we took on that risk. 2847. We took some capital cost risk. We understand that. The shippers understand some of that capital cost risk based on extensive analysis that we did with our shippers in regard to the routing, the procurement strategy, current steel prices and all the factors that come into play in construction. To the extent that the project, as scoped out, that our shippers spent months and months looking at and in consultation with our project folks, now we’re getting a different project? 2848. They will need to know who is going to compensate them for that incremental capital cost. It’s not going to be them. 2849. So top the extent that there is an exposure of, in this case, 500 to 600 million, the key is that it’s the shippers who cannot be exposed to that. And Keystone has spent considerable time coming up with the optimal route. That’s an exposure we can’t accept. 2850. So whether it’s portrayed here as a payment to the shippers, a payment to Keystone or whatever deal mechanism is put into place, the point is that that incremental $500 to $600 million cannot be the burden of Keystone or its shippers. 2851. MR. DAVIES: Are you contemplating that for some reason that’s certainly not clear to me, that Keystone would be paid for higher capital costs if you went with the Gretna option? 2852. MR. MILLER: I’m not contemplating anything. As we’ve stated repeatedly, we have no project in front of us. We have the Keystone XL project as applied for and it’s difficult for us to react to anything without knowing what the project is. 2853. So, no, we are not contemplating any form of compensation because there is nothing on the table. 2854. MR. DAVIES: Now, same with regard to higher operating costs, you don’t know whether when shippers had raised that issue they were looking for a lump-

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies sum payment or were simply looking to ensure that any alternative would result in them paying the same variable toll that they would under the XL contract? 2855. 2856. MR. MILLER: Same response. MR. DAVIES: So the answer to my question is yes?

2857. MR. MILLER: The answer to your question is that level of detail hasn’t been pursued. The level of detail that has been pursued is we have a deal with Keystone. We understand the deal with Keystone. How is it that you’re going to preserve this deal with Keystone if you pursue another option? 2858. 2859. MR. DAVIES: We’re coming to that, Mr. Miller. The next bullet at the top of the third page says that: “Keystone shippers would want to be held whole on quality differential during any delay.” 2860. What does that mean?

2861. MR. MILLER: Today -- and I will defer to Mr. Wise on this -- today our shippers recognize that there is a heavy-light differential which is causing -- I’m sorry; there’s a differential on the price that they receive in Alberta versus the higher price that they would receive once XL goes into service. 2862. To the extent that we pursue another option with this Gretna concept, that would set back our regulatory process, I would assume, anywhere from two to three years and you’re happy to pursue that line of questioning for Panel 2. 2863. That production in Alberta will remain trapped and both our producers as well as the other producers, or our shippers as well as the other producers in western Canada will continue to suffer that price discounting. And I would suggest that they be looking for some sort of relief from that price discounting. 2864. MR. DAVIES: Okay. That allows me to understand what’s meant by quality differential. 2865. Mr. Wise, hold the thought because you and I will be coming back and having a discussion about it later. 2866. this is --MR. MILLER: If I may point out too, just to understand exactly what

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2867. MR. DAVIES: I’m sorry?

2868. MR. MILLER: I’d like to point out, just so that there’s no misunderstanding what this is, Enbridge is --2869. MR. DAVIES: There’s no misunderstanding now in my mind.

2870. MR. MILLER: If I may finish, Enbridge evidence itself talks about this benefit that would accrue to the Enbridge shippers as producers. I’m sorry; it speaks to the benefit that would accrue to all of western Canada producers. 2871. So to the extent that XL is brought into service, your evidence itself suggests that even taking into account the toll on Enbridge and even taking into account the toll on Keystone, there’s a net benefit to western Canadian producers. 2872. So that’s the point we’re making here. The longer you wait to realize on that benefit, the more it’s going to cost western Canadian producers. 2873. 2874. MR. DAVIES: Mr. Wise and I will discuss that. Now, in the next full paragraph of the document it says: “In discussion of the portion of the pipeline from Cushing to the Gulf Coast, it was pointed out that in order to get firm capacity for the shippers, it was structured as part of the full path Keystone XL and for any synergistic option to be considered it would require a change in FERC policy to secure firm capacity for some shippers as part of a larger pipeline.” 2875. 2876. 2877. 2878. Do you see that? MR. MILLER: Yes. MR. DAVIES: Do you understand it? MR. MILLER: Yes.

2879. MR. DAVIES: Okay. Explain to me how you have structured full-path Keystone in order to provide firm capacity for shippers between Cushing and the Gulf Coast? 2880. MR. MILLER: Simply put, the rules under which pipelines in the U.S.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies operate, you can’t offer up firm capacity. To the extent that you have a receipt point, shippers looking to access the capacity have equal rights at those receipt points. Keystone has one receipt point at the border. 2881. So the extent that we offer firm capacity to the border, those shippers have the ability to access also receipt point at the border, which grants them access to the pipeline down to the market. 2882. MR. DAVIES: So what you’re saying -- the structure you’re referring to is the fact that you’re not proposing any receipt points at Cushing? 2883. MR. MILLER: We have one receipt point at Monchy and one receipt point at Haskett. 2884. MR. DAVIES: So the answer to my question is yes, you’re not proposing any receipt points at Cushing? 2885. MR. MILLER: We’re proposing a receipt point at Haskett and a receipt point at Monchy. 2886. MR. DAVIES: So the answer to my question is yes, you’re not proposing any receipt points at Cushing? 2887. 2888. 2889. MR. MILLER: There’s no receipt points at Cushing --MR. DAVIES: Thank you. MR. MILLER: --- there’s at Haskett and at Monchy.

2890. MR. DAVIES: Okay. And if you went with the Gretna option, why would you need a receipt point at Cushing? 2891. MR. MILLER: We haven’t analysed the Gretna option; we’ve analysed Keystone XL, as applied for, and we have a receipt point at Monchy and a receipt point at Gretna. 2892. MR. DAVIES: If you used existing facilities to Gretna and then built the XL system in the United States down to Steele City, used the existing 36-inch Steele City pipe to Cushing and then built new pipe from Cushing to the Gulf Coast, why would you need to offer a receipt point at Cushing? 2893. MR. MILLER: I’m not sure this -- these minutes may be taken in the context solely of the Gretna concept. At both the March 31st meeting Mr. Wuori

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies identified, as you've put in your evidence, the proposal which would see different pipes provide capacity to Cushing and then there’d be a joint proposal from -- with Enbridge and TransCanada to build down to the Gulf Coast. It’s also provided in your follow-on letter to CAPP. 2894. So it’s possible that this came up in conversation and that would create a receipt point at Cushing which would make access to the Gulf Coast on a -- effectively on a committed or spot basis. 2895. MR. DAVIES: The minutes go on to say that TransCanada is prepared to consider concepts that keep its shippers whole, right? 2896. MR. MILLER: Yes.

2897. MR. DAVIES: Now, what did Keystone expect was going to happen after this May 1st meeting? 2898. MR. MILLER: I think in good faith representatives of TransCanada presented what they considered to be large issues that needed to be resolved before any opportunity with Enbridge could move forward. 2899. I think it was a bit of information sharing, again, to get focus off one single variable, that being the potential increase in an Enbridge toll and to put the matter in perspective. 2900. So to the extent that there’s a short-term impact on Enbridge which would impact the long-term viability and economics of Keystone XL, that perspective, I think, had to be tabled. 2901. That perspective was tabled, with the potential outcome being that to the extent that -- again, we don’t have any insight into CAPP and CAPP workings and Enbridge, in that relationship, but to the extent that these items that Mr. Kvisle and Mr. Girling tabled were considered to be manageable in the context of the Enbridge/CAPP relationship, then perhaps a proposal would come from that which would deal with these high-level issues. 2902. That was the intent of their meeting and, again, the fact that we received no feedback, we assumed that they were insurmountable and we were moving on with the project. 2903. MR. DAVIES: So my question was what did you expect to happen after this meeting had completed?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2904. MR. MILLER: We expected to get some feedback from CAPP that says, "We’ve analysed your threshold issues and based on the relationship we have with Enbridge, you know, this is how Enbridge and its stakeholders can potentially construct something." 2905. But in the meantime the plan was we would move forward, as applied for. It was in the interest of information exchange. 2906. MR. DAVIES: Okay. So after the meeting was over, you expected to thereafter get some feedback from CAPP; right? 2907. MR. MILLER: Any time you have a meeting you expect some sort of feedback. We -- the motivation was to table what we saw as some overarching issues. And I believe -- and I wasn’t at the meeting and it’s not in the minutes here but to the extent that there was an opportunity to move forward, we would have thought that that opportunity would have presented itself. 2908. meeting? 2909. 2910. 2911. 2912. 2913. 2914. Enbridge? 2915. 2916. MR. DAVIES: What feedback did you get from CAPP after this May 1st

MR. MILLER: I did not receive any feedback. MR. DAVIES: So none. MR. MILLER: I don’t believe so. MR. DAVIES: Radio silence. MR. MILLER: I don’t believe we received any feedback. MR. DAVIES: Did you ever communicate your threshold issues to

MR. MILLER: I did not. MR. DAVIES: Why not?

2917. MR. MILLER: Keystone responded to an idea presented by CAPP. We presented to CAPP what we saw to be those issues that would need to be resolved prior to moving forward on such a concept. 2918. Again, in the interest of presenting what we see to be some of the constraints associated with going with the sub-optimal design, we presented those

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies threshold issues to CAPP to convey to them that -- why we came up with XL and why we don’t believe the Gretna concept is viable. 2919. MR. DAVIES: I understand all that but my question to you was why did you not communicate your key threshold issues to Enbridge? 2920. MR. MILLER: Why would I?

2921. MR. DAVIES: Would it surprise you if I told you, Mr. Miller, that Enbridge first became aware of your key threshold issues on October 21st, 2009 when you responded to NEB Information Request 3.1? 2922. 2923. MR. MILLER: I have no comment. MR. DAVIES: I’m sorry; I thought I said August. It’s August 21st.

2924. Now, if we can turn up yesterday’s transcript, please, at paragraph 2640. Do you have that, Mr. Miller? 2925. MR. MILLER: Yes.

2926. MR. DAVIES: And I realize you probably haven’t had an opportunity yet to make transcript corrections but when you do can I assume that when you say “in a competition act" we can put a capital C and a capital A on that? 2927. MR. MILLER: Again, not a lawyer. My understanding is we have to be sensitive to competitive act issues and my statement was to the extent -- and my understanding is that conversations could be structured in the competitive act friendly way. 2928. MR. DAVIES: So what you meant to say here, and maybe what you did say here and it was just improperly transcribed, is in a competitive act or Competition Act friendly manner -- that’s what you were talking about; right? 2929. MR. MILLER: What I was talking about is in a competitive act friendly manner. I have not read the Competition Act so I can’t opine on how those conversations could or could not occur. 2930. What I’m trying to convey is it’s my understanding on the advice of counsel that you can have conversations along this line if they’re structured properly. 2931. MR. DAVIES: Okay. All I’m trying to focus on at this stage is the wording of paragraph 2640.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2932. And if we changed "competitive act" to capital C, Competition, capital A, Act, we deleted the comma and we deleted the “a” then what it would say is that your position is that Keystone does not see a barrier to having conversations with CAPP, with Enbridge, in a Competition Act friendly manner to allow these types of opportunities to be explored. And I’m assuming that was the intent of your statement. 2933. MR. MILLER: Again, the intent of my statement is I understand that there’s rules that we have to govern ourselves around. Whether it’s capital C, capital A, Competition Act or some other act, I can’t comment on. 2934. What I know is as a general statement there are various competitive act type structures which we have to respect in any conversations we may have. From a layman’s perspective, my understanding is we constructed those conversations so as not to go offside of those rules. 2935. MR. DAVIES: Okay. That brings me then to 2642, when you refer to advice from counsel, and I don’t want to get into that advice, but as you’ve just mentioned, counsel’s advice is that you can conduct those conversations in a way that doesn’t infringe or isn’t contrary to the Competition Act, right? 2936. 2937. MR. MILLER: Yes. MR. DAVIES: And then you say, at 2643: “Perhaps that approach where each of the parties phone CAPP, discuss this directly with CAPP after the fact, was consistent with that Competition Act friendly nature.” (As read) 2938. 2939. Right? MR. MILLER: Yes.

2940. MR. DAVIES: So you’re saying that this arrangement that had been concluded at the end of the March 31st meeting whereby Enbridge and TransCanada agreed to separately communicate with CAPP, was a way to proceed on the basis that would not be contrary to the Competition Act, right? 2941. MR. MILLER: What I said is we adjourned and we decided to phone CAPP later or send letters, and the reasons could have been, in part, to take the concept which had only then been presented to us and discuss it with our management team and, in part, to remain acting in a Competition Act friendly manner.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2942. So I suspect the intent was both, Mr. Davies.

2943. MR. DAVIES: Well, when you used the word “that approach” in 2643, Mr. Miller, were you referring to the approach that is outlined in the last paragraph of the March 31st minutes? I’m suggesting it’s clear that you were. 2944. MR. MILLER: I assume so. I assume it’s in both the CAPP minutes as well as my paragraph above that. 2945. MR. DAVIES: Okay. Thank you.

2946. Now, Mr. Miller, we know from our discussion yesterday that you have existing contracts, the Gulf Coast expansion TSAs, that preclude you from contracting capacity on the Enbridge system. 2947. We know that there was a meeting on March 31st, 2009 that involved as many lawyers as businesspeople, including two anti-trust lawyers from the United States, and we know that at the end of that meeting an arrangement was made that TransCanada and Enbridge would separately communicate with CAPP. 2948. Now, is it your evidence that Keystone, in light of those circumstances, would have had no reservations about meeting directly with Enbridge and concluding a commercial deal to contract for capacity on the Enbridge system? 2949. MR. MILLER: It’s my conclusion that, to the extent that they were structured appropriately, those conversations could occur. 2950. MR. DAVIES: Focus on the question. Is it your evidence, Mr. Miller, that in the circumstances that I’ve described, Keystone would have no reservations about meeting directly with Enbridge and concluding a commercial deal to contract for capacity on the Enbridge system? Is that your evidence? 2951. MR. MILLER: It’s my evidence, on the advice of counsel, that Keystone could discuss with Enbridge, in an appropriately structured manner, those opportunities. 2952. MR. DAVIES: Well, the appropriately structured -- the only appropriately structured manner that you’ve mentioned to me, Mr. Miller, is the one that was agreed to at the March 31st meeting whereby TransCanada and Enbridge each agreed to separately communicate with CAPP, right? 2953. MS. MORELAND: Mr. Chairman, I’m rising because I fear that Mr. Davies is crossing a line where he is attempting to get Mr. Miller to provide Keystone’s legal position on what a competition-friendly environment for discussions might look

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies like. I think Mr. Miller’s evidence is very clear that the structure of the meeting that took place with CAPP in March might have been a means by which discussions could take place. 2954. I think Mr. Davies is now taking it the next step and asking Mr. Miller for a legal opinion on whether it would be offside competition issues for Keystone and Enbridge to sit down independently, and I suggest to you, sir, that that’s an improper question to put to Mr. Miller as a legal question. 2955. MR. DAVIES: Mr. Chairman, I wasn’t going to the legal question at all, and I’m not looking for any legal advice, but Mr. Miller has said more than once, “We never received an offer from Enbridge. We never received a formal proposal from Enbridge. Enbridge never approached us. Enbridge never sat down with us to discuss its proposal.” We’ve heard that. 2956. And I think it’s a fair question for me to ask him whether it is his position that meeting -- that he could have met directly with Enbridge to conclude a commercial deal to contract firm capacity on the Enbridge system. I’m not asking for any legal advice whatsoever. 2957. MS. MORELAND: Well, Mr. Davies’ comments don’t really help me get there, sir. I think that Mr. Miller’s evidence is clear that he had generic advice that discussions could be conducted in a fashion that would respect the legal requirements in respect of any trust competition issues. 2958. I think Mr. Davies’ question is asking Mr. Miller to opine on, well, what would those have looked like? Would that have included a direct meeting with Enbridge? And I’m not sure Mr. Miller knows the answer to that, frankly. 2959. MR. DAVIES: Mr. Chairman, I’m not looking for options at all. I’m focusing on one option. My question to Mr. Miller is simply, does he think that he could have sat down directly with Enbridge and concluded the deal? That’s the simple question. 2960. THE CHAIRMAN: To the extent that there is no legal opinion being expressed, we’ll permit the question. 2961. MR. MILLER: Can you repeat the question, please?

2962. MR. DAVIES: Do you think that you could have sat down directly with Enbridge and concluded a commercial deal to contract for capacity on the Enbridge system?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2963. MR. MILLER: Again, on the advice of counsel, to the extent that Enbridge took the initiative to consult with its stakeholders and determined a -- created a proposal which satisfied the concerns of Keystone shippers and had the support of its stakeholders and approached TransCanada with an invitation to review that proposal, my advice from counsel is that those conversations could have been conducted in a Competition Act friendly manner. 2964. MR. DAVIES: Mr. Chairman, I don’t think that was responsive to the question. He started out by getting into advice of legal counsel and, again, I don’t want to go there. He put caveats on it about discussions with others. 2965. My simple question is, Mr. Miller -- put aside discussions with others; put aside legal advice that you got -- was it your understanding -- were you proceeding on the basis that you could phone up Enbridge and say, “Come on over; let’s sit down, you and I, and conclude a commercial arrangement for capacity on your system”? That’s the question. 2966. MR. MILLER: I’m not sure I appreciate it in the context of Keystone phoning Enbridge. 2967. MR. DAVIES: Or Enbridge phoning Keystone.

2968. MR. MILLER: Well, Enbridge phoning Keystone, based on past practice where, for example, we received an offer for Line 1 from another party which was unsolicited and which was not in the context of having regulatory counsel around, then based on that, given past practice, I would infer that those conversations could happen. 2969. MR. DAVIES: That Line 100-1 situation that you referred to, Mr. Miller, were discussions that occurred before you had contracts with shippers, right? 2970. 2971. MR. MILLER: No. MR. DAVIES: No?

2972. MR. MILLER: I don’t believe so. I believe the Line 1 application was based on the fact that we had opportunities to pursue Keystone. I’ll stand to be corrected, but --2973. 2974. MR. DAVIES: Well, I’ll correct you. MR. MILLER: Okay.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2975. MR. DAVIES: Your contract with the base Keystone shippers was predicated on the fact that you would use existing facilities in Canada. Is that not so? 2976. Davies. MR. MILLER: I’ll have to take your word on that. I don’t know, Mr.

2977. What I was trying to convey, though, that to the extent that that opportunity had presented itself to Keystone and Keystone was pursuing that opportunity as a competitive alternative and the offer came in to purchase Line 1 which would make that opportunity unviable, then I’d have to infer that those types of conversations could occur. 2978. MR. DAVIES: Okay. Let’s move to a different area and we’ll come back to one that I know is dear to your heart, Mr. Miller. 2979. You mentioned to me more than once yesterday that Keystone is at risk for the underutilization of uncommitted capacity on XL, right? 2980. MR. MILLER: Yes.

2981. MR. DAVIES: Now, in making that point, are you suggesting that the Board accordingly ought not be concerned about certificating XL capacity for which there are no contracts? 2982. MR. MILLER: Sorry, can you repeat the question?

2983. MR. DAVIES: In making that point that you’re at risk, are you suggesting that the Board accordingly ought not be concerned about certificating XL capacity for which there are no contracts? 2984. MR. MILLER: No, I’m not making that inference. What I’m suggesting is that in moving our application forward, we had to look at a number of factors. One of those factors was supply, one of those factors was market, and one of those factors was economic feasibility. And in doing so, we’ve provided evidence that indicated -- we have a toll design of 500,000 barrels a day. 2985. Of that, we are setting aside 45,000 barrels a spot to satisfy our common carrier obligations. That leaves approximately 455,000 available for long-term capacity of which we contracted 380,000. So that leaves approximately 75,000 barrels which is set aside, or available if you wish, for contracted capacity and until such time it will be available for spot. 2986. In addition to that, we’ve provided evidence from Mr. Wise that indicates

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies that there is supply available in Western Canada to move on the Keystone pipeline and that the market down in the U.S. Gulf Coast has the ability to absorb the barrels that we may move down. 2987. So I think, on balance, what we’ve presented in our application is that we have sufficient supply to move down Keystone. We have the market who wants access to Western Canada’s supply and those contracts demonstrate the economic feasibility of Keystone and that backs up into our shippers. 2988. MR. DAVIES: What criteria does Keystone think the Board should consider in deciding whether to certificate pipeline capacity for which there are no contracts? 2989. MR. MILLER: My understanding is they have a number of matters to look at such as the supply, the demand, the economic feasibility and the financeability of the project. 2990. MR. DAVIES: If the Board were to determine that uncommitted XL capacity would only be filled by offloading volumes from existing pipeline systems, is it your view that the Board should nevertheless approve the new build upon some such uncommitted capacity? 2991. MR. MILLER: It is my view that that is one area, to the extent that the Board feels is relevant, that they would consider it in their decision and apply appropriate weight. I think also, in looking at that potential outcome, the Board would look at the toll impact. 2992. So, for example, if there is an offloading of a pipeline that which resulted in an increase in that toll, but if a result of accessing a new market, all of Western Canada including those shippers on that incumbent pipeline received a price uplift for their product, that more than offset the toll decline which ended up providing that benefit, then that’s something they should consider as well. 2993. And I think they should also consider that, to the extent that this is a project which has been brought forth by the market, the market has indicated that we need access to the Gulf Coast and it’s a market-based solution to provide that infrastructure. I think they look at all of these in its entirety and apply the appropriate weight. I’m not sure it’s in isolation. 2994. MR. DAVIES: Is it your position, Mr. Miller, that 700,000 -- or I suppose 500,000 barrels a day, have to move to the U.S. Gulf Coast to get the price lift? 2995. MR. MILLER: I’ll let Mr. Wise speak to that.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 2996. 2997. MR. DAVIES: Or will 380,000 a day do the trick? MR. MILLER: I’ll defer to Mr. Wise on that.

2998. MR. WISE: Our evidence is that if the barrels are moving to the Gulf Coast and leaving the Midwest or PADD II in need of other crude, that that will provide the uplift. 2999. MR. DAVIES: Three hundred and eighty thousand (380,000 barrels)? The contracted volumes of 380,000 barrels a day will provide the uplift, yes? 3000. 3001. MR. WISE: Yes, it would. MR. DAVIES: Thank you.

3002. We can agree, Mr. Miller, can we that the Board has received no evidence in this proceeding from any shipper that wants to use uncommitted XL capacity, right? 3003. 3004. page 9. MR. MILLER: I don’t believe so. MR. DAVIES: If I could have you turn up please Exhibit B-1j, Adobe

--- (A short pause/Une courte pause)

3005. MR. DAVIES: And this is the Table setting out the illustrative committed tolls from Hardisty to the international border for the project, right? 3006. 3007. 3008. MR. MILLER: Yes. MR. DAVIES: And that means from Hardisty to Monchy, in your view? MR. MILLER: Yes.

3009. MR. DAVIES: And the fixed tolls, Mr. Miller, are based on Keystone’s estimated project costs? 3010. MR. MILLER: Yes.

3011. MR. DAVIES: And in the application it’s estimated that the capital cost of the Canadian XL facilities is about $1.7 billion?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3012. MR. MILLER: Yes.

3013. MR. DAVIES: Has that capital cost estimate been updated since February of 2009 when you filed the application? 3014. MR. MILLER: No.

3015. MR. DAVIES: Now, with regard to the variable toll you had indicated that the OM&A costs for all phases of the integrated Keystone system will be blended, right? 3016. MR. MILLER: Yes.

3017. MR. DAVIES: And am I correct that the variable toll paid for shipments to Haskett will be higher than the variable toll paid for shipments to Monchy because of the greater distance to Haskett? 3018. MR. MILLER: Sorry; just give me a second, please.

3019. I believe that’s correct. The variable toll is based on a barrel mile calculation given the distance. The longer distance to Haskett, I believe that would be the case. I guess, because it’s a function of both barrel and miles that may vary between the two points. 3020. MR. DAVIES: Thank you. Now, Mr. Miller, in your corrections this morning or clarifications this morning, you made reference to the tariff and I want to make sure that I understand what you were telling me. 3021. So if we could turn up, please, Exhibit B-1j, I think it’s Adobe page 60. And forgive me, I should know the answer to this question, but are you seeking approval of this tariff in this proceeding? 3022. MR. MILLER: I believe we’ve filed a pro-forma tariff and the requirement is to file a final tariff prior to going into service. 3023. 3024. MR. DAVIES: So are you seeking approval of this pro-forma tariff? MR. MILLER: I don’t know.

3025. MR. DAVIES: Nor do I, but I guess we could probably look at the beginning of your application and find out. So, in any event, if you look at Adobe page 64, there is -- if you just scroll down a bit, please -- a definition of “term shipper”. You

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies see that? 3026. 3027. contract? 3028. MR. MILLER: Yes. MR. DAVIES: And “term shipper” means a shipper that is party to a

MR. MILLER: Yes.

3029. MR. DAVIES: And if you go back to Adobe page 61, at the bottom of the page there’s a definition of “contract” and it means a petroleum transportation service agreement between Keystone and a shipper for the transportation and delivery of petroleum for any portion of the pipeline system, right? 3030. MR. MILLER: Yes.

3031. MR. DAVIES: So that would include a base Keystone TSA, a Cushing expansion TSA, and a Gulf Coast expansion TSA? 3032. on that. MR. MILLER: Could. I’m not familiar enough but I’ll take your word

3033. MR. DAVIES: Well it does because this is a tariff that’s going to apply to your entire system. 3034. MR. MILLER: Okay. And it does.

3035. MR. DAVIES: And then if you turn over to Adobe page 68, Article 7.1 provides for monthly nominations? 3036. MR. MILLER: Yes.

3037. MR. DAVIES: And in making a monthly nomination, a shipper will include in that nomination a delivery point? 3038. MR. MILLER: Yes.

3039. MR. DAVIES: And your Article 7.2 then discusses allocation of available capacity? 3040. 3041. MR. MILLER: Yes. MR. DAVIES: And suppose that term shippers nominated 650,000

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies barrels a day to Haskett and you have 591,000 barrels a day of capacity to get to Haskett, following the Cushing expansion, right? 3042. MR. MILLER: Yes.

3043. MR. DAVIES: Okay. Explain to me, if you could, and if you want to look at the language in 7.2(i), explain to me how that 650,000 barrels a day of nominations would be allocated among the term shippers. 3044. MR. MILLER: As I indicated this morning, the allocation of capacity in our tariff may not be as clear as it could be and we will look to the language. We will ensure that the language aligns with the intent of this application, as well as the previously filed and approved facilities application, and will amend the tariff accordingly. 3045. MR. DAVIES: So what you’re telling me and I think what you were perhaps telling us earlier this morning is that that particular section that we’ve just been looking at, I think it’s -- 7.2 needs to be amended. 3046. MR. MILLER: We believe so, and to the extent that we amend it we will file it with the Board. 3047. Tariffs are a living document. It will be amended again and we’ll amend it to make the allocation policy clearer. 3048. MR. DAVIES: Thank you.

3049. Now, with respect to the Gulf Coast segment of the XL project, you told us yesterday that you don’t yet have commercial arrangements to put that pipe in service earlier than the remainder of the project, right? 3050. MR. MILLER: Yes.

3051. MR. DAVIES: And is it your evidence that some Canadian producers at least have indicated to you that they would like access to the Gulf Coast system as early as 2011? 3052. 3053. 3054. 3055. MR. MILLER: Yes, we’ve had some feedback. MR. DAVIES: Okay. So there’s interest there? MR. MILLER: I believe so. MR. DAVIES: And ---

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3056. MR. MILLER: Subject to landing on the necessary commercial and regulatory terms. 3057. MR. DAVIES: And assuming that these shippers who are interested step forward and say that they want service on that extension in 2011, do you remain confident that you can conclude commercial contract terms and obtain regulatory approvals to enable you to start construction in November, 2010? 3058. MR. MILLER: The plan is to start construction in 2010 regardless of whatever commercial underpinnings we may pursue on bringing the Gulf Coast to -Cushing to Gulf Coast piece in early. 3059. The Cushing to Gulf Coast segment is an opportunity to pursue, if there’s interest in pursuing that. The project plan necessitated building that segment first because of the adverse weather conditions in the Texas/Oklahoma area. Panel 2 will speak to that at length. 3060. To the extent that the pipe was available and commercial terms could be reached, then it may be an opportunity but it may not. 3061. MR. DAVIES: So my question to you was, assuming that these shippers step forward, say “Yes, we want to use this pipe starting in 2011”, do you remain confident that you can conclude commercial contract terms and obtain regulatory approvals to enable you to start construction by November 2010? 3062. MR. MILLER: Your assumption assumes construction in 2010 as predicated on us reaching terms in those contracts. It is not. 3063. MR. DAVIES: Well -- so what you’re saying is you’re going to build it in November 2010 whether you have contractual commitments to use it in 2011 or not? 3064. MR. MILLER: What I’m telling you is that today we have a project called Keystone XL Pipeline which moves from Hardisty to the U.S. Gulf Coast which has contracts of 380,000 barrels a day. To meet those contract obligations, to access their Gulf Coast for Canadian crude, we need to start construction in mid-2010. 3065. MR. DAVIES: Well, are you going to let that pipe sit empty for a year. Is that the plan? 3066. MR. MILLER: Mr. Davies, the plan is to construct the pipeline over a three-year period; 2010, 2011, 2012, which is not unusual for a large pipeline project such as this.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3067. To the extent that you have issues with the pipe being constructed in advance and sitting there, I wish that you discuss it with Panel 2. 3068. MR. DAVIES: Well, okay. So, in any event, you remain confident that if shippers want service in 2011, you can do the deal and get the regulatory approvals necessary to make that happen? 3069. MR. MILLER: We have not advanced any terms associated with putting the Gulf Coast segment in first, so I can’t opine on my level of confidence. 3070. MR. DAVIES: That’s why I suggested that if you had shippers that were motivated and wanted to step forward and sign contracts; in that circumstance can you agree with me that you’ve got enough time to do a commercial deal and get your regulatory approvals so as to provide them with service by 2011? 3071. MR. MILLER: In any situation when two parties are motivated to do the deal, deals can be done. I cannot comment on the level of interest on another party until we sit down and discuss commercial terms. 3072. MR. DAVIES: Okay, thank you.

3073. I wonder if I could have you, please, turn up your response to Enbridge Information Request 1.2b and that’s in Exhibit B-15, Adobe page 54. 3074. And in the question, Mr. Miller, you were asked: “Whether Keystone expects there to be a pricing benefit to WCSB crude oil producers in the period between late 2011 and late 2012 when only the Gulf Coast segment has been placed in service. If so, please describe the benefit and quantify it. If not, please explain why not.” 3075. Now, your response says that you haven’t carried out a quantitative analysis, right? 3076. MR. MILLER: Yes.

3077. MR. DAVIES: The question remains; do you expect that there would be a pricing benefit starting in late 2011 even though you haven’t endeavoured to quantify it? 3078. MR. MILLER: We haven’t done that analysis and I can’t opine on

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies whether there’d be a pricing benefit or not. What I can say is that the project plan contemplates XL being in service in 2012 and access in that market, we believe, will provide that price uplift. 3079. MR. DAVIES: Well, Mr. Wise, I thought your view was that the pricing benefit of the XL project won’t start until 2013 at the earliest. Is that not right? 3080. MR. WISE: I was commenting on the official start time of the full line with the committed volumes at 380 -- 380,000 barrels a day. 3081. MR. DAVIES: So you're saying it might start earlier, in your view?

3082. MR. WISE: Well, I was just hearing your questioning about the Gulf Coast leg starting up earlier. 3083. MR. DAVIES: Right.

3084. MR. WISE: To my knowledge the full line would be starting up in late 2012 and we are planning on 2013, the first full operating year. 3085. MR. DAVIES: But did I misread your evidence? Because I thought that what you had said was that the pricing benefit of the XL project won't start until 2013 at the earliest. Is that not what you said in your evidence? 3086. MR. WISE: Yes, based on the line starting up in late 2012.

3087. MR. DAVIES: So if the line started up earlier, your view is the pricing benefit may accrue earlier? 3088. MR. WISE: That would get us into the balance of supply and demand in PADD II and when the XL volumes start to bring credit to the price uplift. 3089. MR. DAVIES: Right; it was based upon your assessment of supply/demand that you said the pricing benefit won't accrue until 2013 at the earliest, right? 3090. MR. WISE: I'm not sure we even gave an opinion about 2012 but I think I would agree with your assessment. 3091. MR. DAVIES: Thank you.

3092. So, Mr. Miller, why would you plan to start up this Gulf Coast segment or even contemplate starting up this Gulf Coast segment in late 2011 if a pricing benefit to

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies Canadian producers is not expected to accrue until 2013 at the earliest? 3093. MR. MILLER: To put it into context, we've applied today for the entire project from Hardisty to the Gulf Coast, which we propose to bring into service in 2012 and access the Gulf Coast accordingly. Mr. Wise has provided us with an analysis that indicated we would achieve that price uplift in 2013 when we access the Gulf Coast. 3094. To the extent that, according to the project plan, that pipe will be in the ground ahead of time and to the extent that there's commercial interest in bringing that pipe into service early, it seems to us that prudent people will look to use infrastructure as efficiently as they can. 3095. Having said that, we can't opine on whether there'll be sufficient volume flowing down to the Gulf Coast prior till we have the segment from Hardisty to Steele City in place. Those are what the contract shippers have contracted for and that's what our evidence suggests. 3096. To the extent that there's commercial interest to access the pipeline early, we'll pursue that opportunity, but our application was based on achieving that late 2012 in-service date. So that's how we framed all of our evidence. 3097. MR. DAVIES: Now, Keystone will provide diversion rights to its shippers in the United States, right? 3098. MR. MILLER: We'll provide opportunities for shippers to nominate to alternate delivery points. 3099. 3100. point. MR. DAVIES: So is that a yes to the question? MR. MILLER: Yes, as every other shipper can nominate to a delivery

3101. MR. DAVIES: And diversions can and will affect the utilization rates of the base Keystone and the XL pipelines, right? 3102. 3103. 3104. MR. MILLER: Can you clarify what you mean by rates? MR. DAVIES: Utilization rates. MR. MILLER: Depending on where they nominate to, yes.

3105. MR. DAVIES: And I wonder if you could turn up, please, Exhibit B-21b, which is your response to National Energy Board Information Request 4. And I'm

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies looking at Adobe page 5. 3106. Now, where you have a diversion from XL to base Keystone, which is the middle box, in the maximum expected case there would be 354,000 barrels a day moving on XL, right? 3107. MR. MILLER: Yes.

3108. MR. DAVIES: And that -- you've assumed that that includes the Cushing volumes of 155,000 barrels a day? 3109. MR. MILLER: I don't think we colour-coded volumes. I think we indicated that if shippers nominated to an alternate delivery point these flows would result. 3110. MR. DAVIES: Okay, so fair enough. So you'd have 354,000 barrels a day moving on a 700,000-barrel-a-day pipeline. 3111. MR. MILLER: For that period that they nominated, yes.

3112. MR. DAVIES: Yes. And where you have a diversion from base Keystone to XL, in the maximum expected case there would be 255,000 barrels a day moving on XL is what you show, right? 3113. MR. MILLER: Yes, again to represent the flexibility that the shippers would have to use all of the infrastructure. 3114. MR. DAVIES: And if you hadn’t built in the promised volumes of 35,000 barrels a day but had just used the contracted volumes of 340,000 barrels a day, the flow would be 220,000 barrels a day, right? 3115. MR. MILLER: Yes, under the scenarios presented.

3116. MR. DAVIES: And can you accept from me that that would be a utilization rate of 37 percent? 3117. MR. MILLER: I would accept that that would be a utilization rate of approximately 37 percent in a period when the market was requiring access to a different market, such as Patoka et cetera. 3118. Again, to the extent that that capacity is available, it will provide transportation capacity for our committed shippers to move those volumes over, which would mean that the volumes on XL would be less.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3119. MR. DAVIES: Now, these sorts of diversions, I take it, would have an impact on the transit times of the different pipelines. Is that so? 3120. MR. MILLER: Again, depending on where they were going to versus what their contract capacity is, yes. 3121. MR. DAVIES: So when you were discussing diversion rights with your shippers, did you present to them information about the effect that the diversions would have on transit times? 3122. MR. MILLER: I think our shippers make their assessment on what they need in a transportation contract and to the extent that they earned, in those negotiations, flexibility they have that optionality and they will assess the benefit of nominating to an alternate delivery point, taken into many considerations, and transit time could be one. 3123. I would suggest though that their upstream or downstream requirement is probably the prevailing criterion which they would consider. 3124. 3125. system. MR. DAVIES: So what's the answer to the question? MR. MILLER: Not specifically. They understand transit times on the

3126. MR. DAVIES: But when you say "not specifically" do I take it from that that you did not present to them information about transit times? 3127. MR. DIAKOW: No, but I think our shippers are very sophisticated parties. I think they can understand the flexibility that these alternate nomination provisions provide, and I think it's also important to realize that we're talking about a very temporary-type situation as represented here. 3128. MR. DAVIES: Are your shippers capable on their own of calculating the transit times on your pipelines? 3129. MR. MILLER: I don't know.

3130. MR. DAVIES: Well, what information would they need to calculate transit times? 3131. 3132. MR. MILLER: I'll defer to Panel 2 on that. MR. DAVIES: Just one quick snapper before we turn to your reply

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies evidence, and it relates to the response -- well, it relates to our discussion, Mr. Miller, starting at 2432 of the transcript yesterday where we were talking about the CVR Energy situation. 3133. MR. MILLER: Yes.

3134. MR. DAVIES: And this will show that I’m not quick enough on my feet because when I was listening to you I hadn’t picked up on the nuance of you saying that you had no knowledge of the public disclosure, but you do have knowledge of the situation? 3135. 3136. is? 3137. what is not. 3138. 3139. 5, please. MR. MILLER: Yes. MR. DAVIES: And can you update us on what the status of the situation

MR. MILLER: I cannot. I don’t know what’s in the public realm and

MR. DAVIES: Okay. So let’s turn then to your reply evidence, which is Exhibit B-23b, at page

3140. In Line 9, you affirm what you’ve already told us, namely, that Keystone is willing to consider formal proposals that deal with key threshold issues, right? 3141. MR. MILLER: Yes.

3142. MR. DAVIES: And can we agree that you would need the consent of your contracted shippers in order to contract capacity on the Enbridge system? 3143. MR. MILLER: I think we would need the consent of the shippers to modify our TSAs and if that included contracting on Enbridge, we would need their consent. 3144. MR. DAVIES: And, in fact, you would need the consent of each contracted shipper, right? 3145. 3146. of the deal? MR. MILLER: Yes. MR. DAVIES: So if one contracted shipper were to say no, that’s the end

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3147. MR. MILLER: Again, I don’t know what the deal is so I can’t opine on what it would take in order to bring this Gretna concept forward. 3148. MR. DAVIES: But it would take the consent of each and every one of your contracted shippers in order to contract capacity on the Enbridge system and, if any one of them said no, then you could not contract capacity on the Enbridge system, right? 3149. MR. MILLER: Again, I’m sorry, I’m not sure who’s contracting for capacity on what. 3150. MR. DAVIES: Keystone is contracting for capacity on the Enbridge system. Do you understand that that is what Enbridge proposes in its evidence? 3151. MR. MILLER: I don’t have a very good understanding at all what Enbridge is proposing in their evidence. 3152. MR. DAVIES: Well, we’re going to help you as we go along here.

3153. Now, on page 5 at Line 21, you expressed the belief that discussions about the Gretna option -- and I concede you don’t use that terminology -- but discussions could be very lengthy and may not reach a successful conclusion, right? 3154. MR. MILLER: Yes.

3155. MR. DAVIES: Now, first of all, Mr. Miller, do you understand that Enbridge would propose to enter into a long-term transportation arrangement with Keystone? 3156. MR. MILLER: Again, I have no understanding of the deal.

3157. MR. DAVIES: Did you read the evidence and the responses to information requests that Enbridge submitted in this proceeding? 3158. MR. MILLER: I saw Enbridge suggested that there would be an agreement. I have no knowledge of the form of that agreement or any details around it. 3159. MR. DAVIES: We haven’t got there yet.

3160. My question to you was, do you understand that Enbridge would propose to enter into a long-term transportation arrangement with Keystone? 3161. MR. MILLER: Perhaps. I’m going to have to defer. I don’t recall if it

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies was with Keystone or whether it was with the shippers. 3162. MR. DAVIES: Well, let’s -- let’s find out then.

--- (A short pause/Courte pause) 3163. MR. DAVIES: If we could turn up, please, Exhibit C-7-6b, on the second page please, in B. Do you see the statement, Mr. Miller: “Enbridge would propose to enter into long-term firm transportation agreements with Keystone”. (As read) 3164. 3165. 3166. 3167. Do you see that? MR. MILLER: Yes. MR. DAVIES: Had you read that before? MR. MILLER: I did, but I didn’t recall it.

3168. MR. DAVIES: Okay. Enbridge has said that it would match the committed volumes, the contract periods, and the committed tolls that Keystone has agreed to with its Canadian shippers. Do you recall that? 3169. MR. MILLER: Yes.

3170. MR. DAVIES: And are you aware that Enbridge would need to seek Board approval of the terms of such an arrangement concluded with Keystone? 3171. MR. MILLER: I wasn’t aware of that.

3172. MR. DAVIES: It’s in the Enbridge evidence. Would you like me to bring it up so that you can confirm it? 3173. MR. MILLER: No, that’s okay.

3174. MR. DAVIES: You’re prepared to accept from me that the Enbridge evidence indicated that it would need Board approval of any arrangement that it entered into with Keystone? 3175. MR. MILLER: No, I’ll accept that from you. I assume that Enbridge would require the approval of many stakeholders before a proposal could be presented, including the Board.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3176. MR. DAVIES: And if there were a disagreement about a particular commercial term, Mr. Miller, the Board could adjudicate that agreement, could it not? 3177. MR. MILLER: I don’t know.

3178. MR. DAVIES: Now, starting at page 6 of your reply evidence, you set out your threshold issues which you believe make the Enbridge concept non-viable, right? 3179. MR. MILLER: Yes.

3180. MR. DAVIES: And just so that I’m clear, when you refer to “viability” are you talking about viability from Keystone’s perspective? 3181. perspective. 3182. 3183. 3184. MR. MILLER: Viability from Keystone and its stakeholders

MR. DAVIES: And by stakeholders do you mean shippers? MR. MILLER: Shippers and shareholders. MR. DAVIES: So you’ve had a discussion about this with your shippers?

3185. MR. MILLER: Our assessment is that the Gretna option is not viable. To the extent that our shippers have asked us questions, we don’t have any ability to provide them any detail beyond our high-level analysis based on the limited information we’ve received. 3186. MR. DAVIES: Are you saying that because the Enbridge concept may not be viable to Keystone or may not even be viable to Keystone shippers, that the result is the Board must disregard it? 3187. MR. MILLER: Sorry, can you repeat the question?

3188. MR. DAVIES: Are you saying that because the Enbridge concept may not be viable to Keystone or may not even be viable to Keystone shippers, that the Board must disregard it? 3189. MR. MILLER: I think the Board has to regard the application in front of it. I think the Board has to regard the evidence that you’ve presented which indicates you may have a toll impact. I don’t accept that but that’s your evidence. I think they have to regard the evidence that you’ve put forth that also indicates your shippers will have a

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies price impact resulting in the net benefit. 3190. I think the Board has to take into consideration all those factors in its determination on the application in front of it, and the only application in front of the Board, the only project in front of the Board is Keystone XL pipeline. The Gretna concept is not an application in front of the board. 3191. MR. DAVIES: I didn’t suggest that it was. The question that I asked you was are you suggesting because the concept is not viable to you, and maybe not even to your shippers, that the Board must therefore disregard it? 3192. MR. MILLER: I think what I said is that to the extent that the Board considers an impact on another pipeline in conjunction with the benefits that Keystone XL is going to bring to Canadians, they will consider all aspects that they consider relevant. 3193. MR. DAVIES: Now, did I hear you say in all of that, Mr. Miller, that you don’t accept that there will be a toll impact on Enbridge and Enbridge shippers? 3194. MR. MILLER: I didn’t say I didn’t accept that, I said I have no reason to opine on whether that analysis is accurate or not. 3195. 3196. 3197. MR. DAVIES: Well, the record’s going to show what you said. Now the first issue that you raise is delayed in-service timing, right? MR. MILLER: Yes.

3198. MR. DAVIES: And we know that you’re shooting with an in-service date for the XL project of late 2012? 3199. MR. MILLER: Yes.

3200. MR. DAVIES: And as we discussed earlier, the in-service date specified in the TSA is December 31, 2013. 3201. MR. MILLER: Yes.

3202. MR. DAVIES: And I wonder if you could up, please, Exhibit B-15, Adobe page 75. Thank you. 3203. And this is your response to Enbridge Information Request 1.4, and what you’ve provided here is a list of the major regulatory approvals that you require in the

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies United States? 3204. MR. MILLER: Yes.

3205. MR. DAVIES: You tell us in your reply evidence that you expect these various regulatory processes to be complete in early 2010, right? 3206. MR. MILLER: I believe Panel 2 will speak to this.

3207. MR. DAVIES: Okay. Well I’m just reading the last paragraph on the page that says -- this is page 6 of the reply evidence that says: “Significant regulatory processes in the United States and Canada for the Keystone XL pipeline are well underway and are expected to be complete in early 2010.” (As read) 3208. MR. MILLER: Yes, that’s a high level project plan that has us achieving approvals in 2010 so that we can commence construction. 3209. MR. DAVIES: This isn’t some high level plan; you’re telling us that Keystone expects that these regulatory processes will be complete in early 2010, right? 3210. MR. MILLER: Yes. And what I’m saying is the broad project plan has us achieving all regulatory approvals in 2010. Any detail on specific approvals I’ll have to defer to Panel 2. 3211. MR. DAVIES: So as I cast my eye over the approvals that you require and the submission dates and your expectation that these processes are going to be completed in early 2010, what you’re looking at is roughly a year from the date of filing the applications given that most of them were filed in late 2008/early 2009 to the time that you expect approvals will be in place, right? 3212. MR. MILLER: I will defer to Panel 2. What you see here is the filing date versus the anticipated receipt date but what this doesn’t show is all the environmental surveying, et cetera, that has to occur prior to the submission date which in itself can take a year to two. 3213. So you have to look at the total regulatory process from the first time we seek permission to survey until we get receipt of the approvals. So, again, Panel 2 can speak to this at length. 3214. MR. DAVIES: Okay. Can you tell me, with regard to the U.S. Department of State submission date, is September 2009 correct?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3215. MR. MILLER: You’ll have to ask Panel 2 that.

3216. MR. DAVIES: Maybe I missed it; I didn’t think Panel 2 was speaking to any of your reply evidence, but I probably did miss it, so I’ll come back to Panel 2 on that. 3217. I’ll also blow by negative impact on quality and increased transit times and we’ll deal with that on Panel 2 as well, if that is satisfactory? 3218. MR. MILLER: It is.

3219. MR. DAVIES: Provided that you’re not going to tell me, Mr. Miller, that I should have asked you the question when you’re on Panel 1. 3220. MR. MILLER: I’ll be on Panel 2.

3221. MR. DAVIES: Now, let’s move over then to capacity restraints, which we see at the top of page 8 of your reply evidence. 3222. THE CHAIRMAN: Mr. Davies, we will plan for a break before lunch. Lunch tentatively will be at 12:30. We could take a 15 minute break, if this is an appropriate point for you. 3223. 3224. MR. DAVIES: This would be fine, Mr. Chairman. THE CHAIRMAN: We’ll break now and resume at 10:30.

--- Upon recessing at 10:15 a.m./L’audience est suspendue à 10h15 --- Upon resuming at 10:31 a.m./ L’audience est reprise à 10h31 3225. THE CHAIRMAN: Please be seated.

PAUL MILLER: Resumed DAVID DIAKOW: Resumed THOMAS WISE: Resumed --- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite) 3226. MR. DAVIES: Thank you, Mr. Chairman.

3227. We had made it to the top of page 8 of your reply evidence, where you were talking about capacity constraints and as I read your concern here, Mr. Miller, it

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies stems from your understanding that Enbridge is proposing to contract to Keystone capacity on the Alberta Clipper pipeline which has an initial capacity of 450,000 barrels a day, right? 3228. MR. MILLER: Yes, that’s our assumption.

3229. MR. DAVIES: Yes. And, Mr. Miller, I will grant to you that there is a reasonable basis for misunderstanding here because the synergistic option presented by CAPP at the March 31st meeting contemplated the use of a specific Enbridge pipeline, namely the Alberta Clipper pipeline. 3230. But if you look at the evidence filled by Enbridge in this proceeding, and let me have you turn for example to the Enbridge response to NEB Information Request 1.1B which is Exhibit C-7-6b, Adobe page 2. And in B it says: “Enbridge would propose to enter into long-term firm transportation agreements with Keystone which would give Keystone un-apportioned access to capacity on the Enbridge system from Hardisty to the Gretna area for the Canadian committed volumes of Keystone XL.” (As read) 3231. 3232. Do you see that? MR. MILLER: Yes.

3233. MR. DAVIES: And are you aware, Mr Miller, that the Alberta Clipper pipeline is just one component of the integrated Enbridge system? 3234. MR. MILLER: Yes.

3235. MR. DAVIES: Thank you. Now, just while this response is on the screen so that we don’t have to pull it back up later, you’ll see that as well, Enbridge is proposing to give Keystone un-apportioned access to capacity on the Enbridge system for -- and here are the words I want you to focus on, “the Canadian committed volumes of Keystone XL”. 3236. XL? 3237. You note that it doesn’t say the current Canadian volumes of Keystone

MR. MILLER: I don’t see the reference, sorry. Which paragraph?

3238. MR. DAVIES: I was reading the same paragraph we were just on; B. And the point that I was making to you, because we’ll come back to it later, is that the

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies reference is “…providing capacity for the Canadian committed volumes of Keystone XL,” not the current Canadian committed volumes of Keystone XL; you see that? 3239. MR. MILLER: I see that. And I guess, you know, I didn’t appreciate the subtlety of not dealing with just the existing committed volumes and didn’t appreciate the subtlety of Alberta system -- Alberta Clipper versus Enbridge system. 3240. Again, somewhat representative of a lack of detail we have today.

3241. MR. DAVIES: Now the next issue that you raise is economic benefit. And under that heading, in the first sentence you say this: “The Enbridge concept proposes to provide access to capacity to Keystone…” 3242. And you say “presumably on a contract basis,” you now know that it is on a contract basis, right? 3243. 3244. MR. MILLER: Based on your evidence, yes. MR. DAVIES: “… where the toll payable to Enbridge by Keystone would be a pass-through of the tolls that would otherwise have been payable by Keystone XL shippers to Keystone.” 3245. 3246. You see that? MR. MILLER: Yes.

3247. MR. DAVIES: And why do you say, “pass-through of the tolls that would otherwise have been payable by Keystone XL shippers to Keystone”? 3248. MR. MILLER: Again, it’s an assumption we’re making.

3249. MR. DAVIES: Do you understand that under the Enbridge proposal Keystone would still provide service to and would charge tolls to its Canadian-committed shippers? 3250. 3251. MR. MILLER: I have no understanding of the Enbridge proposal. MR. DAVIES: You have no understanding of the Enbridge proposal?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3252. MR. MILLER: No.

3253. MR. DAVIES: Well, do you understand that the intent would be to have the tolls paid by Keystone to Enbridge match the tolls paid by the XL-committed shippers to Keystone? 3254. MR. MILLER: There’s portions of a proposal that have been filed as evidence in regard to possibilities for accessing capacity, possibilities for paying tolls. I see that in the evidence. What I don’t have an appreciation for is the entire proposal. 3255. MR. DAVIES: No, and I didn’t suggest that you did. What I was asking you is whether you understood the concept to be that Keystone would provide service to its shippers and would charge tolls to those shippers. 3256. Keystone would in turn contract for service with Enbridge and would pay tolls to Enbridge and the intent would be to have the tolls paid by Keystone to Enbridge match the tolls paid by the XL-committed shippers to Keystone. That’s the classic TBO, isn’t it? 3257. MR. MILLER: I understand the concept in isolation, yes.

3258. MR. DAVIES: And do you understand that that is what Enbridge has proposed in its evidence? 3259. 3260. 3261. MR. MILLER: I believe so. MR. DAVIES: Thank you. Now, in the next sentence you say: “Such an arrangement would effectively deprive Keystone of the opportunity to make the investment in the Canadian portion of the Keystone XL project and the ability to earn a return on that investment.” (As read) 3262. And what you’re saying here, Mr. Miller, is that the use of existing facilities would deny you the opportunity to build new facilities, thus depriving you of an investment return, right? 3263. MR. MILLER: It would deprive us of the opportunity to build this infrastructure, earning a return on that infrastructure is not an unreasonable proposition; pipelines have to earn a reasonable return in order to promote infrastructure growth.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3264. MR. DAVIES: So the Enbridge proposal is that Keystone should make use of existing facilities in Canada, and Keystone responds that there is a threshold issue that needs to be resolved, namely that the use of existing facilities would mean that Keystone wouldn’t get to build new facilities. Do I understand your position correctly? 3265. MR. MILLER: What I’m saying is that to the extent that Keystone contracts on Enbridge for this limited capacity what it does do it doesn’t provide the opportunity for Keystone to continue and develop the project that’s been applied for, the entire project down to the Gulf Coast. 3266. It creates some capacity constraints and it creates the growth opportunities on the Canadian portion which is contrary to the economics that we factored into our toll design. 3267. MR. DAVIES: Well we’ve talked about capacity constraints and we’re going to come to growth opportunities in a minute. 3268. But when I focus on what you’re saying here in terms of economic benefit what you’re telling me is that if you were to use existing facilities that would mean that you wouldn’t get to build new facilities, and that’s, in your view, a threshold issue that needs to be resolved, right? 3269. MR. MILLER: I think attaching the appropriate economic benefit for Keystone XL in its entirety is not unreasonable for Keystone to expect; to the extent that that economic benefit that we would derive out of the Canadian portion is no longer available because of your transportation-by-others arrangement is a legitimate concern. 3270. MR. DAVIES: So Enbridge says use existing facilities, don’t build new facilities and your response is to say we won’t do that because the result would be we wouldn’t get to build new facilities, right? 3271. MR. MILLER: I’d characterize it more that Enbridge built these facilities, we don’t know why they built the facilities but apparently they are available to service the Gulf Coast market, presumably at the 500,000 a day. 3272. And what Enbridge is saying is, notwithstanding that we competed headon to access the Gulf Coast in an open market environment, we’d like you to take that Canadian portion of your pipeline and slide all that economic benefit to Enbridge and then go off and invest in the rest of the pipeline in a suboptimal fashion. That’s what we’re saying here. 3273. MR. DAVIES: Well, if we focus on your words on page 8, lines 15 to 17 what you’re saying is that there’s a threshold issue, the threshold issue being that you

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies wouldn’t get to build new pipeline facilities in Canada. Is that not what you’re saying? 3274. MR. MILLER: We’re saying, if you want to focus on that, is TransCanada and Keystone in an open market competed fairly for investment opportunity. There’s nothing wrong with investment opportunity, there’s nothing wrong with growth. 3275. In securing the commitments from shippers to proceed with this foregoing this opportunity does provide opportunities for Keystone for economic benefit. There’s nothing wrong with Keystone earning -- investing capital and earning a fair return on that capital. 3276. Such an arrangement that you are proposing would deprive us of that opportunity that we pursued fairly in an open market process. 3277. MR. DAVIES: So a threshold issue is depriving you of the opportunity to build new facilities. 3278. resolved? How in the world do you envisage that threshold issue ever being

3279. MR. MILLER: The threshold issue is depriving us of the opportunity to compete fairly. To the extent that we can’t pursue this opportunity because of this arrangement -- sends a signal that don’t pursue your business development opportunities because to the extent that there is, for example, limited supply because there’s a supply shortage -- and again the supply that we’ve taken the risk for the Keystone Pipeline system over -- sends a message that, you know, somehow these incumbent pipes had a right, first call on that supply and so tool-down all your business development opportunities. 3280. We competed fairly. We wanted to pursue growth opportunities for the company, we’re pursuing growth opportunities. To the extent that we forego that investment opportunity in Canada we are foregoing an economic benefit resulting from that business development opportunity. 3281. MR. DAVIES: Right. So the simple point, if you can focus on the question, is the issue that you’re raising on page 8, lines 15 to 17, is the fact that if you used existing facilities you would be deprived the opportunity to build new facilities, right? 3282. MR. MILLER: If we used existing facilities and didn't pursue the Keystone XL project, we would not be able to earn those economic benefits that we've pursued and have packaged into an opportunity here in front of the Board.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3283. MR. DAVIES: So what you're saying is there's a threshold issue to you in terms of existing facilities and that is that you wouldn't get to build new facilities and somebody needs to resolve that. 3284. MR. MILLER: What I'm saying is we’re not directly responsible for those existing facilities. Those existing facilities are here. We competed for supply to take to the Gulf Coast. 3285. In competing for that supply, we're proposing to build some Canadian facilities for which we would earn an economic benefit. To the extent that we don't pursue those economic benefits, we will lose those economic benefits. 3286. MR. DAVIES: Okay. Is the fact that Keystone would be financially advantaged by building new facilities as opposed to using existing facilities something for which you think this Board should have regard in making its public interest determination? 3287. MR. MILLER: Can you repeat your assumption, please?

3288. MR. DAVIES: Is the fact that Keystone would be financially advantaged by building new facilities as opposed to using existing ones something for which this Board should have regard in making its public interest determination? 3289. MR. MILLER: I think, again, the Board will look at many factors. One of those factors is the economic feasibility. And I think the Board will apply past standards of pipelines earning a reasonable return -- if that's how you want to define your economic advantage -- the pipelines earning a reasonable return to promote the development of infrastructure. It will be a factor that they will look at. 3290. MR. DAVIES: So is the answer to the question yes or no?

3291. MR. MILLER: I think they look at a lot of items, including the environment in which Keystone is promoting this opportunity and is this opportunity, as we have filed for, economically feasible? We've demonstrated it's economically feasible as filed for and does not require any additional use of infrastructure. 3292. 3293. MR. DAVIES: So is the answer to the question yes or no? MR. MILLER: I think they look at it, yes.

3294. MR. DAVIES: I am correct that it would not be in Keystone's financial interest to pursue the use of existing facilities. Is that right?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3295. MR. MILLER: I don't know, Mr. Davies. I don't know the terms in which those facilities will be made available. 3296. MR. DAVIES: Well, what you know is that it would deprive you of the opportunity to build new facilities and that would create a financial disincentive for you to use existing facilities, right? 3297. MR. MILLER: What limited knowledge we have of the concept today suggests that it would have, in fact, caused us to be in a capacity constraint situation with no visible economic advantages over the existing option. 3298. The existing option was based on a concept which was negotiated with our shippers, a toll design negotiated with our shippers, which has many variables attached to it. It can't in isolation strip away the Canadian portion, assume a flow-through and all is well, and it can't assume that the terms of that use of the existing infrastructure is consistent with the economic model. 3299. 3300. MR. DAVIES: What's the capacity of the entire Enbridge system? MR. MILLER: I believe it's in the two million barrel range.

3301. MR. DAVIES: Now, at the top of page 9 of the reply evidence, there is reference to uncertainty about spot toll pricing or the availability of spot toll capacity -I'm sorry, spot toll pricing or the availability of spot capacity, right? 3302. MR. MILLER: Yes.

3303. MR. DAVIES: And you're aware that Enbridge offers service on its system in accordance with posted tolls and monthly nominations? 3304. MR. MILLER: I believe so, yes.

3305. MR. DAVIES: And if the amount of capacity on the Enbridge system becomes insufficient to meet those monthly nominations, the result is usually a system expansion, right? 3306. 3307. MR. MILLER: Or apportionment. MR. DAVIES: Well, which do you think shippers would prefer?

3308. MR. MILLER: I would assume that they would prefer the access, but I don't know the economic details and the trade-offs between putting additional capital into

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies the system versus apportionment. 3309. MR. DAVIES: Now, you express here at the top of page 9 concern about the lack of control by Keystone over spot capacity and associated tolls, right? 3310. MR. MILLER: Yes.

3311. MR. DAVIES: And I want to be clear about your concern. The XL pipeline is underpinned by 380,000 barrels a day of contracts, right? 3312. MR. MILLER: Yes.

3313. MR. DAVIES: And you are proposing to reserve 45,000 barrels a day for spot shipments in order to discharge your common carrier obligation, right? 3314. MR. MILLER: To partly discharge it as well as the open season processes we go through but, yes, we're setting aside the 45,000. 3315. 3316. MR. DAVIES: And that totals 325,000 barrels a day? MR. MILLER: I believe it's 425,000 barrels a day.

3317. MR. DAVIES: Sorry, four hundred -- you're absolutely right -- 425,000 barrels a day, and you're proposing to build a pipeline in Canada that has capacity of 700,000 barrels a day. 3318. Are you suggesting that you have sized the pipeline for the purpose of providing significant spot capacity that you can control and price? 3319. MR. MILLER: No. I'm saying we've sized the pipeline to deliver the 500,000 a day to the Gulf Coast and part of that sizing we'll set aside the 45,000 for the spot --3320. MR. DAVIES: Go ahead.

3321. MR. MILLER: We've designed our toll structure on 500,000 barrels a day. It's unclear to us how we will be able to attract that 45 -- the capacity for that 45,000 barrels of spot capacity that we need to set aside to satisfy our common carrier obligations. It's uncertain to us how we were able to access additional capacity to move the remainder to get to our 500-barrel-a-day toll design. 3322. MR. DAVIES: You have contracts to move 380,000 barrels a day to Port Arthur, right?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3323. MR. MILLER: Yes.

3324. MR. DAVIES: You do not have contracts to move 500,000 barrels a day to Port Arthur, do you? 3325. MR. MILLER: We don't have contracts to move 500,000 barrels a day. We have a toll structure with our shippers which is based on the 500. To the extent that we cap our capacity at 300, that's not consistent with the economic model we've put in this application. It's not consistent with our toll structure. 3326. MR. DAVIES: So what you're telling the Board is the economic model that you have put in place would provide significant spot capacity that you can control in price, right? 3327. MR. MILLER: What we're suggesting is that we have set aside 45,000 barrels a day for spot and that we would potentially seek to contract additional capacity. Our system has been sized for 500,000 a day. 3328. To the extent that Enbridge sets aside 380,000 barrels for us, it's unclear how we access the additional 45,000 barrels to provide for spot service, and it's unclear to us how we access any capacity beyond the 380, quite frankly. 3329. Again, it's a significant lack of detail that is unclear to us as far as who has access, whose source included Hardisty, who's controlling where those spot barrels go. 3330. Focusing solely on 380,000 barrels per day of capacity is a very narrow way to look at how the pipeline has to operate. 3331. MR. DAVIES: Is it important to the XL project that it have spot capacity and associated tolls that can be controlled by Keystone? 3332. MR. MILLER: I think as a general statement, a pipeline company who has risks associated within its infrastructure is best suited to manage those risks when they are operating the pipeline. 3333. MR. DAVIES: So what's the answer to the question?

3334. MR. MILLER: I think I answered the question. If Keystone's application here today contemplates us building a pipeline, a pipeline that will be operated by Keystone by way of contract with TransCanada, that is the economic model that we've put in front of the Board today. That is the risk/reward -- risk-sharing mechanism we put in front of the Board. We have not put in front of the Board a concept

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies which contemplates us spending capital, accessing it by way of TBO arrangement. 3335. Whatever concept you ultimately bring forward and having somebody else operate it, again, when you take on risks you must be in a position to manage those risks. Our risks include throughput as well as the operations and management. 3336. MR. DAVIES: So the question, Mr. Miller, was it's important to Keystone that the XL project have spot capacity which it can control, right? Is that a yes? 3337. MR. MILLER: I think it's important to the XL project to move forward in the manner that we filed for. In such we need to be able to determine how we are going to offer up those spot barrels to the market. 3338. 3339. 3340. 3341. MR. DAVIES: So you can’t answer my question yes or no? MR. MILLER: That's a yes. MR. DAVIES: Thank you. MR. MILLER: We need to be able to manage that.

3342. MR. DAVIES: Why don’t you answer yes then? I don’t mind the explanations at all, but if we started with a yes or a no, I wouldn’t have to keep coming back to the questions. 3343. Now, your evidence in this proceeding is that Keystone will not earn an acceptable return on its XL investment if it only moves the committed volumes of 380,000 barrels a day, right? 3344. MR. MILLER: Yes.

3345. MR. DAVIES: So you have a significant financial incentive to do whatever you can to fill the Keystone system with spot volumes, right? 3346. MR. MILLER: We have a financial incentive to attract additional volumes to Keystone so that we can accept an -- earn an acceptable return on our pipeline, yes. 3347. 3348. 3349. MR. DAVIES: So the answer to the question is yes? MR. MILLER: Yes. MR. DAVIES: Mr. Wise, in your reply evidence you incorporated into

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies your benefit analysis costs related to pipeline toll impacts? 3350. MR. WISE: Yes, we did.

3351. MR. DAVIES: And the assumption that you made for the purpose of determining the costs was that only the current committed volumes would move on the Keystone system, the 380,000 barrels a day? 3352. MR. WISE: Yes, we based it on the 380,000 barrels a day.

3353. MR. DAVIES: What would it do to the costs if the assumption were made that Keystone attracts enough spot volumes to fill its system? 3354. MR. WISE: Well, clearly on the cost side there would be a toll paid for those spot barrels, but then you have to start looking at the whole equation for other -- for crude sold on a spot basis on the Gulf Coast. 3355. MR. DAVIES: What would it do to the costs, as you’ve determined them, for Enbridge shippers? Would they skyrocket? 3356. 3357. 3358. MR. WISE: The cost of a spot barrel? MR. DAVIES: If you assume --MR. WISE: Is that your question?

3359. MR. DAVIES: If you assume, for the purpose of your cost -- the cost side of your assessment that Keystone was moving -- XL was moving 700,000 barrels a day as opposed to 380,000 barrels a day? Skyrocket? 3360. 3361. 3362. 3363. MR. WISE: I’m sorry? MR. DAVIES: What would happen to your costs? MR. WISE: On Enbridge? MR. DAVIES: Yes.

3364. MR. WISE: We don’t -- the only evidence on Enbridge’s costs is the evidence of 75 cents a barrel Canadian or 65 cents U.S. for removing, I believe, the majority of 380,000 barrels a day committed. There is no evidence on the further impact of the spot barrels.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3365. MR. DAVIES: Okay. Thanks.

3366. Now, the next issue that you raised, coming back to your reply evidence, is shipper choice. Let me see if I can understand this. There was a competition in 2008 to provide transportation to the U.S. Gulf Coast and shippers chose Keystone as the winner of that competition. 3367. Are we agreed so far, Mr. Miller?

3368. MR. MILLER: I know Keystone was promoting an opportunity for which we received contractual underpinning. I understand that there’s still other options that Enbridge is pursuing in the Gulf Coast, and I don’t know the status of their open season results, if they’ve had open season. 3369. MR. DAVIES: Well, there was a competition in 2008 to provide transportation service to the U.S. Gulf Coast and Keystone is the company that secured contracts to provide the service, right? 3370. MR. MILLER: Yes.

3371. MR. DAVIES: Okay. And the issue that Enbridge is now raising is whether Keystone should provide service to its XL shippers in Canada by building new facilities or by contracting for capacity on existing facilities. Do you understand that? 3372. MR. MILLER: I understand that.

3373. MR. DAVIES: And are you telling me that your committed shippers are insistent that you provide service to them in Canada only by building new facilities and not by contracting for using existing facilities? 3374. MR. MILLER: Anecdotally I can provide you with some evidence that based on the feedback from shippers in regard to competition and the desire for competition and the lack of interest in pursuing anything other than the XL project. 3375. MR. DAVIES: Well, why would your shippers be adverse to you contracting for capacity on existing facilities if the result of that would be to keep them whole? 3376. MR. MILLER: To the extent that it’s kept whole, if I was in the shipper’s shoes, I would say, “Okay, what does keep whole mean? I’m going to be the same as I am today, but by forgoing the Keystone XL option I’m going to enter into lengthy negotiations and introduce significant execution risk into the project plan, having spent a number of years looking at the options, including, as you’ve indicated, the

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies Enbridge proposal, Texas access, and now the new Enbridge BP proposal, have made a determination that I want to back Keystone.” And in backing Keystone, they spent considerable time and resources analyzing why they wanted to back Keystone. 3377. So now for us to come back to them and say, “The deal is we’ll tool down on Keystone; we’ll open up negotiations; we’ll introduce significant execution risk, execution risk which you had already accepted through interaction with us and our project team" -- so keeping whole doesn’t seem like an attractive opportunity for them. To the extent that there is a benefit for them, I think that they would be receptive to seeing such a proposal. 3378. MR. DAVIES: So your view is shippers don’t only need to be kept whole; they need to be made better? 3379. MR. MILLER: I’m saying from my perspective, if I was a shipper and all I was going to achieve from this outcome is to be kept whole, I would have to think long and hard about how I want to deploy my resources. 3380. MR. DAVIES: Do you think one of your shippers would go out to the McInnes farm and provide that explanation to Mr. and Mrs. McInnes? 3381. MR. MILLER: I’ll defer to Panel 2.

3382. MR. DAVIES: Now, let’s deal with growth opportunities which you raise at page 9, and you make the observation that the Enbridge concept would limit the capacity access to XL’s current contracted volumes, which are 380,000 barrels a day, right? 3383. 3384. 3385. MR. MILLER: That’s on line which? MR. DAVIES: Twenty (20). MR. MILLER: Yes.

3386. MR. DAVIES: And this goes back to a discussion that we were having earlier when we had up on the screen the response to National Energy Board Information Request 1, but if Keystone were able to contract on the Enbridge system for its current and future XL committed volumes, then this particular capacity constraint to which you refer wouldn’t exist, would it? 3387. MR. MILLER: It could. It depends on the terms in which that additional capacity could be secured.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3388. MR. DAVIES: Now, at the top of page 10 of the reply evidence, you refer to Keystone losing its ability to expand XL by 200,000 barrels a day? 3389. MR. MILLER: Yes.

3390. MR. DAVIES: And that would mean expanding the Canadian facilities from 700,000 to 900,000 barrels a day? 3391. MR. MILLER: And the corresponding expansion of the U.S. facilities.

3392. MR. DAVIES: Would Keystone intend to undertake such an expansion without contracts for the expansion? 3393. MR. MILLER: Keystone would look at the economic environment that existed at that moment, determine if it was economically feasible to put in the extra capital to power up the system and, if so, would make the appropriate filings in front of the NEB. 3394. MR. DAVIES: So the answer is yes, Keystone might well undertake such an expansion without contracts for the expansion? 3395. could not. 3396. MR. MILLER: I can’t predict the economic conditions. It could or it

MR. DAVIES: Okay. Thank you.

3397. Now, your next issue was higher operating costs and your proposition here, as I understand it, is that there will be higher operating costs based on the fact that the distance from Hardisty to Steele City via Gretna is longer than the distance from Hardisty to Steele City via the more direct XL route, right? 3398. MR. MILLER: Yes.

3399. MR. DAVIES: Now, if we can turn up, please, Exhibit C-7-6e, Adobe page 4. Thank you. 3400. And this is the response of Enbridge to Nexen Information Request 1.3A. And in the top paragraph, Mr. Miller, you see that there’s a discussion about the variable toll proposed; right? 3401. 3402. MR. MILLER: I do. MR. DAVIES: And the last sentence reads:

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies “The objective from Enbridge’s perspective would be to have a variable toll paid by Keystone which would ensure that the committed shippers do not pay more than they would under the Canadian Keystone XL TSAs.” 3403. 3404. You see that? MR. MILLER: I see that.

3405. MR. DAVIES: Now, suppose that that objective were realized, and I realize that you may not think it can be but suppose it was, the result would be that in Canada the XL shippers would be kept whole in terms of the variable toll; right? 3406. MR. MILLER: Not necessarily. We have today in place various measures for the shippers to audit the variable tolls, and I don’t know the terms on which your proposal would provide those opportunities. 3407. I don’t know the terms on which the power will be consumed under your variable toll structure and what sort of incentive arrangements that we might be able to enter into. We have an incentive -- an obligation to negotiate with our shippers, an incentive deal. 3408. So again, if you assume a lot away, you could stay flat, but there’s a lot more to determine in just looking at the variable toll. 3409. MR. DAVIES: Okay. So let’s assume that it does stay flat. Let’s assume that the XL shippers would not pay a higher toll to Keystone than what they have contracted to pay. 3410. questioning. 3411. 3412. MR. MILLER: Okay. I’ll accept that assumption for this line of

MR. DAVIES: Thank you. That would mean in Canada they would be kept whole?

3413. MR. MILLER: Assuming only that, all other things remaining equal, that they would pay the same toll in every situation, that they would pay had they shipped on the Keystone system, and all the differences between the variable toll structure, Enbridge, and the variable structure in Keystone, then you could support that statement. 3414. But again, I’d highlight that the significant variables associated with all

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies those components and the diverse interests of various stakeholders as far as who’s going to pay for what to operate the system, in my opinion makes that assumption a bit challenging. 3415. MR. DAVIES: In the United States, the difference from Gretna -- the distance from Gretna to Steele City is less than the distance from Monchy to Steele City; right? 3416. MR. MILLER: Yes.

3417. MR. DAVIES: So in the United States the operating costs of a pipeline from Gretna to Steele City would be lower than the operating costs of a pipeline from Monchy to Steele City; right? 3418. MR. MILLER: I don’t know, Mr. Davies. Purely from a distance perspective one can make that inference, but I don’t know. 3419. MR. DAVIES: Well, if you had the same pipe, 36-inch, same volumes going through it, you’d expect the operating cost to be lower in the shorter distance pipeline; right? 3420. MR. MILLER: Based on purely length, yes. And if you wish, you can refer to Panel 2 on that. 3421. MR. DAVIES: And to the extent that operating costs in the U.S. were lower, shippers in the U.S. would pay lower tolls, would they not? 3422. MR. MILLER: Again, looking at our fixed variable toll structure, to the extent that their variable cost is lower in the States, and it would be otherwise based on your assumption then, it could be. 3423. 3424. Again --MR. DAVIES: Why do you say it could be? It would be.

3425. MR. MILLER: When you look at Keystone -- Keystone, because we’re operating on a total system from a commercial perspective, from a barrel/mile, we don’t know the impacts of stripping away those volumes from the equation. 3426. So to the extent that you have segregated your system from ours, we don’t know the total impact -- I’m sorry -- to the extent that you have segregated the Canadian portion out of the total equation in total, we don’t know what the total variable cost is on the path relative to our design versus your proposal.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3427. So again, I will qualify all your questions in that I don’t know. We have not done the analysis. The onus is not on TransCanada or Keystone to analyse all these different opportunities when we don’t even know these opportunities exist. 3428. MR. DAVIES: So there’s doubt in your mind that an opportunity exists?

3429. MR. MILLER: There’s doubt in my mind that there’s an opportunity to exist because we have not seen any evidence to suggest that we have a viable economically feasible proposal in front of us. 3430. 3431. isolation. MR. DAVIES: Well that’s what we’re talking about, Mr. Miller. MR. MILLER: I’d say we’re talking about individual components in

3432. MR. DAVIES: Well, you filed the reply evidence. I’m just asking you questions about it. 3433. MR. MILLER: Fair enough.

3434. MR. DAVIES: Now, your next issue is higher capital costs. And in the first sentence, at Line 16 you say: “Implementation of the Enbridge concept could create higher capital cost expenditures in both Canada and the U.S.” (As read) 3435. Why do you use the word “could” as opposed to “would”?

3436. MR. MILLER: Again, having not fully analysed what the Gretna concept may or may not do to TransCanada and Keystone, intuitively, to the extent that our understanding is this is not a temporary opportunity, to the extent that we build from Gretna up to -- down to Steele City and then ultimately build from Gretna over to Hardisty, it seems to me that given that longer path, it’s going to translate into higher capital costs. 3437. It also appears to me that we know what the environment is today for building CAPP -- building pipelines. To the extent that we delay the construction of Keystone as we work out this concept, the construction environment may be totally different two, three years up the road and then ultimately when we no longer have access to your pipeline, whatever term of that access agreement may hypothetically be, we don’t know what the construction environment may be in the future.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3438. So it could lead to higher construction costs based on the total longer length and the huge uncertainty on the -- what the environment’s going to be at that time. 3439. MR. DAVIES: Now, let’s look at the U.S. first in terms of capital costs. Under the Enbridge proposal, do you understand that a new pipeline would be constructed by Keystone from the Gretna area to Steele City? 3440. MR. MILLER: Yes.

3441. MR. DAVIES: And under XL as currently proposed, a new pipeline would be constructed by Keystone in the U.S. from Monchy to Steele City; right? 3442. MR. MILLER: Yes.

3443. MR. DAVIES: The distance from Gretna to Steele City is shorter than the distance from Monchy to Steele City? 3444. MR. MILLER: Yes.

3445. MR. DAVIES: And shouldn’t the capital costs of a 36-inch pipeline from Gretna to Steele City be lower than the capital costs of a 36-inch pipeline from Monchy to Steele City? 3446. MR. MILLER: Not necessarily. I will defer to Panel 2.

3447. I would observe that the economic conditions today when we propose to commence constructing the pipeline may be very different from the economic conditions that may prevail several years in the future when we would have the regulatory approvals to build from Gretna to Steele City. Steel could be $3,000 a tonne then. I don’t know. 3448. MR. DAVIES: Has Keystone made any assessment of the capital cost saving that could be realized in the U.S. from building from Gretna to Steele City as opposed to from Monchy to Steele City? 3449. MR. MILLER: I don’t know; I’ll have to defer to Panel 2.

3450. MR. DAVIES: So you’re just telling me you’ve got no idea whether that assessment has been made? 3451. MR. MILLER: I don’t know the extent of any assessment. Panel 2 can provide you with detail on what options we may have looked at in regard to routing Keystone differently, and if that includes an assessment from going straight south from Gretna, then they’ll be able to provide some clarity in that area.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3452. MR. DAVIES: Would lower capital costs in the U.S. mean lower tolls for Keystone shippers in the U.S.? 3453. MR. MILLER: Under our current toll structure there is a cost sharing mechanism, such that if we construct the pipeline for less than contemplated, they would share in that benefit. 3454. 3455. MR. DAVIES: So is the answer to the question yes? MR. MILLER: Yes.

3456. MR. DAVIES: The Keystone XL facilities in Canada are estimated to cost about $1.7 billion; right? 3457. MR. MILLER: Yes.

3458. MR. DAVIES: And you refer in your evidence, Mr. Miller, to the construction of new terminalling facilities at Gretna? 3459. MR. MILLER: I believe so.

3460. MR. DAVIES: And are you aware of the evidence of Enbridge that those facilities are estimated to cost about a $150 million? 3461. MR. MILLER: I believe so.

3462. MR. DAVIES: I wonder if we can turn up, please, Exhibit C-7-6e, Adobe page 3. And this is the response of Enbridge to Nexen Information Request 1.3a. 3463. And in the last two paragraphs at the bottom of the page, Enbridge states that it would propose to match the tolls that Keystone is proposing to charge it’s committed shippers in Canada and that it would set the fixed tolls at the levels shown in Table 5-1 of the Keystone XL avocation, right? 3464. MR. MILLER: Yes.

3465. MR. DAVIES: Now, isn’t it the case that if the Keystone shippers would, under the Enbridge proposal, pay to Keystone the same tolls in Canada as they would under their XL contract and if in the U.S. they would pay lower tolls to Keystone because of capital cost savings and lower operating costs, that the full path toll to Keystone shippers would go down?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3466. 3467. MR. MILLER: Sorry, could you repeat that question, please? MR. DAVIES: Sure, that was a wordy one.

3468. If we assume, as Enbridge is proposing, that the Keystone shippers would pay to Keystone the same tolls in Canada as they would under their XL contract, and if we assume that in the United States Keystone shippers would pay lower tolls because of capital cost savings and lower operating costs, the result would be that the full path toll for the Keystone XL shippers would go down, right? 3469. MR. MILLER: It’s that third assumption; I think I have a problem with that. It would be a capital cost reduction. 3470. So I’ll answer your question, in that if you assume away the realities in which we operate today and look solely on that arithmetic calculation then, yes, those tolls would be lower, but execution at achieving those tolls has assumed a whole lot. 3471. you. MR. DAVIES: There’s some work to be done, Mr. Miller, I agree with

3472. Now, in your response to Question 13, and I’m looking at page 11, line 2. Sorry, we’re back to the reply evidence. 3473. You say at line 2, this: “Keystone believes timely and successful resolution of the concept Enbridge has raised in its evidence is inconsistent with Enbridge’s competitive aspirations.” 3474. 3475. Do you see that? MR. MILLER: I do.

3476. MR. DAVIES: And then you go on to refer to some Enbridge pipeline proposals, right? 3477. MR. MILLER: Yes.

3478. MR. DAVIES: Okay. And just to be clear here, Mr. Miller, what you are alleging is that Enbridge is putting forward the Gretna option, not for the purpose of having it implemented in a timely manner, but rather for the purpose of delaying XL and allowing Enbridge to continue to develop competitive U.S. Gulf Coast proposals, right?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3479. MR. MILLER: I think what we’re saying here is that it’s our experience and observation that when parties want to get together to construct a deal, a deal can be reached. 3480. One observation is that we have multiple parties that would have to be part of this negotiation, one of which would be Enbridge. To the extent that Enbridge has other motivations as far as the use of that capacity, during the course of negotiations they may have another process running concurrently and continue with that optionality (sic). 3481. Now, to the extent that they can find use for that infrastructure which they believe to be in the interest of their stakeholders, such as landing a Texas access or landing a BP Gulf Coast project which would attract volumes through this excess capacity that you have, that you would offer up to Keystone --- you would have to make a call as to who gets that capacity and so to the extent that there’s these other options available to you, Enbridge has prudent business people and who are looking out after the toll would have to exercise what their best option would be for both their shareholders and their shippers. 3482. MR. DAVIES: So is the answer to my question yes?

3483. MR. MILLER: The answer to your question is no. I’m not suggesting that you are filing this evidence as a means to derail this proceeding. I’m suggesting that it’s our observation that, in this point, to the extent that the parties are getting together to negotiate this Gretna concept, you may have distractions which may prohibit this concept from reaching fruition. 3484. MR. DAVIES: Well, are you suggesting in any way, Mr. Miller, that Enbridge is putting forward the Gretna option for a purpose other than to have it implemented in a timely manner? 3485. MR. MILLER: I’m suggesting in this evidence that Enbridge’s motivation is diverse and, to the extent that you have other motivations to access the Gulf Coast, it may be inconsistent with a timely resolution of negotiations of the Gretna concept. 3486. MR. DAVIES: So you’re suggesting that the motivation of Enbridge may, in fact, be to delay your application. Is that right? 3487. MS. MORELAND: Mr. Chairman, I believe Mr. Davies has now asked this question for a third time and he received an answer, and I think the answer is clear on the record and I suggest it’s inappropriate for him to continue to ask. 3488. MR. DAVIES: I must confess, Mr. Chairman, the answer isn’t clear to

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies me on the record, but if it’s clear to the Board on the record, I’ll move on. 3489. THE CHAIRMAN: Please move to your next question.

--- (A short pause/Corte pause) 3490. MR. DAVIES: Mr. Wise, you’ve been sitting there so patiently.

3491. If we could turn up please your reply evidence which is part of, I think, Exhibit B-23b, Adobe page 18 it starts -- sorry, 15 it starts. And if I could have you -well, let’s go to -- well, let me ask you a general question first. 3492. In order to assess the pricing benefit of the XL pipeline to Canadian crude oil producers starting in 2013, PTI considered price data from the historical 2006 to 2008 period, right? 3493. MR. WISE: Yes.

3494. MR. DAVIES: And as you note in the last paragraph on Adobe page 23 of your evidence, the 2006 and 2008 historical pricing was one in which the Canadian heavy crude market was weak and price discounts occurred, right? 3495. 3496. 3497. MR. WISE: I’m sorry, I didn’t catch the question. Will want to what? MR. DAVIES: I’m sorry? MR. WISE: Your question was?

3498. MR. DAVIES: Well, I was just pointing out that as you note in the last paragraph of Adobe page 23, the 2006 to 2008 historical period was one in which the Canadian heavy crude market was weakened or was weak and price discounts occurred? 3499. MR. WISE: Yes, that’s right.

3500. MR. DAVIES: And you mentioned the fact that there was an oversupply of Canadian heavy crude in the traditional Canadian PADD II markets? 3501. 3502. 3503. MR. WISE: You’re asking that as a question? MR. DAVIES: Yes. You mentioned --MR. WISE: There was an oversupply in general.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3504. MR. DAVIES: Right. And there was oversupply of Canadian heavy crude, you tell us, in the traditional markets? 3505. on? MR. WISE: I’m not following where you’re reading, at what line are you

3506. MR. DAVIES: Well, you talk about, starting at line 20, an oversupply which had developed because bitumen grew faster than refining capacity in Canada and the northern U.S. markets, which you call the traditional markets, right? 3507. as you. 3508. MR. WISE: Yes, I agree. I’m just -- I’m trying to get on the same page

MR. DAVIES: Okay. Sorry.

3509. And you also mention that in this historical period, crude pipeline capacity leaving western Canada was constrained? You say that at line 23? 3510. 3511. MR. WISE: It was constrained at times. MR. DAVIES: Right.

3512. And we can agree, can we, Mr. Wise, that crude pipeline capacity leaving western Canada will not be constrained in 2013? 3513. MR. WISE: I think that’s a safe assumption.

3514. MR. DAVIES: And in fact, based on your 2009 supply forecast, more heavy crude pipeline capacity would not be needed until 2015 to 2016? 3515. MR. WISE: If you’re referring to figure 15b, I think, in our supplemental evidence, based solely on the comparison of supply and pipeline capacity, that appears to be the case. As I mentioned a day or two ago, that does presume that all existing pipeline capacity is going to a market that requires the crude. 3516. MR. DAVIES: And based on the CAPP 2009 growth forecast, more heavy crude pipeline capacity would not be needed until at least 2018, right? 3517. MR. WISE: Yes, on the same basis.

3518. MR. DAVIES: Now, your view, Mr. Wise, is that an oversupply in the traditional PADD II and Canadian markets could return as early as 2013, thereby causing price discounts to return, right?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3519. MR. WISE: Yes, we can have an oversupply in 2013.

3520. MR. DAVIES: And that’s an oversupply in the traditional markets? That’s what you’re talking about? 3521. MR. WISE: In all markets that we serve.

3522. MR. DAVIES: Well, if you look at Adobe page 24, Mr. Wise, starting at line 8, what you’re suggesting is that we could be seeing, in your view, a return to PADD II oversupply in 2013, right? 3523. MR. WISE: Yes, I think we’ve just said that.

3524. MR. DAVIES: Thank you. Now, at Adobe page 23, starting at line 16, you say, and I quote: “Consistent with the Muse view of refinery demand growth in PADD II, and the PGI 2009 supply forecast, PGI expects that the benefits of improved heavy crude pricing attributable to Keystone XL Pipeline could start as early as 2013 and should apply for several years, ...” 3525. 3526. Right? That’s what you say? MR. WISE: Yes.

3527. MR. DAVIES: And the expectation that you set out here is based on a comparison of a Muse view of demand and a PGI view of supply, right? 3528. MR. WISE: Yes, we were accepting the Muse view of demand because our numbers are quite similar to it. I think in this overall reply evidence we were trying to find a little bit of common ground. 3529. 3530. MR. DAVIES: And if we turn up Exhibit C-7-4c at Adobe page 11? MR. WISE: Sorry, C-7 which?

3531. MR. DAVIES: It’s C-7-4c. If you could just scroll down, please? You see there’s a heading “Midwestern Demand for Canadian Crude”? Do you see that, Mr. Wise? 3532. MR. WISE: I think my version is missing the Adobe numbers. Yes, I see

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies it now. 3533. MR. DAVIES: Okay. And at the bottom of the page, Muse says that there are three big projects underway: BP Whiting; WRB Wood River and Marathon Detroit, right? 3534. MR. WISE: Yes, I see that.

3535. MR. DAVIES: And at the top of page 10, Muse estimates that these three specific projects will add over 350,000 barrels a day of demand for Canadian heavy crude, right? 3536. MR. WISE: That’s right.

3537. MR. DAVIES: And is this the Muse view of refinery demand growth in PADD II to which we were referring earlier at page 23 of your reply evidence? 3538. 3539. MR. WISE: Yes, it is. MR. DAVIES: Thank you.

3540. Now, Mr. Wise, you gave a presentation at the annual general meeting of the National Petrochemical and Refiners Association in March 2009? 3541. MR. WISE: I did.

3542. MR. DAVIES: And I had, earlier this week, provided a copy to Ms. Moreland, and I’m assuming that it found its way to you? 3543. MR. WISE: I have it.

3544. MR. DAVIES: Mr. Chairman, let me just distribute this and I'll ask a couple of questions before I ask for an exhibit number. 3545. 3546. And I'm looking at Slide 17. Do you have that? MR. WISE: Yes, I have it.

3547. MR. DAVIES: And the title of the slide says, "Even with slippage, Midwest coker capacity is seen outpacing heavy crude supply", right? 3548. MR. WISE: Yes.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3549. MR. DAVIES: And you refer in the first bullet to coker projects aimed at Canadian crude, namely WRB Wood River, BP Whiting, Marathon Detroit and others, right? 3550. 3551. MR. WISE: Yes, also WRB Borger. MR. DAVIES: And then you say in the second bullet: "Approximately 200,000 barrels per day coker capacity scheduled on line by 2013, equivalent to 600,000 barrels a day of heavy crude." 3552. 3553. Do you see that? MR. WISE: Yes, I see that.

3554. MR. DAVIES: And is this the current PGI view of refinery demand growth in the Midwest? 3555. MR. WISE: Not really. I should say that in any speech or presentation such as this we're trying to raise awareness that supply -- coker capacity is increasing, thus increasing the demand. 3556. The chart itself is referring to vacuum resid, which is coker feed, and translating 200,000 barrels of coker feed into 600,000 of heavy crude is a very extremely rough number which is probably somewhat overstated because it doesn't use the -- it doesn't take into account things like utilization of the coker. It doesn't take into account whether the refinery is changing their operations with respect to asphalt production. 3557. So I think the message that was being portrayed here was growth in the market; not a precise number, either 200 or 600 thousand. 3558. did. MR. DAVIES: I didn’t put the precise number in here, Mr. Wise, you

3559. MR. WISE: You mentioned 200,000 barrels of coker and 600,000 of heavy crude. 3560. MR. DAVIES: I didn’t mention it. You mentioned it in your slide. I'm just referring to it, right? 3561. MR. WISE: Correct. You read it out.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3562. MR. DAVIES: And wasn't your best estimate in March of 2009 that demand by 2013 -- increased demand would be 600,000 barrels a day heavy crude. Isn't that what you're telling the audience to whom you gave this presentation? 3563. 3564. please? 3565. MR. WISE: Yes, but a very approximate number. MR. DAVIES: Okay. Might we have an exhibit for this, Mr. Chairman,

THE CHAIRMAN: Yes, we will.

3566. MS. MORELAND: Mr. Chairman, I don’t object. I'd just like to (technical difficulties) -- cosmic message there perhaps. 3567. I'm not objecting, sir. I'd just like to know for the record that this is a presentation that contains slides in addition to Slide 17, so I am assuming it's going in with the usual Board practice that only that that's been referred to in cross-examination will be referred to in argument. 3568. 3569. 3570. THE CHAIRMAN: That is correct. MS. MORELAND: Thank you, sir. THE REGULATORY OFFICER: That will be Exhibit C-7-12.

--- EXHIBIT NO./PIÈCE No. C-7-12: Slide 17, "Even with slippage, Midwest coker capacity is seen outpacing heavy crude supply", dated March, 2009 3571. MR. DAVIES: Mr. Wise, in July of 2009, Mr. Kelly of Purvin & Gertz gave a presentation in Calgary at the TD Newcrest Canadian Unconventional Oil Forum, right? 3572. 3573. 3574. MR. WISE: That's right. MR. DAVIES: And if you look at page 20 --MR. WISE: I have it.

3575. MR. DAVIES: --- Mr. Kelly is telling his audience that by 2013 the demand for heavy crude is expected to be equivalent to 600,000 barrels a day of heavy crude, right?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3576. about. MR. WISE: Yes. It's nearly the same slide as the last one we talked

3577. MR. DAVIES: Right. I guess the only difference is it's in July of 2009 as opposed to March of 2009. 3578. MR. WISE: Yes, it is.

3579. MR. DAVIES: So at least during the period that you were filing evidence in this proceeding, you were expressing on at least two occasions the view that heavy crude demand was expected to increase in the Midwest by 600,000 barrels a day, right? 3580. MR. WISE: In the same type of public forum as I've described before.

3581. MR. DAVIES: Well, do you not endeavour to be accurate when you put these sorts of numbers out in a public forum? 3582. MR. WISE: Not with a great deal of precision. They are based on work that was done some time ago but, as you can see, it was not updated from March to July. 3583. When we do analysis for client studies we spend considerable amount of time on them; weeks or months. When we prepare a presentation for a function like this, we spend several hours. So the updating is not as precise as you might like to adopt for your evidence. 3584. MR. DAVIES: May we have an exhibit number for this document, please, Mr. Chairman? Again, with the caveat that Ms. Moreland had put on the previous one. 3585. 3586. THE CHAIRMAN: That will be fine. THE REGULATORY OFFICER: That will be Exhibit C-7-13.

--- EXHIBIT NO./PIÈCE No. C-7-13: Slide of presentation by Mr. Kelly dated July 2009 3587. MR. DAVIES: Now, Mr. Wise, if we were to compare PGI's view of refinery demand growth in PADD II as expressed in Exhibit C-7-12 and Exhibit C-7-13 with PGI's 2009 supply forecast, supply would not exceed demand in PADD II in 2013, would it?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3588. MR. WISE: I was looking for that exhibit. Was that the previous one we were just talking about? 3589. 3590. MR. DAVIES: Two that we were just talking about. MR. WISE: Okay.

3591. MR. DAVIES: And if you were to compare PGI’s view of refinery demand growth forecast in PADD II as set out in those two exhibits with PGI’s 2009 supply forecast, supply would not exceed demand in PADD II in 2013, would it? 3592. MR. WISE: I’m not sure how you reach that conclusion.

3593. MR. DAVIES: Well, because, Mr. Wise, you would be using 600,000 barrels a day of refinery growth as opposed to 350,000 barrels a day of refinery growth. Wouldn’t that lead you to the conclusion that you’re not going to have this oversupply situation in 2013? 3594. MR. WISE: If you accept 600,000 that does exceed 350. We have done more recent analysis where we’ve tried to compare the growth in the supply with the growth in potential demand, and on that basis concluded that the -- well, the growth would be closer to the 350 and that we would be in an excess situation. 3595. MR. DAVIES: Well, what you compared, for the purpose of your reply evidence, was the Muse view of growth to the PGI supply forecast. And what I’m suggesting to you is that if you were to assume refinery demand growth in PADD II of 600,000 barrels a day and you were to compare that to your 2009 supply forecast, you’re not going to get supply exceeding demand in PADD II in 2013, are you? 3596. 3597. MR. WISE: If you take 600,000 as the growth, then no, you would not. MR. DAVIES: Thank you.

3598. MR. WISE: But we don’t accept that number for the present analysis and we agreed with the Muse number in the reply evidence. 3599. 3600. 3601. MR. DAVIES: Now, at Adobe page 24, line 21 --MR. WISE: Of the reply? MR. DAVIES: Yes, your reply evidence. I’m sorry. You say that: “The benefits attributable to Keystone XL Pipeline should start

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies when PADD II would have excess supply in the absence of Keystone XL Pipeline.” 3602. And we’ve just had a discussion about the start time. You then say: “The duration of these benefits depends on the rate of growth of Canadian heavy crude.” 3603. 3604. 3605. Right? MR. WISE: Correct. MR. DAVIES: And at the bottom of the page, you indicate that: “...the volume commitments on the Keystone XL Pipeline would sustain the Midwest price premium on Canadian heavy crude for 2 to 3 years.” 3606. MR. WISE: Yes.

3607. MR. DAVIES: And when you refer to the Midwest price premium, that is the $3.55 per barrel number that you used in your benefit calculation? 3608. 3609. right? 3610. MR. WISE: Yes, that’s the premium over at the Gulf Coast. MR. DAVIES: And that, you tell us, will last for two to three years,

MR. WISE: That’s right.

3611. MR. DAVIES: And then at the top of page 5 -- I guess it’s Adobe page -excuse me for a minute. I’m sorry, it’s the top of page 7. It’s Adobe page 25. And I’m looking at line 3. You say that: “...the capacity of the Keystone XL Pipeline would avoid the historical price discount on Canadian heavy crude for 3 to 4 years.” 3612. 3613. 3614. Do you see that? MR. WISE: Yes, I do. MR. DAVIES: And when you referred to the historical price discount;

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies that is the $3.00 per barrel that you use in your benefit calculation? 3615. 3616. right? MR. WISE: That’s right. MR. DAVIES: And that, you tell us, will last for three to four years,

3617. MR. WISE: Yes, we’re saying that the historical discount could be avoided for three or four years, and that’s $3.00 a barrel and the Midwest premium could occur on top of that for two to three years. 3618. MR. DAVIES: Now, you understand, Mr. Wise, from reviewing the Muse report that Muse evaluated the expected pricing benefit of Keystone by using its crude market optimization model? 3619. MR. WISE: Yes, I read that.

3620. MR. DAVIES: And you understand, do you, that that model predicts the flow of crude to particular markets and the Canadian crude prices that result from such flows? 3621. MR. WISE: That’s what it claimed to do, yes.

3622. MR. DAVIES: Does PGI have a model that does the same thing as the Muse crude market optimization model? 3623. MR. WISE: Yes, we do have a similar model for North America. We also have refinery linear program models which were used to feed into this Muse model. 3624. MR. DAVIES: I’m sorry, which were used to what?

3625. MR. WISE: I understand the Muse model uses the PIMS LP model first for individual refineries and the results feed into the optimization market model. We have similar models at our disposal, including PIMS. 3626. MR. DAVIES: Okay. And is one of the equivalent models at least that you’ve got to the Muse optimization model what you call the what-goes-where model? 3627. 3628. 3629. MR. WISE: I would say that’s --MR. DAVIES: That’s a very catchy name for a model, by the way. MR. WISE: Thank you. I would say that one is intended to do similar

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies things as the Muse model, yes. 3630. MR. DAVIES: Okay. And I won’t take you back there, but we can agree that the presentation that you were giving in San Antonio back in March included some advertisements for use of your WGW model, right? 3631. MR. WISE: Yes, apparently you noticed.

3632. MR. DAVIES: And that model analyses crude markets and transportation routes and can be used to predict Canadian crude prices, yes? 3633. MR. WISE: Yes.

3634. MR. DAVIES: And your model, you advertise, can be tailor-made for evaluation of specific pipeline opportunities, right? 3635. MR. WISE: It can.

3636. MR. DAVIES: Did you consider using your model to assess the pricing benefits of the XL project? 3637. 3638. 3639. MR. WISE: No, we did not here. So you’re going to ask why --MR. DAVIES: No, I was going to ask why not? MR. WISE: Okay. I guess that would be the right question.

3640. At the beginning of the process, we were asked to define some price impacts as we saw them and we identified them in the first report. We were attempting to keep it quite simple and transparent, and so that’s the approach we took. 3641. We were -- once we had those prices, we were then asked if we could turn that into a gross benefit to the producers based on where the price would impact the revenue. 3642. And so we did that simply by using the prices with the production volumes, and that’s, I think, fairly fully explained in the evidence, and that's as far as we took it. We didn't see any need to use the other model, and in the beginning we actually intended it to be illustrative that in the first year when the pipeline was in operation, and assuming that it was taking credit for the price improvements, that that would be the result. 3643. MR. DAVIES: Let me ask you this question, Mr. Wise, and answer it

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies carefully because these transcripts can sometimes make it into the public domain. And the question is: do you consider that using historical data to predict the pricing benefit of a new pipeline is preferable to using your model to make the prediction? 3644. MR. WISE: I'll take your warning under advisement.

3645. I think the historical pricing that we have experienced in that time period, 2006 to 2008 or mid-2009, demonstrated some very extreme discounts for pricing which probably cannot be captured in such models. 3646. We've talked to a number of producers and refiners in the course of our work and, you know, during that time period, I guess from the producers' side they just couldn't really comprehend why the price would be as low as it was. 3647. We talk about parity points where crude is priced at parity in Chicago or Wood River or the Gulf Coast and -- because as you go further away, then you're being priced lower, and some people facetiously called the pricing that we experienced "Panama parity" because the notion was that you'd have to move crude beyond the Gulf Coast to ever come up with a price that was so low. 3648. The causes are probably simply the great stress on supply exceeding demand, which occasionally showed up with pipeline apportionment as well, and there was simply nowhere for the crude to go. 3649. And so, in effect, it's finding its way into the Midwest market, to which it has access, but being severely distressed by those who are purchasing the crude because they have a competitive advantage when the producer has no other options. 3650. MR. DAVIES: That was a pretty long answer.

3651. So you're not expecting that somebody at one of your conferences may stand up and say, "Why in the world would I pay Purvin & Gertz all of this money to use its model to make future pricing predictions when all I need to do is look at historical data?" And you don’t need to answer that; it's a facetious question. 3652. Mr. Chairman, what was your -- I'm not sure about the -- you probably did mention it at the beginning and I've probably forgotten, but what was your intent on sitting hours? 3653. THE CHAIRMAN: We anticipate 12:30. How is that in relation to your remaining time for questions? 3654. MR. DAVIES: Were you intending to take a lunch break and are we

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies sitting this afternoon or are we just going through? 3655. THE CHAIRMAN: We will take a lunch break from 12:30 to 1:30. What do you anticipate is the remaining time for your questioning? 3656. MR. DAVIES: I think I can probably -- I think I could probably finish by then and -- so maybe what I'll do is do that and then have an opportunity to confer with my client over the lunch hour and see whether there's any follow-up after lunch. Would that be okay? 3657. THE CHAIRMAN: Well, let's press ahead until 12:30 with a view toward a short conference with your client, if you'd prefer, and then with bringing closure, if that works. And if you need the entire lunch hour, then we will just hear from you at that point. So just press on with your questioning with a view toward ending. 3658. MR. DAVIES: Okay. Sorry, I'd come to a section in my notes that I thought was the end of my cross-examination and is just a page that has another six pages behind it, but having said that, I'll continue on. 3659. Mr. Wise, at Adobe page 27 of your reply evidence in line 15, or at line 15, you point out that PGI uses historical public posted prices for Cold Lake blend at Hardisty, whereas Muse advocates the use of Platts spot price assessments, right? 3660. 3661. do? MR. WISE: That's right. MR. DAVIES: And can you tell the Board what is Platts and what does it

3662. MR. WISE: Platts is a publication, to begin with, but they do these spot price assessments where they gather price information and determine what they think will be the spot price at any point in time. For Canadian crude prices they apparently base it on some futuristic contracts out two and three months. 3663. 3664. MR. DAVIES: Is Platts a reputable organization in your view? MR. WISE: Yes, they are.

3665. MR. DAVIES: Does PGI, in doing its business, make use of pricing information reported by Platts? 3666. 3667. MR. WISE: Yes, we use selected pricing information from Platts. MR. DAVIES: And did you in fact use Platts in arriving at your price for

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies Mayan that we see in your report? 3668. MR. WISE: We don't use Platts per se. They report the formula -actually, I've forgotten what we said in an IR response but the Maya price is a formula price which is reported by other publications as well, including PIW, and so I don't think there's too much -- there's no assessment done by Platts or any other organization for the Maya price. 3669. MR. DAVIES: Platts reports actual prices paid and received for crude throughout the world, right? 3670. MR. WISE: Yes, and refined products.

3671. MR. DAVIES: And how does Platts determine the prices at which crude oil transactions are made, do you know? 3672. 3673. MR. WISE: Not precisely. MR. DAVIES: Do you have any idea?

3674. MR. WISE: I understand they talk to buyers and sellers and try to gather some appropriate information. As I mentioned, for the Canadian crudes they also refer to the futures prices in their contracts. 3675. MR. DAVIES: So what they do to determine actual spot prices paid is they have actual discussions with sellers and buyers of crude oil, right? 3676. MR. WISE: That's what they're supposed to do. I don't know how extensively they do it with regard to the Canadian crudes. 3677. We have looked at Platts prices for Canadian crudes in the past, and I mentioned this in the evidence, that in the case of bitumen and bitumen blends we’ve had occasion to look at real prices on some confidential jobs and we felt that the postings that we’re using are more representative than Platts. 3678. And I think that’s confirmed by the new NGX system which has been in place now for several years, which is an electronic exchange where there are actual buyers and actual sellers that participate and it’s now accounting for nearly half of the WCS heavy stream which has become the heavy crude marker in crude for Western Canada. 3679. MR. DAVIES: When you prepared your initial report that is included in the Keystone application, Mr. Wise, were you aware that Platts reported the spot prices of

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies Cold Lake blended Hardisty? 3680. MR. WISE: As a matter of fact, I was not. They have tracked other Canadian heavy crudes such as light blend LLB for many, many years, decades, and so we’re certainly aware of that and Lloyd and Cold Lake are similar, but to your question on Cold Lake, I was not aware that it had actually entered their database. 3681. MR. DAVIES: Well, it’s included in the reports that they issued. If you read the reports --3682. 3683. MR. WISE: I learned that. MR. DAVIES: So did I because I read one of them.

3684. Now, as you point out in your reply evidence, there are discrepancies between the posted prices reported by Purvin & Gertz and the Platts spot prices reported by Muse, right? 3685. MR. WISE: I pointed out as in Muse.

3686. MR. DAVIES: And just to be clear, Mr. Wise, you are not suggesting that Muse has misreported the Platts spot prices? 3687. MR. WISE: No, we checked and we believe it’s accurate.

3688. MR. DAVIES: So what you’re saying is that Platts did not accurately report the prices at which Cold Lake blend was being bought and sold between 2006 and 2008, right? 3689. MR. WISE: I’m saying from our experience I would rely more on the posted prices and also the NGX prices. 3690. 3691. 3692. 3693. MR. DAVIES: Well, what your saying is the Platts prices are wrong. MR. WISE: For Cold Lake blend, they do appear to be wrong. MR. DAVIES: Between 2006 and 2008, right? MR. WISE: In that period, yes.

3694. MR. DAVIES: Now, you mentioned this earlier, and you say it in your reply evidence, that you have, that is Purvin & Gertz has, confidential access to actual monthly price data for Cold Lake blend which you received as part of the consulting

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies arrangements that you do for clients, right? 3695. MR. WISE: We had access, yes.

3696. MR. DAVIES: And you’ve made comparisons between those posted prices resulting from the -- well, the posted prices which you use which are public prices and what you did was you compared those to prices -- or to pricing data that you received from clients in confidence. Is that what happened? 3697. occasions. MR. WISE: Yes, we’ve had the opportunity to do that on a few

3698. MR. DAVIES: Well, when -- did you make this comparison for the purpose of preparing your reply evidence? 3699. MR. WISE: Oh no, we’re not using any confidential private data for this, we’re merely commenting that in our experience, which goes back over several years of looking at this heavy crude pricing, that we found the postings and the actuals to be -- the postings were a good representation of actuals. 3700. MR. DAVIES: Well, what you’ve disclosed, Mr. Wise, is that certain of your clients have historically paid or received close to posted prices for Cold Lake blend. That’s what you’ve disclosed, right? 3701. MR. WISE: Yes.

3702. MR. DAVIES: And you have no qualms about making such a disclosure of confidential information in order to advance supposition in a regulatory proceeding? 3703. MS. MORELAND: Mr. Chairman, Mr. Wise has indicated that in his expert assessment, the Platts postings are not as accurate as the posted prices that he’s used. 3704. Now, for Mr. Davies to then take that the next step and suggest that Mr. Wise has somehow inappropriately used knowledge obtained over a number of years in the consulting business, I think is an improper question for Mr. Davies to put to Mr. Wise in this context. 3705. He’s not disclosed anything confidential to this Board or otherwise. He’s given you his expert opinion in the context of the relative merits of two different proxies, if I can, for price, and I do think that Mr. Davies should not be permitted to ask him that question.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3706. MR. DAVIES: What he has disclosed, Mr. Chairman, is what I suggested that he disclosed and he’s agreed to that. Whether it’s appropriate or not is something that I probably don’t need to debate any further because it’s been disclosed. So I will move on. 3707. Now, Mr. Wise, at Adobe page 35, you say at Line 5 that the Muse “simple test” for reasonableness does not apply, right? 3708. 3709. page 6. 3710. MR. WISE: Yes. MR. DAVIES: And I wonder if we can turn up Exhibit C-7-4c at Adobe

If you could scroll down, please?

3711. And in the last paragraph, Mr. Wise, you’ll see this, and I’ll just read it into the record: “PGI has estimated that Keystone XL will increase Canadian heavy crude prices by $6.55 a barrel thus increasing the Canadian producers revenues by 3.4 billion dollars per year. As a test of reasonableness of PGI’s benefit estimate, it is illustrative to apply the $6.55 per barrel to the actual historical Cold Lake blend prices since 2006 upon which PGI based its benefit estimate. Had Keystone XL been in operation as of January 2006 and lifted the Cold Lake price by $6.55 a barrel, then the Cold Lake price for 2006 to 2009 would have averaged only 90 cents per barrel less than the delivered (to Houston) Maya price. If crude producers could only sell Cold Lake in Houston for 90 cents per barrel more than the Hardisty price, then they would not bother shipping to Houston as the higher price does not cover the transportation cost incurred. Accordingly, this simple test demonstrates that PGI has greatly overestimated the Canadian crude price increase that Keystone XL could have possibly generated in 2006/2008 as the resultant US Gulf Coast/Hardisty differential would be far too narrow to prompt crude producers to ship on Keystone XL.” 3712. 3713. Now, that’s the end of the quote and I apologize for reading it all. But this is the test of reasonableness that you say does not apply; right?

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies

3714. 3715.

MR. WISE: Yes, that’s right. MR. DAVIES: Okay.

3716. And if we go back to Adobe page 35 of your evidence, you say that the test of reasonableness does not apply because -- and I’m quoting from Line 6: “A producer who supplies a committed volume on the Keystone XL Pipeline may expect to receive a lower net-back price on this volume but this strategy would be intended to raise the price in PADD II and raise the average net-back price.” 3717. 3718. Do you see that? MR. WISE: I do.

3719. MR. DAVIES: So, first of all, this “strategy” as you call it, would be intended to raise the crude price not only in PADD II but also in Ontario; right? 3720. MR. WISE: Yes, it would raise it in Ontario and in Western Canada.

3721. MR. DAVIES: And, to be clear, the strategy is that a producer who supplies a committed volume on XL would be prepared to take a financial hit on that volume in order to raise crude prices in PADD II and Ontario; right? 3722. MR. WISE: Yes.

3723. This goes to the idea of a one price on a committed barrel -- call it “a term price” if you like -- versus a spot price. 3724. MR. DAVIES: And is it your view, Mr. Wise, that a single producer could use this strategy to raise the crude prices in PADD II and Ontario or would it take a number of producers pursuing this strategy together to increase the PADD II and Ontario prices? 3725. MR. WISE: I think it pertains to the committed barrels which total 380,000 barrels per day and represented by seven shippers. 3726. 3727. So --MR. DAVIES: So seven ---

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3728. MR. WISE: In this case, the answer is seven.

3729. MR. DAVIES: So seven shippers or seven producers are, in your view, pursuing this strategy in order to increase the PADD II and Ontario prices. Do I have it right? 3730. MR. WISE: We gave a sample calculation a few -- a page earlier in this same evidence which shows how -- shows how that would work. 3731. But if some of -- if a minority of the barrels were sold at the Gulf Coast at a Gulf Coast price, that that would have the effect of raising the price not only in the Midwest and Ontario but in Western Canada thus reduce -- increasing the net-back price for producers. 3732. 3733. MR. MILLER: May we have a moment, please? MR. DAVIES: I think you should take one.

--- (A short pause/Courte pause) 3734. MR. MILLER: I’d just like to add to Mr. Wise’s answer.

3735. I think the scenario we have here is we have a group of shippers who have identified a unique business requirement and their business requirement is to access the US Gulf Coast for either their Canadian crude or, in the case of a refiner, to access Canadian crude and, of such, they have taken capacity on Keystone. 3736. I think where Mr. Wise is coming from is, to the extent that that capacity, for those business reasons, has been subscribed on XL, he then explains the impact of the XL Pipeline with this capacity on various pricing points, be it PADD II or PADD III. 3737. you. So just to put it in perspective as far as the shippers’ motivation. Thank

3738. MR. DAVIES: Keystone supports all of the statements in the Purvin & Gertz Reply Evidence; is that so? 3739. 3740. 3741. MR. MILLAR: We’ve adopted it in our evidence. MR. DAVIES: So the answer is “yes”? MR. MILLAR: Yes.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3742. MR. DAVIES: If I could have you turn up, please, Exhibit B-15, and it’s the response to Enbridge’s Information Request 1.14(b). And, I’m sorry, I didn’t write down the Adobe page number. 3743. This is the first time it’s happened, Mr. Chairman, though during this cross-examination. I want you to note. I apologize. 3744. So it’s 1.14(b). Page 100 of the document, if that helps you at all. Adobe page 104. Thank you. 3745. Thanks. And in Request (b), you were asked to list all of the costs of the Keystone XL Pipeline to the Canadian refining industry and quantify them. 3746. 3747. 3748. And the answer in (b), I’m assuming, Mr. Wise, was prepared by you? MR. WISE: Yes. MR. DAVIES: And, in the first paragraph, you say: “Most of the Canadian refiners that use Canadian heavy crude are also producers. Since they are integrated with production, the price does not necessarily impact their earnings except for possible impacts on taxes and royalties.” 3749. 3750. Right? MR. WISE: Yes.

3751. MR. DAVIES: Is it your view that there is no net revenue increase for the integrated Canadian producer refiner from the Keystone XL Pipeline? 3752. 3753. 3754. MR. WISE: For those integrated companies that are referred to here? MR. DAVIES: Yes? But you don’t refer ---

3755. MR. WISE: Well, for their -- I’m not sure we can answer that simply “yes” or “no” because it would depend a lot on their relative balance as to how much they produce versus how much they consume in Canada. 3756. So if they were in balance on crude -- heavy production and heavy

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies consumption in Canada, then -- then their -- there would be minimal impact. To the extent that they produce more heavy crude than what they refine in Canada then they would probably be -- they would be impacted like any other producer on those export barrels. 3757. MR. DAVIES: So if they were in balance, in other words, what they produce they refine, then what you're telling me is that they would gain as a producer but lose as a refiner and, accordingly, there would be no net revenue benefit to them; right? 3758. 3759. calculation? 3760. MR. WISE: In that case, yes. MR. DAVIES: Did you include those volumes in your benefit

MR. WISE: Well, we just said there would be no benefit if their ---

3761. MR. DAVIES: Right, but when you were looking -- when you were coming up with this $3 billion, didn't you include in that the price uplift on these volumes that are being used by Canadian refiners? 3762. 3763. 3764. I think the answer is --MR. WISE: Yes, I think we did. MR. DAVIES: Thank you.

3765. Now, in the second paragraph, you refer to the heavy crude use by Canadian independent refiners of 75,000 barrels a day; right? 3766. MR. WISE: That's right.

3767. MR. DAVIES: And what is the expected total consumption of heavy crude by all Canadian refiners in 2013? 3768. 3769. 3770. MR. WISE: All the Canadian refiners in Canada? MR. DAVIES: Yes, in Canada. Do you know?

3771. MR. WISE: The refining capacity in Canada is about two million barrels a day and that includes refineries in Atlantic and Québec who import crudes so I'm not quite sure of your question.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3772. MR. DAVIES: Well, my question related to the expected total consumption of heavy crude by refineries in Canada in 2013, and the answer, Mr. Wise, I think is 251,000 barrels a day and I get that from your additional evidence, Table 6(b). 3773. 3774. Should we turn that up? MR. WISE: Yes, I think that that number sounds right for total.

3775. MR. DAVIES: And $6.55 per barrel multiplied by 251,000 barrels per day, multiplied by 365 days a year equals, almost on the button, $600 million a year. Can we agree? 3776. MR. WISE: Subject to check.

3777. MR. DAVIES: And you've included this $600 million in your calculated price benefit to producers in 2013 but you haven't had regard in your assessment to the fact that this $600 million is being paid by Canadian refiners; right? --- (A short pause/Courte pause) 3778. MR. WISE: I'm sorry, can we have the question again?

3779. MR. DAVIES: Yeah, I just was making the point that you had included the $600 million in your calculated price benefit to producers in 2013, which we had agreed to earlier, but you haven't had regard in your assessment to the fact that $600 million is being paid by Canadian refiners; right? --- (A short pause/Courte pause) 3780. MR. WISE: So we're saying the producer is taking the benefit but not paying it on the refining side. Is that your point? 3781. MR. DAVIES: No, my point is that, according to your assessment, you include it as a benefit ignoring the fact that, as we've just been through, producers may get a benefit on these barrels but you've got refiners that are paying the additional $600 million to source heavy crude for the refineries. That's the point. --- (A short pause/Courte pause) 3782. MR. WISE: I think the number of 25,000 barrels a day is for Western Canada and Ontario and, on that basis, I think you're right.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3783. We were just discussing that you wouldn't want to apply this to Atlantic Canada and Québec. 3784. MR. DAVIES: Thanks.

3785. Now, the last section of your Reply Evidence, which starts on Adobe page 35, you discuss pipeline toll impacts of the XL project; right? 3786. 3787. Adobe page 35. Are you with me, Mr. Wise? MR. WISE: Okay.

3788. MR. DAVIES: And at the bottom of Adobe page 35, at line 26, you say that Muse has assumed a $6.25 per barrel toll from a pro forma table; right? 3789. MR. WISE: Right.

3790. MR. DAVIES: And to be clear, the pro forma table is part of Keystone's filing in this proceeding? 3791. MR. WISE: Yes.

3792. MR. DAVIES: And did you ask your client whether the $6.25 was a reasonable toll to use for the purpose of your assessment? 3793. MR. WISE: No, I did not.

3794. MR. DAVIES: Mr. Miller, is it a reasonable toll for your consultant to use for the purpose of his assessment? 3795. MR. MILLER: It's reasonable.

3796. MR. DAVIES: Mr. Chairman, I knew I could take us to 12:30 if I really tried. Is this an appropriate time for a break? 3797. 3798. THE CHAIRMAN: How much longer do you anticipate questioning? MR. DAVIES: Very short.

3799. THE CHAIRMAN: Would you like to briefly confer with your client or would you prefer to have the lunch break? 3800. MR. DAVIES: Yes, I think I'd prefer to have the lunch break.

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TransCanada Keystone Panel 1 Continued examination by Mr. Davies 3801. My expectation is, unless something develops, I'll probably come back and say that I have no further questions. 3802. THE CHAIRMAN: We'll resume at 1:30.

--- Upon recessing at 12:33 p.m./L'audience est suspendue à 12h33 --- Upon resuming at 1:30 p.m./L'audience est reprise à 13h30 3803. THE CHAIRMAN: Please be seated.

PAUL MILLER: Resumed DAVID DIAKOW: Resumed THOMAS WISE: Resumed 3804. MR. DAVIES: Mr. Chairman, you'll be pleased to hear that I'm done in more ways than one. 3805. 3806. 3807. 3808. Thank you very much, gentlemen. I appreciate your cooperation. THE CHAIRMAN: Thank you. Does Imperial intend to question? MR. LANDRY: Thank you, Mr. Chair.

3809. We had estimated to Ms. Beauchemin that we could be up to an hour with questions but we said we would wait until we saw the cross-examination from BP and Enbridge, and Imperial is satisfied that the issues that it wanted to raise -- the questions it wanted to raise have been adequately dealt with, so we'll have no questions. 3810. 3811. 3812. THE CHAIRMAN: Thank you. My understanding is that Nexen does not intend to question? MR. RICHARDSON: Thank you, Mr. Chairman.

3813. Nexen, similarly to Imperial, had reserved the opportunity to conduct cross-examination, but based on the examinations that have taken place so far, is satisfied with the evidence. 3814. THE CHAIRMAN: Thank you.

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TransCanada Keystone Panel 1 Examination by Ms. Page 3815. 3816. MR. RICHARDSON: Thank you. THE CHAIRMAN: Alberta Department of Energy, Ms. Page.

3817. MS. PAGE: Thank you, sir. While my questions haven’t disappeared, I can say they’ve been greatly reduced. --- EXAMINATION BY/INTERROGATOIRE PAR MS. PAGE: 3818. MS. PAGE: Good afternoon, gentlemen. My name is Jill Page and I’m with the Alberta Department of Energy. 3819. Gentlemen, a simple question to begin with. Looking at Exhibit B-1j, that’s Section 5 of your original application, Commercial Terms and Tolls, Adobe pages 56 through 58. What is Appendix C? It says “See attachment”. 3820. 3821. 3822. 3823. MR. DIAKOW: That’s the draft tariff. MS. PAGE: And was it filed? MR. DIAKOW: Yes, I believe so. MS. PAGE: Appendix C?

3824. MR. MILLER: The draft tariff was filed. We’re just looking for the reference now. 3825. MS. PAGE: Thank you.

--- (A short pause/Courte pause) 3826. MR. DIAKOW: Adobe page 60.

3827. MS. PAGE: Now, I understand that uncommitted shippers in Canada will be paying 120 percent of the 10-year committed toll. Does that apply to parties you may negotiate with or does it just apply to spot volumes? 3828. MR. MILLER: Under the proposed toll structure, the fixed tolls are as presented in the application and for the uncommitted shippers, they will pay 120 percent of the 10-year toll. 3829. MS. PAGE: Just the spot volume, sir, or if you negotiate with new

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TransCanada Keystone Panel 1 Examination by Ms. Page shippers who will become committed shippers, will the 120 percent apply? 3830. 3831. year rate. 3832. 3833. 3834. 3835. MR. MILLER: Not necessarily. So today, just the spot shippers would pay the 120 percent over the 10-

MS. PAGE: And that’s in Canada, sir? MR. MILLER: Yes. MS. PAGE: And you have a different principle in the U.S., I understand? MR. DIAKOW: It’s a different methodology in the U.S., yes.

3836. MS. PAGE: Okay. In looking at -- it was Appendix D -- I wasn’t clear whether that explained the U.S. methodology. Let me ask you; does it explain the U.S. methodology? 3837. 3838. MR. DIAKOW: I see you’re referring to Appendix D of the TSA? MS. PAGE: Yes, I am.

3839. MR. DIAKOW: Adobe page 56. Actually, no, it doesn’t explain the U.S. methodology. Appendix D was meant to put forth some illustrative examples of how the, I guess what we call the MFN provision, works. 3840. 3841. MS. PAGE: MFN? MR. DIAKOW: Terminology, most favoured nations.

3842. MS. PAGE: Okay. So in other words, if you were to negotiate a lower toll with committed shippers than with your base shippers, the methodology used in Appendix D is what would be applied? 3843. MR. DIAKOW: That’s right.

3844. MS. PAGE: However, for spot tolls you won’t discount those without seeking approval from the NEB. Is that correct? 3845. 3846. MR. DIAKOW: That’s correct. MS. PAGE: So spot shippers -- and I’m using the $6.25 toll to the Gulf

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TransCanada Keystone Panel 1 Examination by Ms. Page Coast that I believe you had said was indicative -- would actually be paying an additional -- what would that be -- $1.50? 3847. MR. DIAKOW: If you apply the 120 percent to the $6.00, that would be about the right number. I guess, however, the 120 percent methodology is not the same methodology used in the U.S. 3848. 3849. 3850. 3851. MS. PAGE: Okay. MR. DIAKOW: But if you want to use it for an example --MS. PAGE: And what do you anticipate the spot toll will be in the U.S.? MR. DIAKOW: We haven’t determined that.

3852. MS. PAGE: Can you give us an idea, sir, a range of what you expect it will come out to? 3853. MS. MORELAND: Mr. Chairman, I would appreciate it if -- my apologies -- I would appreciate it if Ms. Page might provide an indication of the relevance of the magnitude of the U.S. spot toll to the decisions this Board Panel is being asked to make on Keystone XL. 3854. MS. PAGE: Mr. Chairman, it follows up from Ms. -- from some of Ms. Chahley’s questions. 3855. The benefit to Canada, how much is going to be available to ship on a spot basis and how likely is it that spot shippers will actually use this particular pipeline or not? You know, we’ve been told it’s an integrated project. 3856. You can’t have one part of it go ahead without the other, and yet on the other hand we’re being told, “Oh, you don’t need to know that. You don’t need to know what the cost of getting to the Gulf Coast is.” You’re being asked to simply look at a very narrow part of what is supposedly an integrated project that cannot be divided into pieces. 3857. If we’re going to see what the benefits truly are or what the effects are for Canada, I submit it would be useful to have some idea of what the spot toll to the U.S. Gulf Coast might be. 3858. MS. MORELAND: Mr. Chairman and Members, that’s helpful in this sense to the extent Ms. Page’s questions can relate back to system utilization in Canada. I’m happy to allow those questions to unfold.

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TransCanada Keystone Panel 1 Examination by Ms. Page 3859. To the extent we’re going to get into any kind of a detailed discussion about assumptions going into what the U.S. spot toll might look like or how that U.S. spot toll has been developed, what its methodology is, I don’t think that that’s useful. 3860. MS. PAGE: And I wouldn’t hope to go that far. I’m looking for a range of numbers, a general indication. Is it comparable? Might it be a little bit more, a little bit less? I’m not looking for details, sir. 3861. THE CHAIRMAN: Please proceed.

3862. MS. PAGE: Can you indicate roughly what the U.S. spot toll might be to the U.S. Gulf Coast? 3863. MR. MILLER: For illustrative purposes, you can use the $6.25 at the 120 percent premium for this line of questioning. 3864. 3865. MS. PAGE: Thank you, sir. In Canada, how would the 120 percent compare to a cost-of-service rate?

3866. MR. MILLER: I’m not sure. I think the only way I can answer is the 120 percent over the 10-year can best be described as the premium over the negotiated committed rate and, therefore, it’s a derivative of the negotiated fixed rate -- or committed rate, sorry. 3867. MS. PAGE: So you can’t give any indication of whether that may be higher or lower than a cost-of-service rate might be? 3868. MR. MILLER: I cannot. We are proposing to this Board a negotiated toll structure and within that toll structure the spot toll is a derivative. I just don’t know the comparison, I haven’t done that. 3869. MS. PAGE: I understand, sir, that under the terms of the existing contracts, shippers have committed to pay -- I believe it was 9.4 or 9.6 billion dollars over the terms of their contract and that that would cover all your costs except a return on equity. Is my understanding correct? 3870. MR. MILLER: The fixed payment under the toll structure isn’t necessarily tied to a return of our own capital. I think what we said in the IR response, if you looked at the cash flow associated solely with the committed rate, we would earn a return on our capital but it would not be an acceptable return.

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TransCanada Keystone Panel 1 Examination by Ms. Page 3871. MS. PAGE: Do I take it then, sir, that the contracted rates would cover off depreciation? 3872. MR. MILLER: Again, we haven’t allocated specific points. We have designed our toll structure around a 500,000 barrel a day pipeline and to the extent that we’ve contracted the 380, a portion of that is attributable to capital in a generic sense. We haven’t specifically laid out in the cost-of-serve methodology that so much is depreciation and so much is taxes, etc. 3873. MS. PAGE: You didn’t even do a back-of-the-envelope calculation in determining that it was an acceptable rate? 3874. MR. MILLER: We did a number of things. First of all we had to find a rate that was competitive and in determining the rate that was competitive then we took a look at our capital cost, took a look at our proposed toll structure, being the 500,000 a day with 45,000 left for spot, and then made a determination as to how many barrels would we attract under both the committed contract as well as the uncommitted contract. 3875. Based on that cash flow, then we made a determination if the investment provided a suitable return for the capital invested. 3876. MS. PAGE: And I presume that it did, sir, less than what you would expect under cost of service, but you would get a return. 3877. MR. MILLER: Could you just reframe that without the reference to the cost of service, please? 3878. MS. PAGE: Well, you’ve told me that your costs would be covered, including a bit of a return on your equity. Did I misunderstand you? 3879. MR. MILLER: I think what was said is that in structuring our toll structure the way we have in the IR response we would earn --- and I’d like to check the IR, but I think we earn our capital and our return just would not be acceptable, based on the amount of capital that we put in. 3880. 3881. MS. PAGE: But you would get a return of your capital. MR. MILLER: I believe that’s what we indicated, yes.

3882. MS. PAGE: And I presume, sir, it would cover all your taxes and/or any interest on debt? 3883. MR. MILLER: Again, from an economic modelling perspective, we

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TransCanada Keystone Panel 1 Examination by Ms. Page don’t differentiate between equity and debt. We use an unlevered return approach where we take a look at the capital invested, take a look at the cash flow associated with that capital, and then determine what the unlevered return is. And to the extent that that unlevered return, without regard to debt and equity components, provides a suitable return for our capital, then we would move forward with the project. 3884. MS. PAGE: Okay. I understand that at the end of the contract terms, shippers have the option of renewing for either a five-year or a 10-year term. Is that correct? 3885. 3886. 3887. 3888. MR. MILLER: Yes. MS. PAGE: And the carrier will set the tolls for that renewal term? MR. MILLER: Yes. MS. PAGE: And how will you calculate how those tolls should be set?

3889. MR. MILLER: It would be the prevailing rate at the time for that type of transportation. 3890. MS. PAGE: So I take it, sir, you’re looking at the rate you need to compete with other options? 3891. MR. MILLER: Yes.

3892. MS. PAGE: It also goes on to say that the renewal tolls shall not be less than the five-year toll. Do you have a five-year toll on the KXL project? 3893. MR. DIAKOW: I believe the term is the fixed toll be established at the time of renewal for a five-year contract term, so the appropriate five-year contract term at that time. 3894. MS. PAGE: Okay, I believe the wording is, “Shipper sets the tolls for renewal, which shall not be less than the five-year toll.” Do you anticipate you’ll have a five-year toll in the future? 3895. MR. DIAKOW: It would be a fixed toll established at the time for a fiveyear contract, so it would essentially be determined at that time. 3896. MS. PAGE: And sir, at the end of the contracts and their renewal, do you ever see tolls going to a cost-of-service basis?

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TransCanada Keystone Panel 1 Examination by Ms. Page 3897. MR. DIAKOW: It would depend on the market conditions at the time.

3898. MS. PAGE: So at this point you would look to continue to negotiate your tolls. Do I understand correctly? Unless market conditions suggested you should do otherwise. 3899. MR. DIAKOW: Could you rephrase your question, please?

3900. MS. PAGE: Well, I’m just wondering if it’s ever going to become a costof-service pipeline. 3901. 3902. MR. DIAKOW: I don’t know. MS. PAGE: At this point in time do you envisage that it would?

3903. MR. MILLER: I think the intention would be to continue the negotiated market approach to tolling. 3904. 3905. the basin. 3906. MS. PAGE: Mr. Wise, Exhibit B-1f, and I’m looking at page Adobe 46. Basically, sir, it shows the export capacities for heavy and for light out of

MR. WISE: That’s right, call it total crude, light plus heavy.

3907. MS. PAGE: And sir, I believe it’s your conclusion that there will not be sufficient heavy export capacity by about 2015. Is that correct? 3908. MR. WISE: If you go to Figure 15 in this report -- the next page, I think - and the complete figure please. This is the February report based on the 2008 forecast and so heavy was required a bit sooner, but in the update, which is Figure 15b, the crossover point moved to around 2015. 3909. As I said here, that the capacity presumes that the pipelines are all going to markets and refineries that require the crude so, in other words, not all that capacity may be fully used and useful. 3910. MS. PAGE: Well, basically, sir, I’m just wondering whether you considered that some of the capacity for the light crude oil might be converted to heavy in coming up with the 2015-2016 date? 3911. MR. WISE: There’s probably some possibility of that. The data we used was based on the Enbridge Clipper application which envisaged Clipper in heavy service

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TransCanada Keystone Panel 1 Examination by Ms. Page but switching line 3 from heavy into light service. We do not attempt to re-engineer that proposal. 3912. MS. PAGE: So it’s possible that we could delay that 2016 date if you were to have conversion of some of the light to heavy? 3913. MR. WISE: If that were to take place, then yes.

3914. MS. PAGE: Sir, if I could refer you to Exhibit 13b-13a, it’s Adobe page 13 of 19, and it contains the Exhibit 15b that you just referred to. Do you have it, sir? 3915. I’m looking at pages 14 to 15 or -- pardon me -- lines 14 to 20 where you say that you’ve estimated the pipeline capacity, I believe assuming that a diluent was used as a blend? 3916. MR. WISE: This forecast assumes that most of the diluent is imported at least up until 2015, after which it will all continue but we’ll see more synthetic crude being used in our forecast. 3917. MS. PAGE: And you say if more synthetic crude oil is used to dilute the bitumen, the resulting synbit blend requires approximately 50 percent diluent. So the volume of heavy blend increases. More synbit and less dilbit supply would increase the total supply of heavy crude above the forecast. 3918. 3919. MR. WISE: Yes, right. MS. PAGE: Did you mean that?

3920. MR. WISE: Yes. If we have -- for one barrel of bitumen, you would need one barrel of synthetic crude as diluent or, in round numbers, let’s say 40 barrels of condensate. So you end up with two barrels of synbit or 1.4 barrels of dilbit --3921. 3922. increases. MS. PAGE: But, sir --MR. WISE: --- and so if you have more synbit then the volume

3923. MS. PAGE: But, sir, if you have one barrel of bitumen and you’re going to make a dilbit, you’ve got to import some of the diluent and so you need, what, 1.3 barrels of pipeline capacity to move the diluent. Would you agree? Roughly. 3924. MR. WISE: I’ll agree that you need more pipeline capacity because of the import. If you use dilbit you have more synthetic crude in a segregated form. In

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TransCanada Keystone Panel 1 Examination by Ms. Page other words, light crude, and you have less heavy crude as a blend. 3925. MS. PAGE: Whereas, if you have a barrel of bitumen and you take half that barrel and turn it into SCO and use the other half barrel and blend it with that SCO, you actually get less than a barrel of synbit. Would you agree with that? 3926. MR. WISE: I’m not sure I followed all that. If you have a barrel of bitumen, you can create roughly a barrel of synthetic crude out of it. It might be 85-90 percent, but anyway, I’m not sure I understood your blending question. 3927. MS. PAGE: What I’m suggesting, sir, is one barrel of bitumen exported as dilbit takes 1.3 barrels of pipeline capacity because you’ve imported the diluent, whereas to take one barrel of bitumen and export it, you turn half of it into SCO, mix the two together and you get less than a barrel of synbit. You would actually require less pipeline --3928. MR. WISE: I agree, if you upgrade a half a barrel of bitumen to make synbit you will have a barrel or less of synbit. 3929. MS. PAGE: So when you suggest that if there’s more synbit and less dilbit supply, it would increase the total supply. Actually, if there’s more synbit than dilbit it will decrease the total supply, won’t it? 3930. MR. WISE: No, you’re assuming more upgrading which we did not assume. We assumed the same barrel or any barrel of bitumen needed to be exported. We already had a barrel of synthetic crude counted on as a light crude, but we’ve come up with a certain amount of bitumen that requires export and the two options we give it are diluent condensate or synthetic crude. That’s why we said more synbit. 3931. MS. PAGE: Okay. I’m not sure if you’re agreeing with me or not, sir.

3932. If you look at the production of oil sands, the synbit is all turned into dilbit. You’re going to have one volume of supply that will be more than your production of bitumen. 3933. MR. WISE: Yes.

3934. MS. PAGE: Whereas, if you have a fixed amount of production of bitumen, turn it all into synbit, you’ll have less synbit supply than what you had bitumen. 3935. MR. WISE: I agree with your mathematics. I don’t agree with the assumption that all the barrels of bitumen will be upgraded to synthetic crude oil. That hasn’t happened and that’s not what the current projects ---

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TransCanada Keystone Panel 1 Examination by Ms. Page 3936. MS. PAGE: Sir, I’m not suggesting, I’m just looking at your last statement there. 3937. You say more synbit/less dilbit would increase the total supply. I’m just saying isn’t it truly the opposite? We’re not making any assumptions. 3938. MR. WISE: I can’t agree with that. I think what we meant was for a barrel of bitumen to be exported, it will either be synbit barrels or dilbit barrels. 3939. MS. PAGE: So you aren’t speaking to supply at all?

3940. MR. WISE: I’m speaking to any crude supply. These two streams end up in the heavy crude pipelines whereas the synthetic crude oil alone, if it’s been produced from bitumen and if it’s light synthetic crude, it’ll end up in the light crude pipeline. So we’re trying to address heavy crude supply here. 3941. 3942. MS. PAGE: Yes, and so am I, sir. MR. WISE: Okay.

3943. MS. PAGE: I’m not suggesting that all barrels will be turned into synthetic crude or that all barrels will be dilbit. I’m just looking at the statement, and if you assume all barrels of bitumen are turned into one or the other, isn’t it true that if you have more synbit and less dilbit, supply would increase or decrease, where as if you had more dilbit/less synbit then supply increases? 3944. 3945. 3946. 3947. MR. WISE: In terms of total crude, yes. In terms of heavy crude, no. MS. PAGE: Isn’t synbit a heavy crude? MR. WISE: It is. MS. PAGE: And isn’t dilbit?

3948. MR. WISE: They both are. If you use synthetic crude as a diluent, in effect you downgrade it to a heavy in the sense that it has to go in the heavy crude pipeline. 3949. 3950. MS. PAGE: And if all production is turned into one or the other --MR. WISE: One what or other what?

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TransCanada Keystone Panel 1 Examination by Ms. Page 3951. MS. PAGE: If all production is turned into synbit or dilbit?

3952. MR. WISE: Well I’m not sure we’re going to agree here. I guess for one barrel of bitumen I see two barrels of synbit or 1.3 barrels of dilbit. 3953. MS. PAGE: But it takes two barrels of bitumen to make that 1.95 barrels of synbit; correct? 3954. 3955. 3956. 3957. 3958. MR. WISE: Yes, but I’ve already produced the synthetic crude oil. MS. PAGE: Yeah. And that took a barrel of bitumen to do so. MR. WISE: Pardon? MS. PAGE: That took a barrel of bitumen. MR. WISE: Oh it did. Yeah.

3959. MS. PAGE: Okay. Could I ask you to turn to Exhibit B-1f, Adobe pages 38 to 40. It’s pages 25, 26, 27 of your original submission. 3960. 3961. MR. WISE: Those Adobe pages are --MS. PAGE: Adobe pages 38 to 40.

3962. So what I would like to understand, and don’t fully, is how these uplifts occur. And I don’t want to discuss, you know, whether it’s a $1.00 uplift or $3.00 uplift or $5.00; it’s just the principle of the uplift. 3963. MR. WISE: Okay. You have a question or do you want me to ---

3964. MS. PAGE: No, I will start with a question. I’m sorry, I’m trying to find my reference here. It should be marked. 3965. What I understand you to be saying, that if you are able to move -- and let’s use Cold Lake blend because that’s what you’ve used in your example. If you move Cold Lake blend to the Gulf Coast it should receive a price equivalent to Maya. Is that your proposition? 3966. 3967. MR. WISE: That would be a fair and reasonable price at the Gulf Coast. MS. PAGE: At the Gulf Coast, right.

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TransCanada Keystone Panel 1 Examination by Ms. Page 3968. MR. WISE: Right.

3969. MS. PAGE: And yet, sir, when I look at the comparison between Maya and the Cold Lake blend received at the Gulf Coast, from January ’06 to ’08 it appears as if there has been a discount. I’m looking at Figure 13, which is on page 25. 3970. MR. WISE: Yes, that’s our contention as well, that that comparison does demonstrate a significant discount that’s occurred over the last three years. 3971. MS. PAGE: Why? You’ve just told me that if you move Cold Lake blend to the Gulf Coast it should get equivalent to Maya and yet your graph shows it does not. 3972. MR. WISE: Right. This is one way to calculate it or demonstrate it. It doesn’t necessarily mean that the crude that’s sold at the Gulf Coast, the Canadian Cold Lake blend, actually sold at that price. In fact we presented some evidence via a real shipper that said they did receive a Gulf Coast price. 3973. But the calculation is based on taking the Hardisty price, moving it to the Gulf Coast and showing that the landed price of Cold Lake would be much lower. 3974. What that really means is that the price at Hardisty is much lower than a Gulf Coast netback and the reason for that, I think, and which you asked, is that that the Cold Lake crude cannot get as far as the Gulf Coast on an unlimited basis. There’s only one small pipeline that delivers it there. 3975. And so the Cold Lake blend or all the Canadian heavy crudes, likes WCS, need to clear the market in a market that they can get to, and the largest market is the Midwest. So it tells us that the market -- that the price is being discounted really in the Midwest. 3976. MS. PAGE: Okay, so you don’t have any numbers of what it -- there were no postings in the Gulf Coast to show what it was selling at and you have no hard data you can present to the Board? 3977. 3978. MR. WISE: At the Gulf Coast? MS. PAGE: Yes.

3979. MR. WISE: Well, as a matter of fact we did refer to some testimony given at FERC which said that the price for some barrels delivered at the Gulf Coast was very close to the equivalency with Maya.

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TransCanada Keystone Panel 1 Examination by Ms. Page 3980. 3981. 3982. MS. PAGE: Some barrels very close? MR. WISE: Pardon? MS. PAGE: All barrels weren’t?

3983. MR. WISE: There was one shipper that provided an average for the number of barrels that they sold. That was in the order of -- if I remember right -- 25,000 barrels per day. 3984. The pipeline that delivers to the Gulf Coast has a capacity of 65,000 barrels per day. It's recently been expanded to 90 but this was a representation for that particular shipper’s barrels. 3985. MS. PAGE: And the way you phrased it, sir, it didn’t sound like “Oh yes we received a Gulf Coast price”; it was some barrels did. 3986. MR. WISE: I’m sorry, I didn’t mean to imply that. I think I understood from that testimony that it was all of their barrels sold at the Gulf Coast. 3987. others? 3988. MS. PAGE: Okay. So that’s one anecdotal example. Do you have any

MR. WISE: No, I don’t.

3989. MS. PAGE: Okay. I guess it comes down to how certain are you that this uplift will occur? 3990. MR. WISE: That what will occur?

3991. MS. PAGE: The $3.00 uplift that you’re claiming will occur when you get bitumen blend to the Gulf Coast. 3992. MR. WISE: In a non-limited way, I should say. I think -- we do a lot of analysis of worldwide crude prices in different markets and most crudes that sell at the Gulf Coast can be related close to their refining values. 3993. And we found that the Maya price itself, a heavy reference crude from Mexico, does sell close to its refining value, and we think it would be quite reasonable that Canadian crude should also sell at refining value once they get there. 3994. We believe a lot of shippers wish to get to a less landlocked market where they can trade essentially on the world market. The Gulf Coast is the biggest refining

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TransCanada Keystone Panel 1 Examination by Ms. Page region in the world and so it’s a common area to look at crude oil pricing. 3995. So as long as there’s spare capacity on a pipeline such as KXL to get to the Gulf Coast then that should be the lowest price that Canadian crude should sell at. 3996. If and when KXL itself becomes limited on -- or full all the time, then there really is no more flexibility and we could be back and do further discounts until such time as we build more pipeline, you know, after that. 3997. That’s the -- that seems hard to imagine right now but that's what we were thinking about two or three years ago, where we needed more pipe. 3998. MS. PAGE: Okay, so it probably should happen, based on the theory you've just given. Is that --3999. 4000. MR. WISE: That's our analysis and opinion which there’s no guarantee. MS. PAGE: So that is one aspect of the benefit that you see.

4001. Mr. Wise, you then go on to say that this increase at the Gulf Coast might translate into an increase in the Midwest as well. Is that correct? 4002. 4003. MR. WISE: You mean the same increase or a further increase? MS. PAGE: Well, there's two here. Let's talk the same increase first.

4004. MR. WISE: We believe that that's the spot price that would raise the price of all Canadian heavy crude at least to that level. 4005. MS. PAGE: And do I take it that that would only occur provided that demand in the Midwest exceeded supply in the Midwest? 4006. MR. WISE: No. If demand exceeds supply in the Midwest then we see a further increase. That's the second part we're talking about. 4007. MS. PAGE: And I would like to discuss the second part but if we could just finish the first part first. I should have phrased it the other way. 4008. second part. MR. WISE: I think you went into the assumption that we think drives the

4009. MS. PAGE: Okay, let me rephrase it. If supply exceeds demand in the Midwest, would you still get the $3.00 uplift?

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TransCanada Keystone Panel 1 Examination by Ms. Page 4010. MR. WISE: Yes, if supply exceeds demand in the Midwest and it has to move to a more distant market and lines are moving further south, then the prices will start to -- the prices could become Gulf Coast parity. It could be Cushing parity in between. It depends how far south the Canadian crude has to go to clear the market. 4011. MS. PAGE: So it's as long as supply equals demand in the Midwest, then you believe the $3.00 parity -- or $3.00 would occur -- the $3.00 increase would occur in the Midwest? 4012. MR. WISE: And that was supply exceeds demand?

4013. MS. PAGE: Well, I asked you that previously; if supply exceeds demand will you still get the $3.00 benefit? 4014. MR. WISE: Yes.

4015. MS. PAGE: And that will occur as long as -- or even if supply exceeds demand in the Midwest there’ll be no discounting? 4016. MR. WISE: If supply exceeds in the Midwest it’ll -- it needs to move beyond the Midwest and if it can clear the market in the Gulf Coast then it will -- that's where it’ll -- where the price will stop falling. 4017. market? MS. PAGE: But in the meantime price will fall until it can clear the

4018. MR. WISE: Yeah, I think oversupply means it moves to the point where it will clear the market. 4019. MS. PAGE: Okay.

4020. Now, if we could talk about the second uplift, if you will; the 3.55 that you've projected. Once again, without talking about the numbers -- it's just the principle - can you explain that to us, why does it occur? 4021. MR. WISE: I can try. If demand in the Midwest exceeds the supply -now that means it's going to need more barrels coming up from the Gulf Coast to satisfy refinery demand. 4022. So it would be, in that case, taking all the Canadian crude it could get, plus it would need other imports. At that time the price of crude in Midwest would become the Gulf Coast price plus freight on the pipeline.

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TransCanada Keystone Panel 1 Examination by Ms. Page 4023. So that's part of the uplift. The other part is that the Canadian crude no longer has to move south all the way to the Gulf Coast. It can stop in the Midwest, Chicago or Wood River, and so it doesn't have to pay the extra freight to go to the Gulf Coast and so there's a saving there that it wouldn't have had if it was going to the Gulf Coast. 4024. We've actually had the situation in the fairly distant past, and we happen to have the right slide on the screen here, Figure 13. This period, from January 1997 to some time in January, in the year 2000, the comparison line here says that Maya and Cold Lake are almost equal at Wood River. 4025. And that was a period when we didn't have as much supply; the refineries were wanting more crude, and there were more imports of heavy crudes coming up from the Gulf Coast into the region. So I think it's an excellent example that demonstrates when we've had, what we call parity, in the Midwest. 4026. MS. PAGE: Actually, in looking at that slide there's -- you suggested there's been oversupply in the Midwest, what, since about 2006? 4027. 4028. 4029. Coast. MR. WISE: Even 2005 probably. MS. PAGE: Okay. MR. WISE: Zero six ('06) is when that pipeline started up to the Gulf

4030. MS. PAGE: Okay. If there has been oversupply and yet they were still importing Maya, why were they buying Maya if you could get Cold Lake Blend cheaper? 4031. MR. WISE: Maybe I said it wrong. Since '05-06 and even a few years before that they have not been buying Maya crude in the Midwest; there's been virtually no imports of heavy crude in that period. I was referring to the late nineties and 2000 period when the imports were substantial. 4032. MS. PAGE: Then how can you get a differential at Wood River, as is shown on Figure 13? 4033. MR. WISE: It's a calculated price for the Maya if it were delivered from Gulf Coast to Wood River at the prevailing pipeline tariff. 4034. MS. PAGE: Okay. If we could go back to this 3.55 uplift, as I understand it, you're saying that you would get the $3.00 Gulf Coast price plus

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TransCanada Keystone Panel 1 Examination by Ms. Page transportation in the Midwest. Is that correct? 4035. 4036. MR. WISE: For the Maya that’s right. MS. PAGE: And also for the Cold Lake Blend or the Canadian heavy?

4037. MR. WISE: Yes, that's the price that it would trade at in the Midwest but the Cold Lake would save the transportation from the Gulf Coast. 4038. MS. PAGE: Well, I can understand how you could have Cold Lake Blend be equivalent to Maya in the Midwest which would be your $3.00 uplift plus -- and I think the example you gave was the CAPP line toll of 2.27, that would bring it up to 5.27 and you suggest that would apply to all Canadian barrels of heavy. 4039. Sir, what I do not understand is why you would then add the Pegasus toll of $1.28 to bring the number up to the 6.55, not -- why would you get that? Why would you pay a Cold Lake Blend price of a Maya price Gulf Coast plus transportation to the Midwest, plus? 4040. MR. WISE: I'll try to explain that better. That's what we would consider to be a saving. In the case where Cold Lake Blend is moving to the Gulf Coast through -on the Pegasus Pipeline that you mentioned, it would have to pay the $1.28 tariff to get there. 4041. So now it would avoid that $1.28. It would be stopping in Wood River and the shipper wouldn't have to pay the $1.28 and he would save that much money. 4042. MS. PAGE: And that would apply for the 65,000 barrels a day that are on that pipeline but why would it apply to all Canadian production? 4043. Gulf Coast. MR. WISE: Well, that’s the way we’ve done the price calculation for the

4044. We’ve incorporated that $1.28 in arriving at this -- at the Gulf Coast price that is built into Figure 13. 4045. So you’re right, not everyone ships on that small pipeline but it -- either way it’s calculated, it affects the -- the pricing between Hardisty and the Gulf Coast. 4046. MS. PAGE: Well, sir, are you telling me that changes the $3.00 uplift you found previously? 4047. MR. WISE: No, because it -- it’s assumed to be trading at the Gulf Coast

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TransCanada Keystone Panel 1 Examination by Ms. Page and the $3.00 uplift is already taken care of. 4048. MS. PAGE: Okay.

4049. So how can it possibly impact the Midwest price by raising it above Maya plus a capline toll? 4050. MR. WISE: Well, if you had to ship Canadian crude from Alberta to the Gulf Coast on the -- ultimately, on the Pegasus Pipeline, you would pay all the tariffs including the Pegasus tariff. 4051. So let’s say, for round numbers, that that’s -- I think, today, that total tariff is -- everything added up is around 5.60 a barrel. 4052. If you only were shipping -- and you would get a price at the Gulf Coast equivalent to Maya. If you deliver Canadian Crude to Wood River and save -- let’s call it $1.30 -- we’d be paying $4.30. 4053. Meanwhile, the Maya price has gone up from $3.00 -- it was priced at the Gulf Coast but, at Wood River, it’s been raised from Gulf Coast price to Wood River price which -- what was it? About? Call it 2.30? 4054. 4055. 4056. 4057. MS. PAGE: Two twenty-seven (2.27). MR. WISE: All right. MS. PAGE: Is the number you gave. MR. WISE: Fine.

4058. So -- so now, at Wood River, we’re at 2.27 and we’ll agree, I think, that Cold Lake Blend will sell at Wood River at that price but now we only have to deduct the tariff of $4.30 back to Alberta instead of $5.60. 4059. 4060. MS. PAGE: Well, no --MR. WISE: So that’s where the Pegasus saving comes into play.

4061. MS. PAGE: But only on the -- only on the barrels, sir, that were actually going down Pegasus. 4062. MR. WISE: Well, you ---

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TransCanada Keystone Panel 1 Examination by Ms. Page 4063. 4064. MS. PAGE: Right? Why would ---

4065. MR. WISE: For sure, on those, but we’re saying that’s how the price is being established. 4066. MS. PAGE: Okay, so just so I’m clear, it’s your contention that you would get -- Cold Lake Blend could get the equivalent of a Maya/Gulf Coast which would give Cold Lake Blend a $3.00 uplift at the Gulf Coast which would translate all the way back, on all Canadian heavy crude barrels. 4067. 4068. 4069. MR. WISE: That’s Step 1? MS. PAGE: Step 1. MR. WISE: Right.

4070. MS. PAGE: And then, Step 2, as long as demand exceeds supply in the Midwest, Midwest refiners would have a choice of either paying a Maya price plus 2.27 or they could buy Cold Lake Blend at a Maya price plus 2.27 plus 1.28. 4071. Why wouldn’t they choose the Maya?

4072. MR. WISE: No, the price at Wood River would be Gulf Coast plus 2.27. The net-back in Alberta would be, let’s say, plus 2.27 minus 4.30. 4073. 4074. MS. PAGE: But that net --MR. WISE: So the difference -- so the difference there is about $2.00?

4075. In the other way, if it went to the Gulf Coast, it would be Gulf Coast minus $5.60. 4076. 4077. MS. PAGE: But very little would be going to the Gulf Coast, sir. Remember? It’s only the 65,000 barrels.

4078. Bottom line, sir, instead of having an uplift of 6.55 under your methodology, don’t you really have a potential uplift of 5.27 on most volumes plus the 6.55 only applies to the volumes being shipped on Pegasus? 4079. MR. WISE: No, from the point of view of pricing, I -- I can’t agree with

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TransCanada Keystone Panel 1 Examination by Ms. Page that. 4080. MS. PAGE: So in Wood River, they will pay 1.28 more for Cold Lake Blend than they would for the Maya? 4081. MR. WISE: No, I don’t agree with that either. We agreed that they would pay Gulf Coast plus 2.27. 4082. 4083. 4084. 4085. 4086. 4087. MS. PAGE: For both the Cold Lake Blend --MR. WISE: For both --MS. PAGE: --- and Maya. MR. WISE: Right. MS. PAGE: Okay, perhaps we can move on. MR. WISE: M’hm.

4088. MS. PAGE: Sir, I’m looking at Table 7B of your Exhibit 13a and I’m not sure you need to look it up. Perhaps I could -- it’s simpler and quicker if I just give you the numbers, subject to check. 4089. And basically, sir, that -- those numbers are your available for PADD II -this is heavy oil available for PADD II -- and, according to the PGI numbers, in 2006, it was 691,000 barrels, 678,000 barrels in ’07, 629,000 barrels in ’08 and 563,000 barrels in ’09. 4090. I then look at your response to Enbridge, it was their IR1.10, and there, sir -- I can give you the Adobe number if you like or I can just read you the numbers -- your 2009 forecast of demand for heavy in the US Midwest was 2006: 850, 2007: 801, 2008: 757 and 2009: 671. 4091. Sir, my question is: You’ve told us that the supply exceeded demand in those years and, yet, your table, your numbers seem to show that demand exceeds supply. Could you explain that, please? 4092. MR. WISE: They’re really two different representations of Canadian crude and, actually, highlight a problem just to reconciling current statistics. 4093. The total demand for heavy crude in PADD II in that period could have actually been higher than either set of numbers because, if there -- had there been imports

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TransCanada Keystone Panel 1 Examination by Ms. Page and, as I said earlier, imports were extremely low, the -- Table 7B, I’ll go there first, represents -- well, the calculation should be clearly evident. 4094. Where we’ve shown the total supply, we’ve removed the demands in Western Canada, Ontario, US PADD I, III, IV and V to come up with what we call “an availability”. So that’s what left over to close that balance. 4095. The figures given in the IR Response that you referred to, the -- and for those historical years, they’re actually based on U.S. DOE statistics and they don’t really jive too well with what Canadian calculated numbers turn out to be. 4096. And so the IR which was asked for was based on a graph that was initially intended just to paint a picture of PADD II and show that there was crude that came from different sources, not just Canada but U.S. and foreign. 4097. And we were asked to provide a breakdown by type, we provided light and heavy. And so as I say, that history is from the DOE statistics and so you really -- I don’t think can make any assumptions about supply versus demand from that data. 4098. MS. PAGE: So I take it, sir, we shouldn’t use those two tables to see when supply equals demand or demand equals supply? The numbers are just are directional rather than accurate? 4099. for trending. MR. WISE: Well, they were inconsistent but I think they can be useful

4100. When you look at the growth that may come about from new refineries adding capacity then you can look at where the -- how the additional crude is impacted. 4101. MS. PAGE: To go back to the areas we were just talking about and the potential uplifts, be it the 2.27 or the $3.00, you have a disclaimer in those sections of your report, page 27, Lines 16 to 18, say: “There may be other events that affect the dilbit price which were not considered in this report, if not related to Keystone.” (As read) 4102. You have a similar comment later on, at page 28. What other events could there be, sir? 4103. MR. WISE: Obviously, production itself is one factor that would affect the total supply and affect the supply/demand balance and there’s a lot of factors within the supply, such as the one we discussed earlier about synthetic crude and bitumen, the

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TransCanada Keystone Panel 1 Examination by Ms. Page amount of upgrading, the amount of diluent, pipeline capacity to or from the region and, importantly, how the refinery demand might change as a result of new projects. 4104. MS. PAGE: And would those same apply to where you were talking about the other uplift: “Following the start-up of Keystone, increased revenue should be expected to continue until Canadian supply overtakes demand. Other events which were not considered here could alter producer revenues.” (as read) 4105. MR. WISE: What was the question?

4106. MS. PAGE: Would the same possibilities be things that should be considered or would there be --4107. MR. WISE: Yes, all those factors would come into play.

--- (A short pause/Courte pause) 4108. MS. PAGE: I’d like to explore the proposed light/heavy toll differential. So I think I’m back to you, Mr. Miller. 4109. Sir, on most pipelines, excluding Keystone, would you say that it’s usual that heavy pays a higher rate than light oil? To your knowledge? 4110. MR. MILLER: To my knowledge, I’m not sure if it’s usual.

4111. I know there are other pipes which -- like Keystone -- charge a higher toll for heavy versus light. 4112. 4113. 4114. 4115. 4116. 4117. MS. PAGE: In fact, most of them do; don’t they, sir? MR. MILLER: That I can’t confirm. MS. PAGE: Can you tell me any others that don’t? MR. MILLER: I cannot. MS. PAGE: Okay. And normally, sir, that differential would be on the entire toll; is it not?

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4118. MR. MILLER: Possibly, but Keystone has a unique toll structure where we have a fixed variable. It kind of comes from the gas side and what it does it provides shippers with visibility of tolls and visibility of cost. 4119. It’s very consistent with our cost/share arrangements we have with our shippers as far as the negotiated toll where the capital cost/risk is shared between the shipper and the carrier and then once we land on the capital cost it’s fixed for the duration of the contract and then the only variability, well, is the variable toll. 4120. So it could be a bit of a function of the characteristic of our toll design and how it’s consistent with the agreement we reached with our shippers. 4121. MS. PAGE: Do you think that adequately reflects cost causation, however, sir? 4122. causation. MR. MILLER: I don’t think we ever reported that it equals cost

4123. I think what we’ve said is the design of Keystone facilitates a wide range of product, from light crude up to the heavy crude, and based on that design and the anticipated capital cost and the range of product that our shippers could potentially ship, they agreed that that design, with that amount of capital, was an appropriate value for them and they would pay the fixed toll accordingly. 4124. And when you look at the next layer, to the extent that they were going to either ship heavy or light, they made the determination that that differential we have in our variable toll which is effectively charging 40 percent more for the light -- heavy barrel than the light was a reasonable representation of the difference in the cost of power to move that -- those different grades of product. 4125. MS. PAGE: When you said “was in effect charging 40 percent more for the heavy for the light” that was just on the very small variable portion? 4126. MR. MILLER: That was on the variable portion of the toll.

4127. MS. PAGE: And the larger capital portion, parties are saying it doesn’t matter what you ship? 4128. MR. MILLER: Parties are saying that they like the flexibility to be able to provide -- find a market for their product, recognizing that, when you’re travelling 3,200 kilometres, you need minimum volumes in order to keep the toll low on a per barrel basis.

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4129. Given that flexibility and the optionality that Keystone provides to shippers they were willing to commit to that capacity which would allow them to ship either heavy or light and, as such, accepted that capital cost and the resulting fixed toll. 4130. MS. PAGE: Okay.

4131. Mr. Miller, the way you’ve explained this you really more or less left it up to the shippers. Is that a fair assumption? 4132. 4133. MR. MILLER: It’s a market-based approach to pipeline development. MS. PAGE: Okay.

4134. And you’ve told us earlier that your shipper is going to ship all types of products and they’re sophisticated parties and, therefore, it’s fair. 4135. MR. MILLER: I think what I’ve said in the past is that our shippers can ship a wide range of product. 4136. What they ultimately nominate will be pursuant to their unique business requirements. 4137. MS. PAGE: Okay.

4138. But it is also -- did you also indicate that you thought it was a fair marketbased toll because it was negotiated by the shippers, that light/heavy differential? 4139. MR. MILLER: I believe that the tolls that we have in the Application are just and reasonable. 4140. They are based on negotiation between Keystone’s sophisticated parties and, as part of that negotiation which included potentially both light and heavy shippers, they agreed to the variable toll structure. Yes. 4141. MS. PAGE: And I guess I’m wondering, Mr. Miller, if I have a group of people who have a common interest who are mainly going to be shipping heavy oil, or more than half of their product will be heavy oil, do they really have an interest in balancing the light and heavy tolls? 4142. If I’m primarily shipping heavy oil, it seems to me I want the light toll to be as high as possible so as to lower my heavy. 4143. MR. MILLER: Could you restate your question, please? Sorry.

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4144. MS. PAGE: If everyone in the room is shipping heavy, primarily, do they have any interest in ensuring that the toll to ship the light oil is fair or do they have more interest in ensuring the light differential is as small as possible so as to subsidize the heavy, which most of them are shipping? 4145. MR. MILLER: I was okay until that last assumption.

4146. MS. PAGE: Well, I’m asking you to make the assumption. I’m not asking you to say they are that way, but just assuming that most of them are shipping heavy oil and they’re negotiating a toll, isn’t it in their interest to ensure that the differential is the smallest possible so that the heavy pays a smaller toll and the light oil pays a higher amount? 4147. MR. MILLER: So, if I may, I will rephrase it and you can tell me if I understand the question correctly. 4148. To the extent that you’re a heavy shipper and you’re in the process of negotiating a toll structure and you intend on shipping heavy, you will press to have the difference between the light and the heavy as small as possible so that if any light comes on the pipeline – you know, I’m just trying to restate the question – that would benefit or subsidize them? 4149. MS. PAGE: Well, let’s try it this way. If you’re shipping heavy oil, is it in your interest to make sure the differential between the light and the heavy is as small as possible? 4150. MR. MILLER: I’m not sure. I think when you look at the toll structure - Panel 2 will be able to give greater visibility to this -- we have designed a pipeline to accommodate both. We have – and I think it came out in prior days where it is designed to move 500 of heavy. 4151. Now, to the extent that a light shipper wants to access the pipeline, they get a discount off the heavy toll. So the heavy shipper is saying, ‘I will pay this fixed toll, I will pay this fixed variable toll’ to the extent that a light person chooses to access the pipeline, they will receive a discount off that heavy. 4152. MS. PAGE: That wasn’t the question, sir. The question was, if you are a heavy shipper -- if person “X” is a heavy shipper -- don’t they want the light/heavy differential to be as small as possible? --- (A short pause/Corte pause)

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4153. MR. MILLER: So, if I may, you’re asking would the heavy shipper be motivated to drive the spread between the light and the variable toll as small as possible? 4154. MS. PAGE: The light and the heavy tolls. No variable. Just pipeline, you know, a shipper on a pipeline. 4155. MR. MILLER: So in a scenario, which is not our scenario, I don’t have an appreciation for the commercial arrangements as between those shippers. I can speak to Keystone to the extent that we have heavy and light shippers who are potentially going to ship both over the life of the 20 years, the --4156. MS. PAGE: I’m sorry, the question is, if you have a person who is going to ship heavy oil, do you believe they would like to see on a pipeline a big light/heavy differential or a small light/heavy differential? 4157. MR. MILLER: Sorry, Ms. Page, I just don’t understand. Either I’m not understanding the question or I’m not understanding --4158. 4159. can answer. 4160. MS. PAGE: Fair enough. MR. MILLER: I just don’t know the answer, I guess. It’s the only way I

MS. PAGE: Well let’s try it another way.

4161. If you are shipping light oil, would you rather ship on a pipeline where the light/heavy differential is big or small? Assuming the costs of the pipes are equal. 4162. MR. MILLER: Again, that choice is going to be a function of where your supply is, where your demand is and what is the cost of transportation. They’re going to make a call on whether the toll charge to them as a light shipper meets their business requirement. 4163. I don’t have an appreciation for the shipper’s decision in regard to what the light toll is versus the heavy toll. I don’t know what the cost-sharing arrangement is on that pipeline. I don’t know what those variable tolls represent. I don’t know what those total tolls represent and, please, I just don’t know the answer to that. 4164. MS. PAGE: I haven’t clarified the example, and I apologize for that, sir.

4165. You have two pipelines, both shipping from the same place to the same place. These pipelines have the same costs. On one pipeline, the light/heavy differential is five percent. On the other pipeline, the light/heavy differential is 50 percent. As a

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page light shipper, which one are you going to choose? 4166. MR. MILLER: So if I assume then that the light -- the toll that the light shipper will pay on pipeline A will be less than the toll that the light shipper will ship on pipeline B, they will choose pipeline A. 4167. choose? MS. PAGE: And if you are a heavy shipper, which one are you going to

4168. MR. MILLER: Whichever is the cheapest toll full path including all components. 4169. MS. PAGE: So would it be fair to say that as a heavy shipper, you would like all oil to pay the same, whether it be light or heavy -- if you’re a heavy shipper? 4170. MR. MILLER: I’m sorry, are you talking on one pipeline?

4171. MS. PAGE: On one pipeline. If you could design the toll and you were a heavy shipper, and it was put to you we need some sort of a light/heavy differential, how big should it be? And you’re a heavy shipper. 4172. MR. MILLER: If I was a heavy shipper and the cost recovery mechanism of the toll structure captured all the costs, and those costs were going to be recovered across all shippers, and to the extent that those costs on a per-barrel basis would be higher than -- I’m sorry, for heavy than they would be for light, but not withstanding both categories of shipper ends up paying the same toll per barrel, then under that hypothetical situation, which doesn’t apply to us, then I would think a heavy shipper would like that toll structure. 4173. MS. PAGE: Would like a small light/heavy differential?

4174. MR. MILLER: Would like a differential which applied equally to -would like a toll, I’m sorry, which would apply equally to the heavy and the light. Again, when you start talking differentials, I don’t have visibility on what that differential is intended to recover. 4175. MS. PAGE: And that’s fair. I’m just talking generally. You know, if there’s a certain cost out there that has to be paid by shippers, how are they going to divvy it up? 4176. 4177. MR. MILLER: Is that a question? MS. PAGE: That is a premise. If I’m a heavy shipper, I would like it if

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page there were no differential for light, wouldn’t I? 4178. MR. MILLER: If you have a design that there was no difference in cost associated with heavy versus light, then that lack of differential would be okay. 4179. If you had a design which, in a cost causation scenario as you indicated, that said there was a five percent delta -- or five percent difference between what the heavy was costing versus light and the differential was four percent, that to the extent that the heavy ships on that pipeline, they would probably like that scenario. 4180. MS. PAGE: Well, sir, I thought you said your shippers didn’t look at cost causation. It was a negotiated settlement. 4181. 4182. 4183. MR. MILLER: I was referring to your hypothetical situation. MS. PAGE: Well, I think so am I, and I didn’t put in cost causation. MR. MILLER: Okay, so do you have another question?

4184. MS. PAGE: Well, let me put it this way. Would you agree there may be a benefit to heavy shippers on your average pipeline for insuring there was a very small light/heavy differential, whereas light shippers might prefer a greater light/heavy differential? 4185. 4186. MR. MILLER: I can’t agree to --MS. PAGE: Not as a generalization.

4187. MR. MILLER: Not as a generalization. I’ve provided two very specific examples which I could agree to, but as a generalization, I cannot. 4188. MS. PAGE: Okay. Sir, are most of your shippers heavy shippers?

4189. MR. MILLER: I don't know what the shippers are going to ship. I can infer, based on some of the information I read, publicly available information including Valero's evidence, so I can make an inference but I don't know, you know, how much they're going to ship over the course of their contract life. 4190. MS. PAGE: Okay. You mentioned Valero. You would agree that they're planning on shipping only heavy? 4191. MR. MILLER: Their evidence indicates that.

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4192. MS. PAGE: And your evidence indicated that CNRL was going to be shipping 120,000 barrels a day and 100,000 of that was heavy. We don’t know what the other 20,000 was. 4193. 4194. MR. MILLER: I'm not sure we said that. Just a moment, please. Sorry, Ms. Page, could you point us to the evidence where we stated that?

4195. MS. PAGE: I believe it is page 16 or Adobe page 29, Exhibit B-1f, tab 3, Supply and Markets. Actually what my notes say, it says: "CNRL has committed 120,000 barrels per day to the Keystone XL and has also agreed to supply 100,000 barrels per day of heavy to an unnamed Gulf Coast refiner." 4196. MR. MILLER: Thank you for that reference, and it does say that in our evidence and we've cited the source of that, yes. 4197. MS. PAGE: Okay, so we've got two in the evidence are going to be heavy shippers primarily --4198. 4199. MR. MILLER: Again I can't --MS. PAGE: -- or exclusively.

4200. MR. MILLER: --- infer. I don't know the term of the supply arrangement that CNRL has entered into. We've relied on those publicly available citations. 4201. MS. PAGE: Are you aware of any of your seven committed shippers who plan on shipping primarily light oil, sir? 4202. MR. DIAKOW: From my understanding, those two publicly announced companies are the only knowledge we have on the type of crude that may be shipped on the line. I don't think we have information from any of the other shippers. 4203. MS. PAGE: So you don’t have information that anyone is shipping primarily light? 4204. 4205. upgraders? MR. DIAKOW: No, they have – they can ship a wide variety of crudes. MS. PAGE: Are you aware if any of the other five shippers have

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4206. MR. WISE: Shell is the operator of the Athabasca Oil Sands Project, so they produce light synthetic and heavy synthetic out of that plant. 4207. MS. PAGE: Are they one of your seven shippers?

4208. MR. WISE: Yes, they are. CNRL, although they've indicated mostly heavy, they've now started up the Horizon Project for light crude. I have no evidence personally of what they intend to ship but a number of them are significant producers of light crude as well as heavy. 4209. MS. PAGE: I'm just asking if any of them came to you and said, "Hey, we need to get light oil to the Gulf." 4210. MR. MILLER: They haven't specifically. I will point out, however, that we, through our open season process, spent considerable time with our prospective shippers on the quality aspects of Keystone XL, which again allows us to infer that because quality is such an important factor for those shipping light oil, that they at least appreciate the optionality of shipping light oil on Keystone XL. 4211. MS. PAGE: Yes, I'm just wondering if there was anyone there really representing the light oil shippers on the tolls, but we've been through that, sir. 4212. You indicated yesterday, Mr. Miller, to Ms. Chahley that: "Keystone is consistent with the broad energy policies of the Province of Alberta and facilitates upgrading by providing transport and minimizing degradation..." 4213. Because it's important to get to market. And there we were talking about whether or not your pipeline facilitated upgrading within the province. Do you remember that conversation that you had with her? 4214. MR. MILLER: No, I do remember the conversation; I wasn't sure if there was a question there for me. 4215. MS. PAGE: Not yet. The question was, "Do you remember?"

4216. MR. MILLER: I remember the conversation but it's interesting quote because, if I may, not having seen that in the transcript, I think what I was suggesting is with the -- I did read the Alberta Energy statement and as a general strategy -- but as a general statement Keystone is consistent with broad energy policy.

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page 4217. I'm not sure I said Alberta but the implication was we were consistent with broad energy policy of market forces determining infrastructure. 4218. So I do remember that conversation and I do remember the conversation about how Keystone can in fact facilitate the movement of light oil. 4219. MS. PAGE: Okay. I guess I was just wondering, if you were to increase the light/heavy differential, apply it across the entire toll, not just the variable toll, if that wouldn't facilitate upgrading in the province even more. 4220. MR. MILLER: So I think I'll let Mr. Wise speak to this, to put it in perspective. When you start looking at the toll between heavy and light, I think what we were trying to convey the other day was toll may be one aspect, as will be capital cost, as will be the heavy/light differential. 4221. MS. PAGE: Oh yeah ---

4222. MR. MILLER: And then again, so to put it in perspective, you know, a 20 percent differential relative to potential price swings -- if I may defer to Mr. Wise. 4223. MS. PAGE: If you're going to tell me it's a small bit, I agree. But go ahead, Mr. Wise. 4224. MR. WISE: Okay, it's a small bit.

--- (Laughter/Rires) 4225. 4226. about $20. MS. PAGE: Yeah. MR. WISE: The differential has gone from about 50 bucks down to

4227. MS. PAGE: It's just one element but would you also agree that, say, if you were to have a 30 percent differential on a $6.25 toll -- plus, if it's spot, that would be up to 7.21. That could be a good $2.00 towards facilitating upgrading within the province directionally. 4228. MR. MILLER: Do you want my opinion? My opinion would be that a $1.00 differential on toll would be relatively insignificant when you compare it to the capital cost associated with upgrading and the heavy/light differentials. 4229. Would they factor it in? They may, and they may attach the appropriate weight, but again I would suggest that the other factors would perhaps attract a higher

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Order OH-1-2009

TransCanada Keystone Panel 1 Examination by Ms. Page weight to the equation. 4230. MS. PAGE: But directionally it would be the right direction from the province's perspective. 4231. MR. MILLER: It would be an insignificant, if not de minimis, determination. 4232. MS. PAGE: And if it were $2.00 it would only be half as insignificant?

4233. MR. MILLER: It's a possible variable but again it's a small variable relative to the other conditions that a prospective upgrader-promoter must consider. 4234. MS. PAGE: Thank you, gentlemen. Thank you, Panel.

--- (A short pause/Courte pause) 4235. THE CHAIRMAN: The Panel has decided to adjourn for the day.

4236. We will resume tomorrow at 8:30 and our intention is to press on with a view toward staying until 4 o’clock, hopefully to complete or be well into Panel 2. 4237. Thank you and have a good evening.

--- Upon adjourning at 3:01 p.m./L’audience est ajournée à 15h01

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Order OH-1-2009

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