Decision TykeWest Limited. Setting of Fees for a Common Carrier Order. July 15, 2009

Transcription

1 Decision Setting of Fees for a Common Carrier Order July 15, 2009

2 ALBERTA UTILITIES COMMISSION Decision : Setting of Fees for a Common Carrier Order Application No July 15, 2009 Published by Alberta Utilities Commission Fifth Avenue Place, 4th Floor, Street SW Calgary, Alberta T2P 3L8 Telephone: (403) Fax: (403) Web site:

3 Contents 1 INTRODUCTION BACKGROUND ISSUES DISCUSSION OF ISSUES Weight of Evidence Submitted Rates for the sour bending facility Facility Capital Cost Facility Capacity Facility Operating Costs Whether a Rate of Zero Would be Appropriate for Gas with an H 2 S Content of Less Than Five Percent or if That Should be Addressed at This Time Whether a Fee Should be Established With Respect to the Gathering Pipeline Upstream of the Blending Facility or if That Should be Established at This Time ORDER APPENDIX 1 PROCEEDING PARTICIPANTS APPENDIX 2 JP-05 RATE CALCULATION List of Tables Table 1. TykeWest Rate Proposal... 3 Table 2. New North Rate Proposal... 3 AUC Decision (July 15, 2009) i

4

5 ALBERTA UTILITIES COMMISSION Calgary Alberta TYKEWEST LIMITED Decision SETTING OF FEES FOR A COMMON CARRIER ORDER Application No INTRODUCTION 1. The Alberta Utilities Commission (AUC or the Commission) received Application (the Application) from Fekete Associates Inc. (Fekete) on behalf of (TykeWest) on April 7, This Application was associated with the Energy Resources Conservation Board (ERCB) Application dealing with a request by TykeWest for a common carrier order in relation to proposed production from well W6. 2. The Application requested approval of a common carrier fee to be paid by TykeWest to New North Resources Ltd. (New North) for sour gas blending at a site owned and operated by New North in W6, where an existing sour gas gathering system ties-into an EnCana pipeline currently licensed for five percent H 2 S service. The proposed fee was calculated by TykeWest in a range of $ $4.51/10 3 m 3 using a methodology based upon the Joint Industry Task Force Report JP-05: A Recommended Practice for the Negotiation of Gas Processing Fees (JP-05). 3. The ERCB dealt with Application issuing Decision on February 10, Decision directed that Application be approved and a common carrier order be issued, subject to the approval of the Lieutenant Governor in Council, for gas production from the Knopcik Halfway JJ Pool effective March 20, The Lieutenant Governor in Council approved Order in Council 111/2009 on March 11, 2009, declaring New North a common carrier of gas from the Knopcik Halfway JJ Pool. 4. Subsequent to the ERCB decision, in a letter of February 11, 2009, the Commission requested comments and updates from TykeWest with respect to its perspectives for advancing the process to establish fees given the approvals and directions in Decision The Commission encouraged the parties to continue independent negotiation of fees and indicated that in the event that TykeWest and New North might be able to independently negotiate an agreeable fee arrangement, the Commission would appreciate notification in that regard. 5. After granting a request from TykeWest for a filing extension to continue negotiations between the parties, the Commission received an updated submission from TykeWest on March 20, In that submission, TykeWest recommended fees of $3.10/10 3 m 3 with no fee for inlet raw gas with less than five percent H 2 S. 6. The Commission established the following written process to establish the fees: Information requests to TykeWest April 6, 2009 Information responses from TykeWest April 14, 2009 Evidence from New North April 22, 2009 Information requests to New North April 29, 2009 Information responses from New North May 6, 2009 Written simultaneous argument from TykeWest and New North June 5, 2009 Written simultaneous reply from TykeWest and New North June 12, 2009 AUC Decision (July 15, 2009) 1

6 7. The Commission considers that the record for this proceeding closed on June 12, In reaching the determinations contained within this Decision, the Commission has considered all relevant materials comprising the record of this proceeding, including the evidence provided by each party. Accordingly, references in this Decision to specific parts of the record are intended to assist the reader in understanding the Commission s reasoning relating to a particular matter and should not be taken as an indication that the Commission did not consider all relevant portions of the record with respect to that matter. 2 BACKGROUND 9. The powers of the AUC to establish rates for a pipeline that has been established by the ERCB as a common carrier pipeline are set out under section 55(3) of the Oil and Gas Conservation Act as follows: Powers of Alberta Utilities Commission 55(3) If the Board has declared the proprietor of a pipeline to be a common carrier and agreement cannot be reached between the proprietor and a person desiring to have the person s gas carried in the pipeline as to the tariff to be charged for the carriage, either party may apply to the Alberta Utilities Commission to fix the tariff 3 ISSUES 10. The Commission will address the following issues subsequently in this Decision: weight of evidence submitted rates for the sour bending facility o facility capital cost o facility capacity o facility operating costs whether a rate of zero would be appropriate for gas with an H 2 S content of less than five percent or if that should be addressed at this time whether a fee should be established with respect to the gathering pipeline upstream of the blending facility or if that should be established at this time 4 DISCUSSION OF ISSUES 4.1 Weight of Evidence Submitted 11. New North submitted in its Reply Argument that TykeWest had introduced certain components of new evidence in its Argument including Exhibit 2 being a document, dated May 31, 2009, prepared by H&H Joint Venture Audit Services; portions of Exhibit 1 being a document dated June 5, 2009, prepared by Gas Processing Management Inc. (GPMI); as well as portions of the TykeWest Argument based upon these documents. 12. The Commission has assessed the concerns expressed by New North and concurs that some of the material submitted by TykeWest appears in specific detail for the first time in the TykeWest Argument. The Commission notes that New North stated that it did not wish to 2 AUC Decision (July 15, 2009)

7 unduly extend this proceeding by way of requesting additional opportunities to put information requests to TykeWest in respect of the new evidence or to place any rebuttal evidence onto the record thereafter. Notwithstanding New North s concerns about TykeWest s new evidence, New North did provide a response to TykeWest s Argument, and also stated that any failure to specifically respond to any specific portion of TykeWest s Argument should not be construed by any party as agreement or acquiescence. 13. While the Commission does not direct parties on the specifics of their Argument, Argument must be founded on the evidence properly on the record of the proceeding. Parties must be able to advance their position and know the case they have to meet, based on the record of the proceedings, including the application, the interrogatory process, and the hearing process. Argument and Reply Argument must not introduce new evidence, deliberately misinterpret the evidence or mislead the Commission, or otherwise suggest an outcome to the proceeding that is not supported by the evidentiary record. Reply Argument should be confined to responding to the Argument of other parties and again must be supported and grounded by the evidence on the record of the proceeding. Where the Commission finds that positions of an Argument or Reply Argument are unsupported by references to the evidence, or where suggested outcomes are not previously advanced or addressed in cross examination, the Commission is normally prepared to disregard portions of an Argument or Reply Argument or to otherwise potentially consider granting further opportunities for further evidentiary submissions and interrogatory processes by all parties. 14. Accordingly, the Commission finds that it will disregard any new information included in TykeWest s Argument. Specifically, the Commission disregards the report prepared by H&H Joint Venture Audit Services, those portions of the GPMI report which comprise new evidence, and portions of the TykeWest Argument based upon those documents. 4.2 Rates for the sour bending facility 15. TykeWest submitted the following rate proposals for the sour gas blending facility: Table 1. TykeWest Rate Proposal April 7, 2008 Application March 20, 2009 Update June 5, 2009 Argument Rate ($/10 3 m 3 ) New North submitted the following rate proposal for the sour gas blending facility: Table 2. New North Rate Proposal June 5, 2009 Argument Rate ($/10 3 m 3 ) The first difference between the fee calculation approaches used by TykeWest and New North relates to the facility capital cost Facility Capital Cost 18. New North indicated that its actual capital expenditure to construct the sour gas blending facility in 2007 was $448,540. AUC Decision (July 15, 2009) 3

8 19. TykeWest indicated that it had offered to New North that it would provide a turnkey blending facility for $200,000 in April and considered that an amount of $200,000 should be used as the appropriate capital cost. 20. The Commission is not persuaded that the offer of TykeWest to construct the blending facility at a reduced cost necessarily reflected an equivalent facility to what was constructed by New North or that the speculative lower cost estimate fully reflected the requirements and construction cost realities at the time of its construction. Instead, the Commission considers that the as-spent capital expenditure provides an appropriate basis upon which to base the rate calculations as it reflects the actual site-specific labour, material, and equipment associated with that blending facility at the time of its construction. 21. The Commission notes that the JP-05 methodology utilizes an upper limit and a lower limit with regard to assessing the capital cost with the lower limit being based upon the as-spent capital with provision that the lower limit not be less than 50 percent of the upper limit. The JP-05 upper limit would utilize the undepreciated replacement cost with provision to estimate the replacement cost in the early years as the as-spent capital inflated each year with the long-term inflation rate of three percent per year in the absence of specific cost data. On this basis, the Commission considers that the appropriate capital upper limit for 2009 would be $475,856 and the lower limit would be $448, The next significant difference in the fee calculations of TykeWest and New North relates to determining the facility capacity Facility Capacity 23. The Commission understands that the blending facility consists of an H 2 S monitor that samples the downstream concentration of H 2 S entering the EnCana sour gas gathering system that is licenced to operate at a maximum H 2 S concentration of five percent. The blending facility is understood to limit the amount of gas flow entering the EnCana pipeline to maintain the EnCana H 2 S specification and is constrained by the amount of sweeter gas available for blending purposes. New North indicated that the blending facility was designed and built to service the one sour well W6 which is owned jointly with TykeWest In the Application, TykeWest indicated that the capacity of the blending facility was only related to the availability of sweet gas at facility operating conditions, for the purposes of blending sour gas, and not by the facility itself. At the time of submitting the Application, TykeWest indicated that the blending facility had a capacity of m 3 /day Based upon testimony provided by New North in the ERCB common carrier hearing, TykeWest subsequently indicated that the blending facility had a design capacity of m 3 /day and considered that was the appropriate facility capacity for the rate determination. 4 TykeWest indicated that while the blending facility was currently constrained by sweet dilution gas supply, there were several other opportunities to obtain blending gas that would alleviate that constraint March 20, 2009 TykeWest Submission, Attachment 7, page 35 and AUC-TWL-1(e) New North submission of April 25, 2008, page 1 Application, page 2 March 20, 2009 TykeWest Application Update, page 3 4 AUC Decision (July 15, 2009)

9 26. TykeWest considered that Section 4.8 (1) of JP-05 was relevant with respect to the capacity determination. The Commission has inserted this section as follows: Capacity Versus Throughput Considerations Determination of Unit Capital Cost The issue of the determination of facility capacity (capacity or throughput) was also assessed by the Task Force, and the following is the JP-05 recommended practice. 1) Processing Facilities The Task force recommends maintaining the status quo, i.e., the annual capital charge be calculated based on total plant or functional unit capacity. The capacity is the capability of the facility or functional unit as determined by the plant owner. By calculating capital charges on the basis of capacity, this method avoids transferring the financial risks of the owners decisions, or market factors, to the custom users. Firm capacity should be calculated for capital recovery on maximum capacity requested, while interruptible contracts should be calculated on actual capacity used. Capacity that is different from nameplate capacity would occur if the operator could demonstrate that the actual capability is different. For example, if a plant is actually processing at sustained rates above nominal capacity, the capacity should be the current throughput level. Or if some equipment has been removed or feedstock changes have occurred, resulting in decreased capacity from license, a new reduced capacity should be used. 27. New North acknowledged that the blending facility had a design capacity of m 3 /day, but considered it appropriate that a facility capacity of m 3 /day be used to reflect the constrained capacity of the blending facility. New North indicated that the facility was constrained by the lack of availability of sweet gas for blending purposes New North indicated that it had explored or considered various alternatives to bring incremental volumes of sweeter blending gas and had found none of those alternatives to be acceptable due to the cost, requirement for long term commitments, rejection by parties or the speculative nature of some potential supply options. In these circumstances of constrained capacity, New North considered that until such time as incremental blending gas might become available, the constrained capacity of m 3 /day would be the appropriate capacity The Commission considers that it is clear that the facility was designed with a maximum capacity of approximately m 3 /day and that it is currently constrained to approximately m 3 /day due to the lack of availability of sweet blending gas. It is also apparent that if incremental sweet blending gas were made economically available at an appropriate pressure, the constrained capacity could increase in proportion to the availability of that incremental blending gas. 30. The Commission notes the TykeWest perspective that Section 4.8 of JP-05 indicates that by calculating capital charges on the basis of capacity, this method avoids transferring the financial risks of the owners decisions, or market factors, to the custom users. Upon AUC-TWL-2(a) JP-05: A Recommended Practice for the Negotiation of Processing Fees, page 16 New North Evidence of April 22, 2009, page 2 New North Reply Argument of June 12, 2009, page 8, paragraph 17 AUC Decision (July 15, 2009) 5

10 considering the cost estimates for the proposed facilities as outlined by TykeWest 8 and the actual capital costs as provided by New North, 9 it appears to the Commission that the blending facility costs to be allocated by capacity were more fixed in nature than fully capacity related. For example, the meter run components would present a capacity constraint, but appear to make up only a small proportion of the total facility costs. In other words, it may be somewhat impractical in the circumstances to utilize a design capacity in the circumstance where the majority of the costs are fixed. Moreover, in reviewing the industry standard procedures outlined in Section 4.8 of JP-05, the Commission considers that this circumstance is analogous to that described where feedstock changes have occurred wherein a reduced capacity is recommended for the calculation. That is, the reduced feedstock is analogous to the lack of available sweet blending gas. This consideration lends support in favour of using the current constrained capacity of m 3 /day. 31. After considering these factors, the Commission is persuaded that it is more appropriate to utilize the constrained capacity updated from time to time as the economic and practical availability of sweet blending gas may vary. At this time, the Commission concurs that m 3 /day is an appropriate capacity to use as this constrained capacity. 32. The Commission will next address the differing perspectives with regard to operating costs for the facility Facility Operating Costs 33. New North considered that the operating costs for the blending facility ought to be the actual operating costs incurred plus 10 percent overhead, plus $25,000 per month 10 of incremental costs of production estimated to be incurred by New North in relation to reduced flows for well 14-9 as a result of the ERCB common carrier order. New North indicated that, based upon prior operating experience and with constrained sweet blending gas, these incremental costs of production would be expected to be incurred by New North to deal with hydrate control and blowing liquids from the well bore that would arise from operating well 14-9 at a lower rate as would be required during simultaneous production from well 3-16 and In this respect, New North considered that production from well 14-9 should not be in a worse position, or conversely production from well 3-16 in a better position, as a result of the common carrier order New North indicated that the total actual operating costs for the facility during 2008 were just over $34,000 and that amount including 10 percent overhead would be $37,400. New North indicated that it considered the actual operating costs for 2008 to be reflective of ongoing operating costs TykeWest proposed that an amount of $18,000/year or a maximum of $2.75/10 3 m 3 be used as the operating cost. TykeWest based this amount upon an analysis from New North dated Using the cost estimate provided by Precision Gas Measurement as a conceptual guideline, the cost estimate in the March 12, 2007 New North AFE to TykeWest, as well as the New North Statement of Capital Expenditures as at May 31, 2007, both attached to the March 20, 2009 TykeWest submission it appears that the majority of the blending facility costs would relate to the monitoring, electronic, control systems and building rather than capacity related piping components New North Schedule B to its evidence New North Evidence, paragraph 16; New North Argument, paragraph 15 New North Evidence of April 22, 2009 AUC-NNR-4(b) 6 AUC Decision (July 15, 2009)

11 February 23, TykeWest questioned the variation in operating costs provided by New North in TWR-NNR-3, 14 where New North indicated that $18,000 was an estimate, with 2007 and 2008 actual costs being $49,200 and $37,400, respectively. TykeWest expressed concern that the allocation of actual costs among the 14-9 well, the pipeline between the 14-9 well and the blending facility and the blending facility itself was unclear and was concerned that excessive costs were being allocated to the blending facility. TykeWest attached November 25, 2008 correspondence from New North to H&H Joint Venture Audit Services indicating an operating fee component of $2.75/10 3 m The Commission notes that Section 5 of JP-05 recommends that the operating cost component include operating costs plus overhead (generally at 10 percent) plus a working capital allowance [(operating costs + overhead)/6]*20% return. JP-05 suggests that operating fees may be determined on the basis of a fixed forecast with no true-up or alternatively on a true-up basis using actual costs and throughput with provision for audit of operator costs by the producer. 37. The Commission is concerned with the inconsistency and variability of the operating cost information provided. For example, New North initially forecast the operating costs as $18,000/year and indicated that the actual cost was $49,200 in 2007 and $37,400 in This appears to indicate that the actual operating costs may be trending downward and/or stabilizing subsequent to the initial facility commissioning. The actual costs provided by New North are understood to include provision for overhead at 10 percent. The Commission understands that the costs provided by New North have not been audited, and notes the unreconciled concern of TykeWest respecting the potential for misallocations of costs among other upstream facilities besides the blending facility The Commission considers that normally it would be preferable to utilize operating costs based upon actual costs consistent with the approach utilized for the capital costs when they are available. However, taking into account the factors discussed above regarding downward cost trends and concerns respecting allocation of costs, the Commission is not persuaded that the amount of $37,400 is appropriate. After considering these factors, the Commission will utilize an operating cost of $24,000/year plus allowance for 10 percent overhead. 39. The Commission has also considered the New North proposal to add $25,000 per month in association with the New North claim of incurring incremental costs of production from reduced flows to well 14-9 as a result of the ERCB common carrier order. New North indicated in its response to AUC-NNR-5(c) that any commercial arrangement would require TykeWest to cover incremental operating costs required to be undertaken by the owners of facilities to allow outside gas into those facilities. New North indicated that it did not see that as discrimination between gas produced from the 14-9 well versus gas produced from the 3-16 well. 40. TykeWest considered this provision of incremental New North operating fees for well operational problems to be unreasonable. TykeWest indicated that there is no provision for this type of fee in the JP-05 methodology. In addition, TykeWest considered that it was unsubstantiated that the type of well operating problems experienced previously with the 14-9 well would exist in the future. In that respect, TykeWest indicated that it had attempted to TykeWest submission of March 20, 2009, page 4 Also see AUC-NNR-3(c) 15 April 29, 2009 TykeWest submission, Exhibit 5 16 NNR-TWL-1(b) of April 14, 2009 AUC Decision (July 15, 2009) 7

12 assess and quantify these problems in TWL-NNR-7, but did not receive responses from New North. 41. While New North considered that TykeWest should be responsible for any incremental costs associated with well 14-9 to facilitate production from well 3-16, the Commission is not convinced from the information provided that is the case; and is not convinced that such a practice would be consistent with ERCB Decision which indicated that New North should not discriminate against production from well The Commission is not persuaded that any incremental charges as contemplated by New North for well 14-9 operating problems in the order of $25,000/month should be included as an operating cost to be levied upon TykeWest as part of the common carrier fee arrangement associated with the blending facility. The Commission agrees with TykeWest that any such fees are currently unproven and speculative and notes that New North indicated that such incremental costs could not be accurately measured at this time in its response to AUC-NNR-5(b). Moreover, the Commission does not consider that such costs would be directly attributable to the operating charges associated with the blending facility, would be beyond the control or effective influence of TykeWest and could be difficult to verify. Accordingly, the Commission does not approve the provision of incremental operating costs associated with well 14-9 as proposed by New North. 43. With the parameters established above, the Commission has assessed the associated JP-05 fees as indicated in Appendix 2 to this Decision. The Upper Limit All-In Fee is $10.29/10 3 m 3 and the Lower Limit All-In Fee is $9.83/10 3 m 3. The Commission considers that the Lower Limit All-In Fee of $9.83/10 3 m 3 is more appropriate in the circumstance where the facility is virtually new and the current replacement cost is unlikely to have increased at the assumed default rate of inflation of three percent given the current economic downturn since installation of the facility in This fee would be implemented at such time as well 3-16 is tied into the system and commences flowing through the blending facility. 4.3 Whether a Rate of Zero Would be Appropriate for Gas with an H 2 S Content of Less Than Five Percent or if That Should be Addressed at This Time 44. TykeWest proposed that the blending facility fees should not apply to an inlet stream entering the blending facility that has a sour gas content of less than five percent H 2 S. The basis for this proposal was that this sweeter gas stream would be advantageous to any other inlet raw gas with an H 2 S content exceeding five percent New North responded that it did not consider it to be appropriate to relieve TykeWest from any obligation to pay any fee for use of the blending facility for gas with an H 2 S content less than 5 percent. New North noted that gas from the 3-16 well had been determined to be in the same pool as gas from the 14-9 well and consequently would have a similar H 2 S content. Since there is no bypass around the blending facility, New North considered it would be inequitable for TykeWest volumes to escape the fees TykeWest responded to New North that its intention was not for TykeWest to bring additional volumes and avoid paying blending facility fees. Instead TykeWest suggested that it was proposing to increase revenue and reduce gathering and processing fees for the 14-9 and TykeWest submission of March 20, 2009, page 2 New North Argument of June 5, 2009, paragraph 8 8 AUC Decision (July 15, 2009)

13 3-16 wells through use of outside gas. TykeWest suggested that such additional volumes of sweeter blending gas would reduce the constraint on well production caused by a shortfall of blending gas and facilitate increased production from both 14-9 and 3-16, reduce hydrate formation at the 14-9 well and potentially reduce the usage of costly EnCana blending gas While the Commission considers that there may be overall merit to increase the quantity of sweeter blending gas, the Commission considers that such assessments would need to be completed with regard to the specifics of those opportunities. In any event, the Commission considers that the scope of this application is with regard to fees for production from well 3-16 which the Commission considers would be subject to the fees established in this Decision, unless the parties mutually agree to other arrangements as circumstances may warrant. Accordingly, the Commission will not make a generic ruling on the request for zero fees for blending quantities with an H 2 S content less than five percent. 4.4 Whether a Fee Should be Established With Respect to the Gathering Pipeline Upstream of the Blending Facility or if That Should be Established at This Time 48. New North suggested that in certain conditions it would be appropriate for the Commission to establish fees for the common carrier portion of the gathering pipeline between the well 3-16 tie-in point and the blending facility. New North considered that, at a minimum, to the extent that gas from well 3-16 might constitute third party gas owned by Brink Energy and Affluence Capital, fees on the gathering line would be appropriate. 20 In this regard, New North submitted that the Commission ought to direct TykeWest to file such proposed fees for that type of usage. In a letter dated April 24, 2009, the Commission responded to New North that the Commission does not direct a party s case and therefore it would not direct the filing of additional evidence in this circumstance. 49. New North clarified that it was not seeking a separate fee for TykeWest s use of the gathering pipeline upstream of the blending facility. 21 However, New North considered that Article 1404 of the 1990 Canadian Association of Professional Landmen Operating Procedure would require third party gas, which it considered to be other than TykeWest, from the 3-16 well to pay a fee for the pipeline. New North also indicated that despite this constraint, which it considered would restrict third party gas to volumes not produced from Section W6, the ERCB had issued an Order with respect to gas produced from well TykeWest submitted that since New North continues to invoice TykeWest for pipeline costs through joint venture billing statements, any pipeline related charges would be redundant. TykeWest further explained that well 3-16 was licensed as a 100 percent working interest to TykeWest with a 40 percent working interest in the pipeline, which has substantial capacity to accommodate the 3-16 well production. In this regard, TykeWest indicated that any change in the ownership of the 3-16 well would require equalization of the common carrier pipeline costs. TykeWest considered that in the event that the working interest of well 3-16 should change from 100 percent TykeWest and appropriate pipeline equalization did not occur, any determination of a pipeline fee as contemplated by New North should be made at that time. 51. The Commission concurs with TykeWest that there is no compelling requirement for the Commission to consider establishing rates for the common carrier portion of the gathering 19 TykeWest Reply Argument of June 12, 2009, page 2 20 New North Evidence of April 22, 2009, paragraphs AUC-NNR-2(a) AUC-NNR-2(c) AUC Decision (July 15, 2009) 9

14 pipeline at this time and secondarily notes that no information is on the record to facilitate such a determination in any event. Accordingly, the Commission will not establish a fee for the common carrier portion of the pipeline at this time. 5 ORDER 52. IT IS HEREBY ORDERED THAT: (1) The common carrier fee to be paid by to New North Resources Ltd. for sour gas blending at a site owned and operated by New North in W6 is established as $9.83/10 3 m 3 to be implemented at such time as well 3-16 is tied into the system and commences flowing through the blending facility. Dated in Calgary, Alberta on July 15, ALBERTA UTILITIES COMMISSION (original signed by) Thomas McGee Commissioner 10 AUC Decision (July 15, 2009)

15 APPENDIX 1 PROCEEDING PARTICIPANTS Name of Organization (Abbreviation) Counsel or Representative (APPLICANTS) T. Tycholis Consultant: Fekete Associates Inc. R. Swanson New North Resources Ltd. H. Thomson Counsel: Carscallen Leitch LLP D. Edie, Q.C. Alberta Utilities Commission Commission T. McGee, Commissioner Commission Staff G. Bentivegna (Commission Counsel) C. King (Commission Counsel) D. Mitchell B. Shand AUC Decision (July 15, 2009) 11

16 APPENDIX 2 JP-05 RATE CALCULATION A Original Facility Capital Cost $448,540 B Depreciated Capital - C GCA Depreciation - D Original Facility Startup Year 2007 E Major Capital Addition Capital Cost - F Major Capital Addition Year - G Facility Capacity m 3 /day H Owners Throughput m 3 /day I Third Party Throughput m 3 /day J Facility Operating Days/Year 350 K Capital Cost Inflation Rate 3% L Inflated Capital Cost $475,856 (A*(1+K)**(P-D)) M Rate of Return 20% N Annual Operating Cost $26,400 ($24, % overhead) O Working Capital Allowance $880 (M*N/6) P Year (today) 2009 Q Upper Limit Capital Fee $8.00/10 3 m 3 (L*M)/(G*J) R Lower Limit Capital Fee $7.54/10 3 m 3 (A*M)/(G*J) S Operating Cost Fee $2.29/10 3 m 3 (N+O)/(G*J) T Lost Gas Cost Allowance Fee 23 - Upper Limit All-In Fee Lower Limit All-In Fee $10.29/10 3 m 3 (Q+S) $9.83/10 3 m 3 (R+S) 23 New North indicated in AUC-NNR-3(e) that if the blending facility is full there is no lost Gas Cost Allowance 12 AUC Decision (July 15, 2009)