B.C. Utilities Commission File No.: 4.2 (2015) 6 th Floor Howe Street Vancouver, B.C. V6Z 2N3

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1 B-3 Janet P. Kennedy Vice President, Regulatory Affairs & Gas Supply Pacific Northern Gas Ltd. 950, 1185 West Georgia Street Vancouver, BC V6E 4E6 Tel: (604) Fax: (604) Via August 7, 2015 B.C. Utilities Commission File No.: 4.2 (2015) 6 th Floor Howe Street Vancouver, B.C. V6Z 2N3 Attention: Erica M. Hamilton Commission Secretary Dear Ms. Hamilton: Re: Pacific Northern Gas (N.E.) Ltd. Dawson Creek Division Application for Approval of AltaGas Ltd. Industrial Firm Transportation Service Agreement and Proposed RS7 Industrial LNG Firm Transportation Service Tariff Supplemental Information AltaGas Costs for Bypass Scenario Accompanying this letter, please find the additional information requested by the Commission under Order G , specifically, a fulsome response to Directive 3(iii) of Order G The requested information on a bypass scenario has been provided by AltaGas Ltd. in the appended correspondence and includes: Estimated capital costs; Estimated operating costs; Calculation of estimated per gigajoule rate based on the estimated capital and operating costs; and Assumptions made in developing the foregoing estimates. Please direct any questions regarding the contents of this letter and the appended information to my attention. Yours truly, Janet P. Kennedy cc: Registered Interveners

2 AltaGas Ltd. 1700, 355 4th Ave SW Calgary, Alberta T2P 0J1 main fax August 7, 2015 Janet Kennedy Vice President, Regulatory Affairs & Gas Supply Pacific Northern Gas Ltd. 950, 1185 West Georgia Street Vancouver, BC V6E 4E6 RE: PNG(NE) PROPOSED RS7 INDUSTRIAL LNG FIRM TRANSPORTATION SERVICE TARIFF SUPPLEMENTAL ALTAGAS COST INFORMATION Dear Ms. Kennedy, In response to the British Columbia Utilities Commission ( BCUC ) request for Pacific Northern Gas (N.E.) Ltd. ( PNG ) to provide detailed supplemental information regarding AltaGas s cost of connecting its proposed LNG facility directly to Spectra s transmission system at an alternative location to the proposed Dawson Creek location, please consider the information that follows. Estimated Capital and Operating Costs to Bypass Capital Costs AltaGas reviewed several locations in northeast British Columbia for siting the proposed LNG facility and has compiled a summary of estimated interconnection costs that reflect current market conditions in the region and are considered to be applicable and representative for the various locations under consideration. This capital cost summary is provided in Exhibit 1 that follows. Exhibit 1 RLNG Interconnection Capital Cost Summary Preliminary Work $ 72,417 Land $ 78,476 Contractor $ 68,522 Land $ 78,476 Land/ROW $ 3,895 Spectra Interconnection $ 500,000 Pipeline $ 292,827 Interconnection $ 500,000 Contractor $ 173,970 Land/ROW $ 57,078 Facility Total: $ 1,228,619 Materials $ 58,683 Other $ 3,096 Facility Excl Land/ROW: $ 1,089,171 Regulator Station/Meter Set $ 284,899 Materials $ 174,173 Contractor $ 89,674 Other $ 21,051 Page 1 of 4

3 AltaGas notes that these capital costs reflect a scenario assuming locations up to 1 km away from a Spectra interconnection point. AltaGas observes that it has reviewed the possibilities of locating directly adjacent to the Spectra transmission line and within the footprint of existing owned and operated gas processing facilities whereby some of the identified interconnection costs would be reduced. Operating Costs Annual operations and maintenance costs of the pipeline facilities in a standalone scenario as contemplated in this analysis would be included in the operations and maintenance budget for the LNG facility. Generally a facility of this nature, due to its small size and integration with the LNG facility, would not require significant operations and maintenance budget other than the scheduled annual inspections and any resulting maintenance which is not expected to be significant. Therefore, in its internal analysis AltaGas has allocated $10,000 per annum for pipeline operations and maintenance in its general plant maintenance at the LNG facility. Bypass Toll Analysis Further to the BCUC s request for a bypass toll analysis, AltaGas has prepared a cost of service model utilizing typical financial inputs AltaGas would make use of for developing pipeline assets. This analysis and the resultant toll are presented in Exhibit 2 that follows. The resulting analysis demonstrates that AltaGas cost of interconnecting on a standalone basis and bypassing PNG results in a tariff of $0.11 per GJ. AltaGas notes that, while it has many advantages in so far as its own internal capability to provide gas service to the proposed LNG facility, by leveraging its existing assets and gas supply agreements with producers and transporters in British Columbia, its final decision to locate in Dawson Creek was predicated on the intangible benefits that AltaGas receives by working with the local utility. These include: 1) Proximity to skilled labor. 2) Proximity to AltaGas existing facilities in Taylor and proposed facilities in Fort St. John. 3) Availability of serviced industrial land versus un-surveyed Crown land despite the significant savings of the latter. 4) Central location to a variety of markets including the far north, central BC and Alberta. 5) Excellent transportation corridors and road access. 6) Maintaining relationships with local communities and generating economic activity. 7) Social license and responsibility to the communities we impact. Page 2 of 4

4 Exhibit 2 Cost of Service and Bypass Toll Analysis Bypass Toll Calculation YEAR: Capital ($000) Gross Capex Opening $ - $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 Additions (Land) $ 139 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Additions (Pipeline and Facilities) $ 1,089 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Closing $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 $ 1,229 Depreciation (Facilities) Opening $ - $ (9) $ (30) $ (50) $ (71) $ (91) $ (112) $ (132) $ (153) $ (173) $ (194) $ (214) $ (235) $ (255) $ (276) $ (296) $ (317) $ (337) $ (358) $ (378) Additions $ (9) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) Closing $ (9) $ (30) $ (50) $ (71) $ (91) $ (112) $ (132) $ (153) $ (173) $ (194) $ (214) $ (235) $ (255) $ (276) $ (296) $ (317) $ (337) $ (358) $ (378) $ (399) Net Capex Opening $ - $ 1,220 $ 1,199 $ 1,178 $ 1,158 $ 1,137 $ 1,117 $ 1,096 $ 1,076 $ 1,055 $ 1,035 $ 1,014 $ 994 $ 973 $ 953 $ 932 $ 912 $ 891 $ 871 $ 850 Additions $ 1,229 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Depreciation/Amortizartion $ (9) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) $ (21) Closing $ 1,220 $ 1,199 $ 1,178 $ 1,158 $ 1,137 $ 1,117 $ 1,096 $ 1,076 $ 1,055 $ 1,035 $ 1,014 $ 994 $ 973 $ 953 $ 932 $ 912 $ 891 $ 871 $ 850 $ 830 Revenue Requirement ($000) Operating and Maintenance Expenses $ 10.0 $ 10.2 $ 10.3 $ 10.5 $ 10.6 $ 10.8 $ 10.9 $ 11.1 $ 11.3 $ 11.4 $ 11.6 $ 11.8 $ 12.0 $ 12.1 $ 12.3 $ 12.5 $ 12.7 $ 12.9 $ 13.1 $ 13.3 Allocation from A&G and Corp O/H $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total OMAG $ 10 $ 10 $ 10 $ 10 $ 11 $ 11 $ 11 $ 11 $ 11 $ 11 $ 12 $ 12 $ 12 $ 12 $ 12 $ 13 $ 13 $ 13 $ 13 $ 13 Depreciation & Amortization $ 9 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 $ 21 Property Taxes $ 0.6 $ 1.2 $ 1.1 $ 1.2 $ 1.2 $ 1.2 $ 1.2 $ 1.2 $ 1.2 $ 1.2 $ 1.2 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 Interest $ 12 $ 24 $ 24 $ 23 $ 23 $ 23 $ 22 $ 22 $ 21 $ 21 $ 20 $ 20 $ 20 $ 19 $ 19 $ 18 $ 18 $ 18 $ 17 $ 17 Return on Equity $ 30 $ 60 $ 59 $ 58 $ 57 $ 56 $ 55 $ 54 $ 53 $ 52 $ 51 $ 50 $ 49 $ 48 $ 47 $ 46 $ 45 $ 44 $ 43 $ 42 Income Tax $ - $ - $ 1 $ 3 $ 4 $ 6 $ 7 $ 8 $ 9 $ 10 $ 11 $ 12 $ 13 $ 13 $ 14 $ 14 $ 15 $ 15 $ 15 $ 15 Total Revenue Required $ 62 $ 116 $ 116 $ 117 $ 117 $ 117 $ 117 $ 117 $ 117 $ 117 $ 116 $ 116 $ 115 $ 114 $ 114 $ 113 $ 112 $ 111 $ 110 $ 109 Volumes (TJ) Average Rate Impact ($/GJ) $ 0.06 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.11 $ 0.11 $ 0.11 $ 0.11 Levelized Rate Calculation (All Costs and Volumes) Discount Rate 7.00% 20-Year NPV Revenue Requirement ($000) $ 1, Year NPV Volumes 10,382 TJ Levelized Rate $ 0.11 /GJ Inputs & Assumptions Capital Costs ($000) Pipeline $ 236 Interconnection, Regulation and Metering $ 853 Land $ 139 OMAG & Taxes O&M ($000) $ 10 A&G Corporate Allocation Factor - Property Taxes and Taxes in Lieu 1.00% Financial Portion Equity 50.00% Return on Equity (before tax) 10.00% Return on Debt 4.00% WACC 7.00% Depreciation Rate 1.67% Effective Income Tax Rate 26.00% Capital Cost Allowance Rate Pipeline, Interconnection, Regulation and Metering 8.00% Inflation 1.50% Customer Volume (GJ/year) 980,000 Page 3 of 4

5 AltaGas is of the belief that the resulting negotiated tariff is fair and reasonable for both parties given that AltaGas is capable, both physically and financially, of bypassing PNG. AltaGas is cognizant of the value in working with PNG and believes that the agreed tariff is a fair compromise which provides long term benefits, both financial and intangible, to PNG customers, and which also affords valuable intangible benefits to AltaGas. Further, the negotiated arrangements are considered commercially reasonable for AltaGas in what is seen as a very competitive market for the new LNG business. Truly, Wayne Geis Divisional Vice President Regional LNG AltaGas Ltd. direct line main Page 4 of 4