20231020Exhibit 2 - Direct Testimony Christopher Johnston.pdf

BEFORE THE PUBLIC SERVICE COMMISSION OF UTAH

In the Matter of the Joint Application of
Questar Gas Company dba Dominion Energy Utah, and Enbridge Quail Holdings, LLC for Approval of the Proposed Sale of Fall West Holdco, LLC to Enbridge Quail Holdings,
LLC

Docket No. 23-057-16

DIRECT TESTIMONY OF CHRISTOPHER JOHNSTON
FOR JOINT APPLICANTS

October 20, 2023

Joint Application Exhibit 2.0

JOINT APPLICATION EXHIBIT 2.0 DIRECT ESTIMONY OF OCKET O

TABLE OF CONTENTS

I. INTRODUCTION 1 II. DESCRIPTION OF THE TRANSACTION 2 III. METHOD OF FINANCING THE TRANSACTION 3 IV. FINANCIAL CONDITION OF ENBRIDGE 4
V. FINANCIAL BENEFITS OF THE TRANSACTION 6
VI. FINANCIAL COMMITMENTS AND UNDERSTANDINGS 7 VII. CONCLUSION 10

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I. INTRODUCTION 1
Q. Please state your name and business address. 2
A. My name is Christopher Johnston. My business address is 200, 425-1st Street SW, Calgary, 3
Alberta, T2P 3L8, Canada. 4
Q. By whom are you employed and what is your position? 5
A. I am employed by Enbridge Inc. (“Enbridge”) as Vice President, Finance - Integration. 6
Q. What are your qualifications to testify in this proceeding? 7
A. I have listed my qualifications in Joint Exhibit 2.01. 8
Q. What is the purpose of your testimony in this Docket? 9
A. My testimony provides financial information supporting the transaction (the 10
“Transaction”) through which Questar Gas Company’s dba Dominion Energy Utah 11
(“Dominion Energy,” “Questar Gas,” or the “Company”) parent, Fall West Holdco LLC 12
(“Fall West”), will become a wholly-owned subsidiary of Enbridge Quail Holdings, LLC 13
(“EQ Holdings”), a Delaware limited liability company. I also discuss a number of the 14
commitments that are being made in connection with the Transaction and how the resources 15
available to Questar Gas following completion of the Transaction will sustain the financial 16
condition and financial strength of Questar Gas, and bring to bear Enbridge’s strong risk 17
management and ring-fencing capabilities on behalf of Questar Gas and its customers. 18
EQ Holdings is a direct wholly-owned subsidiary of Genoa Holdings, LLC (“Genoa 19
Holdings”), a Delaware limited liability company. Genoa Holdings is a direct wholly-20
owned subsidiary of Enbridge U.S. Inc. (“Enbridge U.S.”), a Delaware corporation. 21
Enbridge U.S. is an indirect wholly-owned subsidiary of Enbridge, a Canadian corporation. 22
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Genoa Holdings has no other subsidiaries other than subsidiaries formed in connection with 23
the Transaction and the Other Acquisitions. 1 24
II. DESCRIPTION OF THE TRANSACTION 25
Q. What is the purchase price for the Fall West Interest? 26
A. Under the terms of the Agreement, the Interests of Fall West will be acquired for a base 27
purchase price of US$2.95 billion, which is subject to adjustments for cash, indebtedness, 28
working capital and capital expenditures, based on agreed target amounts, and any new 29
regulatory assets and liabilities of Fall West arising between July 1, 2023 and closing of 30
the Transaction. 31
Q. What will happen to Fall West and its subsidiaries, including Questar Gas and 32
Wexpro? 33
A. At the closing of the Transaction, Fall West will become a direct subsidiary of EQ Holdings 34
and each of Questar Gas and Wexpro will remain subsidiaries of Fall West. All three 35
companies will continue to exist as separate legal entities. 36
Q. Was the Transaction approved by the boards of directors or other governing bodies 37
of the relevant parties? 38
A. Yes. The resolutions of the boards of directors or other governing bodies of all parties 39
approved the Agreement and the Transaction. 40
1 On September 5, 2023, Dominion Energy entered into two additional separate purchase and sale agreements with
two separate subsidiaries of Genoa Holdings pursuant to which those subsidiaries each separately agreed to acquire all of the outstanding equity interests in other Dominion Energy subsidiaries: (i) Dominion Energy Questar Corporation,
Dominion Energy Gas Distribution, LLC, The East Ohio Gas Company and DEO Alternative Fuel, LLC; and (ii) Public Service Company of North Carolina, Incorporated (“PSNC”), PSNC Blue Ridge Corporation, PSNC Cardinal Pipeline Company, and Clean Energy Enterprises, Inc. (collectively, the “Other Acquisitions”). Each of the Other Acquisitions and the Transaction are separate transactions none is cross-conditioned on the completion of any other.
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III. METHOD OF FINANCING THE TRANSACTION 41
Q. How will the Transaction be financed? 42
A. Funds raised to finance the Transaction have and will be raised by Enbridge and will be 43
advanced to Enbridge U.S. as capital contributions and internal loans. Enbridge U.S. will 44
then make capital contributions to Genoa Holdings and Genoa Holdings will then in turn 45
make capital contributions to EQ Holdings in an amount sufficient to pay the purchase 46
price to DEI for the Interests of Fall West under the Agreement and pay other costs in 47
connection with the Transaction. None of EQ Holdings, Questar Gas or Wexpro will incur 48
any new indebtedness or liability for any acquisition debt incurred to finance the 49
Transaction, and Questar Gas will not seek recovery in its rates for transaction costs related 50
to the Transaction. Questar Gas and Wexpro’s obligations in respect of its existing external 51
indebtedness will continue in connection with the Transaction. Consistent with the 52
Agreement, all internal indebtedness will be settled with DEI at or prior to close. 53
Q. How did Enbridge raise the funds to finance the Transaction? 54
A. To finance the Transaction, Enbridge entered into a commitment letter, pursuant to which 55
Morgan Stanley Senior Funding, Inc. and Royal Bank of Canada committed to provide a 56
364-day credit facility (the “Bridge Facility”) in an aggregate initial principal amount of 57
US$9.4 billion which amount was reduced to US$3.4 billion as a result of the offerings 58
described below. Up to US$2.95 billion of the Bridge Facility may be used to finance the 59
Transaction, which amount is sufficient to fund 100% of the purchase price for the 60
Interests. The balance of the amount available under the Bridge Facility is available to 61
finance the Other Acquisitions. 62
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As is customary for an acquisition such as the Transaction, Enbridge expects to further 63
reduce the commitments available to finance the Transaction under the Bridge Facility to 64
zero using the proceeds from other sources of permanent financing before any funding 65
under the Bridge Facility would be required to finance the Transaction. Enbridge expects 66
its future financing sources may include issuances of hybrid notes, senior notes, or common 67
shares in at-the-market offerings. Enbridge may also reinstate its dividend reinvestment 68
and share purchase plan to achieve potential savings in cash dividends. These sources are 69
subject to change, based on market conditions and other factors. 70
As part of its financing plan for the Transaction and the Other Acquisitions, on September 71
8, 2023, Enbridge completed the sale of 102,913,500 of its common shares, resulting in net 72
proceeds of approximately C$4.5 billion to Enbridge. On September 23, 2023, Enbridge 73
completed the sale of US$2 billion of fixed-to-fixed rate subordinated notes, resulting in 74
net proceeds of approximately US$1.98 billion. On September 29, 2023, Enbridge 75
completed the sale of C$1 billion of fixed-to-fixed rate subordinated notes, resulting in net 76
proceeds of approximately C$0.99 billion. As a result of these financings, as of September 77
30, 2023, the commitments under the Bridge Facility have been reduced to approximately 78
US$3.4 billion. 79
IV. FINANCIAL CONDITION OF ENBRIDGE 80
Q. Please describe the financial condition of Enbridge. 81
A. Enbridge common stock is publicly held and is traded on the New York Stock Exchange 82
and Toronto Stock Exchange under the ticker “ENB.” As of December 31, 2022, Enbridge 83
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had a public equity market capitalization of over C$107 (US$78)2 billion, total assets of 84
C$179.6 (US$131.5) billion and annual operating revenue of C$53.3 (US$39) billion. 85
Consequently, Enbridge has the financial wherewithal to fund investments in system 86
modernization and system expansion, in each case, subject to receipt of all required 87
regulatory approvals. Enbridge further has a large group of committed bank credit facilities 88
totaling approximately C$22 (US$16B) billion that it can rely on. As at June 30, 2023, 89
Enbridge had net available liquidity of C$11.4 (US$8.3) billion. 90
Q. What are Enbridge’s current credit ratings? 91
A. Enbridge’s stable regulated operations, strong access to capital markets, ample liquidity, 92
prudent capital structure, and experienced management team all contribute to its strong 93
investment grade ratings. Enbridge’s strong investment grade profile allows for cost-94
effective financing of its maintenance and growth capital investments. Current ratings 95
information for Enbridge is included in the table below: 96
Preferred Shares Unsecured Commercial Paper Rating Outlook
Entity Fitch /Fitch Fitch Fitch
Inc. P-2(low)/BBB- /BBB+ Stable
97
2 All CAD to USD conversion utilized October 12, 2023 US/CAD exchange rate of 1.3657.
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Q. Will the Transaction result in a change in the status of Questar Gas as a stand-alone 98
issuer of debt securities? 99
A. No. 100
Q. How does Enbridge handle the day-to-day short-term cash management needs of its 101
subsidiaries? 102
A. For Enbridge’s wholly-owned US based subsidiaries, short-term demand loans are 103
provided at market rates to meet day-to-day short-term cash management needs. 104
Q. How will the day-to-day short-term cash management needs of Questar Gas be 105
handled? 106
A. Enbridge will provide Questar Gas with the same access to short-term debt, commercial 107
paper and other liquidity as per past practices. If this does not provide sufficient liquidity 108
for day-to-day needs, additional short-term demand loans, at market rates, will be available. 109
However, without Commission approval, neither Enbridge nor any of its affiliates will 110
make any loan to Questar Gas that bears interest at rates that are greater than the lower of 111
i) rates being paid at the time of such loan by Enbridge or such other affiliate on its own 112
debt or ii) rates available, at the time of such loan, on similar loans to Questar Gas from the 113
market. 114
V. FINANCIAL BENEFITS OF THE TRANSACTION 115
Q. Please provide a brief summary of the financial benefits of the Transaction. 116
A. Questar Gas will benefit from the Transaction by being a member of the Enbridge group 117
of companies. As described in the Joint Application, Enbridge is a leading North American 118
energy infrastructure company that manages and, through its subsidiaries, operates energy 119
assets ranging from crude oil pipelines to offshore wind power plants, as well as North 120
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America’s largest natural gas utility by volume of natural gas delivered, and third largest 121
by customer count. 122
Operation of this diverse portfolio of energy assets provides Enbridge with important and 123
unique insight into the differentiated financing needs and risks associated with different 124
energy classes and, especially, the benefits of risk management and ring-fencing of 125
different asset classes. Enbridge has strong financial credit and will support EQ Holdings 126
in ensuring that EQ Holdings has the wherewithal to ensure that Questar Gas has access to 127
the resources, funding, and credit needed to support the operations and growth of Questar 128
Gas. Importantly, Enbridge is committed to natural gas as an energy resource and to 129
investing in natural gas infrastructure and natural gas transportation and distribution 130
facilities. 131
VI. FINANCIAL COMMITMENTS AND UNDERSTANDINGS 132
Q. Is EQ Holdings making financial commitments and providing financial assurances 133
that will address potential concerns of the Commission and interested parties? 134
A. Yes. EQ Holdings is committing to support the financial strength and integrity of Questar 135
Gas and to make robust ring-fencing commitments that are consistent with Commission 136
precedent. Enbridge supports EQ Holdings in making these commitments. 137
Q. Please list those commitments. 138
A. EQ Holdings’ financial commitments which I am sponsoring are: 139
• Questar Gas will be provided with funding to meet its ongoing operational needs 140
consistent with past practice and as necessary to provide safe and reliable service 141
to all its customers. 142
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• Without Commission approval, neither Enbridge nor any of its affiliates will make 143
any loan to Questar Gas that bears interest at rates that are greater than the lower of 144
i) rates being paid at the time of such loan by Enbridge or such other affiliate on its 145
own debt or ii) rates available, at the time of such loan, on similar loans to Questar 146
Gas from the market. 147
• Questar Gas will be provided with the same access to short-term debt, commercial 148
paper, and other liquidity as per past practices. 149
• Questar Gas will maintain separate long-term debt with its own debt rating supplied 150
by at least two of the three recognized debt rating agencies. Any of the debt used to 151
capitalize Questar Gas will be kept within the regulated utility. Questar Gas will be 152
supported with funding with the intention of maintaining strong credit metrics 153
consistent with past practice. 154
• Questar Gas will continue to maintain its own bank accounts that are in its own 155
name and have direct access to exclusively committed credit facilities. 156
• Upon request, EQ Holdings and its affiliates will provide the Commission, the 157
Division, and the OCS, including their auditors and authorized agents, and 158
intervenors in rate proceedings, as appropriate, with reasonable access to 159
transactional, accounting and other information, including personnel necessary to 160
explain the requested information regarding any costs directly or indirectly 161
allocated to Questar Gas. EQ Holdings and Questar Gas commit to maintain access 162
to Questar Gas’s records in Salt Lake City, Utah. 163
• Questar Gas will clearly reflect all of its costs and investments in its financial 164
reports, including costs and assets that are directly assigned or allocated to it from 165
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another subsidiary of Enbridge. An audit trail will be maintained so that allocable 166
costs can be specifically identified. 167
• Questar Gas commits to continue to file its annual affiliate transactions report with 168
the Commission on an annual basis. 169
• A “Special Bankruptcy Director” will be appointed to serve as a member of the 170
Board of Directors of Questar Gas. This Director will be nominated by and retained 171
from an independent entity such as CT Corporation (at EQ Holdings’ expense) and 172
will not be employed by Enbridge or any of its affiliates. This Director will not 173
participate in ordinary and routine activities of the Questar Gas Board and will not 174
have voting rights except in the event of a vote by the Questar Gas Board to approve 175
a voluntary bankruptcy petition to be filed under Title II of the U.S. Code on behalf 176
of Questar Gas. 177
Q. When Dominion Energy and Questar Corporation merged, Dominion Energy made a 178
substantial contribution to the Questar Corporation pension plans. Is a similar 179
contribution being made by EQ Holdings? 180
A. No. At the time of the Dominion Energy/Questar Corporation merger, the Questar 181
Corporation pension plans were severely underfunded, and there were questions as to how 182
the gap in projected pension expenses would be made up. When Dominion Energy funded 183
these pension expenses, Dominion Energy reduced projected pension expenses that would 184
otherwise have been charged over time in customer rates. Today, the Questar Gas pension 185
plans are not underfunded. 186
Q. Will these commitments reduce risks and produce benefits to Questar Gas? 187
A. Yes. 188
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VII. CONCLUSION 189
Q. Would you please summarize your testimony? 190
A. Upon approval of the Transaction, Questar Gas will join EQ Holdings and become part of 191
the Enbridge group of companies who lead in providing energy infrastructure in North 192
America. Questar Gas will have the support and financial resources to thrive in the future. 193
The Transaction is in the public interest. 194
Q. Does this conclude your testimony? 195
A. Yes.196
Country of Canada )
) ss.
City of Calgary, Canada )
I, Christopher Johnston, being first duly sworn on oath, state that the answers in the
foregoing written testimony are true and correct to the best of my knowledge, information and
belief. The exhibits attached to the testimony were prepared by me or under my direction and
supervision, except where othe1wise stated, in which case they are true and correct copies of what
they purpo1i to be, to the best of my knowledge, information and belief. Any exhibits not prepared
by me or under my direction and supervision are true and coITect copies of the documents they
purport to be.
Christopher Johnston
SUBSCRIBED AND SWORN TO this __!__S_th day of October, 2023.
DAVID TANIGUCHI
Barrister and Solicitor