Revenue Requirement – Settlement – Rates
NOVA Gas Transmission Ltd. (“NGTL”) applied to the NEB requesting an order approving a settlement establishing NGTL’s revenue requirement for 2016 and 2017.
NGTL submitted that the application was supported by the unopposed resolution T2015-02 of NGTL’s Tolls, Tariff, Facilities and Procedures Committee (“TTFP”).
As part of its application, NGTL also requested an exemption from filing quarterly surveillance reports under section 4 of the Toll Information Regulations.
The application was supported by the Canadian Association of Petroleum Producers (“CAPP”) and the Industrial Gas Consumers Association of Alberta (“IGCAA”). Centra Gas Manitoba (“Centra”) and the Western Export Group (“WEG”) had various concerns with the application but did not contest it. Centra was concerned about the rushed process of settlement negotiations, and noted that NGTL shippers may be assuming unknown risk from the flow-through treatment of severance costs which were not quantified.
WEG expressed concerns with NGTL’s settlement, including the TTFP reporting requirements, treatment of severance costs, and NGTL’s capital cost reporting to the TTFP. WEG was concerned that NGTL’s reporting requirements were inadequate, and would not allow WEG to properly monitor NGTL’s cost control performance during the term of the settlement. WEG also noted that NGTL was in the midst of a major facilities expansion program, and that NGTL’s current reporting commitments would not allow WEG to monitor the continued prudence of NGTL’s capital costs.
The NEB determined that WEG raised valid concerns. The NEB noted that since coming under federal jurisdiction, NGTL’s revenue requirement has risen from $1.145 billion in 2009 to $1.857 billion in 2016, while NGTL’s last depreciation study will be five years old by the end of the settlement.
Given the significant changes to the usage of the NGTL system since coming under federal jurisdiction, the NEB determined that setting an appropriate depreciation rate was critical to ensuring that short and long term costs are just and reasonable. Therefore, the NEB directed that NGTL’s 2018 tolls application be supported by a depreciation study, and directed NGTL to file such a depreciation study no later than July 31, 2017 to inform future revenue requirement negotiations.
The NEB denied NGTL’s request to be exempt from its obligation to file quarterly surveillance reports, holding that NGTL did not sufficiently justify its request, noting the NEB’s determination that more information will help shippers monitor NGTL’s results.
The NEB, in denying NGTL’s exemption request, found that additional information on NGTL’s capital program was required. The NEB determined that additional information should be provided in advance of commencing settlement negotiations for 2018 tolls, noting that having such information on the public record will increase transparency for interested parties, and provide the NEB with an opportunity to clarify areas of concern.
Accordingly, the NEB directed NGTL to file supplemental financial information as provided in supplemental schedules 1.0-9.0 in Section 2G(i) of the settlement, on its capital program for 2016 and 2017 as follows:
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Provide financial information no later than March 31 2017 (for 2016 actuals) and March 31, 2018 (for 2017 actuals); and
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Bridge year information by July 31, 2017 to inform future revenue requirement negotiations.
The NEB also recommended that NGTL report on key capital cost parameters on an annual basis at a minimum, in addition to the information it provides in its facility status update reports. The NEB noted that the level of detail it expected would include a variance of forecast costs included in facilities applications, and the actual costs, and that such analysis would be commensurate with the magnitude of the variance.
The NEB held that the settlement would result in just and reasonable tolls, and therefore approved the settlement. However the NEB cautioned that approval of the settlement was not to be considered an approval of the manner in which the elements of the revenue requirement were determined.
