Facility Application – CPCN – Tolling Methodology
NOVA Gas Transmission Ltd. (“NGTL”) filed an application with the NEB on November 8, 2013 seeking approval to construct and operate the North Montney Mainline (“NMML”), designed to transport natural gas from the North Montney area in British Columbia to the NGTL system. NGTL also proposed to connect the NMML to the proposed Prince Rupert Gas Transmission (“PRGT”) pipeline, and on to gas markets as liquefied natural gas (“LNG”) at the Pacific Northwest LNG facility, located near Prince Rupert.
The NMML consists of two pipeline sections and related pipeline facilities, composed of:
(a) 182 km pipeline from an interconnection with the existing Saturn section of the Groundbirch Mainline, to a point located in Unit 44, Block L, Group 94-1-13 (“Aitken Creek Section”);
(b) 119 km pipeline from the Aitken Creek Section to a point located in Unit 30, Block K, Group 94-G-7 (“Kahta Section”);
(c) Three compressor stations capable of bi-directional capability, two on the Aitken Creek Section, and one on the existing Groundbirch Mainline;
(d) 16 meter stations, with 6 on the Aitken Creek Section and 10 on the Kahta Section. One of the meter stations would accommodate delivery of gas flows into the proposed PRGT pipeline (“Mackie Creek Interconnection”); and
(e) Other temporary infrastructure,
(collectively, the “Project”).
NGTL requested the following relief from the NEB in order to construct and operate the NMML:
(a) A Certificate pursuant to section 52 of the National Energy Board Act (“NEB Act”) authorizing the construction and operation of the Project;
(b) An Order pursuant to section 58 of the NEB Act, exempting NGTL from the requirements of subsections 31(c), 31(d) and 33 of the NEB Act in relation to temporary infrastructure required in advance of and during construction;
(c) An Order pursuant to Part IV of the NEB Act affirming that:
(i) Prudently incurred costs required to provide service on the applied-for facilities will be included in the determination of the NGTL system revenue requirement; and
(ii) The tolls for services on the applied-for facilities would be calculated using the same methodology used to calculate tolls for services on all other facilities on the NGTL system, as determined through Board order from time to time.
The NEB held an oral hearing on the NMML application during October 2014 and November 2014.
Tolling Methodology
Many interveners took issue with the impact that “rolled-in” tolling of the Project would have on existing shippers on the NGTL system, as the NMML would introduce a new FT-D1 delivery point, as well as several new receipt points.
The NEB held that in determining the appropriate tolling methodology, it has a wide discretion in choosing the method to be used, and the factors to be considered in assessing the justness and reasonableness of tolls. Accordingly, the NEB considered:
(a) The degree to which the proposed facilities would be integrated with the rest of the pipeline system; and
(b) The nature of the service to be provided by the proposed facilities in relation to the service provided by the rest of the pipeline system.
The Board found that gas flow patterns for the NMML are expected to change significantly when North Montney gas production is first delivered at the Mackie Creek Interconnection for transportation on the PRGT pipeline in 2019. Therefore, the NEB examined the NMML for two distinct periods:
(a) The “Transition Period”, which starts when gas begins to flow on the NMML and expires when North Montney gas production is first delivered at the Mackie Creek Interconnection; and
(b) The “Long-Term Phase”, which starts at the end of the Transition Period.
The NEB held that, for the Long-Term Phase, the Project would not be meaningfully integrated with the existing NGTL system, while there would be physical and operational integration during the Transition Period. The NEB held that while the Project would be physically connected to the NGTL system, it was connected at an extremity of the NGTL system, and was geographically separated from the remainder of the NGTL system. This in effect, precluded the Project from affecting the capacity of the existing NGTL system.
After the Transition Period, the NEB found that the Project would be used separately and largely independently of the NGTL system, noting that the gas flows between the Project and the NGTL system would be minimal and intermittent, with the Mackie Creek to Saturn portion being used well below capacity. While the NEB noted that it recognized the benefit of the access to the NOVA Inventory Transfer (“NIT”) market, it held that such access was not a determining factor, and that “evidence that it is convenient or preferable for a shipper to access the NIT market without paying stacked tolls is not a persuasive factor in determining integration.”
The NEB held that the service held by Progress Energy Canada Ltd. (“Progress”) on the Project was primarily a point-to-point service in the long term, rather than as a receipt-point to market hub service. The NEB also found that the NGTL tolling methodology, if applied to the Project, would unnecessarily constrain Project revenues during the Transition Period prior to 2019. The NEB determined that the revenue constraints would therefore be borne by existing NGTL shippers, resulting in an inappropriate level of cross-subsidization. Accordingly, the NEB found no direct link between the cost of the proposed facilities and NGTL’s rolled-in tolling methodology.
The NEB also found that the tolling methodology would be unjustly discriminatory, as the NEB determined that Project shippers would be accessing the NGTL system at a toll less than the applicable tolls downstream of Project shippers. While the NEB noted that the volume weighted aspects of the methodology may account for some of this discrepancy, it also found that the tolling methodology created irregular tolling patterns, even in the long term.
The NEB therefore denied NGTL’s requests to include the costs of the Project on a rolled-in basis, citing its determinations on the evidence presented that the proposed tolling would not sufficiently satisfy cost causation principles or the goal of economic efficiency. Therefore the tolls derived from NGTL’s proposal would not be just and reasonable. The NEB did however provide NGTL with directions regarding tolling that would result in just and reasonable tolls. The NEB’s specific directions can be found in Order TG-002-2015.
The NEB required NGTL to establish a separate cost pool for the Project including all expenditures and revenue related to the Project, and to maintain it for the life of the Project, or until directed otherwise. In the Transition Period the NEB held that it would allow NGTL to charge Project shippers tolls derived by combining the incremental revenue requirement of the Project with that of the existing NGTL system, and applying its current tolling methodology. In addition, the NEB determined that NGTL must accumulate in a deferral account, the portion of the Project’s cost of service that is not recovered by incremental revenue from Project-related transportation contracts for disposition in a future application.
The NEB found that after the Transition Period, in the Long-Term Phase, NGTL will have the option of:
(a) Implementing stand-alone tolling; or
(b) Applying to the Board for a revised tolling methodology.
Economic Feasibility and Need
The NEB held that there was adequate supply of natural gas to support the Project.
The Board found that the supply expected to flow on the Project can access global LNG markets via the proposed PRGT pipeline and the Pacific North West LNG Facility, which will be able to absorb Project volumes. However, prior to the start-up of the LNG facilities, the incremental volumes will access the North American market. In the absence of the planned LNG facilities, the NEB held that there would be insufficient evidence to assess the outlook for gas demand in relevant markets, as the volumes would need to flow onto the existing NGTL system. NGTL also acknowledged that a lack of deliveries to LNG export terminals would require a significant reconfiguration of the Project. On this basis, the NEB imposed “Condition 4”, requiring NGTL to file, prior to commencing construction, confirmation that:
(a) Progress has made a positive final investment decision on the proposed LNG facilities;
(b) TransCanada PipeLines Ltd. is proceeding with the construction of the PRGT pipeline; and
(c) The delivery contracts between NGTL and Progress continue to be in effect for the same quantity of gas reaching 2,340 TJ/d by 2019.
The NEB held that Condition 4 would establish sufficient contracts to support the design capacity of the Project, and that the facilities would have sufficient commercial support to proceed.
With respect to the physical sizing of the Project, the NEB found that the expected flows on the Mackie Creek to Saturn portion of the Project were not sufficient to support a finding that the design capacity was appropriate. However, the NEB was satisfied that some capacity was required to satisfy the requests of customers prior to 2019. Nevertheless, the NEB held that its finding with respect to tolling directions would leave the potential risks of mis-sizing or overbuilding the facilities with NGTL and the project shippers, and not on the existing NGTL shippers.
Facilities and Emergency Response
The Salteau First Nations (“SFN”) argued that the NEB had to first determine whether the project was within federal jurisdiction, before it could turn to questions on the appropriateness of the facilities applied for. SFN noted that the Project would be located entirely within British Columbia, and lacked a high degree of physical interconnection with the NGTL system.
The NEB dismissed the issue from SFN, citing that jurisdiction of the NEB was not raised as an issue, no evidence was adduced on the matter, and no notice of constitutional question was served on the Attorney General of Canada.
With respect to many aspects of facilities and emergency response plans, interveners raised no concerns with the NEB.
With respect to watercourse crossings, NGTL submitted that it planned a total of 87 water crossings, using open cut, isolation cut, and horizontal direction drilling (“HDD”) techniques. NGTL planned on using HDD where feasible as the primary crossing technique to reduce disturbances on waterways. The NEB was satisfied with the HDD approach adopted by NGTL, but directed NGTL to file its HDD execution program prior to construction.
Public Consultation
NGTL submitted that its Stakeholder Engagement Program would ensure that all stakeholders were aware of the Project plans, and would have an opportunity to provide input. NGTL submitted that it consulted with all those likely to be directly or indirectly affected by the project or that may have a potential interest in the Project.
One landowner expressed concerns with NGTL’s engagement with respect to selecting a location for the Groundbirch compressor site. NGTL replied, noting that it continues to work towards resolving the landowner’s concerns by shifting the location of the compressor station to reduce visual and noise impacts on the property.
The NEB held that the consultation and stakeholder engagement proposed by NGTL was appropriate for the size and scope of the Project. With respect to the location of the compressor station, the NEB encouraged both parties to continue discussions, and ordered NGTL to file a plan to mitigate, avoid or minimize potential impacts on their property including future development plans.
Aboriginal Matters
NGTL submitted that it consulted with 25 different Aboriginal groups located near or within the Project area, and facilitated 14 different traditional land use studies and traditional ecological knowledge studies.
The Blueberry River First Nations (“BRFN”) raised concerns that the BRFN Treaty rights were not accommodated, nor was the BRFN meaningfully consulted by NGTL with respect to routing options for the Kahta section of the Project.
Fort Nelson First Nation raised concerns with the Project, notably that the cumulative effects of the Project will cause adverse effects on lands, wildlife and other resources.
The Prophet River First Nation (“PRFN”) stated that NGTL mischaracterized its interactions with PRFN, resulting in delays in reaching an agreement on capacity funding, which in turn resulted in PRFN being unable to gather necessary cultural evidence by the NEB’s deadline to file intervener evidence. PRFN did however raise concerns that three culture camps used for the South-Sikanni Culture Camp could be potentially affected by the Kahta section of the Project.
Similarly, SFN submitted that the timelines and hearing process for the Project were insufficient to allow any meaningful consultation.
The West Moberly First Nations (“WMFN”) submitted that a number of traditional land use resources and activities would likely by impacted by the Project, noting that increased industrialization has gradually encroached on WMFN’s territory, limiting its abilities to engage in traditional practices due to fragmentation.
NGTL replied, stating that its consultation was extensive, and provided each group with information about the Project, and provided opportunities to meet and discuss each group’s concerns with the Project. NGTL also submitted that the three camps identified by PRFN would not intersect with the proposed route for the Project, and therefore NGTL did not anticipate any Project related effects. NGTL stated that it would continue to engage with potentially affected Aboriginal communities throughout the lifecycle of the Project.
The NEB determined that NGTL’s implementation of its consultation program was adequate, and noted NGTL’s commitment to continue to engage with potentially affected Aboriginal Communities.
Pipeline Routing
NGTL proposed six major alternative corridors for the Aitken Creek section. The WMFN and SFN did not support the applied for route which would traverse the Peace Moberly Tract.
The NEB determined that NGTL’s approach for the assessment of the Project’s potential effect on traditional land use and resource use was generally acceptable, with the exception of the Peace Moberly Tract. The NEB was not in full agreement (one panel member presented dissenting reasons) on the routing of the Project and its impacts on Aboriginal traditional uses within the Peace Moberly Tract.
The majority of the NEB recommended approval of NGTL’s applied for route through the Peace Moberly Tract, but imposed additional measures on NGTL it deemed necessary for the route to be in the public interest. The majority noted that NGTL pursued its preferred route through the Peace Moberly Tract over the significant concerns raised early on by SFN and WMFN. The majority noted that despite its knowledge of these concerns, NGTL did not substantively revise its design, nor propose additional measures that would eliminate the Project’s potential effects on the use of the lands and resources in the Peace Moberly Tract by the SFN and WMFN. The majority also noted that NGTL did not adjust its preferred route within the Peace Moberly Tract.
The majority of the NEB held that NGTL did not sufficiently justify its preferred route commensurate with the demonstration of concern and the evidence provided by Aboriginal groups in respect of its potential impacts, and therefore found NGTL’s approach unsatisfactory. The majority noted that it expects applicants to clearly demonstrate:
(a) How the proposed project is the most appropriate option for the needs that the project would satisfy while serving the public interest; and
(b) How the input and concerns the proponent received from potentially impacted parties have influenced the design, construction or operation of the proposed project.
In finding that the concerns of SFN and WMFN were significant and had merit, the majority held that it expected NGTL to demonstrate justification for its preferred route commensurate with the degree of concerns raised, or demonstrate how it revised the Project to address those concerns.
Therefore, in order to accommodate the concerns of the SFN and WMFN, the majority imposed conditions 11, 12 and 35 to its decision, which require NGTL to:
(a) Submit to the NEB for approval a protection plan specific to the Peace Moberly Tract that outlines additional measures to eliminate or minimize impacts within the Peace Moberly Tract, including impacts on traditional land use by Aboriginal communities;
(b) Submit to the NEB for approval a plan for consulting with SFN and WMFN on the development of its planned mitigation measures to protect the Peace Moberly Tract; and
(c) To report to the NEB on its consultation efforts and the effectiveness of the measures implemented through monitoring reports during the operation phase of the Project.
The majority noted that it attached significant weight to the importance of these conditions on its decision, and expressed its expectations for the fulfillment of these conditions to be correspondingly significant by NGTL.
The dissenting member of the NEB shared the majority’s finding that NGTL did not provide persuasive evidence that it thoroughly investigated alternatives that would avoid the Peace Moberly Tract. The conditions provided for by the majority were noted as helpful in mitigating impacts, but the dissenting member found that they would not avoid fragmentation of the Peace Moberly Tract.
The dissenting member found that the Peace Moberly Tract is “one of the last remaining undisturbed and high value traditional use areas in close proximity to these First Nations.” Accordingly, the dissenting member determined that an approval of projects that break up such contiguous lands must be strongly and demonstrably justified by the project proponent.
The dissenting member also accepted the evidence of the SFN and WMFN respecting the serious implications of encroachment on the Peace Moberly Tract, as the proposed Project route would have the potential to significantly impact SFN and WMFN’s ability to undertake their traditional practices in a meaningful way. The dissenting member also accepted evidence that such encroachment would undermine ongoing negotiations between First Nations and the Province of British Columbia.
The dissenting member therefore recommended that the Governor in Council approve the Kahta section of the Project, but deny the portion of the Project from Mackie Creek to Saturn for the above reasons.
Environmental Impacts and Mitigation
NGTL proposed several mitigation strategies to avoid or minimize effects on the Project. NGTL relied primarily on paralleling existing linear disturbances, reducing the number of watercourse crossings, and routing to avoid sensitive environmental areas. NGTL also proposed to salvage top soil from construction in order to mitigate impacts to soil and soil quality, as well as controlling topsoil loss from erosion.
The NEB was satisfied with the site-specific mitigation measures proposed, and implemented the following conditions on NGTL:
(a) Requiring NGTL to file a Project-specific environmental protection plan 60 days prior to commencement of construction of the Project, and 45 days prior to construction of temporary infrastructure, providing clear and unambiguous language setting out the goal, mitigation options and decision making criteria for selecting mitigation options;
(b) Requiring NGTL to file monthly construction reports, including any environmental, socio-economic, safety, security, and compliance issues encountered during construction; and
(c) Requiring NGTL to file post-construction and environmental monitoring reports.
Cumulative Effects Assessment
NGTL identified past development activities that may contribute to cumulative effects in the region, including forestry, oil and gas, utilities, residential development, and future developments adjacent to the Project. NGTL identified adverse residual effect from the Project for the following valued environmental and socio-economic components: vegetation and wetlands, wildlife and wildlife habitat, water quality, fish and fish habitat, human occupancy and resource use, traditional land and resource use.
NGTL applied a three step screening process to identify the impact of the Project for cumulative effects:
(a) Is there a residual effect as a result of the Project?
(b) Does the residual effect overlap spatially and temporally with those of other past, present or reasonably foreseeable future projects?
(c) Is there a reasonable expectation that the contribution (i.e. addition) of the Project’s residual effects would cause a change in cumulative environmental effects that could affect the quality or sustainability of the valued environmental and socio-economic components, and therefore require further assessment?
The NEB expressed reservations about the third part of the screening process, noting that it is not an accepted method, and was not supported by any independent or peer reviewed literature. The NEB expressed a concern that this screening measure presupposes the intended outcome on cumulative effects assessment. Notably, the NEB also found that NGTL’s assumptions for cumulative effects were inconsistent with its filings, and did not identify associated or related wells for cumulative effects, but relied on them for the economic assumptions for the Project. The NEB held that a proponent cannot suggest supply exists to justify the need for its proposed pipeline for the economic feasibility analysis, and then suggest that development of the supply is a hypothetical in examining environmental impacts. However, after review of additional information provided by NGTL in the course of the proceeding, the NEB held that the modelling reflected a reasonable model of potential trends.
The NEB held that most of the cumulative effects would be limited to the duration of construction, would be minor in nature and would be localized. The NEB was satisfied with NGTL’s proposed mitigation measures for the impacts identified, and that in conjunction with the NEB’s imposed conditions and the implementation of NGTL’s mitigation measures, that the Project would not likely cause significant adverse environmental effects.
Decision
In the result:
(a) The majority of the Board recommended that a CPCN be issued under section 52 of the NEB Act, for the construction and operation of the NMML. The NEB set out terms and conditions to which the CPCN would be subject if the Governor in Council were to direct the NEB to issue the CPCN;
(b) The majority of the Board decided that the construction and operation of temporary infrastructure for the NMML (the “Section 58 Facilities”) were in the public interest. The NEB issued Order XG-N081-010-2015 approving the Section 58 Facilities and exempting NGTL from subsections 31(c) and 31(d), and section 33 of the NEB Act, subject to conditions; and
(c) The NEB denied NGTL’s requests for the Part IV Questions. However, the NEB provided NGTL with directions regarding tolling in Order TG-002-2015
