Natural Gas Pipeline – Tolls and Tariff – Revenue Requirement – Negotiated Settlement
On 23 March 2018 NOVA Gas Transmission Ltd. (“NGTL”) filed an application for approval of the 2018-2019 Revenue Requirement Settlement (the “Settlement”) and Final 2018 Rates, Tolls, Charges and Abandonment Surcharges for the NGTL System (the “Application”).
For the reasons summarized below, the NEB approved the 2018-2019 Settlement, as filed as a package, and the applied-for final 2018 tolls and 2018 abandonment surcharges.
The Application
In the Application, NGTL stated that:
(a) it calculated its revised 2018 interim rates in accordance with the Settlement and the existing rate design methodology approved in Order TG-004-2010 2018;
(b) abandonment surcharges were calculated using the Board approved methodology from the MH-001-2013 Reasons for Decision; and
(c) the Tolls, Tariff, Facilities and Procedures Committee (“TTFP”) endorsed, through an unopposed resolution, the Settlement.
Decision Overview
In the Application, NGTL stated that the components of the 2018 – 2019 Settlement were inextricably linked and were presented to the Board as a package.
The NEB assessed the Application in this context rather than making a determination on the individual elements in the revenue requirement. The NEB’s decision addressed the following:
(a) the Settlement Process,
(b) 2018 Revenue Requirement and Rates,
(c) 2017 Depreciation Study, and
(d) NGTL’s Settlement Requirements to the Board.
Although not part of the Settlement, the Board also addressed the 2018 Abandonment Surcharges, and potential effect of approving this Application on the Board’s March 8, 2018 Examination Decision concerning Northeast British Columbia competition matters.
Settlement Process
The Board found that:
(a) the TTFP negotiating process was open, and parties had a fair opportunity to participate in the negotiations;
(b) adequate information was placed on the record to allow the Board to assess the reasonableness of the Settlement and to determine if the resulting tolls were just and reasonable and not unduly discriminatory; and
(c) the settlement process employed by the TTFP to negotiate the 2018-2019 Settlement complied with the Board’s Guidelines.
In addition to approving the Settlement, the NEB expressed its concerns with NGTL’s view that a party should only be able to advise the Board of its opposition to a settlement if it votes “hard opposed” on a resolution in TTFP process.
With respect to the importance of comments in the regulatory process, the NEB explained that comments from interested parties to a settlement:
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may assist the Board in carrying out its adjudication function; and
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may be an indicator of emerging issues in a company’s revenue requirement and may go beyond issues in a settlement.
The NEB further noted that NGTL’s annual revenue requirements had been determined by an uninterrupted series of negotiated settlements since 2010 and there had been no Board proceeding to examine NGTL’s revenue requirement in-depth.
Accordingly, the NEB further found that:
(a) interested parties to settlements should have the freedom to file comments without being encumbered by TTFP procedures, such as the requirement to take a “hard opposed” position in order to file comments with the NEB;
(b) NGTL’s suggested procedural approach was overly confining and not supportive of the collaborative intent of the TTFP;
(c) NGTL appeared to be unintentionally extending the applicability of TTFP procedures so that the comment step in the Board’s assessment process may no longer be meaningful; and
(d) applying the TTFP procedures as NGTL proposed may discourage parties from filing comments with the Board or, alternatively, may prompt more hard opposed votes simply to gain the ability to have the right to file a comment with the Board. Neither outcome enhances the effectiveness of the collaborative process.
The NEB concluded that:
If the hard oppose condition for comments from parties to the Board is not enforced rigidly, the Board will continue to assess the weight to be given to such comments on an individual basis in each proceeding.
2018 Revenue Requirement and Rates
The Board approved the Settlement and the resulting 2018 revenue requirement as a package, based on finding the applied-for 2018 final tolls to be just and reasonable and not unduly discriminatory.
The Board noted that NGTL’s current tolling methodology may be revised by a future Board decision.
2017 Depreciation Study
The Board approved NGTL’s depreciation methodology proposed in its 2017 Depreciation Study and the use of the results to calculate the depreciation expense for 2018 and 2019.
The Board noted that its initiatives arising from the NEB March 8, 2018 Examination Decision may result in NGTL’s depreciation principles and practices being reviewed further later in 2018 or in 2019.
NGTL’s Settlement Reporting Obligations to the Board
The NEB set out the following TTFP reporting requirements from the Settlement:
(a) By March 31, 2019 (for 2018) and by March 31, 2020 (for 2019), NGTL will provide:
(i) Supplemental Schedules to the TTFP in the prescribed form (the “Supplemental Schedules”); and
(ii) an update to the TTFP on the pipeline integrity and compressor repair and overhaul activities and costs;
(b) On a quarterly basis, NGTL will provide the TTFP with detailed information on capital projects in the prescribed form;
(c) During the term of the Settlement, NGTL will provide the TTFP with variance updates for the Annual Plan (as defined in NGTL’s Gas Transportation Tariff) projects forecast to be in excess of $25 million; and
(d) NGTL will file with the NEB the Supplemental Schedules and any updates related to items referred to in Sections 2(F)(ii) and (iv) by March 31, 2019 (for 2018) and March 31, 2020 (for 2019).
In addition, the NEB directed NGTL to provide the NGTL System unit transportation cost data in the Annual Plan for three historical years and the five forecast years covered in each year’s Annual Plan (The unit transportation cost will be calculated by dividing NGTL’s actual or forecast revenue requirement by the system’s annual throughput, actual or forecast).
This filing requirement will take effect with NGTL’s filing of its 2018 Annual Plan with the Board, which is expected in December 2018.
The NEB requested this data to enable the Board to have a better understanding of NGTL’s capital spending program and its impact on NGTL’s investment base and financial position. The unit transportation cost forecasts would enable NGTL’s shippers and the Board to better understand the potential toll impacts on the NGTL System and its shippers.
2018 Abandonment Surcharge
The NEB approved NGTL’s applied-for final 2018 daily abandonment surcharge of $0.0091/GJ/d that were calculated using the Board approved methodology from the MH-001-2013 Reasons for Decision. NGTL will place the funds collected in a trust approved by the Board for future abandonment costs.
Potential Effects of this Decision on the Filing Requirements from Examination Decision re: Northeast British Columbia Pipeline Competition
In the Examination Decision, the NEB directed NGTL and Westcoast to file information on capital spending policies for system extensions and expansions, depreciation policy, and tolling methodology and tariff provisions with their applications for 2019 final tolls.
NGTL indicated that the analyses would be part of its application for 2019 Final Rates and changes resulting from the analyses would likely be implemented prospectively.
Summary
The Board approved the 2018-2019 Settlement, as filed as a package, and the applied-for final 2018 tolls and 2018 abandonment surcharges and issued Order TG-004-2018 that gave effect to this decision.
