Abandonment Cost Estimate Review 2016 – Group 1 Companies
The NEB initiated the Abandonment Cost Estimate (“ACE”) Review 2016 by way of its February 8, 2016 letter. The letter directed Group 1 companies to file updated ACEs and supporting filings by 30 September 2016. Specifically, the letter directed all Group 1 companies to file:
(a) pipeline-specific land use studies (or updates to previously filed land use studies), to include, at a minimum:
(i) the scope of the land use study;
(ii) the methodology used to complete the land use study, including information sources, land use categories, definitions, and basis for the definitions, and assumptions regarding abandonment methods;
(iii) identification of locations or areas wherever pipeline is expected to be abandoned-in-place, removed, or abandoned-in-place with special treatment; and
(iv) results and analysis of the land use study;
(b) changes to land use categories based on consultation with landowners (or their associations) and other interested persons;
(c) changes to the physical assumptions in Table A-2 resulting from a) and b), and as informed by the four completed projects by the Pipeline Abandonment Research Steering Committee facilitated by the Petroleum Technology Alliance Canada, or any other relevant literature and studies;
(d) revisions to the abandonment costs associated with changes as provided in a), b), and c);
(e) updated information on the methodology used to estimate contingency costs, including the supporting assumptions and a description of items included under these costs and how these were determined. The costs must consider the necessity of taxes and insurance;
(f) report(s) on consultation activities with landowners (or their associations) since the MH-001-2012 Decision and plans for future consultations; and
(g) a report outlining plans for any decommissioning and/or abandonment of facilities during the next five year period, and an estimate of these costs.
The NEB found that each Group 1 company used a methodology to develop its ACE based on its pipeline system’s characteristics. Although the NEB recognized the need to account for company or pipeline-specific characteristics, it found that it was important for Group 1 companies to follow a consistent and standardized approach to provide greater clarity, consistency, and transparency in their ACEs, and to allow the NEB to better evaluate the reasonableness of each company’s ACE. To achieve greater consistency, transparency and accuracy for future ACE reviews, the NEB stated that it intends to initiate a process for the next steps for future reviews.
The NEB stated that it would issue a draft Technical Conference Report for comment in due course, followed by the final report. The report will include the next steps.
NEB Review of ACE Filings
In assessing the reasonableness of the Group 1 ACE Review 2016 Filings, the NEB considered whether the Group 1 companies, in developing their ACE:
• used the Board’s Revised Base Case; and/or
• relied on the Board’s direction provided in the MH-001-2012 Reasons for Decision; and/or
• provided sufficient information and supporting rationale in their ACE filings or in response to the Board’s information requests regarding various matters, including:
• the scope and methodology of land use studies;
• changes to land use categories and abandonment method assumptions resulting from consultation activities and abandonment research conducted over the past five years;
• cost estimate methodology, including contingency costs, and taxes and insurance;
• consultation activities with landowners or their associations; and
• plans for any decommissioning and/or abandonment of facilities during the next five year period, including an estimate of these costs.
Steps Taken to Consider Assessing Development of Future Reviews
• In August 2017, NEB staff developed Discussion Papers and a proposed Refined ACE Framework.
• The intent of the Discussion Papers and the proposed framework to refine and advance the Board’s current abandonment framework established during 2008-2010.
• NEB staff Technical Conference from 21-24 November 2017, during which Group 1 and 2 company representatives, landowner associations and NEB staff exchanged ideas about how to refine and advance the current abandonment framework. One of the objectives of the Technical Conference was to work toward developing requirements and guidance to achieve consistency, transparency and accuracy for future ACE reviews.
The following topics were explored at the Technical Conference:
• Land Use:
(i) Land Use Categories; and
(ii) Land Use Studies;
• Abandonment Method Assumptions;
• Consultation Activities;
• Cost Categories I;
• Cost Categories II:
(i) Contingency, including taxes and insurance;
(ii) Inflation rate;
(iii) Salvage Value; and
(iv) Carrying Charges.
Next Steps
The NEB stated that it would issue a draft Technical Conference Report for comment in due course, followed by the final report. The report will include the next steps.
