Tolls – Negotiated Settlement Agreement
In this decision, the NEB considered Maritime & Northeast Pipeline Management Ltd.’s (“M&NP”) application (the “Application”) for approval of its 2017-2019 Toll Settlement (the “Settlement”) for final tolls over the period 1 January 2017 through 30 November 2019 (the “Settlement Period”).
The NEB found that:
(a) the Settlement toll methodology was appropriate and resulted in just and reasonable tolls over the Settlement Period; and
(b) the Settlement struck a fair balance between the pipeline and its current shippers and the interests of future users of the system.
The NEB determined that the impact of the expected drop in billing determinants at the end of the Settlement Period should be addressed by the parties, during the Settlement Period.
Settlement Application
M&NP filed its Application under Part IV of the National Energy Board Act (the “NEB Act”), and the National Energy Board Guidelines for Negotiated Settlements of Traffic, Tolls and Tariffs (the “Guidelines”). M&NP indicated that the Settlement resulted from negotiations with the M&NP Tolls and Tariff Working Group (“TTWG”), comprised of representatives of M&NP and other parties interested in M&NP’s tolls and tariff matters. The outcome of the TTWG vote was opposed with the majority of votes in favour of the resolution.
Settlement’s Compliance with the Guidelines
The NEB explained that it considers negotiated settlements as an opportunity for interested parties to resolve issues without resorting to a hearing process.
The Guidelines set out that:
• a settlement must not fetter the Board’s ability and discretion to take into account any public interest considerations which may extend beyond the immediate concerns of the negotiating parties;
• the settlement process must produce adequate information on the public record for the Board to understand the basis for the agreement, assess its reasonableness, and to be able to determine that the resulting tolls are just and reasonable and not unjustly discriminatory; and
• for contested settlements, the applicant must make submissions as to why the Board should accept the settlement.
The NEB noted that there was broad support for the Settlement from both the firm service shippers and shippers in the secondary market.
Heritage Gas Limited (“Heritage”), and its affiliates AltaGas Ltd. and Alton Natural Gas Storage requested that the NEB decline to approve the Application and, instead, initiate a proceeding to determine the tolling methodology and tolls that would be appropriate for M&NP given its high level of underutilization. The Settlement was approved notwithstanding this opposition. Heritage opposed the Settlement and raised concerns regarding underutilization, whether the pipeline was used and useful, toll stability and certainty for the market beyond the Settlement Period.
Depreciation and Terms of the Settlement
The NEB found that the accelerated depreciation and the reduced return on equity for M&NP contained in the Settlement were consistent with the principle of intergenerational equity and sufficiently responsive to the realities facing M&NP.
The Board found that:
(a) the Settlement Period was appropriate to the conditions and market realities facing M&NP; and
(b) the Settlement proactively took steps during the Settlement Period to address the ongoing concerns of the enduring market after the expiry of the Backstop Agreement and the Settlement Period.
The Board noted Heritage’s concerns that M&NP had not consulted with the TTWG about M&NP’s assumptions regarding post-Settlement tolling initiatives. To provide shippers with a measure of toll certainty and the ability to appropriately plan their business activities and transportation requirements, the NEB encouraged meaningful consultation and discussions between M&NP and its shippers, well in advance of the expiration of the Settlement.
Abandonment Funding
M&NP stated that the Settlement spanned an important period in the evolution of the M&NP system and effectively provided a bridge from the pre-2020 period, in which supply-driven dynamics predominated, to 2020 and beyond when the system would transition to largely domestic market-driven dynamics.
The Board noted that in the MH-001-2013 decision, it found:
(a) if there was a change in circumstances between Board-mandated reviews that materially affect the amount required to be collected, then the company must revise their annual contribution amount, rather than waiting for the NEB’s next review;
(b) if there was a significant risk that adequate funds would not be set aside, the NEB may, on its own initiative, require further coverage of any unfunded future costs through a secondary mechanism;
(c) there was a considerable risk for M&NP to under-collect the cost of abandoning its system because the current supply available to the M&NP system was limited;
(d) a 19.5-year collection period better aligned with current forecasts of the supply available to the M&NP system; and
(e) M&NP could apply to the Board to vary its collection period if significant supply developments were to occur.
In this case, the NEB considered M&NP’s current situation might constitute a “significant supply development”. If nothing else, it likely represented a material change in circumstances between NEB mandated reviews of the collection period. Due to the production declines and anticipated change in use of the system, the NEB found that the 19.5 year collection period originally set out in MH-001-2013 should be revisited.
The NEB considered that M&NP’s abandonment cost toll surcharge should be increased during the Settlement Period. In the NEB’s view, such an approach could reduce the risk of underfunding in the future, and more appropriately align with the principle of intergenerational equity. Abandonment funding was however outside of the scope of this Settlement, and the NEB had not solicited extensive evidence on the matter. Therefore, the NEB determined that it was premature to decide whether modifying the collection period and/or increasing the surcharge over the Settlement Period was warranted.
Given the expected reduction in billing determinants following the Settlement, the NEB found that the determination of appropriate abandonment contribution amounts was time sensitive. Accordingly, the NEB directed M&NP to file an application, by 1 May 2018, proposing an updated collection period and annual collection amount for the Settlement Period and beyond. The NEB directed that the application address, at a minimum:
(a) whether the collection period remains appropriate, or whether it should be truncated/lengthened;
(b) whether it may be appropriate to have differing associated contribution amounts during and after the Settlement, based on the expected change in use of the system;
(c) whether the amount set aside by M&NP should be accelerated over the Settlement Period;
(d) whether the abandonment surcharge should be increased over the Settlement Period;
(e) markets and supply, during both the Settlement and post-Settlement Periods, including supporting evidence using currently available estimates for the post-2019 period;
(f) the appropriateness of M&NP’s abandonment trust’s investment policy as set out in its Statement of Investment Policies and Procedures filed with the Board, during both the Settlement and post-Settlement Period; and
(g) how the proposed collection period and contribution amounts respect the principle of intergenerational equity.
Disposition
The NEB approved the Application as applied for by M&NP, subject to the conditions in the accompanying toll order.
