Pipeline Acquisition – Acquisition Cost in Rate Base
On April 27, 2016, NOVA Gas Transmission Ltd. (“NGTL”) applied to the NEB seeking leave to purchase the Albersun Pipeline (the “Project”) from Suncor and include the cost in the NGTL System rate base, pursuant to Parts IV and V of the National Energy Board Act, and for a Certificate of Public Convenience and Necessity for the Albersun Pipeline, among other things, dated 27 April 2016.
Economic, Financial and Accounting Matters
An applicant making an application pursuant to section 52 of the NEB Act is expected to demonstrate the economic feasibility or need for the project, any alternatives to the project that have been evaluated and considered, the justification for the project over other possible options, the likelihood of the pipeline being used at a reasonable level over its economic life, and the justness and reasonableness of the proposed tolls.
With respect to the economic feasibility of a project, the NEB assessed the need for the Project and the likelihood of it being used at a reasonable level over its economic life. Specifically, the NEB considered:
(a) the supply of product available and the transportation contracts underpinning the facilities;
(b) the availability of adequate markets to receive the product to be delivered by the pipeline, and the adequacy of the pipeline’s capacity; and
(c) the applicant’s ability to finance the proposed facilities.
The NEB found that NGTL had sufficiently demonstrated the economic feasibility of the project, based on the following findings:
(a) there was adequate supply and markets to support the ongoing use of the Albersun Pipeline;
(b) the NGTL system provided sufficient supply to service shippers with delivery points on the Albersun Pipeline and forecasts indicated growth in gas supplies over the forecast period ending 2028;
(c) with respect to demand, shippers had expressed an interest in renewing their FT-D contracts for delivery to market areas served by the Albersun Pipeline, and NGTL illustrated that nearly all of the capacity available on the pipeline would be contracted over the forecast period ending 2028;
(d) Albersun Pipeline was the least cost solution for providing delivery service to the Fort McMurray markets; and
(e) NGTL was capable of financing the purchase of the pipeline through its parent company, TransCanada, which has sufficient access to financial markets.
Financial Matters
The NEB approved NGTL’s request to include the purchase price of the Albersun Pipeline in the Alberta System rate base.
The NEB explained that, in assessing a company’s proposal to add a facility’s acquisition costs to its rate base, the NEB considers the relevant circumstances and specific facts of the proposal. Such facts may include the purchase price of the facility in relation to its depreciated original cost, whether the negotiations for the purchase price were conducted at arm’s length, the availability of lower-cost transportation alternatives, and the impacts on shippers’ tolls and transportation service.
NGTL confirmed that the purchase price of the Albersun Pipeline exceeded its depreciated original cost.
The NEB found that:
(a) the purchase of the pipeline represented the least cost alternative for providing delivery service to the Fort McMurray area;
(b) the purchase price of the pipeline was determined through arm’s-length negotiations; and
(c) the acquisition costs would be spread among all NGTL’s system, but the increase to NGTL’s revenue requirement would be almost entirely offset by the corresponding cost reduction associated with the terminated TBO arrangement, no longer required as a result of the acquisition.
Environmental and Socio-Economic Matters
The NEB explained that it considered environmental protection as a component of the public interest.
The NEB assessed the potential adverse environmental and socio-economic effects, as well as the adequacy of the NGTL’s proposed environmental protection strategies and mitigation measures. Where there are any residual effects remaining after proposed mitigation, the NEB considered cumulative effects.
Mitigation of Potential Adverse Environmental Effects
The NEB noted:
(a) NGTL’s commitment to avoid the migratory bird breeding period and the caribou restricted access period;
(b) NGTL’s commitment that no new access to the East Side Athabasca Caribou Range would be created; and
(c) NGTL’s commitment to adhering to the recommendations and mitigation measures set out in the Environment and Socio-Economic Assessment (ESA) and in the Environmental Protection Plan (EPP), filed with the NEB.
The NEB found that:
(a) no new or increased residual effects would be expected as a result of the Project;
(b) there would be no additional or increased interactions with biophysical or socio-economic elements as a result of continued operation of the Albersun Pipeline under NGTL ownership; and
(c) NGTL’s commitment to adhering to the mitigation measures set out in the ESA and EPP was adequate.
Cumulative Effects
The NEB found that no new or increased contributions to cumulative effects were likely to occur as a result of the Project.
Environmental Assessment Conclusion
The NEB found that the Project was unlikely to result in new or increased interactions between the Project and the environment, new or increased environmental or socio-economic effects, and new or increased contributions to cumulative effects.
The NEB found that, overall, with the implementation of NGTL’s environmental protection procedures and mitigation and the NEB’s recommended conditions, the Project was not likely to cause significant adverse environmental effects.
