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THE EXPLORERS AND PRODUCERS ASSOCIATION OF CANADA (EPAC) Application to Extend the NGTL Temporary Service Protocol (TSP), CER Decision File OF-Tolls-Group1-N081-2020-03 01 and Order TG-001-2021

Link to Decision Summarized

Review and Variance – Supply and Markets – Toll Principles


In this decision, the CER dismissed the Explorers and Producers Association of Canada (“EPAC”)’s application to extend the NOVA Gas Transmission (“NGTL”) Gas Transportation Temporary Service Protocol (“TSP”) Tariff Provision and directed NGTL to file its progress on access to storage with the CER by 30 June 2021.

Background

EPAC filed an application with the CER to extend NGTL’s Gas Transmission TSP until the earlier of 31 October 2021 or until leave to open the final component of the 2021 NGTL System Expansion Project.

The TSP was added to the NGTL tariff as a result of CER Decision RH-002-2019 re NGTL’s Application for Approval of Amendments to the NGTL Gas Transportation Tariff – Temporary Service Protocol (November 2019) (“TSP Decision”). The TSP amended the tariff to prioritize interruptible delivery and storage injection over receipt services (interruptible or firm) to manage system constraints during planned outage/maintenance periods on the NGTL System at and upstream of Clearwater and Woodenhouse Compressor Stations.

EPAC asserted that the CER had the authority to grant the relief requested by means of a review and variance of the TSP Decision under Section 69 of the Canadian Energy Regulator Act (“CER Act”) because of the changed circumstances affecting the timing of the 2021 NGTL System Expansion Project; or pursuant to the CER’s general powers relating to all matters affecting tolls and tariffs set forth in sections 225 to 240, and specifically Section 226, of the CER Act. The CER was not persuaded that EPAC established that relief should be granted under either provision.

Burden of Proof

Typically, traffic tolls and tariff matters have been brought before the CER’s predecessor, the National Energy Board (“NEB”) either in the form of an application from a pipeline company seeking approval or in the form of a complaint from one or more shippers. The CER noted that this application was unlike either of these typical forms, with an industry group seeking to affect a continuation of a temporary amendment to a pipeline company’s tariff without a complaint and in the face of opposition by the pipeline company. A consideration of the applicable burden of proof and the operation of the NEB and CER’s tolling principles was warranted.

The NEB commented on the burden of proof in its reasons for decision in GH-2-87 and affirmed that the applicant has the burden of establishing, on a balance of probabilities, that the relief sought in its application should be granted. The CER was of the view that this is the case where a third party such as EPAC is seeking to compel a pipeline company (who is not the Applicant) to change or amend its tolls or tariffs.

Tolling Principles

In its reasons for the TSP Decision, the CER acknowledged previous decisions of the NEB, which articulated tolling principles that assist in the interpretation and application of statutory provisions in respect of traffic, tolls, and tariff matters. These fundamental tolling principles include cost-based / user-pay, no acquired rights, and economic efficiency.

Review and Variance:

Demonstrating on a prima facie basis sufficient grounds to raise a doubt as to the correctness of a prior decision or order is the first step of a review and variance application under Section 44 of the National Energy Board Rules of Practice and Procedure, 1995 (the “Rules”) and Section 69 of the CER Act. An application pursuant to Subsection 69(1) is one to review, vary or rescind a prior decision or order. The CER noted that the relief sought by EPAC viewed through this provision of the CER Act is a variance of the terms of expiry of the previous order, which would result in an extension of the applicability of the TSP.

Paragraph 44(2)(b) of the Rules describes three possible grounds to raise a doubt about the correctness of the order. EPAC made clear that it was not arguing any error of law or jurisdiction in respect of the TSP Decision. Rather, EPAC asserted that the CER had made the right decision in respect of the previous application. During the final argument, EPAC stated that its request for relief should not require a re-evaluation of whether the TSP Decision was decided correctly.

Implicit in EPAC’s argument in favor of a review and variance in this instance was that the delay for the in-service date of the NGTL 2021 facilities gave rise to similar conditions, which grounded the CER’s decision to grant the TSP in the first instance. Namely, the delays in the in-service dates for the NGTL 2021 facilities constitute changed circumstances or new facts as contemplated by subparagraph 44(2)(b)(ii) of the Rules, arising since the close of the previous hearing. To accept this argument as a basis for the variance of the TSP’s expiry would require the CER in this instance to accept that the presumed in-service date of the NGTL 2021 facilities was the basis for the establishment of the expiry date in its first decision, but the timing of the CER’s order was not explicitly and singularly linked to NGTL 2021. Moreover, NGTL’s submissions correctly point out that the NGTL 2021 application was still before the CER for decision at that time. Given that the potential approval, timelines, and conditions of approval for the NGTL 2021 were unknown at the time of the original 2019 TSP Application, the eventual delay in the 2021 NGTL System Expansion Project does not constitute a changed circumstance or new fact today. For these reasons, EPAC did not raise sufficient grounds so as to cast doubt on the correctness of the previous TSP ruling and Order. As a result, the CER dismissed the review request.

Regarding the CER’s broad authority under Section 226 of the CER Act, the CER similarly found that EPAC did not establish that the CER should exercise its discretion to issue an order to NGTL to alter its tariff. The CER found that EPAC did not establish, on a balance of probabilities, that the likelihood of constraints that impact access to storage during summer 2021 is sufficiently great as to warrant the imposition of the TSP on the NGTL System. The CER considered both the facility additions pursued by NGTL following the TSP Decision and delayed construction of the 2021 NGTL System Expansion Project. The CER was persuaded that capacity additions implemented by NGTL following the TSP Decisions had reduced the acute capacity constraints that premised the 2019 approval of the TSP. As noted above, the 2021 NGTL System Expansion Project was under regulatory consideration and not yet approved at the time the TSP Decision was made. That expansion alone was not central to the TSP Decision.

The CER accepted NGTL’s evidence that there are unlikely to be constraints that impact access to storage resulting from the 30 Daily Operational Plan (“DOP”) outages in the TSP-applicable areas in summer 2021. NGTL’s submissions regarding the scheduling and execution of planned maintenance, tie-ins, and new facilities and the probability of constraints in summer 2021 were detailed and consistent, including in response to challenges by EPAC that 2021 supply and system demands are more likely to resemble those of 2019. The DOP outages anticipated for TSP-applicable areas in summer 2021 are fewer than the 36 outages that occurred in the summer of 2019 when the TSP was needed and the same number of DOP outages that occurred in the summer of 2020 when the TSP was not needed.

The CER found that the market dynamics detailed in this proceeding also differ from those found in the TSP Decision. The market volatility experienced from 2017 to 2019 is no longer present. Since 2019, the AECO market has reconnected with Henry Hub. EPAC and supporters of the application pointed to the TSP as the main factor responsible for the market rebalancing, while NGTL and those parties opposed to the application submitted that the primary factor was facility additions on the NGTL System. Although the CER continues to view the TSP Decision as appropriate for 2019 and 2020, the CER found that there is insufficient evidence to establish the full extent to which the TSP contributed to the reconnection of AECO to Henry Hub, as compared to other factors, including facility additions. In light of the CER’s findings regarding changed market conditions, and EPAC having failed to establish, on a balance of probabilities, that the TSP was primarily responsible for the market reconnect following the TSP Decision, the CER held that EPAC did not meet its burden to establish that the CER should exercise its broad statutory discretion to extend the TSP in this instance.

The CER also considered the potential merits of the TSP as an insurance policy and found there was insufficient evidence for it to draw a conclusion with respect to forecasting the potential benefits compared to its potential adverse impacts in summer 2021. The CER noted that, while the TSP was argued to be a policy to smooth price volatility market-wide, other options exist for producers to self-insure against the volatility of the spot market, such as entering into long-term sale arrangements. In the proceeding, some producers who availed themselves of those options opposed the application. The CER acknowledged that these strategies might not fully mitigate challenges associated with access to storage on the NGTL System, but that result, alone, is insufficient to establish that the CER should exercise discretion to order NGTL to amend its tariff.

Order

Throughout the hearing, the CER heard concerns that accessing storage on the NGTL System would continue to be a challenge, even upon completion of the 2021 NGTL System Expansion Project. The evidence demonstrated that storage plays an important role in the Western Canadian natural gas market. Ensuring access to storage is, therefore, an integral part of a well-functioning natural gas market and no party in the proceeding denied the importance of storage facilities to the NGTL System.

In the TSP Decision, the CER outlined that it expected NGTL and its customers to continue to explore alternative long-term solutions that will meet system needs, enable continued access to storage during periods when it is critical, and ultimately enhance the efficient functioning of the NGTL System thereby supporting market stability.

While NGTL made some efforts to bring about improved access to storage in summer 2021, the CER remained concerned about the pace of progress by NGTL regarding the critical issue of access to storage, including the lack of detail provided by NGTL regarding the Transfers to Storage initiative, the initial launch of a pilot almost two years after the TSP Decision and the concerns raised by some parties about NGTL’s consultations with all interested parties. To ensure that the ongoing storage access issues are addressed transparently, meaningfully, and in a timely manner, the CER issued Toll Order TG-001-2021, requiring a filing from NGTL by 30 June 2021.

The CER directed that the filing may be an application if a tariff amendment is required or may make use of existing NGTL tariff provisions. Regardless of what option NGTL chooses to pursue, the filing must include:

(a)     a detailed description of the methodology;

(b)     an assessment of the appropriateness of the associated market signals;

(c)      the extent to which the revisions will enable access to storage;

(d)     whether the proposed tariff revisions will result in tolls that are just and reasonable and not unjustly discriminatory;

(e)     whether the revisions will promote economic efficiency, both in the use of the existing NGTL System and signaling the need to build additional capacity; and

(f)       a description of consultations undertaken with shippers and impacted parties.

Any long-term solution should adhere to the cost causation toll principle, which states that tolls should be, to the greatest extent possible, cost-based and that the users of a pipeline system should bear the financial responsibility for the costs caused by the transportation of their product through the pipeline.

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