Gas – Tolls – Terms and Conditions
In this decision, the CER considered the application from Campus Energy Partners Suffield LP by its general partner Campus Energy Partners Operations Inc. (“Campus”) regarding tolls and terms and conditions of service for its North Suffield Pipeline (the “Pipeline”). The CER decided the following:
Campus may exercise its discretion and establish term-differentiated firm tolls that do not exceed $0.22/gigajoule (“GJ”);
Firm Transportation (“FT”) tolls to be filed by Campus are approved as final, effective as of the date of this decision (April 7, 2021) and retroactive to the date they were made interim;
Campus was granted the discretion to set its Interruptible Transportation (“IT”) toll at market-responsive tolls of $0.32/GJ or lower;
Interruptible preferred service (“ITp”) was approved at a toll of the shipper’s corresponding FT service plus $0.02;
Interim IT tolls were made final for the period of 1 July 2019 to 30 April 2021;
Regarding the transportation service agreement (“TSA“ or “TSAs”), the CER approved modifying the existing notice period to three months, but did not approve other proposed changes; and
The CER did not approve the proposal for shippers to pay for all costs of testing at this time, nor did the CER approve the change from testing every three months to testing every 90 days, as requested by Campus.
In June 2019, Rockpoint Gas Storage Canada Ltd. (“Rockpoint”), Pine Cliff Energy Ltd. (“Pine Cliff”), and Torxen Energy Ltd. (“Torxen”) collectively (the “Complainants”) filed complaints with the CER’s predecessor, the National Energy Board (“NEB”), concerning the level of tolls charged by Suffield Processing Limited Partnership (“SPLP”) on the Pipeline.
In a letter dated 21 February 2020, after a pause to allow for a potential negotiated resolution, the Commission found that the Complainants raised relevant concerns as to the appropriateness of the proposed tolls and terms and conditions of service. The Commission indicated that the record before it, including Campus’ limited filings in response to the Complainants, was insufficient to establish that the proposed tolls and terms and conditions of service were just and reasonable and ordered Campus to file an application for tolls and terms and conditions of service for the Pipeline.
The CER outlined some of the regulatory history of the North and South Suffield pipelines. These pipelines had been described by the original owner as a commercially at-risk pipeline and proposed market-based tolls, offering firm service terms of five to 20 years at fixed tolls. The firm service tolls incorporated a long-term incentive approach offering lower tolls for a longer-term commitment. The stated objective was to ensure the viability of the project while providing an acceptable return on investment and to provide shippers with long-term certainty. The applicant submitted that the pipelines would provide shippers with an alternative to NOVA Gas Transmission Ltd. (“NGTL”).
One shipper subscribed for a large portion of the capacity on both the South and North Suffield pipelines for 20-year terms, which are nearing expiry. Other shippers also entered into contracts for smaller volumes.
The NEB approved the South and North Suffield Pipeline. It found the pipelines were required by the present and future public convenience. The NEB had found that the method of regulation was acceptable for the pipeline and did not find it necessary issue an order approving the proposed tolls and tariffs.
A transfer application from AltaGas Holdings Inc. to Campus in 2018 included a statement that the purchaser did not have existing plans to alter or implement any changes to the tolls and tariffs on the Pipelines. The TSAs with each complainant provided that tolls could only be changed once per year, with a 15 month notice period. The TSAs could be terminated with a 30-day notice. Following the transfer to Campus on February 1, 2019, Rockpoint stated that it had entered into a tie-in agreement with AltaGas based on terms of its existing TSA and in reliance on representations made in the transfer application. The agreement allowed Rockpoint to construct a pipeline lateral associated with one of Rockpoint’s gas storage facilities into an AltaGas pipeline associated with the Pipeline.
On 11 March 2019, Campus gave notice of a toll change to firm and interruptible service and the TSA. On 22 March 2019, Rockpoint and Campus met to discuss the new offering. On the same date, Torxen, by way of letter to Campus, pointed out the significant increase in the firm and interruptible tolls. In June 2019, Campus advised Pine Cliff, Rockpoint and Torxen that the TSAs were terminated effective 30 June 2019.
Views of the Commission
Just and Reasonable Tolls
The CER noted that the parties in this case tendered lengthy submissions regarding market-based and cost of service methodologies. The CER stated that it will always consider the specific circumstances of and the evidence provided by the parties when exercising its broad discretion to assess whether tolls are just and reasonable. In this case, the CER was of the view that both methodologies, if applied strictly, would be potentially problematic for the Pipeline and its shippers. The CER was persuaded that Campus requires a degree of flexibility to achieve efficient outcomes for the Pipeline, but also found that a firm service toll range that is more cost reflective than the range applied for by Campus is just and reasonable. Accordingly, the CER determined that Campus may exercise its discretion and establish term-differentiated firm tolls, provided that such firm service tolls do not exceed $0.22/GJ.
With respect to the NEB’s approval of the Pipeline and reasons in GH-2-2000, the CER was of the view that the original toll methodology is not determinative as to whether current tolls are just and reasonable. The Complainants are not barred from arguing that cost of service information is relevant to the current Application and challenging whether the applied-for tolls are just and reasonable. The CER further noted that there is no bar to Campus arguing that tolls should be approved using a methodology similar to the submissions of the applicant in GH-2-2000 and the CER noted that regulatory predictability is a relevant consideration. In this decision, the CER noted it does not intend to re-allocate the balance of risks and rewards on the Pipeline. Campus has operated and continues to operate bearing utilization risk and the ability to structure tolls to be market-responsive and incent utilization. The CER noted that Campus aspires to grow throughput and attract volumes to the Pipeline, and the CER was of the view that Campus should retain the flexibility to work together with its shippers to find market solutions in the future.
Nonetheless, the CER was of the view that Campus did not establish the appropriateness of a purely market-based toll. By its nature, a market-based toll involves limited inquiry into the cost drivers of the pipeline and the returns earned by the pipeline. To establish such a toll is just and reasonable, the NEB has previously expected a company to demonstrate a high degree of market acceptance of the toll, an absence of market power that could result in abuse, and fair and transparent engagement between the pipeline and its shippers and interested parties. The CER expects that, in general, an appropriate sharing of risks and benefits has likely been allocated between the pipeline and its shippers if these indicators are well established. While these indicators are relevant in the current case the overall test remains that tolls must be just and reasonable.
After weighing the evidence of this proceeding and considering the current circumstances of the Pipeline, the CER decided to approve a cost-informed toll range within the existing toll framework for the Pipeline. This framework includes being regulated as a Group 2 company, offering term-differentiated firm tolls, and managing its risks outside of a cost of service methodology. In setting a cost-informed toll range, the CER used the cost information provided by both parties with a view to determining a toll range between the market-based tolls applied for by Campus and the previous AltaGas tolls urged by the Complainants. Under a tolling method that is not purely cost of service, the consideration of costs must be weighed against the balance of risks shared between the Pipeline and its shippers. In considering the current complaint, costs can assist in determining the reasonableness of the tolls when framed by the risk balance between parties.
The CER noted that complete cost of service information was not provided and a true cost of service toll for service on the Pipeline could not be exactly determined. However, using the agreed upon rate base, Campus’ cost allocation methodology, the Complainants’ depreciation rate and a moderate cost of capital, the CER estimated that a cost-based toll would likely fall within the range of the previous five-year firm toll of $0.165/GJ and the proposed five-year firm toll of $0.22/GJ. The CER found that tolls within this range should adequately protect shippers against Campus’ potential ability to exert market power, while still providing Campus sufficient opportunity to be reasonably compensated. The CER found that a toll in the above range is just and reasonable and, on that basis, directed Campus to re-issue term-differentiated tolls not exceeding $0.22/GJ.
Interruptible Transportation Tolls
Campus proposed to increase its IT tolls on the Pipeline from $0.1815/GJ to $0.32/GJ for IT service. Campus also requested that the CER grant Campus the discretion to post a revised IT toll from time to time based on Campus’ assessment of prevailing market conditions, in an amount equal to or less than the proposed IT toll.
When considering the relative value of services a pipeline offers, the CER noted that it considers many factors such as the priority, availability and reliability of the service; the level of commitment required from the shipper; and flexibility or other desirable attributes provided by the service. The CER found that granting Campus the discretion to set tolls for IT service at $0.32/GJ or lower will provide Campus with the ability to respond to market circumstances and manage risks on the Pipeline.
Interim IT Tolls
On 27 June 2019, the NEB ordered that the Pipeline’s tolls be made interim effective 1 July 2019. Campus requested an Order from the CER directing shippers who have received new firm or interruptible service on the Pipeline since 1 July 2019 to pay to Campus the difference between the interim tolls and the tolls payable under the Revised Tolls and Tariff for the interim period. Campus also requested the discretion to post a revised IT toll from time to time based on Campus’s assessment of prevailing market conditions, in an amount equal to or less than the IT toll proposed in the Revised Toll and Tariff. Campus also submitted that it removed the Annual Increase of Tolls and Charges notice because it desires the flexibility to adjust its IT tolls on a monthly basis in response to prevailing market conditions.
The CER noted that it was not aware of a discretionary toll being approved retroactively, and the parties in the proceeding did not provide sufficient evidence for the Commission to determine the discretionary toll levels over the interim period. The interim toll for IT service was $0.1815/GJ. Without knowing the market-responsive IT tolls that would have been set in the interim period, the CER found it impossible to calculate refunds or recoveries. Factoring in interim toll evidence and in considering that Campus had the overall onus to support its position on this issue, the CER made the interim IT tolls final for the period of 1 July 2019 to 30 April 2021. Campus did not meet its onus with respect to its request for an interim toll refund. For clarity, the CER ordered Campus not to refund or recover any part of the IT tolls charged under the interim order.
Interruptible Preferred Service
The CER accepted Campus’ assertion that ITp service features provide firm service shippers with greater operational flexibility and may incent shippers to subscribe for firm service and approved ITp service on the Pipeline at an amount corresponding with the shipper’s FT service toll plus $0.02.