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ATCO Gas and Pipelines Ltd. Pipeline Acquisition from Pioneer Pipeline Inc., AUC Decision 25937-D01-2021

Link to Decision Summarized

Gas – Facilities


Applications

In this decision, the AUC approved applications from ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd. (“ATCO Pipelines”), to (i) acquire an existing pipeline and associated facilities from Pioneer Pipeline Inc. (“Pioneer”) and integrate them into the integrated Alberta natural gas transmission system; and (ii) include the acquisition costs in its revenue requirement. ATCO Pipelines was directed to revise its 2021-2023 revenue requirement to reflect the approval of the acquisition of the Pioneer pipeline. The AUC also approved a 2021 revenue requirement of $7.75 million for ATCO Pipelines’ portion of the Pioneer pipeline.

ATCO Pipelines agreed to buy approximately 130.3 kilometers of existing 508-millimeter outside diameter high-pressure sweet natural gas pipeline from Pioneer. ATCO Pipelines requested that the AUC include acquisition costs of $265.66 million (comprised of the purchase price of $255 million and additional capital expenditures related to system and integrity improvements) into its rate base and revenue requirement. ATCO Pipelines stated that after incorporating the subsequent transfer to NOVA Gas Transmission Ltd. (“NGTL”) of approximately 29.9 kilometers of the Pioneer pipeline, the combined 2021 revenue requirement associated with its acquisition includes an ATCO Pipelines revenue requirement of $7.75 million and an NGTL revenue requirement of $1.21 million.

ATCO Pipelines submitted that purchasing the Pioneer pipeline would be the best solution for increasing the ability of the Alberta System to meet growing natural gas demand in the Wabamun area, including providing the capacity to meet a contract for new delivery services. It added that a delivery customer had approached NGTL with a request from TransAlta to provide new firm transportation delivery (“FT-D”) service of 351 terajoules per day to the Keephills and Sundance power plants.

Determination of Project Need Including Viable Alternatives

The AUC determined that the request from ATCO Pipelines without consideration of alternative options to deliver the requested service was reasonable in the circumstances. The option recommended by ATCO Pipelines acknowledges that the incremental FT-D and FT-R contracts are contingent upon the acquisition of the Pioneer pipeline.

ATCO Pipelines submitted that its proposed acquisition would provide an economic benefit of approximately $37.3 million to the interconnected Nova Gas Transmission Ltd. and ATCO Pipelines (collectively, the “Alberta System”). The AUC accepted NGTL’s needs assessment, performed following the approved Integration Agreement procedures, to conclude that without the Pioneer pipeline acquisition, the capacity of the existing Alberta System would be inadequate to meet the incremental contract demand. The AUC found that ATCO Pipelines had demonstrated the need for the acquisition.

Prudence of Acquisition Costs and Revenue Requirements

Interveners raised concerns with the purchase price of the Pioneer pipeline, as it exceeded the net book value by $34.7 million. Further problems included that the FT-D contract term is only 15 years, while the depreciation life of the Pioneer pipeline is 67 years.

The AUC was satisfied that the prudence of the acquisition and the negotiated purchase price is supported by the forecast that the cumulative present value (“CPV”) of the revenue generated exceeds the CPV of the revenue requirements. The AUC found that the CPV of $269.7 million in direct revenues from the NGTL contracts would exceed the CPV of the revenue requirement for the pipeline and associated projects over the 2021-2040 period by more than $37 million. Consequently, a net benefit to the Alberta System ratepayers was forecast from the transaction.

The AUC also found that the costs, including internal and legal costs, were reasonable and necessary to allow ATCO Pipelines to thoroughly review the contract details and ensure the integrity of the Pioneer pipeline.

The AUC was also satisfied that the requested inclusions in the revenue requirements were reasonable and found no persuasive evidence of intergenerational risk to ratepayers that would result from the purchase of the Pioneer pipeline. The AUC found that ATCO Pipelines established that the costs of the pipeline would be recovered over the life of the asset, with revenues projected to exceed the revenue requirements associated with the purchase price, in the absence of considering greenhouse gas reduction legislative impacts on the economic life of the Pioneer pipeline.

Summary of AUC Findings

The AUC concluded that the pipeline acquisition is in the public interest. The AUC directed that ATCO Pipelines revise its 2021-2023 revenue requirement to reflect the approval of the purchase of the Pioneer pipeline. The AUC further approved a 2021 revenue requirement of $7.75 million for ATCO Pipelines’ portion of the Pioneer pipeline.

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