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NOVA Gas Transmission Ltd. Applications Regarding Pioneer South Pipeline Acquisition Decision and Orders, CER Letter Decision and Orders MO-041-2021 and XG-015-2021

Link to Decision

Facilities

In this decision, the CER considered two applications filed concurrently for the Pioneer South Pipeline acquisition. The first was an application filed under paragraph 181(1)(b) and Section 226 of the Canadian Energy Regulator Act (the “CER Act”) to acquire the approximately 30 km Pioneer South Pipeline, Zeta Lake Receipt Meter Station, and in-line inspection launcher facility (the “Assets”) from ATCO Gas and Pipelines Inc (“AGP”) subject to a positive AUC decision and to roll the purchase price of the Assets plus adjustments and project costs into the NGTL System rate base. The second was an application filed under Section 214 of the CER Act for an order authorizing the continued operation of the Assets under CER jurisdiction, effective on the closing date. NOVA Gas Transmission Ltd. (“NGTL”) requested leave to open the Assets pursuant to Section 213 of the CER Act effective on the closing date and an exemption from the provisions of paragraph 180(1)(a) of the CER Act in respect of the Assets as they are currently in operation.

The Assets are the westernmost part of the Pioneer Pipeline, an approximately 131 km provincially regulated pipeline. On June 15, 2021, the AUC approved ATCO’s acquisition of the Pioneer Pipeline from Pioneer Pipeline Inc. (AUC Decision 25937-D01-2021) and the disposition of the Assets to NGTL (AUC Decision 26189-D01-2021).

The CER approved the Pioneer South Pipeline acquisition as set out in the applications as it is limited to existing Assets that are fully constructed and operational and will align the ownership and operation of the Pioneer Pipeline with the footprints of the Integration Agreement. The CER issued Order MO-041-2021 granting NGTL leave to purchase the Assets from ATCO pursuant to paragraph 181(1)(b) of the CER Act and to roll the purchase price of the Assets into the NGTL System rate base as well as Order XG-015-2021 granting NGTL leave to open the Assets.

Procedural Fairness

Views of the Parties

Western Export Group (“WEG”) took the position that it does not consider the CER’s process to comply with the principles of natural justice and procedural fairness. WEG stated that no intervenor had an opportunity to submit information requests or cross-examine NGTL and that the CER placed the onus on WEG and other intervenors to prove that the acquisition and the premium price were not justified and prevented any review of the Western Alberta System (“WAS”) interconnect-only alternative.

CER Analysis and Findings

The CER found that parties had a meaningful opportunity to raise and reply to concerns through their submissions and their response to the comment process. The CER has discretion to tailor its process to the nature and scope of an application before it. The CER considered the process it used to hear and decide this matter to be appropriate because there is no statutorily prescribed process associated with the applications nor was there any basis, given the nature of the interests at stake in this proceeding, for a legitimate expectation that a certain procedure including some form of cross-examination must be followed.

Need and Alternatives

Views of the Parties

WEG took issue with NGTL’s application to acquire the ~30 km portion of the Pioneer Pipeline from AGP because, among other things, there is no present or future unmet need. If additional gas supply is required by the current users of the Pioneer Pipeline, there is no reason to conclude that the required quantities cannot be delivered by existing infrastructure or with the addition of a simple interconnection between the Pioneer Pipeline and NGTL System. WEG also argued that the need for the Pioneer Pipeline beyond year 15 is highly uncertain as a number of the TransAlta power plants are no longer in operation or scheduled to be retired imminently, and the need for gas at the Sundance and Keephills power plant units has changed materially. WEG also stated that NGTL never provided evidence on why an interconnect-only facility investment would not be a better alternative.

NGTL submitted that there is a growing demand for natural gas in the Wabamun area driven by the conversion of existing power generation facilities from coal to natural gas and that the acquisition of the Pioneer Pipeline was the optimal solution to meet its service requirements. The acquisition and integration of the Pioneer Pipeline attracted contracts for three distinct transportation services: Firm Transportation Delivery (“FT-D”), Firm Transportation Receipt (“FT-R”), and Other Services Extraction (“OS-EXT”). These included contracts from TransAlta for executed 15-year FT-D service for 400,000 GJ/d at its Keephills and Sundance power plants. Tidewater also entered into an incremental FT-R contract with an eight-year term for 47MMcf/d and an OS-EXT contract for 3,500 GJ/d.

CER Analysis and Findings

The CER found that NGTL demonstrated the need for the acquisition of the Assets by illustrating the growing demand for natural gas in the region and how the Assets are required to meet it. The addition of the Assets into the integrated system provides an increase in capability, including upstream approved expansions between 2022 and 2024. The CER also finds that the volumes and terms of the TransAlta and Tidewater incremental contracts further justify the acquisition. The CER was also satisfied with NGTL’s explanation and analysis of the alternatives that were considered.

Purchase Price

Views of the Parties

WEG submitted that the prudency of the acquisition was not demonstrated. The proposed acquisition cost of the entire Pioneer Pipeline by AGP is estimated more than $30 million higher than the book value at the time of its acquisition. The Pioneer South Pipeline, which NGTL proposes to acquire from AGP, is priced as a percentage of the whole and therefore includes a portion of that premium. WEG stated that no acquisition premium was justified.

The Utilities Consumer Advocate (“UCA”) references its evidence from the AUC proceeding that took issue with the ~$35 million gain (or 15.9 percent premium) that Pioneer and its owners Tidewater and TransAlta would see from the sale of the pipeline.

NGTL submitted that it was not purchasing the Assets at a premium. The purchase price for the approximately 130 km Pioneer Pipeline was $255 million, which represented the fair market value of the Pioneer Pipeline as negotiated between arm’s length entities. NGTL and AGP agreed on a purchase price of $64.975 million for the Assets subject to purchase price adjustments and that the price included the length of the pipeline value, the full cost of the Zeta Lake receipt meter station, and the net book value of capital upgrades to the Assets while under AGP ownership.

CER Analysis and Findings

The CER confirmed that there are circumstances in which they may not allow the inclusion of all or a portion of a facility’s acquisition costs in the rate base. In these specific circumstances, the CER found that the full purchase price of the Assets should be rolled into the NGTL System rate base as proposed by NGTL. The CER was of the view that while NGTL is paying a purchase price that effectively includes a premium over the net book value as it stood prior to AGP’s acquisition ($8.6 million for their portion of the Assets), it is proper for NGTL to proportionally allocate 30km of the overall Pioneer Pipeline purchase price in a manner consistent with the Integration Agreement’s geographic footprints.

Engagement with Commercial Third Parties

Views of the Parties

WEG listed several issues that were not apparent during the Tolls, Tariff, Facilities and Procedures (“TTFP”) meeting and therefore disagreed that there were no outstanding concerns with NGTL’s acquisition. However, in WEG’s September 2, 2021 submission, they stated that they had no comments regarding NGTL’s engagement with third parties.

Tidewater Midstream and Infrastructure Ltd. (“Tidewater”) and TransAlta stated that they are members of the TTFP Committee and that NGTL’s engagement with commercial parties was detailed, fulsome, and adequate.

NGTL provided an overview of their engagement with commercial third parties commencing with a facility notification presentation to the TTFP on July 14, 2020. Engagement activities included a notification on the TTFP website, a verbal update at a TTFP meeting, a meeting with WEG on November 6, 2020, filing a project notification, and the presentation of NGTL’s 2020 financial plan to the TTFP.

CER Analysis and Findings

The CER was satisfied that NGTL’s notification and engagement with commercial third parties were adequate. The CER was of the view that commercial third parties that could be affected by the decision are aware of the applications and have had the opportunity to comment should they wish to.

Greenhouse Gas Emissions and Climate Change

Views of the Parties

WEG provided comments on NGTL’s IR No. 3 response regarding greenhouse gases and climate change, specifically referencing the CER Filing manual guidance for a net-zero emissions plan. WEG submitted that NGTL had not provided this information, and as a result, the record was incomplete.

NGTL stated that they did not address greenhouse gas or climate change on the basis that the applications were to acquire and operate existing assets, not to construct and operate new facilities.

CER Analysis and Findings

The CER agreed with NGTL’s statement that they are not constructing and operating new facilities, and therefore a net-zero plan was not required. The CER reminded NGTL that it must adhere to and implement Environment and Climate Change Canada’s Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector), as applicable, to the operation of the Assets.

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