Facilities – Oil Pipeline – Depreciation Calculation – Future Capital Expenditure
Application
On 27 April 2020, the CER issued a Letter Decision and Toll Order approving Trans Mountain Pipeline ULC (“Trans Mountain”)’s application for approval of the depreciation rates set out in the 2019 Depreciation Study. The CER also directed Trans Mountain to file a new depreciation study by August 1, 2021, based on account balances as of December 31, 2020. In this application, Trans Mountain sought approval of its 2021 Depreciation Study Technical Update.
Decision
The CER approved Trans Mountain’s application for approval of updated depreciation rates, effective January 1, 2023.
Pertinent Issues
Depreciation Study
The CER accepted Trans Mountain’s use of a technical update rather than a full depreciation study. The technical update extended the truncation date in the study from 2048 to 2050. Although the extension of the truncation date is not standard practice, the CER accepted the 2050 truncation date. The CER agreed that the use of a 30-year Economic Planning Horizon was appropriate.
Future Capital Expenditures
The CER agreed with Trans Mountain that excluding future capital additions to calculate depreciation rates is consistent with Trans Mountain’s historical methodology, policies, practices, and management discretion. The CER was however of the view Trans Mountain did not explore all options for matching revenue and expenses (whether through capitalization or otherwise). The CER, therefore, remained concerned about the potential increased burden on future end-users of the system.
The CER noted that while it approved the Technical Update despite no specific treatment of future capital expenditures, the CER may not endorse such an approach in the future. The CER expressed its view that there can be more than one way of deriving just and reasonable tolls. Accounting for future capital expenditures in the calculation of depreciation rates could have also led to just and reasonable tolls in the Technical Update.
