Nomination or Capacity Allocation Procedures
Trans Mountain Pipeline ULC, on behalf of Trans Mountain Pipeline L.P (“Trans Mountain”) applied for revisions to its nomination or capacity allocation procedures in Trans Mountain Pipeline ULC Petroleum Tariff No. 92 – Rules and Regulations Governing the Transportation of Petroleum (the “Tariff”) pursuant to directions from the NEB in Reasons for Decision MH-002-2012. Trans Mountain applied to the NEB requesting approval of certain Tariff amendments incorporating historical-based verification limits (“HBV Limits”) and nomination verification procedures on the Trans Mountain Pipeline (the “Pipeline”).
In Decision MH-002-2012, the NEB found that due to forecast supply and market dynamics, the Pipeline’s nomination and capacity allocation procedures were likely contributing to ongoing apportionment issues.
In this application, Trans Mountain requested the following Tariff revisions:
(a) Changes to nomination verification procedures in Rule 6.1 of its Tariff;
(b) Incorporation of HBV Limits under Rule 6 based on historical deliveries of petroleum to a facility connected to the Pipeline at a Land Destination, and in this regard determining:
(i) Whether to use a number of months prior to the nomination date, or a set period time for HBV Limits;
(ii) Whether to use maximum volume delivered to delivery points not including the Westridge Dock delivery point (“Land Destinations”) in any month, or the average volume delivered over the applicable time period in setting HBV Limits;
(iii) The applicable time period; and
(iv) Whether to include deliveries redirected from the Westridge Dock or not in setting the HBV Limits; and
(c) Establishing a minimum verification limit at three percent of the Pipeline capacity reserved for deliveries to Land Destinations.
Trans Mountain submitted that in each month since November 2010, monthly nominations have exceeded the capacity of the Pipeline reserved for deliveries to Land Destinations, resulting in apportionment of nominations.
Trans Mountain’s Officer Certificate Proposal
Trans Mountain proposed to deal with its apportionment issues by instituting a requirement for shippers to meet verification requirements through the submittal of an Officer’s Certificate. Trans Mountain submitted that this procedure would ensure that shippers can satisfy verification requirements while allowing Trans Mountain the ability to monitor nominations, and potentially limit “over-nominations” and thereby reduce apportionment. The Officer’s Certificate would require a shipper to have, as of the date of its nomination, the “capability” and “intent” to tender and remove its nominated volumes.
While export shippers on the Pipeline were generally supportive of the change, domestic shippers asserted that Trans Mountain was administering its Tariff in a discriminatory manner. The export shippers submitted that the proposal would justify such discrimination by treating certain delivery points differently, and focuses on the physical limitations of certain shippers, as opposed to commercial practices.
The NEB held that Trans Mountain’s proposed Tariff amendments were reasonable, but directed Trans Mountain to modify its proposed wording to mitigate the risk of varying interpretations by shippers, which may create material differences in their ability to acquire Pipeline capacity.
The NEB therefore directed Trans Mountain to amend its proposal to require shippers to verify that:
(a) The shipper has the capability and intent to tender each of its nominated volumes and petroleum types; and
(b) The delivery facility indicated on the nomination has the capability and intent to remove the nominated volumes and petroleum types.
The NEB found that requiring a shipper to verify each petroleum type, rather than aggregate volumes would provide a better representation of each shipper’s abilities and intentions to ship on the Pipeline. The NEB also ruled that a shipper’s nominations should not exceed a shipper’s physical or commercial capabilities.
The NEB held that the Officer’s Certificate as proposed, would not in and of itself provide a sufficient solution to Trans Mountain’s apportionment issues. However, the NEB held that the Officer’s Certificate would assist Trans Mountain in its ability to verify shippers’ nominations, and was therefore reasonable, as a shipper would not be allowed to include volumes it believes are available for purchase in the market.
The NEB directed Trans Mountain to include explicit wording to the effect that a shipper must have already entered into a contract to purchase petroleum before making a nomination.
Sumas Delivery Point
During its review of the physical operation of the Pipeline, the NEB found that the Sumas Delivery Point on the Pipeline, was not able to take “Delivery”, as that term is defined in the Tariff. However, this operational difference did not warrant any discriminatory treatment for export shippers.
The NEB held that a high degree of coordination with the Puget Sound Pipeline was required in order for the nomination and apportionment procedures on the Pipeline to occur. Therefore, for the purposes of nomination verification and capacity allocation, the NEB held that the Pipeline and the Puget Sound Pipeline form an operationally integrated system, and therefore any nomination verification would apply equally for shippers on the Puget Sound Pipeline.
However, the NEB found that the Tariff and Officer’s Certificate, on their own, were insufficient to solve the apportionment and over-nomination issues on the Pipeline.
HBV Limits
On matters relating to the incorporation of HBV Limits into the tariff, the NEB held that the purpose of the verification procedures was to increase the likelihood that a shipper’s nomination would align with its capability and intent to supply petroleum to, and remove petroleum from, the Pipeline.
Some shippers expressed reservations that such verification may artificially limit nominations, or create “vintaging” for existing shippers on the pipeline. However, the NEB found that the use of HBV Limits would be appropriate, in that historical deliveries were reasonably demonstrative of a shipper’s physical and commercial capability to move volume on the Pipeline.
Trans Mountain did not take an express view on any of the proposed alternatives for tracking HBV Limits. However, Trans Mountain noted that a rolling historical alternative, as opposed to a fixed historical alternative, would provide for greater flexibility in responding to changes in actual usage. Trans Mountain also noted that fixed historical alternatives may effectively grant usage rights to shippers. As between peak and average usage alternatives, Trans Mountain submitted that both would be simple to administer.
Trans Mountain also submitted that shorter time periods used in setting HBV Limits may risk an unusual situation being selected (e.g. shutdown), whereas longer time periods may not accurately represent recent shipper activity. Most shippers were supportive of the rolling alternative and average usage alternative.
The NEB held that a rolling alternative would be appropriate as a measure to reduce apportionment, as it would incorporate the most recent information on a shipper’s demand for space, as opposed to fixed alternatives, which could confer firm rights for some shippers. The NEB also held that average, as opposed to peak historical usage would be more appropriate for use in setting HBV limits, as the NEB found that normalized usage better represents the actual needs of shippers rather than peak deliveries on a monthly basis. The NEB noted that when used in connection with a rolling alternative, normalized usage history is more likely to reduce apportionment.
In setting the appropriate time period for setting HBV Limits, the NEB found that a 12-month multiple was necessary to account for seasonality, but found that a 12 month time frame may have the same shortcomings as a peak usage methodology. Therefore, the NEB found that an 18 to 24 month time period was most appropriate.
Minimum Verification Limit
Trans Mountain proposed establishing a minimum verification limit based on historical deliveries, to ensure that capacity remains available for new Land Destinations that would not have a history of deliveries, and that the Tariff have sufficient flexibility to respond to such access requirements. As such, Trans Mountain proposed that the verification limit for a Land Destination be the greater of: a shipper’s HBV Limit, or three percent of available capacity.
The NEB found this approach to be reasonable, as it ensured that all shippers have a fair opportunity to access capacity on the Pipeline, and would assist Trans Mountain in fulfilling its common carrier obligations. The NEB therefore approved the minimum verification limit as applied for.
As a consequence of the above findings, the NEB ordered Trans Mountain to file a revised Tariff and Officer’s Certificate for approval by February 27, 2015.
