Canada's 13 largest natural gas and oil pipeline companies have banded together to create an environmental pension plan to cover the costs of retiring facilities as age and evolving markets end their useful lives.
An industry agreement, submitted to the National Energy Board (NEB) for approval, commits the natural gas and oil transporters to set up and deposit cash into trust accounts that mimic pension funds. "The pension plan structure provides guidance for setting investment policies and governance procedures that create substantial efficiencies and safeguards," says the proposal.
Titled the "pipeline abandonment trust," the plan for the new financial institution was crafted by meetings of lawyers, accountants and the transporters' Canadian Energy Pipelines Association (CEPA) in Calgary over the past two years.
The agreement includes all owners of 61,189 kilometers (36,713 miles) of national and international gas and oil delivery systems located in Canada: Alliance Pipeline Ltd., Enbridge Pipelines Inc., Enbridge Pipelines (NW) Inc., Foothills Pipe Lines Ltd., Kinder Morgan Cochin ULC, Maritimes & Northeast Pipeline LP, Nova Gas Transmission Ltd., Trans Mountain Trans Mountain Pipeline LP, Trans Quebec & Maritimes Pipeline Inc., TransCanada Keystone Pipeline GP, TransCanada PipeLines Ltd., Trans-Northern Pipelines Inc., and Spectra Energy Transmission (Westcoast Energy) Inc.
Of the total pipe in the ground, 48,650 kilometers (29,190 miles) or 80% of the lines were built to carry natural gas while 12,538 kilometers (7,523 miles) were installed for oil service.
The proposed abandonment trust adheres strictly to Canadian pension legislation, with the pipelines saying that the retirement savings regime best ensures creation of a structure that will be exclusively dedicated to its declared environmental purpose. In effect, environmental cleanups become the sole beneficiary of the plan.
The application for NEB approval follows a February ruling by the board that the pipelines must recognize C$6.4 billion in cleanup liabilities, including digging up and removing 20% of their lines instead of just emptying out discarded pieces and leaving them to rust away in the ground. The abandonment trust proposal is the latest development in a case that has been going through prolonged regulatory stages since 2008, starting with an NEB resolution of cleanup and environmental liability disputes between the industry and landowners whose property is crossed by pipeline rights-of-way.
The environmental retirement savings plan calls for each pipeline to contribute a trust account equal to its deemed liability for satisfactory abandonment of its facilities, up to prevailing standards and costs at the time the work is done. The value of the trusts will be subject to regulatory reviews and variable over time, with the NEB revisiting the cleanup cost forecasts and environmental standards every five years.
Liabilities vary widely among the pipelines and depend on their locations, and especially on how much of their rights-of-way traverse farmland, towns, cities, suburbs and country residential or recreational developments that have spread into areas that were unpopulated when the systems were built (see NGI, Feb. 18).
TransCanada's Mainline from Alberta to Ontario and Quebec, coupled with its Nova web for collecting Alberta and British Columbia gas production, have by far the biggest obligations: a combined abandonment cost estimate of C$3.6 billion.
The proposed abandonment trust would be run independently by one or more financial services firms as an entity completely segregated from other interests of the pipelines. By following Canadian pension laws, the environmental accounts would even be safe against being tapped into by creditors of pipelines that stumble into bankruptcy, the NEB filing says. The structure is designed to comply with principles that the NEB laid down in previous rulings on the prolonged abandonment cost case, says the application.
The principles insist, "Pipeline companies are ultimately responsible for the full costs of constructing, operating and abandoning their pipelines, and the Board will hold the regulated company responsible for these costs." Just in case corporate lawyers and accountants try to quibble with that first principle, another NEB commandment states, "Landowners will not be liable for costs of pipeline abandonment."
The NEB has also ruled that "funds for abandonment costs should be collected and set aside in a transparent manner" and "any funds set aside for abandonment must be held in such a manner that they can only be used for the purposes of abandonment and abandonment planning."
The pipelines' application to set up an environmental pension plan is all but silent on how they plan to raise their multi-billion-dollar cleanup fund, as a matter for a separate plan to be disclosed in the next stage of the marathon case. But the direction that the scheme is headed shows in a brief statement in the current application. The cleanup tab will be saved up by tacking green surcharges onto oil and gas transportation tolls if the pipelines eventually have their way. "The amounts collected by each [pipeline] company from its shippers on account of future abandonment costs will be contributed by the company to the trust and held by the trustee in accordance with the terms of the trust agreement," says the plan.
The pipelines want regulation to enforce collection of the environmental retirement savings accounts from their customers. A document in the current application to create the new financial entity, titled "illustrative annual trust fund statements," says, "The [pipeline] company contributes to the Trust Fund as collected from shippers and in accordance with amounts approved by the NEB."
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