TransCanada Corp. is seeking about C$3 billion in pipeline toll hikes to ensure that shippers cover costs of its aging natural gas Mainline from cradle to grave.
The plan only begins with a request for a C10 cent, 7% increase to a C$1.42/gigajoule (GJ) (US$1.49/MMBtu) benchmark rate that the National Energy Board (NEB) set as of July 1 for long, firm capacity bookings on the route from Alberta to central Canada and border crossings for gas exports into the Midwest and northeastern United States.
TransCanada also wants a ruling that toll surcharges will be granted to cover C$2.15 billion in projected abandonment costs of eventually closing down and cleaning up the Mainline at the end of its useful life.
The hikes are sought in a new 46-page application for changes to a book-length NEB ruling, issued March 27, on proposals for “restructuring” services and finances of the half-empty, 55-year-old Mainline (see Daily GPI, April 1).
The proposed raise to the long-haul benchmark toll — to C$1.52/GJ (US$1.59/MMBtu) — will save the Mainline from accumulating C$940 million in revenue and tax deferrals by the end of 2017, says the application.
In TransCanada’s interpretation of the regulatory regime the requested hike is a case of crafting the least painful way to cover Mainline costs that shippers will have to pay sooner or later, by spreading the tab over time. The delayed bill is already accumulating in a deferral corner of the pipeline’s books known as the long-term adjustment account, or LTAA for short, says the Calgary-based gas and oil pipeline conglomerate.
The contested NEB ruling directed TransCanada to make a 45% cut in the current toll of C$2.58/GJ (US$2.71/MMBtu) for long capacity bookings. The ordered reduction to C$1.42/GJ (US$1.49/MMBtu) was intended to lure back shippers that have deserted the Mainline, creating chronic excess capacity that more than doubled its tolls by piling stubbornly high costs on shrinking traffic since 2007.
In asking for the raise to C$1.52/GJ (US$1.59/MMBtu), TransCanada suggests that the NEB miscalculated long-range consequences of its action.
“A shift to future shippers of almost C$1 billion in costs (LTAA balance and associated taxes) likely was not anticipated by the board given its views that the decision would provide TransCanada with a reasonable opportunity to recover its costs over a reasonable period and would limit inter-generational inequities,” the new application says.
TransCanada inserted forecast abandonment costs into the Mainline restructuring issues in order to cover a base emerging from a parallel pipeline environmental liability case before the NEB.
In a marathon proceeding that has already lasted more than four years, the NEB in February ordered Canada’s 13 biggest gas and oil pipelines to devise means of covering C$6.4 billion in projects costs to close down and remove themselves to a modern cleanup standard (see Daily GPI, March 11).
As Canada’s biggest fossil fuel transporter, TransCanada faces the largest cleanup bill. The latest abandonment cost forecast for the company’s long-distance system — excluding its little less-costly Nova gas grid in Alberta and British Columbia — is C$2.147 billion, says the application to vary the NEB’s Mainline restructuring decision.
All the pipelines have partnered to present a proposal modeled on pension plans. The scheme calls building up trust funds on installment plans that raise enough cash to cover the environmental liabilities fully, with contributions spread over the projected remainder of the lines’ projected life spans.
The NEB wants to see further proposals, for trust fund collection procedures, by the end of this month. Hearings on the environmental liability case are tentatively scheduled to begin late this year.
TransCanada’s new toll application seeks a general, overall “methodology for recovery of future costs” with the use of toll surcharges. The abandonment liability case serves as the leading current example, but not the only possibility that needs to be anticipated as the oil and gas industry evolves.
The application says, “TransCanada expects that the annual [abandonment liability] collection amount will be significantly larger than the C$50 million per year, starting in 2015, embedded in the parameters for forecasting future costs under the multi-year fixed toll methodology mandated by the board.”
The NEB should also adopt an overall compensation approach to “require that significant costs that may result from the implementation of new laws, regulations, changes in taxation or other legally-mandated initiatives also be handled through a surcharge,” TransCanada says.
Abandonment costs are not the only issue seen developing. “For example, changes in pipeline safety policies could require significant expenditures prior to 2017 that are not otherwise currently known or recovered in tolls,” says the application for amendments to the NEB’s Mainline restructuring decision. “It is reasonable that TransCanada should be provided an opportunity to recover such safety costs from its shippers.”
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