Trans Mountain Pipeline System Purchase Agreement FAQs
The questions and answers below are intended to provide information about the regulatory implications that may arise from the Share and Unit Purchase Agreement (Agreement) between the Government of Canada and Kinder Morgan dated May 29th, 2018,Footnote 1and are current as of January 4, 2019.
1. What is the agreement for the purchase of the pipeline system?
On May 29th, 2018, the Government of Canada and Kinder Morgan announced that they had entered into an Agreement.Footnote 2 Under the Agreement, the Government of Canada would purchase the shares and units of all the entities that own and operate the existing Trans Mountain Pipeline system (existing pipeline). It would also purchase the company, that at the time, was authorized to construct and operate the Trans Mountain Expansion Project (expansion project).Footnote 3
The purchase price in the Agreement is $4.5 billion (CAD).
Kinder Morgan Canada shareholders voted to approve the transaction at a meeting on August 30th, 2018.
2. Does the Government of Canada have to have the same types of financial resources in place that you expect from other pipeline companies?
As a major oil pipeline company, Trans Mountain Pipeline ULC is required by the National Energy Board Act (NEB Act) to maintain $1 billion (CAD) in financial resourcesFootnote 4
Trans Mountain has applied to the Board to replace its existing financial resources, as approved by the Board, with alternative financial resources, including a line of credit from Canada TMP Finance Ltd in the amount of $500 million, and a replacement insurance policy in the amount of $500 million USD.
The NEB must evaluate and approve any changes to Trans Mountain Pipeline ULC’s financial resources, regardless of the reason for the change. Until then, its present financial resources remain in place. Any new proposal would have to replace the insurance and line of credit with financial resources that meet the requirements in the NEB Act and the recently-approved Pipeline Financial Requirements Regulations.
3. Who is responsible for cleaning up and paying for costs associated with a spill?
Trans Mountain Pipeline ULC is responsible to take measures to stop the flow of hydrocarbons, clean up and ensure appropriate environmental remediation. It is important to note that, in the event of a spill, all major pipeline companies are subject to an absolute liability limit of $1 billion (CAD) under the NEB Act.
Absolute liability means that a pipeline company is accountable for all costs and damages up to the $1 Billion (CAD) limit, regardless of whether there is proof of its fault or negligence. If a court determines that the pipeline company’s fault or negligence is responsible for a spill or unintended release, there is no limit to liability for costs and damages related to the spill. In other words, even if the costs and damages related to a spill exceeds the absolute liability limit, the pipeline company must pay the full cost.
4. What does the Agreement change for the NEB?
The NEB’s compliance, oversight, and enforcement approaches will not change as a result of the Agreement. The NEB will continue to regulate the existing pipeline. The NEB Act, its regulations and all certificates and orders issued by the NEB will continue to apply.
5. If the NEB reports to Parliament (the Government of Canada), how can it independently oversee and regulate an existing pipeline and new pipeline project owned by that same Canadian Government?
The NEB operates on an arms-length basis from the Government of Canada, similar to the way courts function independently from the Government. The NEB’s purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest.
That will not change as a result of the Agreement. The NEB will continue to demonstrate regulatory excellence, continuous improvement and an emphasis on the prevention of harm. And we will continue to hold Trans Mountain accountable for the safe operation of its facilities.
6. Does the Government of Canada have to follow the same legal requirements as other pipeline companies, or do they have some sort of exemption?
Safety and environmental protection are of paramount importance to the NEB. All pipeline companies regulated by the NEB must meet the requirements of the NEB Act, regardless of their ownership.
7. The Agreement also includes the Puget Sound pipeline system in the United States. Who regulates that?
The Trans Mountain (Puget Sound) LLC pipeline will continue to be regulated by the U.S. Department of Transportation Office of Pipeline Safety and the Federal Energy Regulatory Commission.
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