Filing Manual – Guide A – Facilities Applications

Table of Contents

A.3 – Economics and Financing

Information on economics is required in an application when the applied-for facilities would result in one or more of the following:

  • the construction of a new pipeline;
  • an increase in pipeline capacity or throughput on an existing regulated pipeline; or
  • a change in the type of commodity being transported on an existing regulated pipeline.

Economics information must include details on:

  • supply;
  • transportation;
  • markets; and
  • financing.

The overall purpose for filing information on facility economics is to demonstrate that the applied-for facilities will be used, will be useful, and that demand charges will be paid and that sufficient funds will be available for abandonment requirements.

Table A-4: Filing Requirements for Economics and Financing

Meeting climate change commitments could influence the market, supply, and economic conditions in which the project will operate. Climate change laws, regulations and policies enacted to meet Canada’s commitments may affect markets and consequently may influence the need for the project and its economic feasibility. Therefore, in addition to the filing guidance below, the following information is also requested.

Table A-4: Filing Requirements for Economics and Financing
Economics and Financing

Filing Requirements

Guidance

Provide an explanation of how current climate change laws, regulations and policies, and financial risks or other uncertainties around commitments and future changes have been incorporated in the economic analysis of the project.

As noted in the Filing Manual s. A.2.4 Level of Detail, the depth of analysis should be commensurate with the nature of the project and the potential for effects.

For all projects, the applicant should, at a minimum, describe how current climate change laws, regulations and policies have been considered in assessing the expected utilization of the project, and discuss if and how the economic feasibility of the project may be impacted by financial risks and other uncertainties around changes to such climate change laws, regulations and policies.

For a larger project, the applicant should also describe how existing climate change laws, regulations and policies have been included in relevant analysis and assumptions. Also include those laws, regulations, and policies which have been drafted and tabled at a provincial or federal level but which although not yet in force, may reasonably become so and are not purely speculative. Discuss implications of these laws, regulations, and policies for supply and markets in any scenario analysis or risk assessment of these factors (e.g., applicant may consider doing a sensitivity analysis of supply and markets based on carbon pricing levels). Applicants should also describe the extent to which climate change commitments have been considered. Environment and Climate Change Canada’s Strategic Assessment of Climate Change should be consulted for its project requirements and the potential implications for the project’s economic analysis.

A.3.1 Supply

Goal

The application includes information indicating that there is or will be adequate supply to support the use of the pipeline, taking into account all potential supply sources that could reasonably be expected to be sourced by the applied-for facilities over their expected economic life.

Filing Requirements

Provide:

1. a description of each commodity (e.g., crude oil, natural gas or NGL);

2. a discussion of all potential supply sources;

3. a forecast of the productive capacity for each commodity over the economic life of the facilities; and

4. for pipelines with contracted capacity, a discussion of the contractual arrangements underpinning the supply.

Guidance

When determining what level of supply information to provide, be aware that the Commission must be satisfied that there is, or will be, an adequate supply available to the pipeline such that the applied-for facilities could be expected to be used at a reasonable level over their economic life and would be in the public interest.

The level of detail in the supply information would normally correspond to:

  • the projected increase in capacity or throughput;
  • the nature and complexity of the supply source; and
  • the potential impact on the public interest, commercial or otherwise.

Generally, the greater the projected increase in capacity or throughput, the greater the amount of supply information that would be required. Additional information might be required for proposed projects that have a larger potential impact on third parties or the environment to demonstrate that the project is in the public interest.

Commodity Description

Describe each commodity that would be affected by the applied-for facilities. Adhere to the guidelines for describing commodities provided in s. 1.10 – Measurement, Conversation Factors and Commodity Description.

Resources

Describe each current and potential supply source that the applied-for facilities are relying upon, including the methodology used to derive these estimates.

Productive Capacity

Forecast the current and future production over the economic life of the project. Include forecasts from:

  • the various supply sources; and
  • conventional and unconventional production as well as production from other basins that could be sourced.

Clearly describe the sources for and the methodology used to derive the forecasts.

Contractual Arrangements

For pipelines with contracted capacity, include a description of any relevant contractual arrangements underpinning the supply arrangements. Also include key contractual terms such as length of contract and volumes under contract, where available.

A.3.2 Transportation Matters

Goal

The application includes information indicating that the volumes to be transported are appropriate for the applied-for facilities and that the proposed facilities are likely to be utilized at a reasonable level over their economic life.

Filing Requirements

Pipeline Capacity

1. In the case of an expansion to an existing pipeline, provide:

  • the pipeline capacity before the expansion capacity is added;
  • the added capacity of the expansion project;
  • the pipeline capacity as it would be following the expansion; and
  • a justification that the capacity of the pipeline expansion is appropriate in terms of incremental volumes to be shipped on the expanded facility.

2. In the case of a new pipeline, provide a justification that the capacity of the new pipeline will be appropriate for the productive capacity or supply that would be available to the pipeline.

Throughput

1. For pipelines with contracted capacity, provide information on contractual arrangements underpinning the projected throughput volumes.

2. For all pipelines other than pipelines with contracted capacity, provide a forecast of projected throughput volumes by commodity type, receipt location and delivery destination on an annual basis over the economic life of the applied-for facilities.

3. If the proposed project results in an increase in throughput capacity, provide:

  • the theoretical and sustainable daily, seasonal and annual capabilities of the existing and the proposed facilities versus the current and forecasted requirements, indicating any contracted interruptible quantities; and
  • the flow formulae and flow calculations used to determine the daily or hourly (as appropriate) capabilities of the proposed facilities and the underlying assumptions and parameters, including a description of the gas or fluid properties.

4. Where more than one type of commodity would be transported in the same pipeline, describe the segregation of the commodities, including where applicable, potential contamination issues or cost impacts.

Guidance

Information submitted on transportation matters should:

  • demonstrate that the capacity of the applied-for facilities is appropriate for the commodities and volumes that would be transported in the pipeline; and
  • provide sufficient evidence to assure the Commission that the applied-for facilities will be used at a reasonable level over their economic life.

Information on pipeline capacity, projected throughput or contracted volumes and, if applicable, supply available to the pipeline, could be provided in tabular format. Where it would provide clarity, a graphical representation could also be included.

Pipeline Capacity

Provide an estimate of the average annual capacity of the pipeline for the commodity or commodities transported. Where pipeline capacity would be increased as a result of the construction of the applied-for facilities, include the pipeline capacity that would be added as well as the resultant total capacity of the pipeline.

In all cases where there will be a substantial difference between pipeline capacity and contracted volumes or projected throughput, include an explanation of the difference. In the case where the subject pipeline is one of a number of pipelines serving a particular supply area, provide a description of the overall service for the area and the role the subject pipeline plays in serving the area relative to throughput volumes and productive capacity for the supply area.

Contractual Arrangements

Transportation agreement evidence is required when the applied-for facilities relate to the transportation of natural gas.

Describe the contracted volume and term by shipper. When possible, submit evidence of the transportation agreements, such as signed execution sheets and copies of the contracts. Contractual evidence must be of sufficient detail to assure the Commission that the facilities will be used at a reasonable level and that demand charges will be paid.

Projected Throughput

A throughput forecast is required for liquids facilities (e.g., crude oil and NGL).

Also include a forecast of supply that could reasonably be expected to be available to the pipeline over the economic life of the applied-for facilities.

Describe the projected annual throughput of each commodity by source, location and delivery destination over the expected economic life of the applied-for facilities.

Commodity Integrity on Multi-Product Pipelines
(where applicable)

In the case of multi-product pipelines for a new pipeline, or where the applied-for facilities could affect the integrity of any of the transported commodities, include a discussion of the methods that will be used to segregate or protect the integrity of the commodity types. Describe any potential contamination issues or cost impacts and strategies that will be used to mitigate any potential problems.

A.3.3 Markets

Goal

The application includes information indicating that adequate markets exist for the incremental volumes that would be available to the marketplace as a result of the applied-for facilities.

Filing Requirements

Provide:

1. an analysis of the market in which each commodity is expected to be used or consumed; and

2. a discussion of the physical capability of upstream and downstream facilities to accept the incremental volumes that would be received and delivered.

Guidance

Information on markets is required to assure the Commission that there is sufficient demand to absorb the incremental volumes and, where applicable, physical capability in the upstream and downstream facilities to accept the incremental volumes. Where long-term transportation and downstream arrangements are in place, the required market information will be more general in nature, but must be adequate to allow the Commission to determine whether the market demand will be sufficient to support the economic feasibility of the pipeline.

The level of detail will correspond to:

  • the magnitude of the incremental volumes that would be delivered into the market;
  • the degree of competition from other supply areas and from other fuels in the market to be served; and
  • the potential impact on the public interest, commercial or otherwise.

Generally, the greater the projected increase in volumes delivered to the marketplace, the greater the amount of market information that would be required. Proposed projects that have a larger potential impact on third parties or the environment may require filing additional information to demonstrate that the project is in the public interest.

Description of the Market

Describe the market that will receive the commodity, including, where applicable:

  • where the commodity could be delivered (e.g., gas hub or designated refinery);
  • the potential competition to serve the market or the market areas from other pipelines;
  • energy sources; and
  • transportation systems.
Ability of Upstream and Downstream Facilities to Accept Incremental Volumes

In cases where the applied-for facilities would be receiving a commodity or commodities from an upstream facility or delivering to a downstream facility, provide assurance that the connecting facility is physically able to accept the additional volumes being received or delivered.

In addition to the filing guidance contained above, Applicants are to note that as of 1 January 2008, the British Columbia Oil and Gas Commission (OGC) put into effect requirements for the measurement and metering of fluids on pipelines entering or leaving the Province of British Columbia as outlined in the OGC Measurement Requirements for Upstream Oil and Gas Operations Manual – Chapter 7 – Cross Border Measurement. Companies should determine whether any of their CER-regulated facilities handle BC production and fall within these provincial measurement requirements for such production.

Table A-5: Overview of Supply, Transportation and Markets Filing Requirements

Table A-5 Overview of Supply, Transportation and Markets Filing Requirements [WORD 56 KB]

Table A-5 Overview of Supply, Transportation and Markets Filing Requirements [PDF 111 KB]

Description
Table A-5: Overview of Supply, Transportation and Markets Filing Requirements

Scope of Project

Commodity Source Type

Supply

Transportation

Markets

Major Project

upward arrow

Local Connection

Basin-wide supply source (e.g., a mainline)

Resources:

  • Table with estimates of conventional and unconventional resources. Table should include estimates of discovered and undiscovered resources.
  • Description of the sources and methodology used to derive the estimates.

Productive Capacity:

  • Table and graph providing productive capacity estimates for each of the resources listed above over the life of the project.
  • Description of the sources and methodology used to derive these estimates.

Contractual Arrangement(s):

  • A detailed description of the contractual arrangements.

New Pipeline (larger project)

Pipeline Capacity:

  • Total capacity of the pipeline.
  • Justification that pipeline capacity is appropriate.

Contractual Arrangement(s):

  • Pipelines with contracted capacity: a detailed description of the transportation contract arrangements underpinning the projected throughput.
  • Other: forecast of projected throughput by commodity, receipt location and delivery point.

More shippers

Comprehensive market analysis with justification that incremental or new volumes will be absorbed.

Evidence that downstream facilities are physically able to receive incremental volumes.

Expansion (larger project)

Pipeline Capacity:

  • Before expansion.
  • Incremental capacity added and total capacity following expansion.
  • Justification that the additional capacity is appropriate.

Contractual Arrangement(s):

  • Pipelines with contracted capacity: a detailed description of the transportation contract arrangements underpinning the projected throughput.
  • Other: forecast of projected throughput by commodity, receipt location and delivery point.

Fewer shippers

Comprehensive market description and assurance of demand for incremental volumes.

Assurance that downstream facilities are physically able to receive incremental volumes.

Localized supply source (e.g., part of a gathering system)

Resources:

  • Table with estimates of discovered and undiscovered resources.
  • Description of the sources and methodology used to derive the estimates.

Productive Capacity:

  • Table and graph providing productive capacity estimates for each of the resources listed for the economic life of the project.
  • Description of the sources and methodology used to derive these estimates.

Contractual Arrangement(s):

  • A description of any relevant supply arrangements.

New Pipeline (smaller project)

Pipeline Capacity:

  • Total capacity of the pipeline.
  • Justification that the pipeline capacity is appropriate.

Contractual Arrangement(s):

  • Pipelines with contracted capacity: evidence of the transportation contract arrangements underpinning the projected throughput.
  • Other: forecast of projected throughput by commodity, receipt location and delivery point.

Fewer shippers

Market description and assurance of demand for incremental volumes.

Assurance that downstream facilities are physically able to receive incremental volumes.

Expansion (smaller project)

Pipeline Capacity:

  • Before expansion
  • Incremental capacity added and total capacity following expansion.
  • Justification that the additional capacity is appropriate.

Contractual Arrangement(s):

  • Pipelines with contracted capacity: evidence of the transportation contract arrangements underpinning the projected throughput.
  • Other: forecast of projected throughput by commodity, receipt location and delivery point.

No third party shippers

Assurance of demand for incremental volumes.

Change in commodity

Supply information is appropriate to the scope of the project, as above.

When more than one commodity: Discussion pertaining to segregation of commodities and potential contamination issues or costs.

Market information is appropriate to scope of the project, as above.

A.3.4 Financing and Financial Resources

See also the letter issued on 29 March 2019 regarding Pipeline Financial Requirements Guidelines which can be found at:

Goal

The application provides a discussion of the following points:

  • the applicant’s ability to finance the proposed facilities;
  • the method of financing the facilities and the potential costs associated with the risks and liabilities that arise during the construction and operation of the Project, including a significant incident (see the NEB’s Event Reporting Guidelines for a definition of “significant incident”);
  • any changes to the financial risk of the company associated with its intended method of financing the facilities;
  • the impact of the proposed facilities on the applicant’s abandonment cost estimate and the collection of these costs; and
  • the toll impact of the proposed facilities including the extent of any cross-subsidization.

Filing Requirements

Additional information...

All applications submitted pursuant to either section 183 or 214 of the CER Act must include the information stated in requirements 1 through 4.

In addition, applications with significant toll impacts must also include the information stated in requirement 5.

1. Provide evidence of the ability to finance the proposed facilities.

2. Provide evidence that the applicant can manage the potential costs associated with the risks and liabilities that arise during the construction and operation of the Project, including a significant incident involving a product release.

3. Indicate the estimated toll impact for the first full year that the facilities are expected to be in service.

4. Confirm shippers have been apprised of the project and associated toll impact. Provide a summary of their concerns, if any, and the plans to address these concerns.

5. Provide a discussion on how the applicant will address the impact of the proposed facilities on funding for abandonment.

6. For applications with significant toll impacts, provide additional toll details for:

  • existing facilities;
  • the aggregate of existing and proposed facilities; and
  • the first five years that the proposed facilities are forecast to be in service.

Guidance

The Commission needs sufficient information to allow it and interested parties to understand the application and the impacts on third parties, and to make a decision. The information provided should demonstrate that the applied-for project is financially sound given the approved toll methodology and that it is not being cross-subsidized in an inappropriate manner.

While the Commission would find the information identified in the filing requirements to be satisfactory in most instances, it may be necessary to provide further information. In general, more detailed information should be provided for projects that are greater in complexity and scope. Examples of factors that could affect the complexity and scope of a project include the:

  • toll impact of the proposed facilities;
  • proposed toll design methodology;
  • level of market power held by the applicant, including its affiliates;
  • number of shippers on the system;
  • number of third parties that could be affected by the proposed facilities and the level of effect on these parties; and
  • the financial risk assumed by the applicant.

Determine the level of information to include for each filing requirement based on the factors described above, and provide any additional information that would be pertinent.

Finance Information

Evidence that the applicant has the ability to finance the proposed facilities should include, but not be limited to:

  • a description of the intended methods and sources of financing the proposed facilities;
  • a description of any financing already in place; and
  • a description of any restrictive provisions concerning future financing, any changes in capital structure, the impact on interest coverage ratios and other factors that could affect the financing of the proposed facilities.
Ownership Structure

The applicant should describe the corporate structure, including at a minimum:

  1. a) The corporate structure chart showing the applicant, its subsidiaries, owning entities and affiliates; and
  2. b) A description summarizing each entity’s ownership and the operating relationships with each other.

This chart in a) and the description in b) must show, but need not be restricted to:

  1. i. the ownership of each entity and their jurisdiction of incorporation or registration; and

Where limited partnerships are involved, a description of:

  1. ii. the general and limited partners in each limited partnership; and
  2. iii. the respective roles and responsibilities of each of these entities in managing the limited partnerships and operating the pipeline and related facilities.
Financial Resources

Oil pipeline projects with a capacity of 250,000 bbl per day or more are expected to provide information on how the applicant can sustain management of the potential costs associated with the risks and liabilities that arise during the construction and operation of the Project, including a significant incident involving a product release:

  1. a) A description of the applicant’s various types and amounts of financial resources, including the applicant’s readily accessible financial resources;
  2. b) Key features with respect to third party liability insurance coverage plus description of whether the coverage is for the applicant or project alone or part of an umbrella coverage policy;
  3. c) The basis for determining the amount of the financial resources required, taking into account the risk assessment for the Project, the costs of accidents and malfunctions, and any and all threats;
  4. d) With respect to the costs of a hydrocarbon spill, identification of different cost categories (e.g.: clean up and remediation versus compensation) and location variables that would influence total costs;
  5. e) Evidence of how the risk assessment results have been applied to anticipate, prevent, manage, and mitigate potential hazards during the design and operation of the project to minimize the quantity of hydrocarbons in the event of a spill;
  6. f) An overview of plans for operating practices to avoid human error; and
  7. g) An overview of how the applicant has factored its Emergency Prevention, Preparedness and Response Plan into its estimates of spill quantities and costs of an accident or malfunction.

    (Additional information would be expected where marine shipping is involved.)

For the meaning of “risk assessment” and “risk assessment results” see CSA Z662, Clause 3, and Annex B, Guidelines for Risk Assessment of Pipeline Systems.

Toll Details

Toll details will include:

  • the annual toll impact;
  • where tolls are cost-based, the cost of service and rate base by main elements;
  • where tolls are not cost-based, the revenues from and costs of providing service by main elements;
  • the method and rates of depreciation by plant accounts, if different from those approved by the Commission; and
  • if not already filed with the CER, copies of the relevant additional tariffs, transportation contracts or operating agreements associated with the new facilities.
Abandonment Funding Information

In 2008 the NEB identified the following issue: What is the optimal way to ensure that funds are available when abandonment costs are incurred?

According to the RH-2-2008 Reasons for Decision [Filing A21835], abandonment costs are a legitimate cost of providing service and are recoverable upon Commission approval from users of the system. RH-2-2008 also stated that landowners will not be liable for costs of pipeline abandonment.

All pipeline companies regulated under the CER Act are required to comply with the regulatory decisions regarding abandonment funding.

Applicants with existing CER-regulated facilities must use their Commission-approved Abandonment Cost Estimate to calculate the annual amount to be set aside. Each Applicant must use the specific methodology that was approved for it in the MH-001-2013 Reasons for Decision [Filing A60676].

For Group 1 companies, calculate the change in Abandonment Cost Estimate relative to the total Commission-approved Abandonment Cost Estimate for this system.

For Group 2 companies, calculate the change in Abandonment Cost Estimate relative to the total Abandonment Cost Estimate for all your CER-regulated pipelines.

Information on abandonment funding should include the following:

  • Current Commission-approved Abandonment Cost Estimate.
  • Change these proposed facilities will have on the Commission-approved Abandonment Cost Estimate.
  • Description on how you intend to address the change in your Abandonment Cost Estimate (i.e., how will this impact your set aside mechanism, collection mechanism, tolls or tariffs).

Applicants new to the CER’s regulation require approval of the Abandonment Cost Estimate for the proposed facilities, as well as a process and mechanism for setting-aside abandonment funds. Information on abandonment funding should include the following:

  • Proposed Abandonment Cost Estimate for the facilities.
  • Description on how you intend to set-aside funds (either a trust, letter of credit, or surety bond) and a draft copy of the proposed set-aside mechanism;
    • If using a trust, a proposed trustee for the trust, and a description of whether or not the trustee is regulated under the Trust and Loan Companies Act; and
  • Description on how you intend to collect the funds.

A.3.5 Non-CER Regulatory Facility Approvals

Goal

The application includes information on other regulatory processes that are being undertaken with respect to the project.

Filing Requirements

1.Confirm that all non-CER regulatory approvals required to allow the applicant to meet its construction schedule, planned in-service date and to allow the facilities to be used and useful are or will be in place.

2.If any of the approvals referred to in #1 may be delayed, describe the status of those approval(s) and provide an estimation of when the approval is anticipated.

Guidance

The Commission requires information regarding the status of all required federal, provincial and municipal approvals or authorizations to be reasonably assured that there are no issues before other regulators that would prevent or delay either the construction or use of the applied-for facilities. Updates on status may also be provided after an application has been submitted.

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