On March 1, 2018, the National Energy Board (NEB) issued its Reasons for Decision in RHW-003-2017 (M&NP's application for approval of its 2017-19 Toll Settlement). BLG acted on this matter.
The NEB approved the settlement for pipeline tolls as follows:
- the base period settlement tolls of $0.7515 (2017); $0.7178 (2018); and $0.7857 (2019) per gigajoule (GJ);
- the accelerated depreciation during the Settlement Period; and
- the decreased return on equity, in that ROE was reduced from 10.9% (2017) to 8.50% (2018) and 8.25% (2019).
Heritage Gas –an entity holding a Nova Scotia natural gas distribution franchise until 2028 - resisted the settlement on the basis that M&NP failed to take into account the underutilization expected on the system after 2019, arising as a result of the decommissioning of the Sable Island and Deep Panuke gas projects. However, the NEB rejected Heritage's proposal that the NEB initiate a proceeding to deal with the determination of the tolling methodology and tolls given the level of underutilization in the region. The NEB found that M&NP was contracted for a significant portion of capacity throughout the settlement period, and captive shippers will not bear the burden of underutilization costs. It further dismissed Heritage's argument that the depreciation rate be increased during the Settlement Period, M&NP's return be disallowed, and some longer term toll certainty be provided now for the period past the settlement.
Given the shift in supply dynamics on M&NP, the NEB decided that it would be appropriate to reconsider the 19.5 year abandonment funding collection term, due to a risk of under-collection. This issue will not be deferred post-2019. The NEB indicated that M&NP should address the impact of the expected drop in billing determinants after 2019 prior to the expiry of the Settlement Period. It also noted that the production declines and expected change in use of the system after 2019 warranted a review of the abandonment fund collection period. It therefore directed M&NP to file an application with the NEB prior to May 1, 2018, proposing an updated collection period and annual collection amount for the Settlement Period and beyond.
We will continue to monitor the impacts of this decision as well as overall changes in the energy market in Atlantic Canada, especially with the expected decommissioning of both the Sable Offshore Energy Project in 2018, and Deep Panuke between 2019 and 2021.
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