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Comment: NEB stacking deck in Kinder Morgan’s favour

Brian Morton’s article (“Pipeline opposition on the rise as oil falls,” Aug. 7) points to a prolonged period of lower oil prices as a reason why Trans Mountain’s expansion might not proceed.

Brian Morton’s article (“Pipeline opposition on the rise as oil falls,” Aug. 7) points to a prolonged period of lower oil prices as a reason why Trans Mountain’s expansion might not proceed. Unfortunately, the way the National Energy Board has tipped the project’s review in favour of Texas-based Kinder Morgan, the price of oil is irrelevant.

The NEB made decisions in 2013 that pervert market signals. It approved Kinder Morgan’s toll methodology for determining rates on the expanded Trans Mountain system. These higher toll rates apply not only to the new pipeline, but also to the 60-year-old legacy line. After Trans Mountain expands, it will cost a company such as Chevron almost twice as much to ship a barrel of oil to its Burnaby refinery as it costs today.

The NEB also approved the terms embedded in the long-term take-or-pay contracts Kinder Morgan has with 13 shippers. Companies such as Suncor, Cenovus, Canadian Natural Resources, Imperial Oil, Nexen and Total have contracted for 707,500 barrels a day of the 890,000 barrels a day of available capacity on the two lines. All but one of the shippers have signed on for 20 years. If the project proceeds, these shippers have no choice but to pay up every month for contracted capacity, whether or not it makes business sense to physically ship down the lines.

The new pipeline could sit empty, but Kinder Morgan would still book vast returns. It plans to siphon more than $800 million a year from the Canadian economy to its head office in Houston. Meanwhile, these long-term take-or-pay contracts represent an ongoing cost for Canadian oil producers and marketing businesses of more than $20 billion over the life of the contracts.

There are clauses in the agreement that allow shippers to terminate, but the financial viability of export to foreign markets is not one of them. If shippers wish to back out of their agreements because of low oil prices or lack of production, they need to rely on other circumstances to trigger the limited termination opportunities.

One such clause relates to the $5.4-billion project-cost estimate. This figure was developed in 2012 as a Class IV estimate. Within 60 days of receiving the certificate of public convenience and necessity (CPCN) from the NEB, Kinder Morgan must present to shippers a Class II/III estimate, which will be much more detailed and reliable. If the CPCN estimate is $1.4 billion or more over the initial estimate, shippers can walk.

The longer it takes to get the CPCN, the higher the costs are likely to be. Kinder Morgan’s indecision about its route has already delayed the project a year.

Morton’s article identified recent challenges to the NEB process as B.C. New Democrats, the city of Burnaby and the Sierra Club issuing renewed challenges to the process. NEB spokeswoman Tara O’Donavan said the hearing is not meant to be an open forum, but rather an opportunity for intervenors to present their oral summary arguments. This is NEB deception.

The National Energy Board Hearing Process Handbook 2013, available on the NEB website, provides an illustration of the hearing-room setup. The handbook explains that “if the hearing is taking place in a community, the room set up may depend on the building being used and may be more informal [than the setup at the Calgary hearing room].” The illustration in the handbook shows exactly where public seating is meant to be positioned. This was the same room setup that existed when I was an expert witness at the Enbridge Northern Gateway hearing in Edmonton three years ago.

The NEB should be honest in its communications with the public. For the Trans Mountain expansion hearing in Burnaby, the board has deliberately decided to exclude the public from what typically has been an open and public forum.

Robyn Allan is an economist and was qualified as an expert intervenor in the National Energy Board’s Trans Mountain review. She withdrew in May because she believes the process is fundamentally flawed.