ERICA HAMILTON COMMISSION SECRETARY Commission.Secretary@bcuc.com web site: http://www.bcuc.com VIA EMAIL electricity.regulatory.affairs@fortisbc.com January 29, 2013 SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3 TELEPHONE: (604) 660 4700 BC TOLL FREE: 1 800 663 1385 FACSIMILE: (604) 660 1102 Log No. 41816 FORTISBC INC. PURCHASE OF THE UTILITY ASSETS CITY OF KELOWNA EXHIBIT A2 2 Mr. Dennis Swanson Director, Regulatory Affairs Regulatory Affairs Department FortisBC Inc. Suite 100, 1975 Springfield Road Kelowna, BC V17 7V7 Dear Mr. Swanson: Re: FortisBC Inc. Application for a Certificate of Public Convenience and Necessity for the Purchase of the Utility Assets of the City of Kelowna Commission staff submits the following document for the record in this proceeding: British Columbia Utilities Commission Plateau Pipe Line Ltd. Reconsideration Decision (October 19, 2001). Yours truly, /yl Enclosure cc: Registered Interveners (FBC PUAKelowna RI) Erica Hamilton PF/FBC CPCN Kelowna Assets/GC/A2 2_BCUC Staff Submission
IN THE MATTER OF PLATEAU PIPE LINE LTD. for Reconsideration of the June 26, 2001 Taylor to Kamloops Pipeline Permanent Tolls Decision and Commission Order No. P-3-01 DECISION October 19, 2001 Before: Peter Ostergaard, Chair Barbara L. Clemenhagen, Commissioner Kenneth L. Hall, Commissioner
TABLE OF CONTENTS Page No. 1.0 BACKGROUND 1 2.0 THE RECONSIDERATION APPLICATION 1 3.0 GUIDING PRINCIPLES FOR RECONSIDERATION 2 4.0 THE ISSUES 3 4.1 Relationship of Plateau and Pembina and Common Carrier Status 3 4.1.1 Plateau s Position 3 4.1.2 Intervenors Replies 4 4.1.3 Plateau s Response 5 4.1.4 Commission Determination 5 4.2 Setting Just and Reasonable Tolls 9 4.2.1 Plateau s Position 9 4.2.2 Intervenors Replies 11 4.2.3 Commission Determination 11 4.3 Jurisdiction of the Commission relative to the OGC 12 4.3.1 Plateau s Position 12 4.3.2 Intervenors Replies 13 4.3.3 Plateau s Response 14 4.3.4 Commission Determination 14 4.4. Clerical Errors 17 4.4.1 Plateau s Position 17 4.4.2 Intervenors Replies 17 4.4.3 Commission Determination 17 4.5 BCUC Indirectly Ordered Cross-subsidization 19 4.5.1 Plateau s Position 19 4.5.2 Intervenors Replies 20 4.5.3 Plateau s Response 20 4.5.4 Commission Determination 20 4.6 New Evidence on Raising Capital 21 4.6.1 Plateau s Position 21 4.6.2 Intervenors Replies 21 4.6.3 Commission Determination 22 5.0 APPLICATION FOR STAY 23 5.1 Plateau s Position 23 5.2 Intervenors Replies 23 5.3 Plateau s Response 24 5.4 Commission Determination 24 COMMISSION ORDER NO. P-5-01
1.0 BACKGROUND On December 29, 2000, Plateau Pipe Line Ltd. ( Plateau ) filed a Tolling and Suspension of Service application with the British Columbia Utilities Commission ( BCUC, the Commission ), which included proposed rate base calculations, recommended upgrades, deferral accounts, tariff calculations, proposals for shipper commitments, and conditions for suspension of pipeline operations. Amendments in the form of toll revisions were submitted on March 23, 2001 based on updated information and the information request/response process. An oral public hearing commenced April 2, 2001 and continued for seven hearing days (the Hearing ). The filing of written arguments was completed on May 10, 2001. On June 26, 2001, the Commission issued its Decision (the Decision ) and Order No. P-3-01. On July 25, 2001, Plateau and Pembina Pipeline Corporation ( Pembina ) applied to the B.C. Court of Appeal for Leave to Appeal the Decision, directions within the Decision and Order No. P-3-01. On August 23, 2001, the Court of Appeal extended the time for Plateau and Pembina to file their Notice of Motion setting down the hearing for the application for Leave to Appeal to a date that is 30 days after the date of the Commission s Decision on the Reconsideration Application. 2.0 THE RECONSIDERATION APPLICATION On August 15, 2001, Plateau filed an Application for Review of the Decision (the Reconsideration Application ), pursuant to Section 99 of the Utilities Commission Act (the Act ). Plateau submitted that the Decision contains errors of fact and law, which result in prejudice and possible damage to Plateau and Pembina and constitute grounds for the BCUC to reverse its Decision. The errors alleged involve: 1. The determination that Pembina as well as Plateau is a common carrier; 2. The setting of tolls which are not just and reasonable; 3. The determination of matters which are properly within the jurisdiction of the British Columbia Oil and Gas Commission ( OGC ); 4. The making of clerical errors; and 5. The direction that Pembina invest significant sums of money in the pipeline thereby indirectly resulting in cross-subsidization. In addition, Plateau alleges: 6. New evidence has become available on the issue of financing. 1
2 The August 15, 2001 filing, also requested a stay to Order No. P-3-01 and the directions under the Decision pending the outcome of the Reconsideration Application and/or an appeal to the Court of Appeal. The Commission considered the request for a stay as a separate application (the Application for Stay ). On August 17, 2001, the Commission issued Letter No. L-26-01 requesting written submissions on the Reconsideration Application and the Application for Stay from registered intervenors by August 29, 2001. The submissions were to address the following items: 1. Should there be a reconsideration by the Commission? 2. If there is to be a reconsideration, should the Commission hear new evidence and should new parties be given the opportunity to present evidence? 3. If there is to be a reconsideration, should it focus on the items from the application for reconsideration, a subset of these items or additional items? 4. Plateau s request for a stay of Commission Order No. P-3-01 and the directions under the Decision dated June 26, 2001. The comments were to address whether the threshold for reconsideration had been met for each issue as raised by Plateau, rather than the substance of the issue. Plateau responded to the intervenors comments on September 6, 2001. 3.0 GUIDING PRINCIPLES FOR RECONSIDERATION Section 99 of the Act states: The commission may reconsider, vary or rescind a decision, order, rule or regulation made by it, and may rehear an application before deciding it. Under Section 99 of the Act, the authority of the Commission to allow a reconsideration is discretionary. To determine if there is a reasonable basis to allow a reconsideration, the Commission assesses an application for reconsideration to determine if the applicant has demonstrated the existence, on a prima facie basis, of one or more of the following: 1. An error in fact or law; 2. A fundamental change in circumstance or facts since the decision; 3. A basic principle that had not been raised in the original proceedings; or 4. A new principle that has arisen as a result of the decision.
3 The Commission exercises its discretion to reconsider in other situations, where it considers there to be just cause. However, the decision to allow a reconsideration is not taken lightly. The Commission's discretion to reconsider and vary a decision or order is applied with a view to ensuring there is consistency and predictability in the Commission's decision-making. For a reconsideration hearing to proceed, the reconsideration applicant is required, through reference to the Decision and through submissions and argument in support of the reconsideration, to meet the following criteria: 1. The claim of error appears to be substantiated on a prima facie basis; and 2. The error has significant material implications. 4.0 THE ISSUES Each of the alleged errors identified in the Reconsideration Application is addressed separately with a summary of Plateau s application, the Registered Intervenors submissions, Plateau s response and the Commission s determination of the issue. 4.1 Relationship of Plateau and Pembina and Common Carrier Status 4.1.1 Plateau s Position Plateau submits that the BCUC committed an error in law and exceeded its jurisdiction by treating Plateau s parent company, Pembina, as a common carrier under the Pipeline Act. Plateau s description of Pembina s acquisition of the Western System from Federated Pipe Lines Ltd. ( Federated ), is discussed in Section 6.1 of the Decision. The subsequent sale of the pipeline assets resulted in the Pembina West Limited Partnership ( PWLP ) owning the assets of the Western System, Plateau operating the Western System and Pembina owning the shares of Federated. Plateau contends that there is no authority for treating Pembina as a common carrier because Pembina is neither an owner nor operator of the Western System. Plateau also states that it is settled law that a shareholder does not own the individual assets of the corporation in which it owns the shares. Plateau refers to Commission Order No. P-7-00 dated September 14, 2000 and its Reasons for Decision dated September 21, 2000 and states that the BCUC erred in finding that a pipeline is a common carrier.
4 Plateau states that numerous cases and legislation make it clear that it is a person rather than the pipeline, which is a common carrier. Plateau disputes the three reasons given by the BCUC in finding Pembina to be a common carrier in the Reasons for Decision to Order No. P-7-00. The reasons given by the BCUC were that Pembina has held itself out to be a common carrier through submissions under Part 7 of the Pipeline Act, the functions that Pembina performs are consistent with those of common carriers and the original approvals and agreements support the conclusion that the Taylor to Kamloops pipeline is a common carrier. Plateau states that Pembina has never made any submissions regarding tolls under Part 7 of the Pipeline Act and that all toll applications since July 31, 2001 [sic] with respect to the Western System have been made by Plateau. Plateau argues that the original approvals and agreements regarding the Western System do not have any provisions binding the subsequent owners of the Western System to common carrier status. Plateau considers that if there were provisions binding subsequent owners, those provisions would bind Plateau as a general partner of PWLP and perhaps PWLP rather than Pembina. 4.1.2 Intervenors Replies Husky Oil Operations Limited ( Husky ) argues that the BCUC made its determination that Pembina is a common carrier with respect to the Western System nearly a year previously and that the time for seeking to appeal that decision has long since passed as has the appropriate time for applying to have it reviewed. Husky considers that for all practical purposes the Western System is owned, operated, managed and controlled by Pembina. Calpine Canada Resources Ltd., successor by change of name and amalgamation to Encal Energy Ltd., is the managing partner of the Calpine Canada Natural Gas Partnership ( Calpine ). Calpine considers that the BCUC correctly determined Plateau s and Pembina s status as common carriers in Order No. P-7-00. If Plateau or Pembina disagreed with the BCUC s determination, an appeal could have been made under Section 101 of the Act. Calpine states that Plateau and Pembina cannot use the BCUC s review process as a collateral challenge to the BCUC s determination in another proceeding. Chevron Canada Resources ( Chevron ) considers that Pembina could have raised this issue through an application for reconsideration or an Application for Leave to Appeal but Pembina did not pursue either avenue. Chevron argues that Pembina has not acted in a prudent and timely fashion in seeking to have the BCUC s declaration varied and Chevron observes that the remedy should not be sought by Plateau through an Application for Reconsideration.
5 4.1.3 Plateau s Response Plateau states that prior to Order No. P-3-01, no order of the BCUC declared Pembina to be a common carrier, therefore Plateau s application for review is filed in a timely manner. Plateau noted the discrepancy between Order No. P-7-00 (where the Taylor to Kamloops pipeline was found to be a common carrier) and the Reasons for Decision (which found Pembina to be a common carrier) but took no action as Plateau was prepared to accept that it is a common carrier. Plateau submits that only the OGC can declare a company to be a common carrier. 4.1.4 Commission Determination Definition of Common Carrier In Exhibit 6G, page 5 to the Hearing, counsel for Pembina responded to the application by Husky to resume service from Taylor to Prince George and stated that Common carrier provisions apply to parties holding themselves out as willing to do business in a particular area of endeavour. The Commission observes that there is not a definition of common carrier in the Pipeline Act or the Oil and Gas Commission Act. However, Section 42 of the Pipeline Act permits the Commission to establish the conditions under which the common carrier must accept crude oil. This section does not provide the common carrier with the discretion to unilaterally terminate its common carrier obligations. Pembina has not identified any statute which would allow it to take such actions without approval of regulators. Commission Order No. P-7-00 and Reasons for Decision The Reasons for Decision to Order No. P-7-00 found Pembina to be a common carrier for three reasons. This section will address the original approvals and agreements that support the conclusion that the Taylor to Kamloops pipeline was to be operated on a common carrier basis while a following section will deal with Pembina s submissions under Part 7 of the Pipeline Act and Pembina s actions as a common carrier. In Husky s August 30, 2000 request to the Commission for an emergency order compelling Federated and Pembina to provide service from Taylor to Prince George, Husky asserted that Pembina was a common carrier (Exhibit 6). Pembina s counsel responded on September 6, 2000 that Pembina is not a common carrier (Exhibit 6G) and included an affidavit where a Plateau witness stated that To my knowledge there has never been an order declaring this line or Pembina to be a common carrier (Exhibit 6H). It appears that Husky and Pembina were not aware of Certificate 65 and the original 1961 and 1966 approvals and agreements regarding the construction and operation of the Taylor to Kamloops pipeline which were included as attachments to the Reasons for Decision to Order No. P-7-00. The 1961
6 agreements required the Corporation to operate the pipeline on a common carrier basis (Exhibit 9D, Attachment pp. 3 and 8). The subsequent owner of the Western System accepted the common carrier status where Federated stated that The Company is a common carrier... (Exhibit 1D, p. 4, Prospectus of the Pembina Pipeline Income Fund dated September 28, 2000, Note 5 to the consolidated Federated Financial Statements for the six months ended June 30, 2000). At the hearing, Mr. Michaleski, President and CEO of Pembina and an officer and director of Plateau, was asked if Pembina accepts that it is a common carrier and testified that: while I m not a lawyer, I believe that our legal counsel were of the view that we were not a common carrier....the BCUC has now advised us that in their view, after a review of the documentation that they found from 1961 or 62, I believe, that their view is that we are a common carrier. (T2: 334) The Commission considers that by the 1961 and 1996 approvals and agreements and by Note 5 in Federated s financial statements, the previous owners and operators of the Western System accepted the common carrier status. Pembina has not provided any regulatory ruling that demonstrates that the common carrier status for the operator of the Western System has been removed. Subsequent Filings by Plateau or Pembina Subsequent to the Commission s Reasons for Decision dated September 21, 2000 to Order P-7-00, Plateau or Pembina made submissions to the Commission which did not challenge or seek clarification to the finding that Pembina is a common carrier: i) Pembina Pipeline Corporation letter to B.C. Utilities Commission, dated October 11, 2000 together with Plateau Pipe Line Ltd. Information Package to Shippers and Interested Parties, dated October 6, 2000 (Exhibit 3); ii) iii) Pembina Pipeline Corporation letter (by counsel) to B.C. Utilities Commission, dated October 17, 2000 requesting Commission direction that an application by Plateau for permanent tolls in accordance with Order P-6-00 will satisfy requirements of Order P-7-00 directing Pembina to file permanent tolls; (Exhibit 3A). The Exhibit included charts presented by Plateau at an October 12, 2000 Western shippers meeting where one of the charts stated Order P-7-00 Pembina is a common carrier. The Commission responded by Letter No. L-50-00 dated October 19, 2000 that did not relieve the requirement of Pembina to file tolls but agreed to Plateau s request (Exhibit 3D); Pembina Pipeline Corporation/Plateau Pipe Line Ltd. letter (by counsel) to B.C. Utilities Commission, dated October 30, 2000 requesting postponement of Order P-6-00 filing deadline from October 31, 2000 to November 30, 2000 (Exhibit 3F);
7 iv) Pembina Pipeline Corporation/Plateau Pipe Line Ltd. letter (by counsel) to B.C. Utilities Commission, dated November 6, 2000 responding to Husky s submission (Exhibit 3H) regarding reactivation of service from Prince George to Kamloops (Exhibit 3I); v) Plateau Pipe Line Ltd. letter (by counsel) to B.C. Utilities Commission, dated November 30, 2000 responding to minutes from November 23 and 24, 2000 shippers meeting (Exhibits 3R, 3S); vi) vii) Plateau Pipe Line Ltd. letter (by counsel) to B.C. Utilities Commission, requesting amendment to Regulatory Timetable, dated January 16, 2001 (Exhibit 4); and Plateau Pipe Line Ltd. letter (by counsel) to B.C. Utilities Commission with comments on requested amendment to Regulatory Timetable, dated January 24, 2001 (Exhibit 4C). By Plateau or Pembina not challenging or seeking clarification to the finding that Pembina is a common carrier, the Commission and the registered intervenors were allowed to proceed to the Hearing on the assumption that Plateau and Pembina took no issue with the finding. Pembina Holding Itself Out and Acting as a Common Carrier Pembina has been actively involved in the daily operations of the Western System as shown in the correspondence of Pembina or Plateau to the Commission, the OGC and its shippers. The Commission considers that Pembina has made submissions under Part 7 of the Pipeline Act. In Exhibit 6G, when counsel for Pembina responded on September 6, 2000 to Husky s application to resume service, Pembina was making a submission to the BCUC under Part 7, Section 43 of the Pipeline Act by seeking approval to withhold service until a pressure test was completed. In that submission it was stated that Pembina is not willing to carry substances in the Western system until it is satisfied that it is safe and in the public interest to do so. Commission Order No. P-9-00 dated November 2, 2000, Exhibit 9E, directed that Commission staff, Plateau, the OGC and shippers meet to resolve issues and that Plateau provide an initial report to the parties prior to the meeting. While Plateau is shown as the author of the initial report (Exhibit 3O), Pembina is shown as actively involved in the oil spill cleanup and reviewing all operations as a result of the spill (Exhibit 3O, p. 1) and that it was Pembina that required a commitment to implement a prevention program and Pembina determined that it would not make expenditures without volume commitments and approved recovery in tolls (Exhibit 3O, p. 2). Pembina also expressed concerns that a copy of the full metallurgical report, issued to Environment Canada, was not made available to it (Exhibit 3O, p. 4). Pembina appeared to accept and act on directions from the OGC when by letter dated August 23, 2000, Exhibit 10, Pembina was directed to conduct an operational analysis and Integrity Management Plan and submit reports to the OGC. Pembina confirmed its acceptance of the OGC directions when Exhibit 3O
8 informed shippers and interested parties that Pembina will have spent $50,000 on outside consultants, primarily Tera Environmental and Cimarron Engineering, on the initial stage of the Integrity Management Plan (Exhibit 3O, p. 8). The summary of Exhibit 3O, page 10 states: Issues affecting continued operation of the pipeline by Pembina have been discussed in detail These tariffs and the corresponding volume commitment are required to continue the safe, prudent and responsible operation of the pipelines expected of Pembina. Pembina has also acted on the directions of the BCUC where Order No. P-7-00 dated September 14, 2000, Exhibit 9C, directed Pembina to continue with the pressure test of the Taylor to Prince George pipeline and following the test, report to the OGC and the BCUC on Pembina s findings and the suitability of returning the Taylor to Prince George segment to service. By letter dated September 19, 2000, Exhibit 6L, Pembina provided a report to the OGC and the BCUC on the successful completion of the test, requested permission to operate the line from Taylor to Prince George and forecasted that service should resume by September 20, 2000. Pembina is held out to the investment community to be actively involved in pipeline operations as shown in the March 13, 2001 short-form prospectus of the Pembina Pipeline Income Fund (the Fund ). Pembina is described as being directly and indirectly wholly-owned by the Fund and the Fund states that Pembina operates all of its wholly-owned pipeline systems (Exhibit 20, p. 4). Pembina s involvement in the operations of the Western System was also recognized by Plateau s counsel when the toll application was identified as a Pembina Plateau case (T1: 7) and that he wanted to make a statement about what this hearing is about and where Pembina Plateau proposes to go with it (T1: 8). A Plateau witness also referred to Pembina s involvement in the Hearing, stating that I d like to provide some background information to assist interested parties in understanding Pembina and Plateau s position today at this hearing (T2: 313). The Plateau witnesses also confirmed that they prepared or supervised the preparation of the application, the amendment to the application and the various other filings by Pembina and Plateau (T1: 11-13). In a slide presentation given at the start of the Hearing, a Plateau witness stated that Pembina arrived at the project scene about midday and by the end of the first day we had at least one or two main control points installed, the third control point selected (T1: 17). The witness also stated that the public expect to see Pembina take prudent action to ensure that a spill of this nature does not occur in the future (T1: 59). A Plateau witness stated that I think the issue here is really who determines the standard of safety on Plateau s pipeline? And it s our position that should be Pembina and Plateau who decide that (T1: 60).
9 This witness further explained that Pembina has put forward that to the Oil and Gas Commission saying that in our belief we should have a valve at this location (T1: 103). The relationship of Pembina, its employees and its subsidiaries was described by a Plateau witness as: The Pembina Pipe Line Corporation is the operating company that employs all of the Pembina s employees and it s also the management company that provides all the management services to all of the all of the subsidiaries. So Pembina Pipe Line Corporation is the manager of all of those assets? And we manage all of the underlying business for each of our operations. (T2: 344) With Plateau having no employees or assets, aside from its interest in the PWLP, to conduct pipeline operations, Plateau of necessity requires assistance such as Pembina s management of the Western System (T1: 43; T5: 784). Conclusion The Commission considers that Pembina acquired a common carrier and has acted as a common carrier in regards to the Western System by holding itself out as willing to do business in a particular area of endeavour. Written statements by the Fund to the investment community and by Pembina to shippers and interested parties represent Pembina as actively participating in the operation of the Western System. Pembina has acted upon directions from the OGC and orders from the BCUC without objecting that the directions should have been made to Plateau as the common carrier for the pipeline. While the Commission made an error in Order No. P-7-00 in designating the pipeline, rather than the operating entity, to be a common carrier for the purposes of Part 7 of the Pipeline Act, the Order must be read in conjunction with the Reasons for Decision which make it clear that the Commission considers that Pembina is a common carrier. The Commission acknowledges that Order No. P-7-00 gave directions to Pembina that were inadvertently addressed to Plateau on page 7 of the Decision. The Commission finds this to be a clerical error. 4.2 Setting Just and Reasonable Tolls 4.2.1 Plateau s Position In the Reconsideration Application, Plateau claims that the Commission has erred in law by failing to establish tolls for the Western System that are just and reasonable, as required under Section 45 of the Pipeline Act.
10 Rate Base Methodology The Commission applied traditional rate base methodology in calculating the rates to be charged by Plateau. The pipeline, constructed in 1961, has had only nominal capital additions throughout its service life, and was depreciated to a historic cost net asset value of $56,000 on September 6, 2000. Plateau s December 29, 2000 toll application argued that an allowed return on such a small sum is grossly inadequate compensation for the risk assumed by Plateau, particularly in light of the events surrounding the Pine River spill of July 2000. This continues to be Plateau s view. Plateau agrees that the Decision points out the limitations of a return on historical rate base methodology as a pipeline nears the end of its previously assumed economic life, but argues that the Commission did not provide any relief to such limitation. Plateau notes that while the Commission states that a fully depreciated rate base properly represents the net investment that has been made by the pipeline owner, the reference should be owners in the plural to recognize the previous owners of the Western System. Plateau agrees that previous owners have made investments and recovered their investment through depreciation, but argues that the Commission was not being commercially realistic in apparently assuming that an appropriate purchase price for the Western System when it changed hands in 2000 was the then current depreciated book value. Plateau noted that in any event the Commission is not prepared to allow a return on an amount higher than the historic net asset value. Plateau expresses the view that as a consequence of this assumed value for rate making purposes, a new owner, such as Plateau, is asked to bear an inordinate risk for a virtually non-existent return. Plateau states, Alternatively, any commercial trading in pipelines in British Columbia will be severely discouraged, or eliminated, and an existing owner will have little, if any, incentive to operate a pipeline. In the Reconsideration Application, Plateau repeats its arguments from the Hearing that one way to deal with the vanishing rate base problem is the use of a semi-depreciated rate base. Plateau stated that it only suggested the semi-depreciated rate base as one solution. In Final Argument, Plateau stated that it was receptive to any methodology that would allow the revenue requirement to reflect the value of the asset, the costs of upgrading and the risks associated with ownership and operation. It suggested, as an alternative, a management fee concept and made reference to management fee arrangements, filed in evidence at the Hearing, that had been in place in negotiated toll settlements between the pipeline owners and shippers under previous ownerships.
11 Competitiveness of Tolls Plateau states that the first concern of the Commission seems to be making the toll competitive with other pipelines. Plateau refers to a statement in the Decision that suggests that the maximum toll charged on the Western System from Taylor to Kamloops should not exceed the present toll for shipping crude oil from Taylor to Kamloops via Edmonton. While Plateau admits that the actual toll determined by the Commission using traditional rate base methodology is well below the alternate route through Edmonton, Plateau claims that by making that statement, the Commission misdirected itself and thereby committed an error in law. Plateau indicates further concern that, in spite of substantial capital investments required following the Pine River spill, the toll will remain almost identical to the toll in place prior to the spill. Plateau states that the Commission has placed no emphasis on the financial necessities of Plateau and has not set just and reasonable tolls which would allow Plateau a fair return. Depreciation Period The pipeline was constructed in 1961 and was in continuous operation until the Pine River spill. In the Decision the Commission stated that a physical life of a further 20 years was appropriate for purposes of depreciation. Plateau submits that the evidence in support of this conclusion is sketchy at best. Plateau admits that it did state at the Hearing that the pipeline could theoretically last for decades if properly maintained, but claims there is very little evidence on the record that it could be economic to do so. Plateau expressed concern that if maintenance became expensive it was at risk of seeking higher tolls to recover ongoing repair costs and undepreciated capital investment, particularly in the absence of shipper commitments. 4.2.2 Intervenors Replies The intervenors provide virtually no comment on the issue of toll setting. Chevron submits that the Commission correctly took into account the differing positions of the parties concerning some of the same matters raised in the Reconsideration Application and expresses an opinion that Plateau is simply debating the merits of the Commission s exercise of discretion. 4.2.3 Commission Determination At the Hearing, the issues of rate base methodology, competitiveness of tolls and depreciation period were thoroughly examined. The Commission weighed the evidence and reached its Decision on these issues. In its Reconsideration Application, Plateau appears to be re-arguing these issues. Section 45 of the Pipeline Act states that:
12 Equal tolls to be charged 45 All tolls must be just and reasonable, and must always, under substantially similar circumstances and conditions with respect to all traffic of the same description carried over the same route, be charged equally to all persons at the same rate. The Commission is of the view that it has correctly applied the regulatory principles involved in setting just and reasonable tolls pursuant to Section 45 of the Pipeline Act on the basis of the evidence at the Hearing. The Commission has found no grounds for Plateau s assertion that the Commission has committed an error in law in determining just and reasonable rates for the Western System within the meaning of the Pipeline Act. The comments in the Decision about the competitiveness of approved tolls relate to confirmation of the economic viability of the pipeline and do not indicate any misdirection of the Commission. Plateau s arguments for reconsideration on this issue do not represent a fundamental change in circumstance or facts since the Decision, a basic principle that had not been raised in the original proceeding or a new principle that has arisen as a result of the Decision. The Commission finds that Plateau has not presented a prima facie argument for reconsideration on the setting of just and reasonable tolls for September 7, 2000 to December 31, 2001. 4.3 Jurisdiction of the Commission relative to the OGC 4.3.1 Plateau s Position Plateau states that the Commission reached conclusions concerning safety and technical matters relating to pipelines that are within the exclusive jurisdiction of the OGC. In Plateau s view, the Commission made the following three errors: The Commission s conclusion that it is the first priority for Plateau to hydrostatically retest the southern section of the pipeline and then return it to service is a technical decision that should properly be made by the OGC. The Commission s determination that a properly designed hydrostatic test would have resolved concerns about operating pressures in excess of the certified maximum relates to a matter that is within the jurisdiction of the OGC, and it is not known whether the OGC would have agreed with the Commission s conclusion. The Commission exceeded its jurisdiction in finding that slack line flow was of insufficient concern to justify Plateau s decision to not resume operation of the southern section of the pipeline. Plateau also stated that, even if the determination was within the Commission s jurisdiction, it was an error given the effect of slack line flow on the SCADA leak detection system, ramifications resulting from the Pine River spill and the proximity of the slack line section to the Thompson River.
13 In addition to the jurisdictional issues raised by Plateau, Plateau asserts it could not have resumed operations on the southern section by December 1, 2000. Plateau submits: That the Commission erred in law by failing to properly consider Plateau s civil and statutory obligations to operate the pipeline in an environmentally safe manner, and prevent spillage. Plateau notes that the fact that Plateau is still under investigation by Environment Canada was not reflected in the Decision, and that Plateau s concern about the possibility of another spill and the ensuing civil liability was not given sufficient weight. That common carrier obligations are relative rather than absolute, that a pipeline operator is not required to continue operating when it has serious safety concerns and that the Commission did not give sufficient weight to these concerns and in particular to the final Canspec Report which became available to Plateau on January 26, 2001. That the Commission did not consider evidence that shippers opposed the upgrades and did not give proper consideration to concerns about Plateau s ability to recover the cost of resuming service. 4.3.2 Intervenors Replies Chevron submits that the Commission s conclusion regarding hydrotesting, which Plateau/Pembina are in agreement with, was not a jurisdictional error. The determination that a properly designed hydrostatic test would have resolved concerns about operating at pressures in excess of the certified maximum is the opinion of the Commission, and Plateau/Pembina could have used a successful test to request a higher certified maximum pressure from the OGC. Chevron also argues that the determination regarding slack flow is neither a jurisdictional error nor an overriding error ; Plateau/Pembina simply disagree with the merits of the Commission s conclusion. With regard to the determination that Plateau could have resumed operation by December 1, 2000, Chevron states that Plateau/Pembina are taking issue with the weight given certain evidence by the Commission, and that the weight to be given to evidence is a matter within the discretion of the Commission. Furthermore, the authority to determine when a pipeline operator is to be relieved of its common carrier obligation is within the exclusive prerogative of the Commission. Husky observes that the Pipeline Act provides that a common carrier must provide service unless the Commission allows it to withhold service, and that the Commission may order a common carrier to upgrade or expand its pipeline in order to provide service. Husky notes that Pembina testified it would not provide service until improvements were made to the Western System, and that it would not make the improvements until it received a toll decision that was acceptable to its Board of Directors. Husky states that the Commission accepted the need for improvements and established tolls that, in the opinion of the Commission, would fairly compensate Pembina for its investment, and ordered Pembina to proceed with its
14 program to test and upgrade its pipeline so as to ensure that service would be provided. Husky considers that the Commission s determinations fully respect the jurisdiction of the OGC to review and approve plans for the testing and upgrades. Husky states that it is inconsistent for Pembina to argue that the Commission did not have jurisdiction to act on the technical and engineering evidence proffered by Pembina. Husky also argues that, in the absence of evidence that the measures described by the Commission have been rejected by the OGC, there is no basis for asserting that the Commission has usurped the authority or jurisdiction of the OGC. Husky also opposes a review of the Commission s factual finding that operation of the southern sections could have resumed by December 1, 2000. In Husky s view, none of the four errors that Pembina alleged are new and no new evidence was presented, so this is a case of Pembina disagreeing with the Commission s conclusions. CAPP states that Plateau failed to establish that the Commission made an error in fact of law. The Commission issued orders in the exercise of its jurisdiction over services and rates, and the issue of providing adequate service was well defined in the proceeding. Calpine submits that the errors of law alleged by Plateau are matters that were canvassed extensively in the Hearing. 4.3.3 Plateau s Response Plateau states it had not tendered engineering evidence, but that it believes that raising safety and integrity concerns in the proceeding was proper, and did not usurp the OGC s jurisdiction. However, it rejects an interpretation that, unless the OGC has determined an engineering matter, it is open to the Commission to make the decision. Plateau asserts that the Commission conclusion that the concern about exceeding maximum certified pressure could have been resolved by December 1, 2000 was based on assumptions that are without foundation. Furthermore, Plateau does not accept that operation of the northern section of the pipeline with slack flow for a brief period was any precedent with respect to the southern section. 4.3.4 Commission Determination In addition to its jurisdiction for approving tolls, the Pipeline Act provides the Commission with the following authority:
15 Duty of common carrier 42 Subject to exceptions or conditions the British Columbia Utilities Commission approves, a common carrier must, according to its powers, without delay and with due care and diligence, receive, transport and deliver all oil offered for transportation by means of its company pipeline. B.C. Utilities Commission power 43 The British Columbia Utilities Commission may require a common carrier to provide adequate and suitable facilities for receiving, transporting and delivering all oil offered for transportation by means of its company pipeline, and adequate and suitable facilities for storage of oil at the junction of its line with other pipelines. In Item 22 of its Response, Plateau interprets Section 43 as: BCUC may order a common carrier to upgrade or expand its pipeline in order to provide service, as distinct from approving the precise facilities necessary to provide that service. Although it uses the phrase and then return it to service in Item 25 of its Reconsideration Application, Plateau does not argue that the Commission acted outside its jurisdiction when it made the directions to Plateau on pages 67 and 68 of the Decision. Plateau s July 26, August 31, and September 30, 2001 filings related to its Hydrostatic Test Program and Action Plan with the OGC for that agency s review and approval are consistent with the directions in the Decision. The issue whether the Commission exceeded its jurisdiction, relative to that of the OGC, relates to determinations leading to the conclusion that operation of the southern section could have resumed by December 1, 2000. Whether Plateau s decision to not resume operation of the southern section of the Western System was justified, and when operations would have resumed if the operator had proceeded in a timely and expeditious fashion, were key cost and revenue considerations to the determination of pipeline tolls for 2000 and 2001. To the extent that the Commission approved the delay in returning the pipeline to service as an exception to the obligation of the common carrier to provide service, it was reasonable that subsequent tolls include the revenue foregone while the pipeline was out of service. To the extent the pipeline was out of service without Commission approval of an exception to providing service, the Commission found that shippers should not be responsible for lost revenue. As set out in the Decision at pages 23 and 24: Any OGC determination that a pipeline must be shut down or restricted in its operations, takes precedence over the obligation of a common carrier pipeline to provide service. Similarly, a determination by the OGC that a system upgrade or other improvement is needed will be justification for recovering the expenditure in rates, provided the work is carried out in a responsible and prudent fashion. In its Response, Plateau acknowledges that the filing and hearing of its toll application preceded review of certain matters related to the safe operation of the Western System by the OGC. The OGC s August 23, 2000 letter (Exhibit 10) permitted Plateau to operate the pipeline, subject to certain conditions, and provided
16 that Plateau could apply for modification of these conditions. Filing of the Canspec Report and the identification of slack line flow conditions did not, to the knowledge of the Commission, cause the OGC to vary the approvals set out in the August 23 rd letter. In this circumstance, it was necessary for the Commission to reach conclusions about matters that were essential for the setting of tolls, including a forecast of the cost of upgrades to the system and an estimate of when the southern section could have been returned to service. Plateau argues that it was proper for it to raise concerns about safety and integrity in the proceeding before the Commission. It is inconsistent to then argue that, after these concerns were discussed in the Hearing, the Commission did not have jurisdiction to make determinations as to whether the concerns justify approval of an exception to the obligation to provide service. The Commission needed to make determinations on technical matters in order to approve or disallow an exception to the obligation to provide service for the purpose of toll setting. The Commission recognizes that determinations of the OGC take precedence on matters related to safety. The Commission finds that the request for a reconsideration on the basis that the Commission erred in law and usurped the jurisdiction of the OGC, is not substantiated. Having found that the Commission had jurisdiction to make the determinations it made for the purpose of toll setting, the question remains whether the Commission erred when it found that the southern section could have been returned to service by December 1, 2000. Each of the matters identified by Plateau was discussed at length in the proceeding. In particular, the record contains several references to the investigation by Environment Canada (Exhibit 1, Tab 2, p. 3; T1: 81), Environment Canada appeared at the Hearing and Plateau referred to the ongoing investigation in its Argument at page 14. Plateau identifies no specific error of fact made by the Commission in coming to its conclusions, and provides no new fact or materially changed circumstance regarding this matter in its Reconsideration Application. Moreover, Plateau does not identify any principle that the Commission overlooked, or a new principle that has subsequently arisen. The Commission considered fully and weighed carefully the evidence before it in arriving at its determination of appropriate tolls for 2000 and 2001. This is the Commission s duty, even though Plateau may not agree with the Commission s conclusion. In the absence of material new evidence, no useful purpose would be served by requiring the parties to re-argue this matter.
17 The Commission finds that the request for reconsideration on the basis that the Commission erred when it determined that operation of the southern section could have resumed by December 1, 2000, is not substantiated. 4.4. Clerical Errors 4.4.1 Plateau s Position Plateau considers that the BCUC made two clerical errors in the calculation of tolls for 2000 and 2001 and in the determination of closing balances of gross plant and accumulated depreciation shown on page 38, Table 4-1 of the Decision. The first alleged error relates to the 1994 opening net plant assets balance of $1.301 million (Exhibit 1C, IR1.10) that was used by the BCUC in Table 4-1 and in the toll calculations, instead of net plant assets of $1.607 million (Exhibit 1C, IR1.1). Plateau summarized the impact of the requested changes on rate base and tolls for 2000 and 2001 in Appendix A to the Reconsideration Application. Adjustment for this alleged error would decrease the opening 1994 accumulated depreciation account balance by $0.306 million, from $42.210 million to $41.904 million. The second alleged error results from the BCUC disallowing the revaluation of plant assets to $10.785 million as the opening asset value in 1995 but continuing to apply depreciation on that sum as a deduction from rate base. Adjustment for this alleged error would result in depreciation at 5 percent per year on net plant in the year following additions. Plateau calculated accumulated depreciation at December 31, 2000 of $42.875 million instead of $45.459 million shown in the Decision, Appendix A, page 2. 4.4.2 Intervenors Replies Husky agrees that depreciation expense on the purchase premium should not have been deducted from rate base. CAPP considers that the BCUC may have made an incorrect calculation of accumulated depreciation. Calpine states that if Plateau s position is correct, the BCUC can review the Decision but no new evidence would be required. 4.4.3 Commission Determination The Commission based its calculation of net plant assets and depreciation expense from January 1, 1994 to September 6, 2000 on information provided by Plateau. The Commission noted that the amounts reported for gross plant and accumulated depreciation as of January 1, 1994 were significantly different in Exhibit 1C, IR1.1 and IR1.10.
18 In Exhibit 1C, IR1.10, the gross plant was reported as an original cost of $43.511 million and accumulated depreciation of $42.210 million for a net value of $1.301 million as of January 1, 1994. In Exhibit 1C, IR1.1, Plateau reported a 1993 closing gross plant cost of $2.875 million and closing accumulated depreciation of $1.267 million for a net asset value of $1.607 million as of December 31, 1993 based on a report prepared by Numac Energy Inc. ( Numac ), a previous owner of the Western System. A conflicting statement was made in Exhibit 1D, page 15, where Plateau confirmed that the historical costs reported by Numac in 1993 were $43.5 million as set out in Exhibit 1C, IR1.10. The plant assets in Exhibit 1C, IR1.1 were grouped by asset category and Plateau explained that they excluded a cost for the pipeline. A breakdown by asset category was not provided for the gross plant in Exhibit 1C, IR1.10 but Plateau stated that the amounts were drawn from Numac s general ledger (T4: 688-690). Based on the filed evidence and testimony, the Commission considers that the plant values shown in Exhibit 1C, IR1.1 were likely incomplete and no prima facie case exists to adjust the 1994 opening net plant values. If Plateau is able to provide evidence that the amounts shown in Exhibit 1C, IR1.1 properly reflect the 1993 closing net plant assets, the Commission would be prepared to adjust the plant values and toll calculations accordingly. The second alleged error relates to depreciation charged under the 1995 to 1999 incentive toll agreement that was filed by Federated on May 24, 1995 and approved by Commission Order No. P-5-95. Federated s application and the summary of key principles of the incentive toll agreement did not specify a rate base valuation. In that filing, Federated requested that the Commission Confirm that it would accept Federated s future financial filings in a format consistent with the new incentive tolling methodology agreed to between Federated and its key shippers on the Taylor to Kamloops pipeline. Plateau also included letters of support to the incentive toll agreement that were provided to Federated in 1995 from its key shippers of Imperial Oil, Chevron, Home Oil Company Limited and Husky (Exhibit 1D, IR 9). The Commission in Order No. P-5-95 recognized that a majority of shippers agreed to the incentive tolling methodology and the future financial filings. The Commission did not perform a review of the incentive toll agreement and by Order No. P-5-95 provided Federated with its requested confirmation about the acceptance of future financial filings. The incentive toll agreement was extended to the period from January 1, 2000 to September 6, 2000 by Commission Orders No. P-3-00 and P-6-00. Plateau reported the same depreciation expense by year from 1994 to 2000 when plant assets were recorded on a historical cost basis (Exhibit 1C, IR1.10) and under the incentive toll agreement (Exhibit 1C, IR1.2). In Exhibit 1D, page 14, Plateau stated that from 1995 to September 7, 2000 accumulated depreciation of $3.433 million had been deducted from the original cost of these assets and would have