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Negotiated Settlements and Just and Reasonable Rates

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On January 9, 2019

In Energy, Oil & Gas

By: Nigel Bankes

PDF Version: Negotiated Settlements and Just and Reasonable Rates

Decision Commented On: National Energy Board, TransCanada Pipelines Limited (TransCanada) Application for Approval of 2018 to 2020 Mainline Tolls RH-001-2018, Reasons for Decision, December 13, 2018

This is the most recent decision in a string of decisions from the National Energy Board (NEB) over the last five years dealing with TransCanada PipeLines (TCPL) as TCPL and the NEB seek to grapple with the dramatic changes that have occurred in North American natural gas markets over this period, and more specifically how these changes pose the risk of stranded assets and as such threaten to affect the viability of one of the NEB’s most important regulated  pipelines: TCPL and TCPL’s mainline (or at least elements of that mainline). Perhaps the most dramatic of these changes is the increased availability of shale gas supplies, and specifically shale gas supplies from basins much closer to TCPL’s traditional markets than the Western Canadian Sedimentary Basin (WCSB), TCPL’s main source of gas.

What is interesting about these decisions, including this most recent decision, is the interplay or tension between the NEB’s statutory authority to establish just and reasonable rates and the market-based approaches as reflected in negotiated settlements. While the NEB and other regulators seek to encourage negotiated settlements between the regulated entity and its customers, it is plain from this decision that the regulator retains a power of review. While a regulator may be reluctant to exercise that power given that settlements typically involve some give and take, this decision demonstrates that the regulator will not always defer to the paradigm of settlement and contract if it perceives that the results of the settlement depart significantly from fundamental rate-making principles. While this decision happens to deal with TCPL and the NEB, the same interplay is apparent in any jurisdiction that allows for the possibility that a regulated utility may reach a negotiated settlement with some or all customers rather than going through an adversarial rate hearing.

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Market power in the electricity sector prior to the implementation of a capacity market

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On December 18, 2018

In Energy

By: Nigel Bankes

PDF Version: Market power in the electricity sector prior to the implementation of a capacity market

Report commented on: Charles River Associates, Offer Behaviour Guidelines prior to the implementation of a capacity market, Report Prepared for the Market Surveillance Administrator, December 18, 2018

On September 27, 2018, Alberta’s Market Surveillance Administrator (MSA) provided notice that it was starting a process to determine if it needed to adopt guidelines for market participants in the electricity sector in Alberta during the period prior to the implementation of a capacity market. It will be recalled that the MSA had a set of Offer Behaviour Enforcement Guidelines (OBEG) that were in force until withdrawn by the MSA with the announced advent of a capacity market. For an earlier post referring to the development see here and for discussion of the transition to an energy plus capacity market see here.

To initiate this process the MSA retained Charles River Associates (CRA) to address three questions:

  • Could there be a problem with offer behaviour that would need to be addressed during the transition period?
  • If so, could the problem identified be addressed in whole, or in part, through MSA guidelines and what form could those guidelines take?
  • If guidelines were made and market participants did not follow those guidelines what remedies should the MSA seek from the Alberta Utilities Commission (“Commission”) in an enforcement proceeding?

The MSA has now received that report and this post summarizes some of its key findings.

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The Duty of a Regulated Pipeline to Provide Facilities

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On December 17, 2018

In Energy

By: Nigel Bankes

PDF Version: The Duty of a Regulated Pipeline to Provide Facilities

Case Commented On: National Energy Board, Letter Decision, 4 December 2018, Nipigon LNG Corporation (NLNG) Application pursuant to Section 12, Section 13, Section 59, Subsection 71(2), Subsection 71(3) and Part IV of the National Energy Board Act (NEB Act) in respect of TransCanada PipeLines Limited (TransCanada) and the TransCanada Mainline pipeline system (the TransCanada Mainline).

Public utility statutes typically require a public utility to provide service on a non-discriminatory basis to persons within its exclusive franchise area. This is also the common law duty of a common carrier. But what if a regulated utility does not have a franchise area (e.g. TransCanada PipeLines, see for example the comments of the National Energy Board in its TCPL Restructuring Decision RH-003-2011, at 38); and what if the utility is not a common carrier (e.g. a federally regulated natural gas pipeline)?

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Food for thought: Judgment of the European Court of Justice on Capacity Market Issues

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On November 21, 2018

In Energy

By: Nigel Bankes

PDF Version: Food for thought: Judgment of the European Court of Justice on Capacity Market Issues

Case Commented On: Tempus Energy Ltd v European Commission, Judgment of the General Court (Third Chamber, Extended Composition), 15 November 2018, Case T-793/14.

Those engaged in the challenging job of designing a capacity market for Alberta’s electricity sector might be interested in this recent judgment of the European Court of Justice in which the Court concluded that the European Commission (EC) had been too hasty in approving the design of the UK’s proposed capacity market. The case arises in the particular context of the primary law of the European Union (EU), the Treaty on the Functioning of the European Union and specifically that treaty’s provisions on “State aid” – better known to the rest of the world as unlawful state subsidies. The UK’s proposed capacity market had to be notified to the EC for its approval because a capacity market, despite the “market” label, represents a departure from a “purer” version of an electricity market (an energy only market). A capacity market involves a degree of central planning (estimating the required capacity) and then “out of market” payments to those who post winning bids to provide that capacity. See my earlier post on Alberta’s capacity market legislation here.

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A Vesting Order Cannot Create Title

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On September 18, 2018

In Energy, Property

By: Nigel Bankes

PDF Version: A Vesting Order Cannot Create Title

Case Commented On: Quicksilver Resources Canada Inc (Re), 2018 ABQB 653

Quicksilver Resources (QRCI) owned oil and gas assets and associated infrastructure in the Horn River basin. In 2011, QRCI joined the Fortune Creek Partnership (FCP) and agreed, by way of a Contribution Agreement, to contribute certain infrastructure assets to the FCP. Those assets were described as follows:

The “Assets” are set forth on Exhibit 1 (Maxhamish Pipeline), Exhibit 2 (Compression Assets) and shall include the following:

(a)   all permits, licenses, authorizations, surface rights (including easements, licenses of occupation and rights-of-way), and buildings, structures, appurtenances and tangible depreciable property situate thereon that are used or useful in connection with the operation of the Maxhamish Pipeline; but

(b)   specifically exclude any rights or interests in or relating to petroleum or natural gas or the production thereof, or in wells or wellsite facilities, or in the operation of the foregoing. [The emphasis is supplied by Justice Jones.]

The FCP became insolvent in 2016 and MNP was appointed as Trustee in Bankruptcy. QRCI and its subsidiaries followed FCP into insolvency and obtained protection under the Companies Creditors Arrangement Act, R.S.C. 1985, c C-36 (“CCAA”) and a stay of proceedings. FTI Consulting was appointed as the Monitor of QRCI.

In March 2016 QRCI entered into an Asset Purchase Agreement (APA) with Rockyview Resources Inc (RRI). Under the CCAA, the APA required the approval of the Court and that approval was granted in the ordinary course in April 2016 in the form of an Approval and Vesting Order.

A dispute then arose as to whether certain infrastructure assets were included in the APA. These “disputed assets” are described as follows:

  1. a metering station and building (the “Metering Station”) located at the downstream or outlet end of the Maxhamish Pipeline, the location being legally described as a-59-A/094-O-14 in the Province of British Columbia;
  2. a pig receiving station (the “Pig Receiver”) at the same location; and,
  3. a BC Oil and Gas Commission (“OGC”) Facility License for the Metering Station (the “Metering Station License”).

QRCI sought a declaration to the effect that RRI had no interest in the disputed assets.

There were three issues to resolve: (1) were the disputed assets covered by the partnership Contribution Agreement such that QRCI could not have sold them to RRI; (2) were the disputed assets included in the APA, and (3) did the Approval and Vesting Order give title of the disputed assets to RRI notwithstanding the conclusions to the first two questions.

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