NEB Abandonment Cost Estimates: Will there be enough money?

The National Energy Board released its decision in the Pipeline Abandonment Cost Estimates proceeding yesterday (click here).  An oral public hearing was held in Calgary last October and November.  For pipeline landowners, the key ruling by the NEB was its finding that basing cost estimates on an assumption of zero removal of pipelines in agricultural lands was unreasonable.  The NEB has already decided that companies must begin collecting tolls now to cover the future costs of pipeline abandonment; the question is how much is to be collected.  Companies argued that the amounts should be based on the assumption that nearly all pipelines in agricultural lands should be abandoned in place.  Not surprisingly, this was oppposed by pipeline landowners.

In an earlier hearing, the NEB had rejected the landowner proposal for a 100% removal assumption for all medium and large diameter pipelines in agricultural lands.  Instead, the NEB created a "base case" assumption calling for 20% removal and 80% perpetual maintenance, though giving companies the opportunity to provide justifications for a departure from this base case.  In its most recent decision, the NEB found that the companies had failed to justify their proposed departures from the base case and ordered that abandonment funding amounts be set based on the 80/20 split:

The Applicants have not successfully justified their deviation from the Base Case assumption for medium and large diameter pipe in these two land-use sub-categories. During the course of the MH-001-2012 hearing, all Applicants made submissions to the Board as to why the Base Case assumptions of 80 per cent abandonment-in-place and 20 per cent removal should not be imposed. The Board considered these comments but does not find them convincing. In addition, the Board also considered Applicants’ responses to a Board request made during the course of the hearing. Applicants were asked to provide recalculated cost estimates for three theoretical scenarios – 10, 20 and 30 per cent removal on "Agricultural, Cultivated" and "Agricultural, Cultivated and Non-Cultivated" sub-categories, using their own methodologies. Finally, the Board considered the issues described above regarding easement agreements, landowner surveys, and the lack of provision for any site-specific issues that may necessitate removal. The Board has exercised its judgment in determining a reasonable assumption for medium and large diameter pipelines in the "Agricultural, Cultivated" and "Agricultural, Non-Cultivated" sub-categories. In the Board’s view, 20 per cent removal for medium and large diameter pipe in these land-use sub-categories is a reasonable, prudent and adequate starting point for estimating purposes.

For the landowners and landowner groups who participated in the hearing process (at their own cost, given that there is no mechanism for cost recovery in the NEB hearing process and no participant funding available), this decision is a victory.  However, it remains to be seen whether the 80/20 split and the companies' actual estimates of abandonment costs will be sufficient to protect landowners from the costs of pipeline abandonment in the future.  The positions taken by the pipeline companies in the proceeding demonstrate that they will likely do everything in their power to avoid having to remove their abandoned pipelines from the ground.