Ontario Energy Board says landowners should have right to decide on removal of abandoned pipelines

In its decision last week approving (with conditions) Union Gas' Hamilton to Milton NPS 48 pipeline project, the Ontario Energy Board ("OEB") filled a number of gaping holes in Ontario's pipeline abandonment regime.  As noted by the Gas Pipeline Landowners of Ontario ("GAPLO") in its submissions to the OEB, Ontario has virtually no rules or regulations to deal with the abandonment of provincially-regulated pipelines.  Decisions about how a pipeline will be abandoned (mainly, whether it will be removed from the ground or abandoned in place) are left to the pipeline company, with no public approval process or public hearing process in place.

GAPLO requested that the OEB require Union Gas to offer affected landowners a form of easement agreement that includes a landowner option for removal of the pipeline upon abandonment.  As part of its project approval function under the Ontario Energy Board Act, the OEB must approve the form of easement agreement to be offered by a company to affected landowners.  In its recent decision, the OEB accepted GAPLO's position and ordered Union to offer an easement agreement that includes the landowner option for pipeline removal on abandonment.

The following are excerpts from the OEB's reasons related to this issue:

The overriding consideration for the OEB is the control the landowner should have with
respect to how the land is to be treated upon pipeline abandonment. The OEB heard
evidence from Union that leaving an abandoned pipeline in place would be less
disruptive to the land than removing it. The OEB also heard evidence from GAPLO that
this might be true over the short term, but that over the longer term impacts such as
subsidence could be more disruptive if the pipeline were not removed. GAPLO
witnesses testified that for agricultural land the condition of the land is fundamental.
Their testimony indicated that this is not just a question of a farmer’s passion for the
land; it is that the condition of the land is fundamental to the farmer’s livelihood.

The OEB finds that the landowner should have the right to decide whether an
abandoned pipeline should be physically removed from the ground or dealt with through
whatever other means of abandonment may be proposed by Union. Once construction of a pipeline on a piece of property is approved, the landowner is giving up certain rights to Union, as a distribution utility, in the public interest. However, should that pipeline no longer be needed, the landowner should be able to make the fundamental decision about how the land is to be restored.

This is not a debate about deciding in advance what should be done with a pipeline that
is abandoned at a point potentially decades from now. The issue is who should make
the decision at that time. [emphasis added]

Read the full decision at: Union Gas Dawn to Parkway.

NOVA/TransCanada withdraws application to "decommission" 266 km line

In August, 2012, NOVA Gas Transmission Ltd. (part of TransCanada Pipelines) applied to the National Energy Board (NEB) for permission to "decommission" a 266-km stretch of pipeline.  Essentially, the application would see the abandonment of the line in place, but NOVA contended that it was "decommissioning" the line because service on its "pipeline" would continue.  The NEB disagreed and directed that it would consider the application as one to abandon a pipeline.

On February 8, 2013, NOVA wrote to the NEB to withdraw its application, saying that it was reviewing its proposal in light of the NEB's comments: February 8, 2013.  The NEB confirmed this development in its letter to NOVA dated February 25, 2013.

Landowners should keep an eye on these developments.  It appears that pipeline companies are taking the position that, as long as they continue to transport materials somewhere on their pipeline systems, none of their abandonments are actually "abandonments" within the meaning of the NEB Act.  Instead, the companies will suggest that they are "decommissioning" pipelines, depriving landowners and other interested parties from public hearings, participant funding, etc.

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. 

NEB issues Hearing Order for Pipeline Abandonment Costs Estimates

The National Energy Board (NEB) has issued a Hearing Order in the LMCI Stream 3 proceeding dealing with pipeline abandonment cost estimates.  An oral hearing will be convened to consider the reasonableness of the costs estimates presented by each Group 1 company (including Enbridge, TransCanada, etc.)  The following timetable of events is included in the NEB's Order:

Although landowners and other interested parties will be able to participate as intervenors, no participant funding is being made available. 

Read the Hearing Order at: MH-001-2012.

Who owns abandoned pipelines?

A few years back, David Howell, Senior Right-of-Way Agent, International Right-of-Way Association, Houston, TX, wrote a frightening article about landowners and the ownership of abandoned pipelines.  Howell had received a call from a Texas landowner who was facing a $51,000 cost to remove 300 metres of abandoned oil pipeline from his property to allow for development.  The company has walked away from the line, but retained ownership and refused to allow Howell to hire his own contractor to remove the pipe at a cost of no more than $1,500.  Of course, the $1,500 quote was based on an assumption that the company had properly purged the line of contaminants, etc. 

Many landowners are worried about the day when they will become responsible for abandoned pipelines on their properties.  However, what happens when the pipeline company walks away (i.e. ceases operations and escapes any regulatory control), but retains ownership?

Read Howell's article at: Who owns abandoned pipelines?

NEB posts summary of abandonment estimates filed by pipeline companies

The National Energy Board has posted a "Summary of Group 1 Companies Physical Information Filed", setting out data related to the mode of pipeline abandonment proposed by Group 1 companies (large pipeline systems) that filed cost estimates with the NEB.  The chart provided juxtaposes the total km contained in pipeline systems against the km of pipeline that companies propose to remove upon abandonment.  The contrast is pretty striking.  At least in agricultural areas, companies propose to remove almost no pipe.  CAEPLA had proposed that cost estimates should be based on a conservative assumption of 100% removal.  Even the NEB had proposed 20% removal as the assumption to be used.  The pipeline industry obviously disagreed. 

TransCanada plans removal of 5.6% of 14,000 km of pipelines on abandonment

TransCanada Pipelines Limited has also submitted its application to the NEB for approval of its abandonment costs estimates.  TCPL has over 14,000 km of pipelines in Canada (not including the Keystone), more than half of which run through agricultural land.  Of the almost 8,000 km of pipe through agricultural lands, TCPL proposes to remove 1.7% on abandonment.  The rest of the pipe will be left in the ground with no continuing protection going forward. 

Read TransCanada's application at: TransCanada Preliminary Abandonment Costs Estimates. 

Enbridge plans to remove 0.6% of its pipelines on abandonment

Enbridge Pipelines Inc. plans to remove only 0.6% of its nearly 8,000 km of pipelines in Canada at the time of abandonment.  For agricultural land, only lands with "prospective future development" would have pipelines removed.  Pipelines would be abandoned in place in all other agricultural land with no "special treatment" for the pipelines.  This would include pipelines with a diameter of up to 48 inches.  More than 5,000 km of Enbridge pipelines run through cultivated land.   The 0.6% figure contrasts sharply with the 20% number identified by the National Energy Board (NEB) in its abandonment funding documentation.

Enbridge has applied to the NEB for approval of its plan for abandonment funding purposes.  The documents comprising Enbridge's application can be found at: Physical Plans for Abandonment and Preliminary Cost Estimates. 

Enbridge's application includes excerpts from a Praxis Research study conducted for the Canadian Energy Pipeline Association (CEPA).  The study consisted of a landowner survey, and Enbridge says that its abandonment plans took the results of the survey into consideration.  However, more than 50% of respondents with Enbridge pipelines expressed concern about Enbridge pipelines being left in the ground.  Read the study excerpt at: CEPA Landowner Survey.

Pipeline Abandonment Plan foreshadows future for landowners

As part of its application for a project approval from the National Energy Board (NEB), Vantage Pipeline Canada ULC (Vantage) has filed a "Preliminary Project Abandonment Plan and Cost Estimate".  Vantage plans to construct 578 km of 10" pipe through Alberta and Saskatchewan to the North Dakota border.  The terrain through which the pipeline will cross is primarily farmland - either in cultivation or pasture.  For all but 1 km of the proposed route, Vantage says that it will abandon the pipeline in place.

Only lands where there is prospective "future development" will see the pipeline removed from the ground once it has outlived its usefulness to Vantage. 

Previously, the NEB had used an estimate of 20% pipe removal on abandonment as part of the "base case" for calculating future abandonment costs (for the purpose of setting advance abandonment funding).  The 20% figure has obviously been abandoned by pipeline companies and the NEB.  The cost of pipeline removal far outweighs the cost of doing nothing.  Likewise, the cost of advance funding for doing nothing is far cheaper than advance funding for pipeline removal. 

It may be that the preference of some landowners in the future will be to leave pipelines in place rather than to have them removed on abandonment.  However, the decisions being made now by pipeline companies and endorsed by the NEB are likely to limit any choice landowners might have in the future.  Many landowners today probably don't even know that their hands are being tied in this way. 

If the NEB's abandonment funding program is premised on the assumption that pipeline companies will need to do virtually nothing in the future to deal with their obsolete infrastructure, then it is a failure.  The funding will be insufficient to allow for future contingencies, let alone to allow for any landowner choice.

Enbridge to abandon 75 miles of the oil pipeline that contaminated the Kalamazoo River

Noel Griese of the Energy Pipeline News is reporting that Enbridge Energy Partners plans to replace 75 miles of pipeline in Michigan and Indiana related to the July, 2010 spill into the Kalamazoo River.  The Michigan Public Service Commission will be holding public hearings into the proposal, beginning with a pre-hearing conference on September 21.  Read Griese's article at: Energy Pipeline News.

The original announcement was made on May 12 in Houston:

HOUSTON, TX, May 12, 2011 (MARKETWIRE via COMTEX) --

Enbridge Energy Partners, L.P. (NYSE: EEP) (the "Partnership") today announced additional capital investments to replace portions of its Line 6B pipeline system that spans from Griffith, Indiana, through Michigan to the international border at the St. Clair River. This program will include replacement of approximately 75 miles of the pipeline in various locations in Indiana and Michigan, at an estimated cost of $286 million. These costs will be recovered through the Facilities Surcharge Mechanism ("FSM") that is part of the system-wide rates of the Lakehead system.

Earlier this year, the Partnership completed the replacement of 14 segments, totaling 9,000 feet, of Line 6B in southeastern Michigan and installed a new segment of pipeline under the St. Clair River, which will be operational by late June. This latest investment includes the replacement of five miles of pipeline immediately downstream of two pump stations in Indiana and three pump stations in Michigan as well as replacement of 50 miles of pipeline downstream of the Stockbridge station and delivery terminal northwest of the Detroit metro area. Subject to regulatory approvals, the new segments of pipeline will be installed in 2012 and will be staged to be placed in-service in consultation with, and to minimize impact to, refiners and shippers served by Line 6B crude oil deliveries.

The $286 million expenditures are in addition to the $210 million integrity expenditures on Line 6B recently announced by the Partnership for the year 2011, of which $175 million will be recovered through the FSM.

In actual fact, Enbridge is proposing to construct a new pipeline alongside the existing pipeline in a new 25 foot wide right-of-way.  Enbridge will abandon the existing pipeline in place, saying that this will "minimize additional disturbance along the route".  Enbridge has provided responses on its website to "frequently asked questions" for affected landowners, including questions about construction, disturbance and compensation: Frequently Asked Questions.

PetroBakken Energy seeks to abandon oil pipeline in place

In what is likely to become a more common occurrence, PetroBakken Energy Ltd. has applied to the National Energy Board for permission to abandon one of its pipelines in the ground.  The pipe is 580 metres in length and is connected to an oil well within the Alsask Gathering System, about 30 km east of Oyen, Alberta (it crosses the border with Saskatchewan).  Construction of the line was approved by the NEB in 2003, and the well ceased production in 2009. 

PetroBakken says it has no plans to put the line back into operation and now must either suspend the line, maintaining cathodic protection, or abandon it.  PetroBakken says that maintaining cathodic protection on the line to avoid corrosion is too expensive, so it chooses to attempt to clean the line and then leave it in place.  On the issue of "liability exposure", PetroBakken states in its application to the NEB:

The proposed abandonment of the pipeline segment is largely driven by legal obligation to meet the requirements of NEB regulation, which indicates that PetroBakken must either suspend or abandon any pipeline that has not operated for over 12 months.  Secondarily, but equally, or more importantly, the proposal to abandon is also being done for ethical reasons as the potential for ground contamination by the (unknown) product within the pipeline must be eliminated.  Leaving this potential risk in the ground (for no operational benefit) would be an unjustified environmental liability for PetroBakken, which could be minimized or eliminated by cleaning and abandoning the pipeline segment.

As the volume of contents remaining within the pipeline segment is uncertain, the environmental liability to the organization is unknown.  The cost to abandon is expected to be less than $10k, which is considered minimal when considering the potential environmental liability.

The Saskatchewan land affected by the line is privately owned.  PetroBakken says that it notified the landowner by phone and was told that the proposed abandonment was "fine".  The Alberta land is in a Special Area and is leased to a farmer.  Again, notification of the project was given by phone and the farmer apparently had "no issues".  The lands affected by the pipeline are apparently used for grazing purposes on both sides of the provincial boundary.

At about 1/2 a kilometre in length, this is a short pipeline to be abandoned.  However, it does give some indication of what might be in store for other landowners across the country facing pipeline abandonment in the future.  The NEB has issued a hearing order for the abandonment application, but no funding has been available for participation in the hearing either by directly affected landowners or other concerned parties.  Therefore, anyone wishing to participate in the process will do so at his or her own cost.  Unlike the situation in provincial jurisdictions, the NEB will make no costs award at the end of the process. 

This application demonstrates the failings of the NEB's recent creation of a participant funding program.  It is assumed that no funding has been made available in this case because of the relatively short length of the pipeline involved (participant funding is reserved for "large projects").  However, for the landowners directly involved, the pipeline is quite long enough to cause concern.  How long does a pipeline have to be before directly affected landowners will have access to "participant funding"?  Is the participant funding sufficient in any event to enable landowners to test the appropriateness of the abandonment plan that is being proposed? 

And can we expect moving forward that pipeline companies will choose to abandon small segments of pipeline on a continual basis rather than applying for the abandonment of large pipeline segments so as to avoid the participant funding program?  The NEB has made it quite clear in its previous decisions that it will allow companies to decide how they make their regulatory applications, even where it is clear that the manner in which those applications are made is intended to thwart the ability of landowners to participate in the process.

Read the PetroBakken application at: Abandonment Application.

Read the NEB Hearing Order at: Hearing Order dated September 6, 2011.

Joint Review Panel has asked Enbridge to provide preliminary abandonment plan for Northern Gateway project

The Joint Review Panel (NEB and CEAA) considering the application by Enbridge for the Northern Gateway pipeline project has requested the following information from the proponent on the issue of pipeline abandonment:

Request: a) Please provide a preliminary abandonment plan for the Northern
Gateway Project, including:

a.1) a description of what pipeline components would be removed,
reused or left in place and provide the rationale for doing so. Where site specific situations require special methodology, then details should be provided;

a.2) the reclamation objectives or principles to be applied to abandonment; and

a.3) sufficient information to demonstrate that abandonment of the project will return the right of way to a state comparable with the surrounding environment.

b) Regarding consultation on eventual abandonment with stakeholders including potentially affected landowners and aboriginal groups, and other authorities and agencies, provide:

b.1) a summary of the consultation that has occurred, and

b.2) the strategy and processes for future consultation as the abandonment plan is refined.

c) Provide an estimate in 2010 dollars of the total cost to abandon the system, using Base Case components (as described in reference iv), or other better information available to Northern Gateway. If information other than Base Case components is relied on, provide an explanation as to why that information was used.

d) Explain the source of revenue that Northern Gateway will use to fund this liability. If the source is shipper tolls, provide an estimate of the impact on revenue requirement.

More information on the Northern Gateway Project Joint Review Panel is available at: Review Panel.

Pipeline Companies plan to remove substantially less than 20% of pipelines on abandonment

In the ongoing NEB LMCI process looking at funding for future pipeline abandonment costs, the Canadian Energy Pipeline Association (CEPA), the industry group representing pipeline companies, has told the NEB point-blank that its companies have no intention of removing the 20% of large diameter pipelines proposed by the NEB in its base case:

... in canvassing the NEB Group 1 member companies that are CEPA members, each Group 1 member company is planning on filing a pipeline specific application for each asset as opposed to using the Base Case that was set out by the NEB in its December 21, 2010 Decision. That Decision re-affirmed the abandon-in-place versus removal ratio of 80% and 20% respectively for certain land usage categories.. Based on the principled approach whereby each specific land usage has an associated optimal method of abandonment, most, if not all CEPA member companies will be filing cost estimates that reflect substantially less removal of pipe than would be indicated by the Board’s Base Case Assumptions. CEPA has also heard from Group 2 companies indicating that if Group 1 member companies do not plan on filing with the Base Case assumptions, then it would not be appropriate for them to use the Base Case either. 

Read CEPA's letter at: CEPA to NEB January 12 2011.