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.

Enbridge Gas Distribution ordered to pay back Metrolinx over $2.3 million in pipeline relocation costs

Enbridge Gas Distribution was recently ordered by the Superior Court of Justice to pay back to Metrolinx more than $2.3 million that Metrolinx had earlier paid Enbridge for pipeline relocation costs.  Metrolinx operates an urban rail transit service in the Greater Toronto Area and required the relocation and/or removal of certain parts of Enbridge's gas distribution system in the vicinity of the rail lines.  The question before the Court in this application was who should bear the costs of relocation and removal.  Metrolinx had paid the costs to Enbridge without prejudice to its right to go to Court to try to recoup them.

Metrolinx referred to crossing agreements that had been made between its predecessor, Canadian National Railway (CN), and Enbridge's predecessor, Consumers Gas, that provided that Enbridge would bear the cost of any relocation or removal.  For instance, a 1958 Agreement and a 1963 Agreement both provided:

Should it become necessary or expedient for the purposes of repair or improvement on the said railway that the said pipe crossing be temporarily removed or relocated the applicant [now Enbridge] shall upon request of the railway and at the sole cost and expense of the applicant forthwith remove or relocate the works.

Enbridge argued that the agreements were not assigned or transferred to Metrolinx and that the agreements related to federally-regulated activities.  Therefore, because Metrolinx was a provincial agency, it could not rely upon the agreements.

The Court disagreed.  It accepted the Metrolinx position that the rights that it claimed and the payment obligations of Enbridge were granted to CN by Consumers Gas as a matter of contract.  Justice Morgan explained:

... like all market transactions, they occurred within a particular regulatory environment, but that fact does not undermine the contractual nature of the rights and obligations in question.  Metrolinx' position accurately reflects the governing documentation and legal state of affairs between the parties.  It may well be the case that the Crossing Agreements were an outgrowth of federal regulations that prevailed at the time of their signing.  Nevertheless they are valid contracts, and remain so whether or not the relevant federal regulations continue to govern either of the parties. 

Read the decision at: Metrolinx v Enbridge Gas Distribution Inc.

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?