30-Day Comment Period on Regulatory Proposal – Canada Energy Regulator Cost Recovery Regulations – Frequently Asked Questions

  1. Are the proposed amendments in the Regulatory Proposal final?
  2. Why would the CER remove fixed levies for small and intermediate oil and gas pipeline companies? Why not just update the fixed levies with a new levy more aligned to the current economic climate every few years in the regulations?
  3. Why would the CER cost recover from small and intermediate oil and gas pipeline companies in the same way as large oil and gas pipeline companies when these large companies have a much higher cost of service and greater regulatory oversight?
  4. Why are there no cost recovery changes to the commodity pipelines and power line companies?
  5. Why would the Regulator change to rate base when cost of service was a suitable threshold for relief?
  6. When will the new cost recovery regulations come into force?

1. Are the proposed amendments in the Regulatory Proposal final?

The purpose of the Proposal is to seek feedback from stakeholders and to evaluate alternative methodologies and approaches to cost recovery should they be submitted during this consultation process. The Regulator will then work with the Department of Justice to draft regulations which will also be pre-published in the Canada Gazette, Part I, for a 30-day comment period.

2. Why would the CER remove fixed levies for small and intermediate oil and gas pipeline companies? Why not just update the fixed levies with a new levy more aligned to the current economic climate every few years in the regulations?

Choosing a metric such as throughput allows the CER to assign levies that results in an equitable allocation to the cost recovery commodity pools.

Adjusting the fixed levies in regulation every few years would be administratively burdensome, and the levies would almost always be outdated in the regulations as the cycle of consultation, updating regulations and seeking internal CER and Treasury Board approval can take years.

3. Why would the CER cost recover from small and intermediate oil and gas pipeline companies in the same way as large oil and gas pipeline companies when these large companies have a much higher cost of service and greater regulatory oversight?

Cost recovering from all oil and gas pipeline companies in the same way creates an equitable, predictable, and robust framework. Some small and intermediate oil and gas pipeline companies have significant amounts of throughput, operate long lengths of pipeline that are comparable to those of large companies and/or operate numerous, shorter CER-regulated pipelines with significant throughputs. However, their reported cost of service classified them as a small or intermediate pipeline company. Under the new proposed regime, if a company is truly a smaller company with minimal length of operating pipeline (10 km and under of total CER-regulated pipeline), they would only be subject to paying 5 per cent of their throughput costs. Companies should be accountable for paying their own cost recovery fees based on the same metric to have an equitable, fair, and balanced cost recovery framework.

4. Why are there no cost recovery changes to the commodity pipelines and power line companies?

Power lines already use transmission as the basis for determining their size and cost recovery, which is analogous to throughput for a pipeline. Given that all CER-regulated power line companies combined pay under 7 per cent of CER costs, keeping the existing methodology makes sense from a flexibility and operational simplicity perspective.

Similar rationale applies to commodity pipelines, whose pipelines are typically associated with production and transport production-associated fluids like effluent, for which they do not typically earn a return. These companies pay approximately 0.03 per cent of CER costs in any given year.

5. Why would the Regulator change to rate base when cost of service was a suitable threshold for relief?

Rate base is a more accurate depiction of the value of the companies regulated, especially those who are vertically integrated, having cross-jurisdictional regulated assets that form one system. Additionally, for those companies who do not have multiple shippers, rate base is easier to calculate and report than cost of service.

6. When will the new cost recovery regulations come into force?

The new regulations will come into force and be enforceable after the regulatory development process has been completed and the regulations are registered and published in Canada Gazette II. The current timeline is approximately 2024.

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