Kinder Morgan’s $136 million pipeline ‘war chest’ to be paid by Canadians
“The decision to enable this unfair advantage is unprecedented. The approach has been rejected out of hand by US regulators,” said economist Robyn Allan.
Jenny Uechi, Vancouver Observer,July 1, 2014
In what an economist calls an “unprecedented” decision, the National Energy Board has allowed Kinder Morgan to build up a $136 million ‘war chest’ to fund its Trans Mountain pipeline expansion application through shipping surcharges. The charge, called a “firm service fee”, allows Texas-based pipeline company Kinder Morgan to offload the cost of the pipeline application to Canadians.
“The decision to enable this unfair advantage is unprecedented. The approach has been rejected out of hand by US regulators,” said Robyn Allan, an independent economist and former CEO of ICBC, who outlined the finding in her report.
The NEB’s ruling — made back in 2011 — grants Kinder Morgan permission to start charging a firm service fee of $1.45 for every barrel of oil shipped from its Burnaby facility. When these fees are incurred by Canada-based shippers, they reduce Kinder Morgan’s taxes payable. As a result, Allan wrote, “it is Canadians who are helping to finance Kinder Morgan’s expansion plans through foregone tax revenue, not Kinder Morgan’s shareholders, which is the normal course of business practice”.
The controversial pipeline expansion proposes to twin the existing 60-year-old Trans Mountain pipeline and triple the current flow of bitumen from Alberta to Burnaby. The expansion, if approved, would increase pipeline capacity to carry 890,000 barrels of diluted bitumen, and boost oil tanker traffic more than five-fold from around 60 to 408 tankers a year in the Burrard Inlet.
“No risk” to Kinder Morgan
“The NEB has allowed a situation where Kinder Morgan’s shareholders bear no risk or cost in advancing its (Trans Mountain expansion) Application,” Allan said.
She noted that Kinder Morgan Canada President Ian Anderson said in 2013 that even if Trans Mountain pipeline expansion plans fall through, “all of the development costs are being covered by the firm service fees that we are collecting, so there is no risk to us.”
Kinder Morgan spokesperson Andy Galarnyk wrote in an email to the Globe and Mail:
“Development of a project such as the Trans Mountain expansion entails significant study and environmental and engineering work such that Kinder Morgan and its customers are collectively sharing the development cost risk for the project.”
But the response, Allan said, is inconsistent with what Anderson said under oath during a cross-examination on February 12, 2013. When questioned by Suncor lawyer Bernard Roth, Anderson agreed that all costs were being covered by the additional fee on shipping and not Kinder Morgan.
“It’s a basic tenant of capitalism — when a company wants to undertake a big project, shareholders incur the risk, and they reap the benefits,” Allan said. “But Kinder Morgan wants all the rewards, and none of the risk.”
In the NEB hearing in Calgary on the Trans Mountain pipeline in August 2011, Dr. J. Stephen Gaske of Chevron emphasized what an unusual decision this was for the NEB:
“Essentially, this idea that shippers should finance — be the ones putting up the finance money for new projects I think is an extraordinarily large step for a regulator to take.
The way things have traditionally worked, and worked well, is that if Kinder Morgan or Trans Mountain does not have enough equity capital to do an expansion, they could look for additional equity investors….”
He noted that Enbridge had made a similar request to regulators before, and U.S. regulators “handily rejected” it.
But critics say the NEB is doing more to assist the proponents than the intervenors, many of whom are citizens without access to large funds, living near the pipeline right-of-way. Currently, the NEB has set aside some funds to help intervenors, but the amount is dwarfed by Kinder Morgan’s $136 million.
“This is shocking and unfair,” said Burnaby Mayor and intervenor Derek Corrigan, who has been a vocal opponent of the project. “The NEB has authorized only $1.5 million dollars for all other intervenors. How fair is that?”
Last month, the NEB turned down the applications of eight Fort Langley landowners living along the pipeline route, who applied for a grant to help finance studies of the pipeline’s impacts on their property.
Corporate culture of ‘systemic risk’
In addition to this latest finding, Allan also found that Kinder Morgan’s application was using oil spill cleanup costs was referencing a 2004 study the U.S. Environmental Protection Agency had thrown out as bad science. The City of Burnaby reported earlier this month that Kinder Morgan had claimed in its application that it had already applied for permits to access Burnaby conservation areas, when it in fact had not done so.
“What we call this in the insurance industry is systemic risk — every catastrophic or major event, major accident, usually has a series of mistakes,” Allan said.
“What I’m finding out about Kinder Morgan is that they’re suffering from a corporate culture of systemic risk. When you find out something and you dig deeper, you find it’s still not clarified and they still don’t give you the right answer.”