Essentials of Cost Recovery at the National Energy Board

Essentials of Cost Recovery at the National Energy Board [PDF 254]

Essentials of Cost Recovery
at the National Energy Board


A. Principles

  • The National Energy Board Act (Sec. 24.1) empowers the NEB to make regulations:
    • imposing charges to recover costs attributable to its responsibilities, and
    • providing for the manner of calculating those charges
  • Specifics are set out in the National Energy Board Cost Recovery Regulations


A. Principles (continued)

  • Recoverable costs is a defined term:

    NEB Operating & Capital costs
    Cost of services provided without charge to the NEB
    “Frontier” costs
    = NEB Recoverable Costs

  • Also not included in recoverable costs
    • cost of work and associated overheads performed on behalf of other departments and agencies under MOUs
    • costs specifically excluded by Treasury Board e.g. Arctic Review


A. Principles (continued)

  • Other
    • For purposes of cost recovery, the fiscal period is the calendar year
    • The Auditor General performs an annual audit of NEB cost recovery financial statements


B. Concepts
Who Pays What?

  • NEB cost recovery applies only to NEB-regulated companies and facilities
  • Cost recovery is premised on commodity charging. This means that costs are allocated to the principal commodities regulated by the NEB before being allocated to specific entities within those sectors
    • Oil - oil pipelines
    • Gas - gas pipelines
    • Electricity - as of 1 January 2010, international and interprovincial power lines (previously electricity exporters)
    • Commodity pipelines (water, steam, CO2) are charged fixed levies


B. Concepts (continued)
Who Pays What?

  • Companies pay their share of recoverable costs in 3 ways:
    • Sec. 5.2 & 5.3 levies which apply to new companies not already regulated by the NEB (sometimes known as “greenfield” levies)
    • Fixed levies (small, intermediate companies and other commodities)
    • Proportional levies (large companies)


The Allocation "Cascade"

Flowchart describing the allocation of costs

Slide 7 description (click to view)

Flowchart describing the allocation of costs.

  • The Total NEB Costs defined by Regulation is divided into Recoverable costs and Non-recoverable costs.
    • These are defined by Regulation and Order of the Board.
  • Recoverable costs are further divided into Commodity Levies and Shared Costs.
    • These are determined by Regulation.
  • Shared costs are then allocated into the Gas Cost Pool, Oil Cost Pool, or Electricity cost Pool according to NEB time spent on these commodities.
  • Fixed levies for small"and intermediate companies as well as section 5.2 and section 5.3 levies are deducted from the relevant commodity cost pool.
  • The amounts remaining in the three commodity cost pools are shared by the large companies in those commodity groups according to the activity levels for each company.


B. Concepts (continued)

  • Allocation Principles
    • Allocation of costs to commodity categories is based on time spent on each commodity - gas, oil, electricity
    • Within each commodity group, costs are shared according to activity levels (throughputs, transmissions)


C. Process

1. Obtain relevant company operating data (August 31)

  • Throughputs, power line transmissions, cost of service
    • actuals for previous year(s)
    • forecasts for next year


C. Process (continued)

2. Determine estimate of next year’s recoverable costs for NEB

  • obtain NEB budgets for current and next fiscal years
  • adjust fiscal years to calculate estimated budget for next calendar year
  • calculate estimate of recoverable costs for next calendar year


C. Process (continued)

3. Obtain audited results for previous calendar year

4. Calculate difference between previous year’s estimated costs and audited actual costs

5. Determine adjustment (if any) for each company

6. Calculate estimated billing for each company for the coming year - adjusted for differences determined in Step 5


C. Process (continued)

7. Issue information package with preliminary estimated billing information (September 30)

8. Receive applications for relief under Sec. 4.1 (September 30)

9. Issue (December 31) final estimated billing for coming year reflecting:

  • adjustments arising from differences between estimates and actuals from preceding year
  • reallocations arising from approved applications for relief


C. Process (continued)

10. During the next year, issue quarterly invoices to large companies and single invoice at mid-year to small"and intermediate companies based on estimated fees.


Process Summary

NEB - costs and time allocation
Company troughputs - forecasts
Actual Results from previous years - NEB and companies

Create & issue preliminary billing forecast

Receive, review & approve applications for relief under Sec. 4.1

Issue adjusted billing forecast



Cost Recovery Estimated Billing Process

Flowchart describing Cost Recovery Estimated Billing Process

Slide 15 description (click to view)

Flowchart describing the Estimated Billing Process

  • There are two main activities: Calculating actual for previous year and Preparing estimate for next year
  • Preparing estimates for next year:
    • Companies provide relevant operational and financial data and NEB estimates recoverable costs
    • NEB calculates & issues preliminary billing estimate
    • NEB receives & decides on applications for relief
    • NEB issues final billing estimate
  • Calculating actuals for previous year:
    • AG audits actual results from preceding year and certifies NEB recoverable costs
    • NEB calculates actual costs for previous year and determines differences between previous year estimates and previous year actuals
    • Difference between estimates and actuals included as an adjustment in billing estimate for next year


D. Other

  • Cost Recovery Liaison Committee
    • Formal/informal in nature - initiated by Board & terms of reference published in Canada Gazette but no defined membership, structure or processes
    • Presently consists of industry associations and a few companies
    • Meetings held 2-3 times a year, usually in Calgary but sometimes elsewhere
    • Purpose - provide a forum to raise issues/concerns relating to cost recovery/CR regulations, accountability reports by NEB, discuss upcoming estimates, etc.
    • Invite you to consider participation
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