Filing Manual – Guide B – Abandonment Funding and Applications to Abandon

B.1 Funding for Abandonment

All pipeline companies are required to follow the National Energy Board Onshore Pipeline Regulations, which include a systematic approach to pipeline management, including abandonment. Those regulations require all NEB-regulated pipeline companies to establish, implement and maintain a management system that, among other things, integrates a pipeline company’s operational activities with its management of financial resources to meet its obligation to abandon its pipeline system. A systematic approach requires a pipeline company to have a documented organizational structure that sets out accountabilities, roles and responsibilities in relation to pipeline abandonment.

Companies’ management of financial resources includes the proactive management of their obligations relating to the set aside and collection of abandonment funds. The Onshore Pipeline Regulations require pipeline companies to, as part of their management system, establish and implement a process for, among other things:

  • Regular review of objectives and targets required to meet companies’ obligations to abandon a pipeline (assumptions would be refined as more detailed plans and assessments are developed);
  • Identifying and managing any change that could affect pipeline abandonment, including financial aspects of pipeline abandonment (for example, changes to the assumptions underlying pipeline abandonment such as various pipeline segments or sets of facilities that may be abandoned on different timelines);
  • Evaluating and managing the risks associated with, among other things, the financial aspects of pipeline abandonment;
  • The internal and external communication of information relating to pipeline abandonment; and
  • Identifying the documents required for the pipeline company to meet its obligation to abandon a pipeline.

Goal

As of 1 January 2015, NEB-regulated pipeline companies must have a process and mechanism in place that will provide adequate funds to pay for pipeline abandonment. Companies should also institute governance practices relating to pipeline abandonment, which are one component of the systematic approach required by the National Energy Board Onshore Pipeline Regulations.

B.1.1 Cost Estimates

Companies are required to file their abandonment cost estimates for Board approval. Companies’ filings should also include a description of the methodology and assumptions used to estimate costs. Provide a level of detail and technical description appropriate to allow a person to form a reasonable understanding the estimates to a reasonable level. See Chapter 7 Referenced Documents, Abandonment Funding and Planning for documents that describe cost categories, abandonment assumptions and methodologies that have been used by companies and/or approved by the Board in the past.

B.1.2 Protection of Funds

Pipeline companies must establish a trust or provide a letter of credit issued by a bank listed in Schedule 1 of the Bank Act, or a surety bond supplied by a surety company regulated by the Office of Superintendent of Financial Institutions. A model trust agreement, letter of credit and surety bond can be found in Reasons for Decision MH-001-2013. For information on accessing abandonment funds included in a letter of credit or surety bond, see the appropriate checklists and Table B-1 or Table B-2 below.

B.1.2.1 Trusts

A trust can be a suitable mechanism to set aside funds for pipeline abandonment. However, the question of whether any particular trust is suitable depends on the terms and conditions that govern the trust. Companies are encouraged to consult Chapter 7: Referenced Documents, Abandonment Funding and Planning, for reference documents issued by the Board in regards to trusts. In particular, Appendix VI of the MH-001-2013 Reasons for Decision sets out Indicative Terms for companies proposing trusts. These should be viewed as the substantive minimum requirements that must be incorporated into a trust agreement. The Board has also issued subsequent compliance decisions regarding companies filing trusts.

B.1.2.2 Letter of Credit

If a company is using a letter of credit to set-aside funds, the financial instrument must meet the criteria included in the checklist below. To obtain funds please fill out the information included in Table B-1 or Table B-2.

Letter of Credit Checklist:

  • Physical letter filed with the Board: Ensure that the physical letter of credit is filed with the Board and not a draft.
  • Amount: The letter of credit must be equal to a company’s approved Abandonment Cost Estimate (ACE). The Board does not allow growing letters of credit.
  • Beneficiary: The beneficiary must be identified as “Her Majesty the Queen in Right of Canada as represented by the National Energy Board”;
  • Duration: The letter of credit must automatically renew on an annual basis (on 1 January each year) without notice or amendment, and without a maximum number of renewals;
  • Issuer: The issuer of the letter of credit must be a Canadian chartered bank set out on Schedule 1 to the Bank Act;
  • Access to funds: The full amount of the letter of credit must be payable to the beneficiary on demand upon presentation of the letter of credit at the bank’s main Calgary branch;
  • Notification: The beneficiary must be notified by fax and registered mail (to the attention of the Secretary of the Board) at least 60 days before the letter of credit may be cancelled or not renewed. Upon notification the beneficiary must be entitled to draw the entire amount of the letter of credit; and
  • Additional terms: The letter of credit must be irrevocable, non-transferable and non- assignable, and must be subject to the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits (2007 revision).

Source: (Reasons for Decision MH-001-2013, Adobe Page 111 and 112 of 176)

B.1.2.3 Surety Bond

If a company is using a surety bond to set-aside funds, the financial instrument must meet the criteria included in the checklist below.

Surety Bond Checklist:

  • The surety must be regulated by the Office of the Superintendent of Financial Institutions (OSFI);
  • The obligee must be the “Her Majesty the Queen in Right of Canada as represented by the National Energy Board”;
  • The term of the bond must be indefinite. The bond may have a form of evergreen provision that automatically renews the bond unless notice of termination is given;
  • The bond must be terminable by the surety providing 60 days’ notice, with the obligee then having a further 60 day period to make a written demand of the surety;
  • The bond must be structured as an on demand instrument. This may be accomplished by requiring the surety to pay the bond amount upon receiving a written demand of the obligee consistent with the form of bond provided to the Ontario Minister of the Environment under Part XII of the Environmental Protection Act (Ontario);
  • The bond must reference the underlying regulatory obligations of the principal. For pipeline abandonment, the bond should reference the National Energy Board Act, RH-2-2008 Reasons for Decision, the Board document approving the pipeline company’s cost estimate, and the MH-001-2013 Reasons for Decision; and
  • The surety may fulfill its obligations under the bond by: (i) remedying the default, (ii) completing the pipeline company’s abandonment obligations, or (iii) paying the bond balance to the Board. If these options are set out in the bond, then the Board must have the discretion to choose among them.

Source: (Reasons for Decision MH-001-2013, Adobe Page 113 of 176)

B.1.3 Regular Reporting

  • All companies must file an annual update with respect to abandonment funding by 31 January of each year. The annual reporting form for companies using a trust can be found in Appendix XV of Reasons for Decision MH-001-2013. The annual reporting form for companies using a letter of credit or surety bond can be found in Appendix XVI of Reasons for Decision MH-001-2013.

B.2 Applications to Abandon (NEB Act paragraph 74(1)(d) and OPR s.50)

Section 50 of the OPR states:

  • 50. A company shall include in an application made under section 74 of the Act for leave to abandon a pipeline or a part of one, the reasons, and the procedures that are to be used for the abandonment.

Goal

The application must include the rationale for the abandonment and the measures to be employed in the abandonment as well as evidence that:

  • the proposed abandonment will be carried out in a technically safe manner;
  • potential environmental, socio-economic, economic and financial effects are identified and addressed; and
  • all landowners and other persons potentially affected are sufficiently notified and have their rights protected.

B.3 Filing Requirements – Engineering

1. Confirm abandonment activities will follow the requirements of the latest version of CSA Z662.

2. Provide:

  • a rationale for the abandonment;
  • a complete description of the facilities being abandoned;
  • an assessment of the potential safety hazards related to the facility abandonment and the mitigative actions planned to reduce such hazards; and
  • a plan outlining how the facility will be prepared for abandonment and how it will be monitored, if necessary, during its abandonment.

3. Pipeline abandonment details – please refer to the Engineering Section in Guide K – Decommissioning

B.4 Filing Requirements – Environment and Socio-Economic Assessment

Additional information...

An ESA is required for applications for abandonment. See Section A.2 in Guide A for filing requirements in addition to those in this Guide.

1. Describe the different ecological settings found at the project location and identify the different land uses that are or will be in place, if known.

2. Identify the ecological settings (identified in 1) in which each of the project components to be abandoned is located.

3. Describe and justify the methods that will be used to clean up any contamination found at the project component sites and:

  • quantify the amount of contamination that may exist;
  • describe special handling techniques that will be used; and
  • identify regulatory requirements that will be followed for cleanup and disposal.

4. For each project component, describe:

  • how and when it will be abandoned;
  • how the environment will be reclaimed; and
  • how the abandonment is appropriate for the ecological setting where it is located.

5. Use an appropriate level of detail and technical description to allow regulators, the public and others to thoroughly understand what is being proposed.

6. Describe any regulatory requirements for reclamation and remediation and how these requirements will be met.

7. Identify historical spills and releases that have occurred on the area to be abandoned.

B.5 Filing Requirements – Economics and Finance

See Chapter 7: Referenced Documents, Abandonment Funding and Planning for documents related to estimating costs of abandonment, including provision for post-abandonment funding.

1. Provide details of the costs associated with the proposed abandonment, including details of any estimated costs for post abandonment monitoring and contingency.

2. Confirm that funding is and will be available to finance the proposed abandonment project, and explain how funding will be available for post-abandonment activities (both monitoring and coverage of any future events).

3. Provide the original book cost of the facilities and accumulated depreciation to the retirement date.

4. Explain any impact on remaining ratebase, providing accounting details as outlined in the Gas Pipeline Uniform Accounting Regulations (GPUAR) or Oil Pipeline Uniform Accounting Regulations (OPUAR), including details of whether the retirement is ordinary or extraordinary.

B.6 Filing Requirements – Lands Information

1. Describe the location and the dimensions of the existing RoW and facility lands that would be affected by the abandonment.

2. Provide a map or site plan of the pipeline or facility to be abandoned.

3. Identify the locations and dimensions of known temporary workspace required for the abandonment.

4. Describe any easement proposed to be acquired for the abandonment, including the location and dimensions of the easement;

5. Provide a record of public consultation activities that have been undertaken for the abandonment. This record should include a description of:

  • all discussions with landowners regarding the easement;
  • a summary of any issues or concerns identified by the landowner regarding the easement, surrendering of the easement or the lands proposed to be acquired; and
  • how the applicant proposes to address any concerns or issues raised by potentially affected people or landowners or an explanation as to why no further action is required.

6. Provide the details of any reclamation plans developed in consultation with landowners affected by the proposed abandonment.

7. If any easement will be surrendered:

  • identify the lands where easement will be surrendered;
  • describe the contingency plans that will be put in place to protect the landowner should subsequent land issues arise following the abandonment of the facility and surrender of the easement; and
  • file evidence to demonstrate that affected landowners have been advised of the proposed abandonment and that if the Board approves the abandonment, the Board will no longer have jurisdiction over the pipeline.

Guidance

Environment and Socio-Economic

Abandonment Plan

An application to abandon the operation of a pipeline could include an abandonment plan tailored to the individual project and should include input from interested parties such as:

  • landowners;
  • aboriginal groups;
  • occupants;
  • land managers;
  • lessees;
  • municipal agencies (federal or provincial);
  • shippers; and
  • upstream and downstream users.

If an abandonment plan is shared with interested parties , any comments from these stakeholders should be considered and, where appropriate, incorporated into the plan.

Environmental, safety and land-use issues may all be considered in the application. The application may also address reclamation of sites where surface facilities have been or will be removed and the management of any pipeline components that will be maintained in a deactivated state.

Abandonment-in-Place or Removal of Pipeline

Assessments and studies should be provided to support the choice between abandonment-in-place or removal of the pipeline. If the pipeline is to be removed, assess the impact of the removal on the environment. If the pipeline is to be abandoned in place, refer to CSA Z662, clause 10.

Additional Information

The following discussion papers were authored collectively by the NEB, Alberta Energy and Utilities Board, Canadian Energy Pipeline Association and Canadian Association of Petroleum Producers and provide guidance on responsible abandonment and methods of approach:

In 2009, the NEB’s Land Matters Consultation Initiative, a public forum to discuss various landowners concerns, generated a report, in part identifying the need for clarification on how pipeline abandonment is monitored. This report is available on the NEB website.

Additional information can also be obtained in the CCME National Guidelines for Decommissioning Industrial Sites, available on the CCME website.

Economics and Finance

Abandonment Costs

See Chapter 7 Referenced Documents, Abandonment Funding and Planning for documents that describe cost categories that the Board has found useful in examining cost estimates. Describe the methodology and assumptions used to estimate costs. Provide a level of detail and technical description appropriate to allow regulators, the public, and others to understand the estimates to a reasonable level.

For example, where pipe is proposed to be left in the ground, describe plugging intervals and costs. Where facilities are proposed to be removed identify the costs for dismantling and removal, reclamation, any remediation, and, where relevant, the costs and expected proceeds from salvage activities, including the timing of receipts of salvage proceeds.

Liability Exposure

The description of future liabilities should include:

  • of the types of each liability and an estimate of the associated cost; and
  • a statement of which abandonment work is associated with a legal obligation and which work is not.
Financing

The confirmation that funding is and will continue to be available to fund the abandonment should include:

  • an explanation of the economic feasibility of the abandonment; and
  • the expected toll treatment and toll impact, including:
    • an explanation of how the tolls were determined;
    • the expected impact, if any, on shippers and other parties;
    • a statement regarding the extent of shippers' and other parties' support for any toll increase; and
    • describe any funding, financial guarantees or other arrangements designed to cover these costs.
Provisions for Post-abandonment
  • Provide a description about the mechanisms to be used to set-aside funds for post-abandonment activities.
  • Provide information for landowners regarding access to funds.
  • Provide estimates of average annual future costs for post-abandonment activities, as well as the number of years for which the company believes it is to be responsible for such activities.
Accounting

The GPUAR or OPUAR prescribe the accounting treatment for both ordinary and extraordinary retirements, including informing the Board if the gain or loss on an extraordinary retirement is material.

Next Steps...

File the completed application. Applicants are encouraged to include the completed relevant checklists from Appendix I.

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