National Energy Board Cost Recovery Regulations for the Electricity Industry - De-mystifying Cost Recovery Fees (It’s easy as A B C)

De-mystifying Cost Recovery Fees (It’s easy as A B C)

Hotel Queen Elizabeth, Montréal

2 June 2005

A. Principles

1. The National Energy Board Act (Sec. 24.1) empowers the NEB to make regulations:

• imposing charges to recover costs attributable to its activities, and
• providing for the manner of calculating those charges

A. Principles (continued)

• 2. Under the Regulations, companies are invoiced for:

  • Recoverable Costs
    • Approximately ¾ of NEB costs are salaries
    • The remaining costs are classified as operating and maintenance
  • Not all costs are recoverable

A. Principles (continued)

• 3. Recoverable costs do not include costs for activities relating to, e.g. :

  • frontier areas (e.g. COGOA lands)
  • work on behalf of other departments/agencies
  • overheads pertaining to non-recoverable costs

A. Principles (continued)

• 4. Assurance

  • The Auditor General performs an annual audit of NEB costs
  • The pool of Recoverable Costs is certified
  • For purposes of cost recovery, the fiscal period is the calendar year

B. Concepts

• 1. Companies pay their share of recoverable costs in 3 ways:
  • “Greenfield” levies (pipeline start-ups only - Sec 5.2)
  • Fixed fees (small, intermediate companies and “other” commodities)
  • Sharing remaining pool of costs (large companies)

The Allocation “Cascade”

B. Concepts (continued)

• 2. Allocation Principles
  • Allocation of costs to commodity categories is based on time spent on each commodity - gas, oil, electricity.
  • Non-specific time (i.e. not attributed to a specific commodity) is allocated across all commodities in proportion to the time spent on those commodities.
  • Within each commodity group, costs are shared according to activity levels (throughputs, exports).

B. Concepts (continued)

• 3. Cap on fees (Sec 4.1)
  • For large oil, gas and commodity pipelines, fees may be capped at 2% of the cost of service for that company. (Company must apply for relief.)
• 4. Electricity export averaging
  • Sharing of costs allocated to large electricity exporters is based on a 4 year rolling average of export activity.

C. Process

• 1. Obtain relevant company operating data
  • Throughputs, exports, cost of service (August 31)
    • actuals for previous year(s)
    • forecast for current year
    • forecast for next year

C. Process (continued)

• 2. Determine estimate of next year’s recoverable costs
  • obtain NEB budgets for current and next fiscal years
  • adjust fiscal years to calendar estimate 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 (October 31)

C. Process (continued)

• 9. Issue (December 31) final estimated billing for coming year reflecting:
  • final estimate of NEB recoverable cost for next year
  • adjustments arising from differences between estimates and actuals from preceding year
  • reallocations arising from approved applications for relief

Cost Recovery Estimated Billing Process

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.
• The End

Cost Recovery - 2003 ($000’s)

NEB & Electricity Costs - 1998 to 2005 ($ millions)