Trans Mountain wants to charge oil shippers more to use the Trans Mountain expansion pipeline (TMX), but those increased tolls wouldn’t cover even half of the project’s $30.9-billion price tag.
“There has never been an instance in any western country — that I'm aware of — where tolls have been set below the level required to cover the cost of the operation of a pipeline,” said Thomas Gunton, professor and director of the Resource and Environmental Planning Program at Simon Fraser University in B.C.
Certainly in Canada, the National Energy Board and Canada Energy Regulator (CER) have never set tolls below that threshold for a pipeline, he said, “so this will be an unprecedented first if they approve these tolls.”
Trans Mountain applied to raise the base tolls on June 1, and CER accepted comments from interested parties in mid-June. Oil shippers including Suncor, Cenovus, BP PetroChina Canada and more submitted comments, saying the proposed tolls are too high and requesting a hearing.
The Tsleil-Waututh Nation also requested a hearing but argued the tolls weren’t high enough. In a letter to the CER, the nation — whose territory is at the epicentre of the project — argues the regulator should reject Trans Mountain’s application and set tolls that account for and cover the project’s ballooning construction costs. The current toll settlement was based on Kinder Morgan’s 2013 construction cost estimate of $5.4 billion, but since the federal government purchased TMX in 2018, the financial situation has gotten progressively worse. Trans Mountain is a Crown corporation, meaning Canadian taxpayers are the true owners of the pipeline and expansion project.
“Trans Mountain’s inability to recover even half of the project cost means that their capacity to adequately fund maintenance, safety, integrity, and spill response is compromised,” reads the letter, adding the Tsleil-Waututh Nation’s territory and rights would be “significantly impacted by an oil spill of any kind.”
“Tolls that cover less than half of a project’s costs cannot be found to be just nor reasonable,” it added, pointing out that insufficient tolls could also result in higher rates for customers down the line.
Trans Mountain’s proposed tolls would leave the Crown corporation $16.2 billion in the hole, and in all likelihood, the cost will end up borne by Canadian taxpayers, the letter states. The private sector appears unwilling to put any more money into TMX so, to keep the project afloat, the federal government has approved a total of $13 billion in loan guarantees to convince Canada’s six biggest banks to finance it.
The Tsleil-Waututh Nation and multiple analysts say there are only two ways out of this situation: debt forgiveness or toll increases.
Finance Canada has repeatedly refused to confirm whether it will consider forgiving Trans Mountain’s debt, despite Finance Minister Chrystia Freeland putting $13 billion in taxpayer dollars on the line with loan guarantees in a little over a year. If the federal government forgives Trans Mountain’s debt, it will go against Freeland’s 2022 promise that no more public funds will flow to TMX.
Debt forgiveness would amount to a roughly $17-billion fossil fuel subsidy, according to an analysis by independent economist Robyn Allan.
“The Trans Mountain Expansion Project will ensure Canada receives fair market value for our resources while maintaining the highest environmental standards,” a Department of Finance official said in an emailed statement to Canada’s National Observer. “This is in addition to being an important investment in Canada’s economy, generating significant operating revenues and creating well-paying, middle-class jobs.” The statement added that the federal government doesn’t plan to be the long-term owner of the project and “will launch a divestment process in due course.”
The Crown corporation applied to charge a base toll of between $10 and $11 per barrel in most instances, roughly $5 more than what it is currently set at. The exact toll varies depending on the type and volume of oil and how far it’s travelling, and companies with longer contracts receive a small discount.
If tolls were set to fully cover the $30.9-billion cost of TMX, shippers would be charged roughly $22.20 per barrel, according to the Tsleil-Waututh Nation’s calculations.
“All of these forecasts for the viability of the pipeline are based on an assumption that the pipeline continues to operate and ship oil beyond the 15- to 20-year contracts,” said Gunton. When those contracts expire, Trans Mountain will have to lower the tolls so shippers don’t leave en masse, said Gunton.
“The question the Canadian taxpayers should ask is, ‘Why should I pay a subsidy of $13, $14 a barrel to the oil industry when the oil industry is making record profits?’” said Gunton.
Shippers, naturally, are balking at Trans Mountain’s proposed cost increase and have said as much in letters submitted to the CER.
Now the energy regulator has received letters of comment from the oil shippers and other groups (like the Tsleil-Waututh Nation), it will either issue a decision on Trans Mountain’s request or hold a hearing, Ruth Anne Beck, communications officer at CER, explained in an emailed statement. The CER has not yet decided which route to take.
“If the CER is consistent with its regulatory policy, it should review the application, conclude that the current tolls that are being applied for are not sufficient to cover the cost of the pipeline and maintain its financial viability, and they should set tolls that are significantly higher,” said Gunton. “Will they do that? Who knows? I doubt it.”
In this scenario, “everybody is significantly worse off as a result of building this pipeline,” said Gunton. Oil shippers end up paying more than they would to use Enbridge’s Mainline pipeline, Enbridge loses out on oil volume and Canadian taxpayers are out billions of dollars for the project itself as well as environmental costs in the billions, he said.
Trans Mountain has asked CER for a decision by Sept. 14, writing a delay beyond that “could jeopardize the in-service date” for the new pipeline. TMX is currently 90 per cent complete, with planned mechanical completion expected by the end of 2023, according to an emailed statement from Trans Mountain media relations.
The Tsleil-Waututh Nation also noted the Canada Development Investment Corporation’s 2022 annual report found storms, droughts and flooding present “acute risks” to the pipelines and infrastructure. Any tolling structure must account for the increased spending needed to deal with the prevention of and fallout from climate change-related risks, the nation maintains.
When the federal government bought TMX from Kinder Morgan in 2018, Prime Minister Justin Trudeau told Canadians its profits would help fund climate action.
Finance Canada regularly cites two financial reports produced by TD Securities and BMO to say TMX is still viable, but Canada’s National Observer discovered those reports assume an unrealistic 100-year lifetime.
More recently, the department has been pointing to a March 2023 report, also by TD Securities and BMO Capital Markets, that says third-party financing is a feasible option to fund the completion of the project and that they “believe investors … would participate in a process involving a sale of all or a portion of [Trans Mountain Corporation].”
The fact that government loan guarantees have been necessary to finance a total of $13 billion of the project clearly shows it is not viable and that third-party financing is not a feasible option, said Gunton.
