CALGARY, AB, Nov. 28, 2021 /CNW/ – Enbridge Inc. (Enbridge or the Company) (TSX: ENB) (NYSE: ENB) today responded to the Canada Energy Regulator’s (CER) November 26, 2021 decision to deny the implementation of contracting for firm service on the Enbridge Canadian Mainline system.
Enbridge has completed its review of the decision and identified next steps that include re-engaging all stakeholders, including shippers and non-shippers on the Mainline system.
The Enbridge Mainline is a critical conduit connecting western Canadian crude oil and product supply with Canadian and U.S. Midwest markets, and ultimately the U.S. Gulf Coast. For decades, the system has provided its customers with unparalleled market access, crude oil quality management, system reliability and long-term expansion potential at the most competitive toll. Since inception of the Enbridge system in 1950, the commercial underpinning of the Mainline has evolved, from a contested cost-of-service (COS) framework to incentive rate making. Enbridge pioneered the first incentive tolling agreement with our customers in 1995, which aligned industry and Enbridge interests, and supported significant investment and expansion of the Mainline.
The most recent incentive agreement, called the Competitive Tolling Settlement (CTS Agreement), expired in June 2021; therefore, the Mainline is currently under interim tolls (subject to refund) and which will stay in effect until new tolls are approved by the CER. In 2018, in preparation for the upcoming expiry of the CTS Agreement, Enbridge initiated consultations with industry participants to determine their goals for the next Mainline tolling arrangement. Among other feedback, the Company heard significant concerns from industry over continuing Mainline apportionment, due to growing western Canadian production and lack of sufficient egress. A large portion of existing shippers expressed desire for continued toll certainty, and to contract for firm service to ensure access to the system.
However, it was also evident from extensive industry input that there was no consensus on what a new commercial structure should look like – some favoured contracting, while others opposed it altogether, preferring to maintain the status-quo, a monthly nominations process and a fixed toll. After significant negotiation with industry on a comprehensive set of terms, Enbridge applied to the CER to contract the Canadian Mainline.
In reaching its decision, the CER determined that providing firm service on the Canadian Mainline is not contrary to the CER Act. The CER also found that elements of the application provided strong justification for some proportion of firm service on the Canadian Mainline. However, the CER denied the application on the basis that, among other things, contracting as proposed would result in a significant change to access the Canadian Mainline and potentially inequitable outcomes to some shippers and non-shippers without a compelling justification. The CER confirmed Enbridge’s existing process for downstream verification and that interim tolls would stay in effect.
Based on its review of the CER decision, Enbridge will initiate, in consultation with its stakeholders, a process to negotiate toward a go-forward Mainline commercial framework. Elements of the process will include:
- Enbridge will re-engage with stakeholders, to receive input on key objectives and variables that are important in considering the future commercial framework, the current industry outlook and desire for future expansion of the Mainline; and
- Enbridge will explore, with stakeholders, alternatives that may include: a modified and extended CTS agreement, a new incentive rate-making agreement, or a COS rate-making structure. Any negotiated settlement would require CER approval before implementation.
In parallel with negotiations of a potential negotiated settlement, Enbridge will prepare a COS application for the Canadian Mainline, which will be filed with the CER if Enbridge, after consultation with stakeholders, concludes that an agreement to continue with incentive rate making is not achievable.
Enbridge expects the preceding steps to begin in the coming weeks, although the negotiating process may take through 2022. We expect the subsequent CER review and decision process to conclude in 2023.
From a financial perspective, Mainline throughput is expected to be strong over the next several years and the Company’s outlook is positive. Based on our review of the CER decision and other factors, the Company anticipates that the range of financial outcomes associated with an alternative commercial model will be manageable and is not expected to materially impact Enbridge’s financial results.
Enbridge will provide its 2022 guidance, longer term outlook and strategic priorities at Enbridge Day on December 7th, 2021, in Toronto.