Brian Zinchuk is editor and owner of Pipeline Online
Trans Mountain’s Burnaby terminal. LinkedIn/Trans Mountain
CALGARY – It’s well known that the Trans Mountain Expansion project is way, way over budget. Now that the project is getting closer to completion, someone’s going to have to pay for all of that. Trans Mountain, a Crown corporation since the federal government purchased and nationalized both the company and the project, wants the shippers to pay for the exorbitant cost overruns. Cenovus Energy Inc., one of those shippers, basically told the Canadian Energy Regulator, “I don’t think so, buddy.”
The original cost estimate for the expansion, alternately referred to as TMEP or TMX, was $5.4 billion, in 2013. As David Yager wrote in Pipeline Online on June, 28, 2022, “The updated cost is $21.4 billion, the latest completion date now late 2023. This is four times the original $5.4 billion estimate and four years late.
“The original application was filed with the National Energy Board (NEB) in 2013 with operations targeted to commence in 2019. NEB approval was issued in 2016.”
That was last year. As of this summer, the cost is now expected to hit $30.9 billion. And it’s still not done, and completion deadlines are again threatening to slip. Despite supposedly getting close to wrapping up, In recent days, Trans Mountain has asked the CER to allow it to change its route on a crucial tunnel.
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As with any pipeline, the project is not complete until it is all complete. Until the pipeline is whole, it’s just a pipe in the ground, not a functioning pipeline.
In a letter to CER dated Sept. 7, Cenovus’ legal firm Lawson Lundell LLP wrote:
As noted, Cenovus remains deeply concerned about the quantum of the Commencement Date Toll proposed by Trans Mountain in the Application. Trans Mountain’s responses to CER-TM IR No. 1 did not assuage those concerns. If anything, it made them worse.
Through Table 1.1-3, Trans Mountain tacitly admits that, compared to other major projects with substantial cost overruns (ranging from 103% to 263%), the 414% cost escalation for the TMEP is more than 1.5x higher than next closest project overrun. Such performance merits careful scrutiny by the Commission and shippers of Trans Mountain’s costs and their tolling implications.
Cenovus disagrees with Trans Mountain’s position, set out in response to CER-TM IR No. 1.1(c) that under the FSA shippers agreed to bear all risks related to escalation of Uncapped Costs. In particular, Cenovus specifically denies Trans Mountain’s assertion that “[t]he parties did not agree to any limit on the ultimate amount of ‘uncapped’ costs that could be included in the tolls.” Effectively, Trans Mountain’s position is that committed shippers agreed to write a blank cheque to Trans Mountain for all Uncapped Costs. Not only is that suggestion commercially absurd, it is contrary to the overall scheme of Article 3 within the context of the FSA as a whole, and it is contrary to the express wording of at least three of the FSA’s specific provisions.
Cenovus asserted that uncapped costs fall to Trans Mountain, noting, “It would be a breach of contract for Trans Mountain to recover any Uncapped Costs that were imprudently incurred, or incurred as a result of Trans Mountain’s failure to adhere to customary and good industry practice.”
The entire letter can be seen in PDF form here: C26114-1_2023-09-07_Letter_to_CER_-_Cenovus_Energy_Inc._Comments_on_TM_and_VFPA_Responses_to_CER_IR_No._1_-_A8S5A8
Some of the issues involve costs associated with the Westridge terminal, the terminus of the pipeline and loading point for ocean-going tankers. Cenovus said Trans Mountain wants to reduce one fee payment scheme from five years to three years, dramatically increasing the dollar amount. And Cenovus questions some of costs Trans Mountain is including in the bill. As an example, Cenovus’ lawyers wrote, “The GIF2 project costs allocated to Trans Mountain relate to improving road and rail infrastructure. However, no petroleum travels to or from Westridge by road or rail. It all goes by pipeline and vessel. Cenovus therefore fails to see how Westridge operations contribute to the need for, or will benefit from, such projects.”
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