ALTAGAS and its partners

Shelved northwestern B.C. LNG project does have its benefits

Fees paid to hold space in gas line used to lower rates

  • Wed Oct 5th, 2016 5:00am
  • News

NATURAL gas customers across northwestern B.C. have been the beneficiaries of a natural gas liquefaction project that never was.

And they’ll continue to do so as long as regional natural gas utility Pacific Northern Gas (PNG) has money in a special account. The money, $10.8 million in all, took the form of option payments paid to PNG to reserve space in its northwestern B.C. gas line for a planned small liquefied natural gas (LNG) plant at Kitimat.

The first of the payments, which averaged $1 million, began in 2009 from the original partners in what became known as the Douglas Channel LNG project.

Those payments continued despite companies bowing out of the project as delays took hold and as costs rose with the result of it eventually entering creditor protection. It was then rescued out of bankruptcy protection with new partners, one of whom was AltaGas, the parent company of PNG, and the option fees continued.

But when AltaGas and its partners announced earlier this year it was shelving the Douglas Channel project because of low prices for LNG, the option payments, all non-refundable, ended.

And that’s to the benefit of PNG’s existing customers, says company official Verlon Otto.

“Approximately $6.4 million of these option fees have been amortized (and thereby returned to customers) as a credit to reduce the cost of service in prior years,” he said.

For this year alone PNG estimates the average residential customer will experience an overall rate decrease of 3.3 per cent, approximately $27.

With $6.4 million in option fees accounted for, approximately $4.4 million still sits in a PNG account.

Using the $6.4 million to partially ease regular annual rate increases on the part of PNG required the approval of regulator the BC Utilities Commission (BCUC) and that will be the same for the remaining monies, said Otto. PNG won’t be asking the commission for approval to use the money this year or next but it will do so in 2018, he added.

“Future amortization of this balance is to be determined in PNG’s next revenue requirements application for 2018-2019 and will be subject to BCUC approval,” said Otto.

“Regardless of whether or not [Douglas Channel LNG] had gone through, all of the option fee payments received by PNG have been or will be creditable back to the existing customers through the full amortization of the credit deferral account tracking the option fees and thereby reducing rates for existing customers,” he said.

Had Douglas Channel proceeded, Otto added, the option fees paid to PNG would then have been used as credit against the fees it would then pay to transport gas through the PNG pipeline.

But PNG customers would have ultimately still benefited because it would have reduced the Douglas Channel project’s fees, which would have had a significant impact on the delivery costs of existing customers.

This isn’t the only situation in which PNG has been involved in a financial benefit tied to the prospect of LNG.

Ten years ago it was one of the original partners in the Pacific Trail Pipeline project which would feed natural gas to the planned Chevron-led Kitimat LNG plant. The company then sold its interest to another company for $50 million, $30 of which was paid up front and then distributed to shareholders. That transaction took place before PNG was bought up by AltaGas.