The National Energy Board, in a decision released on January 30, rejected NovaGas's proposed toll design for a proposed pipeline in the Komie North area of the Horn River play in northeastern British Columbia.

The proposed 36 inch pipeline would have run 97 kilometers between the proposed Fortune Creek meter station and the current northern end of the Horn River mainline.

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$227 million expansion to the NovaGas system would have an initial capacity of one billion cubic feet of gas per day, expandable to 1.8 bcf.

NovaGas proposed to toll the expansion on a rolled in basis - that is, the capital cost of the expansion would have been added to the rate base for the entire NovaGas system, and the revenue requirement for shipment on that leg of the system would have been done in a manner consistent with the approved rate design.

Opponents of the project contended that this constituted an unfair subsidy to users of the new leg by the users of the existing, much larger system.  While it was not controversial that there is some level of cross-subsidization in the rate design for a large system, the opponents contended that, with only one contracted shipper to date on the Komie North leg, the rolled-in toll was designed to give NovaGas an unfair competitive advantage in building pipelines in this new area.

The NEB sided with the opponents and ruled that the rolled-in toll design was inappropriate on this basis:

The Board finds NGTL’s proposed toll treatment inappropriate for the Komie North Section. The proposed rate design would unreasonably subsidize the extension of the NGTL Alberta System into an area where it would compete with infrastructure already in place. Basing pricing for transportation on cost causation promotes economic efficiency through proper price signals to the market. In this context, the Board is of the view that the tolls for NGTL’s transmission service must have an appropriate allocation of cost and risks.

As NovaGas did not provide the NEB with any other toll methodologies to consider in its application, the application was not recommended to the Minister for approval.