BC Government Approves Kinder Morgan Expansion

[GGG]

Originally Posted by Locke

Okay...my only issue with that is the 'offset plan' for environmental damages.

Not that I'm not in favour of that per se, but that I was under the impression that this was standard in most plans of this type and magnitude.

In my experience with O&G contracts, there is always an account set up for environmental recovery and repair. Am I wrong on this? I'm surprised that this is an additional contingency/add-on.

Lots of the conditions end up being show us you are doing what you said you would do.

So in the ap they might say they will secure 300 million environmental bond for clean up. The condition would be lifted once they showed evidence and t+cs for that bond.

[Locke]

Originally Posted by GGG

Lot are of the conditions end up being you said you were going to do this in your application now show us you have done this before you proceed past x milestone.

So in the ap they might say they will secure 300 million environmental bond for clean up. The condition would be lifted once they showed evidence and t+cs for that bond.

Okay sorry, what is this sentence?

[CorsiHockeyLeague]

He's saying the conditions imposed mirror KM's commitments in its original application - that is, KM in its application committed to doing X, so "prove that you did X" is one of the conditions.

[GGG]

Fixed, phone posting and not proof reading doesn't work to well

[Locke]

Originally Posted by GGG

Fixed, phone posting and not proof reading doesn't work to well

Fair enough, I know the trials and tribulations of phone posting all too well. I had a late night soccer game last night and was wondering if my eyes were playing tricks on me.

[Regorium]

https://twitter.com/robshaw_vansun/s...18329991053312

Inter-provincial extortion is the new normal.

[Bring_Back_Shantz]

Originally Posted by CorsiHockeyLeague

I just explained why they wouldn't be: interprovincial works, including pipelines, may only be regulated by the federal government. If you're trying to regulate an interprovincial pipeline, you're at first instance encroaching on federal jurisdiction just as you would be if you tried to pass a criminal law statute.

If you're passing a law that in general regulates, for example, property and civil rights within the province, that's fine, but you have to understand that it doesn't apply to interprovincial pipelines. It should be read down so as not to apply to them. In this case, the BC government is creating regulations (in the form of conditions) that are explicitly intended to affect an interprovincial pipeline. It seems to me that doesn't work, but I am prepared to stand corrected.

You could argue that there's a double aspect to the project, but that would be a tough argument under the old division of powers cases, it seems to me.

Yes inter provincial works are governed by the federal government, but there are still areas where provincial legislation applies.
If you want to build something in BC you have to abide by their building codes, workers comp rules, and environmental legislation.
The fact that this is an inter provincial pipeline and has been approved by the NEB doesn't give KM a license to do whatever the heck they want.

If BC is imposing conditions that are within their jurisdiction, and do not interfere with what is governed by the NEB then the conditions are just fine.

My point isn't that they couldn't be unconstitutional.
My point is that your question "How the heck is this constitutional?" presupposes that any condition would not be.

Yes the conditions could be unconstitutional, and it's also possible they aren't, but your question and response are worded in such a way that you are assuming that it's impossible for them to be constitutional. I was pointing out that that is an incorrect assumption, and pointing out that there are lots of ways to attach conditions without it being a problem.

[CorsiHockeyLeague]

Originally Posted by Bring_Back_Shantz

I was pointing out that that is an incorrect assumption, and pointing out that there are lots of ways to attach conditions without it being a problem.

But you have yet to point out any way to attach conditions that wouldn't be a problem, for the reasons I stated.

EDIT: Well, I suppose your edited post sort of does, but if the 37 conditions are simply "you will obey applicable provincial law", that's sort of a waste of time. Reading the list earlier that's not what these conditions appear to be - for example, "A wildlife species at risk plan for grizzly bear mitigation" is not something the province can impose.

Any condition applied specifically to the pipeline immediately represents an attempt to exercise jurisdiction over an interprovincial undertaking. That's contrary to the constitution on its face. There are arguments you could make to try to avoid that result, but I don't see how they could realistically work, which is why I posed the question I did.

[Street Pharmacist]

Originally Posted by Regorium

https://twitter.com/robshaw_vansun/s...18329991053312

Inter-provincial extortion is the new normal.

How is that extortion?

[CorsiHockeyLeague]

Originally Posted by Street Pharmacist

How is that extortion?

How is it not? The provincial government is extracting money from a specific entity in order to allow it to operate in the province even though it has no legal authority to do so. It's not a tax applicable to all similar entities, it's a fixed payment being extracted from one particular entity. You'd think this was a central African nation, not a provincial government.

[Frequitude]

Kinder Morgan agreed to a $1B revenue sharing deal with the province of BC?!?!

That's effectively a transfer of resource wealth from Alberta to BC. It is little skin off of Kinder Morgan's back. The revenue sharing cost will get built in to the pipeline tolls, which ends up coming out of the pocket of oil companies due to poorer netbacks, which means lower taxes and royalties paid by oil companies to the province of Alberta.

It is basically Christy Clark's original offer to Alberta.

Holy crap that is one hell of a precedent that is going to be a fun story to follow.

[killer_carlson]

If this is true and Kinder Morgan agreed to it, then they reap what they sow.

The industry should be outraged for all the reasons Corsihockey described.

[Frequitude]

To clarify, because tax and royalty rates aren't 100%, only a segment of the $1B transfer of wealth is from Albertans. The rest is from the pocket of oil company shareholders. (Not sure how much but I'll go with a 50/50 split based on ~25% royalty rate and ~25% tax rate...paging Locke for if 50/50 passes your ballpark gut test).

This is ****ing insane.

[GGG]

On oilsands project in pre-payback this would essentially be a dollar for dollar delay in reaching post payback royalty rates.

However this doesn't change the rate that will be charged to companies to transport their oil. The fees were always going to be as much as they could charge based on the differential in value and pipeline demand. It's kinda like the ticket tax is an owners contribution rather than a user contribution.

[Flash Walken]

Originally Posted by Frequitude

To clarify, because tax and royalty rates aren't 100%, only a segment of the $1B transfer of wealth is from Albertans. The rest is from the pocket of oil company shareholders. (Not sure how much but I'll go with a 50/50 split based on ~25% royalty rate and ~25% tax rate...paging Locke for if 50/50 passes your ballpark gut test).

This is ****ing insane.

Please expand for a pleb like me?

[Clarkey]

I'm all for delegating powers to the Provinces but inter-provincial trade restrictions are getting ridiculous. If this BS continues I would vote for AB/Sask to leave the country if the regressive greed continues.

[rubecube]

Originally Posted by Clarkey

I'm all for delegating powers to the Provinces but inter-provincial trade restrictions are getting ridiculous. If this BS continues I would vote for AB/Sask to leave the country if the regressive greed continues.

Oh yeah, two landlocked provinces go from trying to negotiate interprovincial trade to negotiating international trade with zero leverage. That'd be great for the economy.

[Clarkey]

51

[Frequitude]

Originally Posted by Flash Walken

Please expand for a pleb like me?

Kinder Morgan is just going add this cost into their pipeline toll and pass it back to the shippers (i.e. the oil companies operating in Alberta). The shippers will suck it up because they want a pipeline so badly.


Assumptions (All figures assumptions just to demonstrate directional math)
-Price of oil at Vancouver: $100/bbl
-Production cost: $50/bbl
-Pipeline tariff without $1B built in: $5/bbl
-Pipeline tariff with $1B built in: $10/bbl
-Royalty Rate: 25%
-Tax rate: 25%


Profit, Tax and Royalty calcs (It's obviously more complicated than this, but oil companies effectively pay royalties on profits net of costs and taxes on profits net costs+royalties)
Without $1B:
Royalties = (Price - Cost - Pipeline) x Royalty Rate = ($100 - $50 - $5) x 25% = $11.25/bbl
Taxes = (Price - Cost - Pipeline - Royalties) x Tax Rate = ($100 - $50 - $5 - $11.25) x 25% = $8.44/bbl
Oil company profit = Price - Cost - Pipeline - Royalties - Taxes = $100 - $50 - $5 - $11.25 - $8.44 = $25.31/bbl

With $1B:
Royalties = (Price - Cost - Pipeline) x Royalty Rate = ($100 - $50 - $10) x 25% = $10.00/bbl
Taxes = (Price - Cost - Pipeline - Royalties) x Tax Rate = ($100 - $50 - $5 - $11.25) x 25% = $7.50/bbl
Oil company profit = Price - Cost - Pipeline - Royalties - Taxes = $100 - $50 - $5 - $11.25 - $8.44 = $22.50/bbl

Net Effect of $1B:
-Albertans receive $1.25/bbl less in royalties
-Albertans receive $0.94/bbl less in taxes
-Oil companies receive $2.81/bbl less in profit
-Total impact adds up to $5/bbl, which is the assumed increase in the toll caused by the $1B


The assumptions are obviously not correct off but the point was to show that, assuming Kinder Morgan builds the entire $1B into their pipeline toll, that $1B gets entirely passed back to Albertans and oil companies operating in Alberta (and looks like my 50/50 guess is pretty close).

Change the numbers to whatever you want and the result won't change so long as you assume Kinder Morgan passes the entire $1B back to the shippers, which I think is a pretty fair assumption.

[Frequitude]

Originally Posted by GGG

However this doesn't change the rate that will be charged to companies to transport their oil. The fees were always going to be as much as they could charge based on the differential in value and pipeline demand. It's kinda like the ticket tax is an owners contribution rather than a user contribution.

I know it was a bit of a stretch to say they'll fully pass it back to the shippers, but I'm not sure if I agree with you here. I don't think its as simple as Toll = Arb minus a penny.

I know TMX won't be regulated, and pipeline tolling agreements aren't quite my thing, but I imagine the negotiation would centre more on Kinder Morgan's rate of return. No?

If so, let's assume they settle on 20%. All costs then go into the bucket, the economists run the math at 20%, and out pops a tolling rate.

My hypothesis is that the cash flow associated with this $1B (e.g. $50M/yr x 20) gets tossed into the bucket and out pops a higher toll.