Report by The School of Public Policy Raises Concern over Energy Transportation Costs

CALGARY, May 3, 2012 /CNW/ - While much attention is being paid to the approval and construction of future pipeline projects, it appears that some present day energy transportation costing issues are also in need of attention.

A report released today by The School of Public Policy shows that current depreciation methods used to set pipeline tolls result in lower transportation prices for consumers today, but could raise prices in the future.

Author Kent Fellows attributes this problem to a process called negotiated settlements, where pipeline companies and their customers negotiate energy transportation or transmission terms, including the rates charged. The current process permits a depreciation rate that pushes costs off into the future. That, in turn, leads to a toll that favours current customers at the expense of future customers.

"Regulated firms under negotiated settlement outcomes are able to borrow from the future (by deferring depreciation expense) while simultaneously inflating the book value of their rate base without actually employing more capital," he writes.

Today's consumers are happy with this arrangement because it results in lower prices. However, because the firm's costs are being deferred, future consumers will inevitably need to shoulder the burden of these costs.

As for a solution to this problem, Fellows suggests increased regulatory oversight be included in negotiated settlements.

"Any negotiated settlement must be accompanied by a strict depreciation methodology or an informed rate-of-return constraint enforced by the regulatory authority in order to protect the interests of future consumers," Fellows writes.

The study can be found online at www.policyschool.ucalgary.ca/publications.

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