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Alton Gas Refuses Public Examination of Consumer Savings Promise

by Ken Summers

Opponents of the Alton Gas project raising Mi'Kmaq and Canadian flags at the site. The company has since surrounded the flags with a fence.
Opponents of the Alton Gas project raising Mi'Kmaq and Canadian flags at the site. The company has since surrounded the flags with a fence.

In an earlier Media Coop article, we took a stab at putting under the microscope the Alton Gas claim of $17million annual savings for Nova Scotia consumers. But it looked then like all the available documents had all of the numbers redacted- blacked out.

There are two main drivers to how much savings gas consumers might see as a result of gas storage being available in Nova Scotia. The first driver is the amount of the difference between regional prices for gas in the summer and winter, when supply cost is considerably higher. The second driver is the storage cost that Heritage pays for putting into storage the lower cost summer gas that they will draw out in the winter.

Neither of those 'drivers' of the projected savings to consumers are known. The two year process with the Utility Review Board (UARB) that completed last year, was for the regulator to test whether there are reasonably expected savings to consumers for having the Alton Gas storage.

This required projections of the summer / winter gas price spread in the region- smaller projected price spreads would mean less savings to consumers from having the Alton Gas storage built. The cost of the storage is set out in a contract between Alton Gas and Heritage Gas- but that cost will be determined by the actual cost of constructing the salt caverns and other facilities. The projected cost savings to customers are based on an estimate of the construction costs.

How the Difference Between Summer and Winter Prices Effects Projected Consumer Savings

Because Heritage Gas has to pass on storage costs to the customer, it is that company, not Alton Gas that applies to the regulator, UARB. The Board required Heritage to submit “sensitivity analyses” from consultants to show how projected cost savings to consumers are effected by different projected seasonal gas spreads, and by different actual construction costs of the facilities.

These studies are filed with the UARB and available online. But in the first studies all the numbers are redacted, because it is claimed competitors could use them to Heritage's disadvantage. Even the $17million end result figure for cost savings that Alton Gas began using, was redacted in that first year.

In the later filings of the same information (with some updates) the redacting is much more selective. So a reader can actually look at how the numbers for the projected cost savings to consumers were developed. The $17million figure was still the end result. But a review of the assumptions used in the models shows that the $10million projection is more likely. Lowering the projected seasonal price spreads enough would result in minimal consumer cost savings from using storage, but the lowered price spreads that would cause that are quite unlikely.

So according to modeling of the first driver of those projected cost savings, $10million is the most reasonable figure, not $17million.

Crucial Documents Still Fully Blacked Out

But the amount of cost savings also depends on the actual construction costs. The modeling in the UARB filings of the effects of construction costs on cost savings for consumers is 100% redacted (pages 4-5 of PDF) . Even the final results are not shown. Selected redacting of some of the inputs into the model- as with the modeling of effects of the seasonal price spreads- is understandable. Alton Gas was asked to speak to the complete redaction, and to voluntarily supply at least the final result figures. They have not replied to date.

So the credibility of the possibly reasonable claim of $10million savings to consumers is called into question by the lack of information about how actual construction costs of the facility will effect those projected savings.

In principle, it is possible that the combined effects of lower than projected seasonal price differences, and higher than estimated costs for building the facility, could actually mean negative savings to consumers. In practice, the project cannot end up costing consumers money. Heritage Gas and Alton Gas Storage are owned by the same company. But the regulator would not allow Heritage to continue a storage contract that is costing consumers money. In practice, Alton Gas would have to lower their storage costs, eating into their profits... even if this causes them to literally lose money on the project.

Puzzling Determination in this Small Project for Big Corporation

Up until two years ago this Alton Gas project was flying in under the radar for it's owner, AltaGas of Calgary. The basic infrastructure was in place for bringing Shubenacadie River water the 12 miles to the salt cavern sites, and sending it back down to the river with the brine being washed out to form the salt caverns. The project physically is still at that 'ready-to-go' point it was at two years ago.

The provincial government was forced to back peddle and at least give some semblance of environmental review- after the fact- to the project. There are still serious questions about the adequacy of the review, but what we have is owed to consultations with Mi'Kmaq people in the 2 years since the project was paused.

This step back and review has already cost the company a good deal more than they thought they would have to put into the project. Alton Gas again has the approvals it needs to proceed. But their actions over the last year show that they expect anything but clear sailing.

One year ago Alton Gas hired a consultant out of the the Energy Department, to make sure the rebooted regulatory/consultation process moved successfully to completion. That bore fruit with the Migmaw Rights Initiative apparently signing off on the project, and the provincial government quickly following suit with all the remaining required approvals for Altom Gas to pick up construction where it left off two years ago.

The wrinkle in that happy outcome for Alton Gas was that the closest First Nation to the project, Sipekne'katik , objected to the project and that they had never given the Migmaw Rights Initiative (KMK) authority to consult on their behalf. Millbrook First Nation supported Sipekne'katik, and has since withdrawn from KMK, with Sipekne'katik taking the government to court over their approvals of the project.

In the very early stages of this splitting of Mi'Kmaq over the project Alton Gas hired former national Assembly of First Nations Chief Phil Fontaine to lobby on their behalf. This continues the pattern that as opposition to the project grows, Alton Gas throws more money at the problems, and all of this while construction work is still suspended at early stages.

For AltaGas, a large utility holding company, this is a small project. The profit that in the best case they can make from the 3 slated salt caverns is pretty modest for them. They are going to unusual lengths to keep alive such a modest project- where they cannot make big profits, and bear a risk of not making their expected return on investments, even of losing money if things do not go well. Why?

The Nova Scotia UARB has given Alton Gas approvals to build 18 salt caverns. Three caverns will suffice for Nova Scotia. The UARB is not mandated to examine the environmental or human health effects of this project, yet the provincial government has deferred to the Board as regulator of the caverns. And there has been zero consultation with Mi'Kmaq about the caverns aspect of the project that is already tied up in court over consultation on the Shubenacadie River brine discharge facility.

The further 15 salt caverns would be for selling gas into other markets: supplying LNG plants for export, or gas into New England when the winter prices are dear. Storage of gas is a growing part of the industry's infrastructure- especially of utility holding companies like AltaGas- and AltaGas wants a piece of the action.

These first 3 salt caverns could be characterised as their 'ticket to play'. So earning big profits on the 'entry' of the first 3 salt caverns is not required. And the big prize is worth doing contortions to get this modest project off the ground.

When this project got halted two years ago in early days- with completion expected by now- Nova Scotians had not heard about Alton Gas. So the company did not have to make any promises. But the climate has changed, even if the cheer leading government has not, so it is useful to be able to 'promise' consumers $17 million in annual savings. That is a big number in a small province. The question is, does the promise hold water?

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