Trans Mountain: the $34 Billion PONI Ride You Didn’t Ask For

Summary:

• Trans Mountain’s toll hearing has been paused so it can renegotiate its toll with oil companies – tolls will determine who pays for TMX’s massive cost overruns.
• The current toll applies a 2013 formula to the 2025 budget and results in a loss of $19 billion for Trans Mountain’s owners, the Canadian public.
• The oil companies were trying to reduce their portion of the cost, which would increase the subsidy by Canadians. Tsleil-Waututh Nation was the only party in the hearing advocating for a higher toll.
• Trans Mountain’s track record should worry Canadians: they used misleading financial metrics and optimistic assumptions to justify their low toll. It is not clear that they will stand up to the oil companies on behalf of Canadians.
• The TMX saga is a cautionary tale for “nation building” projects – political backing can result in subsidies, regulatory issues, and have long-term effects on the Canadian economy.

1. Intro

Trans Mountain’s toll will determine who pays for one of the largest cost overruns in Canadian history—and right now, Canadians are on the hook for roughly $19 billion. By relying on a 2013 toll formula, oil companies can ship on the TMX pipeline while covering less than half of the project’s true cost, turning a “nation-building” pipeline into a massive public subsidy. That financial shortfall isn’t just an accounting problem: it raises real concerns about long-term safety, maintenance, spill response, and climate impacts. How this case is resolved could also set a dangerous precedent for how other “nation building” projects are treated by regulators—by being allowed to bypass basic user-pay principles. If TMX is permitted to operate at a loss by design, future public-backed megaprojects may follow the same path, shifting risk from industry to the public. The outcome of these negotiations will shape not only TMX’s future, but the credibility of Canada’s infrastructure and energy policy going forward.

On October 27, 2025, the Canada Energy Regulator (CER) granted a request by Trans Mountain to pause the interim toll hearing that had been ongoing since June 2023.

The toll hearing is important because it is where the Trans Mountain expansion project’s (TMX) cost overruns hit the fan. The tolls determine how much Trans Mountain’s oil company customers (aka ‘shippers’) will pay to use the pipeline. Trans Mountain had asked the CER to apply a toll methodology that the National Energy Board (NEB, the precursor to the CER) approved in 2013, before the NEB had even reviewed the TMX pipeline and tanker project.

Trans Mountain requested the pause so it can negotiate a new toll with its oil company customers. The 2013 toll methodology resulted in significant disagreement in the CER hearing and raised serious questions by the CER and intervenors.

At the heart of this disagreement is a cost sharing mechanism in the 2013 toll methodology, which limits Trans Mountain from recovering certain cost overruns.  Applying the 2013 toll methodology to the 2025 budget results in a toll that recoups less than half of the project’s $34 billion cost, leaving about $19 billion in cost overruns to be absorbed by Trans Mountain’s owners, the Canadian public.

In the meantime, Trans Mountain’s oil company customers – including Canadian Natural Resources Limited (CNRL) and Cenovus Energy Inc. which together hold nearly half of the pipeline’s committed capacity – spent much of their efforts in the hearing  trying to chip away at their portion of the project costs, with their expert evidence suggesting that the tolls should be lowered by billions of dollars below Trans Mountain’s already heavily subsidized request.

Tsleil-Waututh Nation (TWN) was the only intervenor in the hearing advocating for a higher toll, based on well-established regulatory ratemaking principles and industry standard financial analysis.

Now that the hearing is paused, the big question is whether Trans Mountain will negotiate a better or worse deal for Canadians. In this blog post, we look at Trans Mountain’s actions since becoming a Crown corporation and suggest that Canadians have reason to worry.

The Trans Mountain Expansion was deemed in the ‘national interests’ by the federal government in 2018, when Ottawa bailed out the project after Kinder Morgan decided to walk away. That makes TMX a ‘project of national interest’ (PONI) before the current federal government started labeling PONIs or other nation building projects. In this regard, TMX can also serve as a warning sign for what can go wrong when a government determines a project is in the national interest prematurely – cost overruns, financing challenges, accounting magic and regulatory dilemmas. The lessons from TMX are even more relevant to the recently announced Memorandum of Understanding supporting an Alberta north coast oil pipeline.

2. TWNs Participation in the hearing

Tsleil-Waututh Nation (TWN) has participated extensively in many NEB and CER processes related to TMX since it was first proposed. The original Trans Mountain Pipeline, the expansion project, and related infrastructure including the Westridge Marine Terminal and Burnaby Mountain Tank Farm, lie in the heart of TWN’s territory. TMX directly affects the Nation’s rights and title, culture and identity, and traditional and contemporary economies, as set out in our independent assessment.

TWN engaged in this interim toll hearing because the evidence filed by Trans Mountain and intervenors confirms that the economic benefits and financial viability that were used to justify the project approval no longer exist. Trans Mountain (and its owners, the Canadian public) are responsible for approximately $19 billion in project costs as the 2013 tolling methodology limits the costs that can be passed on to oil shippers, compromising Trans Mountain’s financial integrity.

For TWN, Trans Mountain’s compromised financial integrity is a major concern because it could lead to cuts to pipeline maintenance spending, integrity testing, and oil spill response – risks TWN identified in the previous hearings and Crown consultation that have never been adequately resolved. Indeed, Trans Mountain was recently fined for four separate violations of its Environmental Protection Plan, after “CER Inspection Officers observed several deficiencies in maintenance, inspection, and functionality of drainage, erosion and sediment control measures.”  On top of all that, every dollar not recovered in tolls represents a subsidy to the oil companies who use the pipeline, enabling expansion of the oil sands and furthering the climate crisis.

There has been unprecedented change since the NEB approved Trans Mountain’s toll methodology in 2013. The pipeline’s owner changed from Kinder Morgan to a publicly-owned Crown corporation; many of the original shippers are no longer active in Canada; and even the regulator has changed from the NEB to the CER. Most significantly, project costs exploded from $5.4 billion to $34 billion. Once project costs exceeded $7.4 billion, the cost sharing terms of the 2013 toll methodology meant Trans Mountain’s financial situation worsened as project costs grew.

3. The Toll hearing to date

Far from the quick 10-week approval process that Trans Mountain wanted, the hearing has stretched into months and then years. At the time Trans Mountain asked the CER to press pause, the hearing was scheduled to include four weeks of cross examination in November and December 2025, and one week of final oral arguments in March 2026, with a decision in the following months.

In addition to TWN’s participation, a number of oil company shippers were active intervenors, including:

• Canadian Natural Resources Limited (CNRL);
• Cenovus Energy Inc.;
• BP Products North America Inc.;
• ConocoPhillips Canada Resources Corp.;
• Marathon Petroleum Canada; and
• Suncor Energy Marketing.

One non-committed shipper, HS Sinclair, was also active in the hearing.

A mountain of evidence

The hearing record includes Trans Mountain’s evidence, as well as expert evidence from the shippers and from TWN. It includes several rounds of information requests and responses, resulting in a lot of dense, technical evidence, including thousands of spreadsheets. Some of the evidence was subject to confidentiality, due to commercial sensitivity.

The shippers mostly worked together to file expert evidence and information requests. Their evidence was primarily about how Trans Mountain allocated the costs passed through to the shippers via tolls, and the oil companies were building an argument that they should pay billions of dollars less in tolls than what Trans Mountain applied for. One expert report suggests a $3 billion reduction in costs to shippers, while another proposal would reduce the annual 2.5% toll increases, resulting in billions of dollars that Trans Mountain would not recover.

4. TWN Expert Evidence

TWN’s expert evidence applies commonly used tools for financial analysis and finds that the proposed tolls will compromise Trans Mountain’s financial viability, including its ability to meet its substantial debt repayments.

The TWN report concludes that Trans Mountain’s tolls will result in a $20 billion shortfall based on a Net Present Value (NPV) analysis, that the Internal Rate of Return (IRR) for the project has fallen from 12-15% to 3-4%, and that every dollar not covered by the tolls and absorbed by the public purse is a public subsidy.

The TWN report also critiques Trans Mountain’s approach to its financial outlook, finding that it is an optimistic ‘best case scenario.’ We’ll return to this later.

TWN’s expert report concludes that Trans Mountain’s tolls are not just and reasonable and recommends that the CER direct Trans Mountain and the shippers to negotiate a more appropriate toll that is not only higher but recovers the full cost of building the pipeline. This is what the TWN expert report recommends consistent with the CER’s user pay principle—the companies who benefit from using the pipeline should pay for it.

According to the shippers, TMX’s operation has improved their bottom line, meaning the shippers can afford to pay the higher tolls to Trans Mountain and still be better off than if the pipeline had not been built.

5. Will Trans Mountain stand up for Canadians?

So, should we trust that Trans Mountain will stand up for Canadians in its negotiations with the oil companies? If past actions are the best indicator of future behavior, there is reason to worry.

Since Ottawa bailed out TMX in 2018 (paying  $1 billion more than it was worth after being ‘gamed’ by Kinder Morgan), it has not been “built and operated on a commercial basis” as former Finance Minister Bill Morneau committed.

Indeed, the opposite is true. Trans Mountain has been accused of using corporate shells and engaging in accounting magic to obscure its full financial picture.

Unfortunately, this trend continued when Trans Mountain filed the application to start the toll hearing in 2023.

In order to try and justify its low toll, Trans Mountain resorted to using new, unconventional and misleading financial metrics to blur its true financial situation. For example, Trans Mountain initially used an ‘average return on equity’ as a financial viability metric. After the serious weakness of that approach became apparent through the written question process, Trans Mountain used a new ‘Levelized Return on Equity’ (Levelized ROE) metric.

Levelized ROE as Trans Mountain has calculated it is not a recognized approach in financial analysis. The calculation is designed to produce returns that look acceptable but violate fundamental financial concepts and principles.

The results generated by Trans Mountain’s unique formula are exaggerated—they are roughly double the figures arrived at by industry recognized financial metrics such as Net Present Value (NPV) and Internal Rate of Return (IRR), which Trans Mountain and regulators have used historically to assess project viability and profitability.

Trans Mountain has never used a Levelized ROE approach to measure return or viability before and could not provide examples of it having been used by other firms, in financial literature or in regulatory hearings in Canada or the US. The company did not clarify why it abandoned established NPV and IRR analysis, nor did it attempt to justify how Levelized ROE connects with mainstream risk and return frameworks.

In addition to unconventional and misleading financial metrics, Trans Mountain also relied on optimistic assumptions about usage of its uncommitted (or spot) capacity. When it became clear that this demand did not materialize in the first year of operation, the company was forced to re-forecast a lesser amount, further eroding its already poor financial integrity.

Trans Mountain’s usage (or throughput) numbers are also murky because of ‘make-up’ barrels – barrels that committed shippers pay to ship in one period but are carried over into future periods. Make-up barrels overstate current demand, but this impact is not identified in Trans Mountain’s figures.

Finally, and importantly, Trans Mountain buried some of its debt obligations through a process called recapitalization. This accounting trick – shifting debt to equity – while legal, means that Canadians will never be fully paid back the nearly $40 billion they have loaned to Trans Mountain since 2018 to buy and build TMX.

Trans Mountain’s failure to operate on a commercial basis has put the CER in a difficult position, as TWN has noted on several occasions in our submissions to the CER. The CER’s application-based system is based on the presumption that the applicant will act in a commercial manner. A privately owned company such as TC Energy or Enbridge, Trans Mountain’s competitors in the pipeline business, would never have filed an application to recover only $0.45 of each dollar spent. In this sense, Trans Mountain forced the CER to answer a question it was not designed to be asked.

Trans Mountain’s Reply Evidence

Trans Mountain’s reply evidence gives a peek into the dynamics of the toll re-negotiation currently underway. It demonstrates that Trans Mountain understands the problem with tolls that are too low.

In response to the shippers’ proposed lower toll, Trans Mountain states:

[17] No regulated entity would undertake a project of this magnitude and risk for this level of return. Similarly, no regulated pipeline, including Trans Mountain, should be expected to accept the risks inherent in constructing, owning and operating a pipeline for this level of return. This provides prima facie evidence that the positions advanced by CNRL and the Participating Shippers are unreasonable on their face.

[…]

[23] Trans Mountain would not be financially viable as it would not have the opportunity to earn a fair return within the contract period due to an extraction of significant equity value from the pipeline.

In other words, in Trans Mountain’s view, its proposed toll is a bare minimum for financial viability, and that’s only if you accept its optimistic forecasts and unconventional financial metrics.

Meanwhile, the shippers’ experts suggest that recovering costs or earning a fair return is not necessary because Trans Mountain is a Crown corporation. “[I]n the circumstances of this application, it is not necessary for the [Government of Canada] to recover all of its as-spent costs […] It would not be unreasonable for the GoC to bear some of the costs of the TMEP with no direct compensation.” (p.104)

This sets a benchmark for the ongoing toll negotiations: any toll that is lower than the current proposed toll will be an even larger subsidy for the oil companies, while a higher toll would recoup more of the nearly  $40 billion Canadian’s have loaned Trans Mountain since 2018.

Trans Mountain’s reply also offers a warning for the “nation-building” projects that are set to receive special regulatory treatment, with some awaiting final investment decisions.:

[56] If the CER were to accept CNRL’s request to make the “discrete adjustments” to the approved toll methodology, it would effectively signal that government-owned infrastructure assets in Canada are subject to a different, less favourable financial treatment. This could introduce a “risk premium” for all future infrastructure projects, even those primarily involving private capital, if investors perceive that government involvement (or the potential for it) could lead to expropriation of market-based returns. This outcome would increase the cost of capital for all major projects in Canada, ultimately harming the broader Canadian economy and its ability to attract investment for both critical infrastructure development and maintenance capital. Canada competes globally for capital to fund its infrastructure and energy projects. If the CER is perceived as applying arbitrary or ownership-dependent financial rules, it could negatively impact Canada’s reputation as a stable and predictable investment destination. This could lead to higher borrowing costs for all Canadian entities, both public and private, and a reluctance of foreign capital to enter the market, ultimately hindering Canada’s economic development and its ability to fund future strategic projects, (emphasis added)

So, it appears that Trans Mountain understands that its toll is a bare minimum, and that the proposals from the oil companies would have a negative impact on the broader Canadian economy and could hinder future strategic projects. What remains to be seen is whether they will stand up to the oil companies in their negotiation.

6. Subsidies (aka “socialized costs”)

Perhaps most alarming about the current negotiation is that both Trans Mountain and the shippers support a toll that will not recover project costs, and they won’t even admit that it will be a huge subsidy.

The shippers avoid TWN’s characterization of Trans Mountain’s unrecovered costs as a subsidy, but CNRL’s expert, Mr. Booth, suggests that “it is not necessary for the [Government of Canada] to recover all of its as-spent costs.”

Trans Mountain’s expert, John Reed, characterizes this as “socialized” cost.

No matter how you spin it, whatever project costs Trans Mountain cannot recover from tolls will be absorbed by its owner, the Canadian public, and would meet the definition of subsidy set by the World Trade Organization.

7. So, what’s next?

Trans Mountain will provide an update on the negotiations in early February 2026. The update could be:

(a) a new toll or toll methodology;

(b) that negotiations are ongoing, and they need more time; or

(c) that negotiations have stalled, and the hearing should be resumed.

Should the negotiation result in a new toll or toll methodology, the CER would need to approve it. In order to do so, the CER could launch a new hearing.

What is certain is that Prime Minister Carney and Finance Minister Champagne and Minister Tim Hodgson (among others) will face tough questions: if TMX loses more money for Canadians, and distorts the regulatory system in the process, what could it mean for any new nation-building projects that receive federal support?

And given TMX’s dismal financial record, which private company would even consider building a new north coast oil pipeline as contemplated in the recent Alberta Canada MOU?

8. Final Thoughts

Trans Mountain is not just a troubled pipeline; it is a stress test for Canada’s regulatory system and its willingness to protect the public interest when powerful commercial actors are at the table. If the toll negotiations lock in a deal that recovers only a fraction of TMX’s true costs, Canadians will have quietly accepted one of the largest industry subsidies in the country’s history—without transparency or accountability. That outcome would reward cost overruns, normalize non-commercial operation of public infrastructure, and signal to future project proponents that financial discipline is optional once a project is labeled a “project of national interest.”

Canadians could be saddled with more debt and risk with more PONIs on the horizon.