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Costs Mount With Energy East Delays, Gas Distributors Say

Delays spell "considerable" cost hikes for the Energy East scheme, said natural gas distribution companies that are fighting bills generated by the proposed partial conversion of TransCanada Corp.'s national Mainline to oil service.

Inclusion of liabilities for the project's development expenses in contracts for gas deliveries beginning in 2016 and 2017 amounts to "bald exercise of market power" by TransCanada, said Enbridge Gas Distribution Inc. and Union Gas Ltd. (Spectra).

The prediction and accusation figure in a final statement of the distributors' case before rulings on whether the National Energy Board (NEB) has authority to settle the dispute and on a formal process for dealing with the complaint.

Enbridge and Union point to an official corporate acknowledgement that costs are on the rise after two postponements of the target date for completing Energy East.

TransCanada made the admission in its first-half 2015 financial statement, which also delayed the project's in-service target to 2020.

The goal was 2018 when the plan was unveiled in mid-2014, then set back to 2019 last spring after environmental resistance prompted TransCanada to scrap plans for an oil export tanker terminal on the St. Lawrence River in eastern Quebec.

At the same time, Enbridge and Union said they were made to accept up to C$660 million (US$528 million) in liabilities arising from Energy East as conditions on contracts to maintain adequate gas deliveries to their 3.4 million customers in southern and eastern Ontario.

Enbridge said it only signed its share of the contracts because failing to reserve the space now would leave its national capital franchise territory in the winter storm-prone Ottawa area 25 per cent short of peak heating season gas requirements.

TransCanada's original cost forecasts add up to C$13.5 billion (US$12 billion): C$12 billion (US$10.7 billion) for the partial gas Mainline conversion to oil and an extension to an east coast tanker port, plus C$1.5 billion (US$1.2 billion) to build a new gas Eastern Mainline for Ontario and Quebec.

The pipeline company has only sounded a warning to shareholders that costs are on the way up as the Energy East scheme evolves and slows down, but no fresh forecasts have been disclosed.

TransCanada is currently scheduled to submit project amendments to the NEB later this year, enabling the board to make a key ruling in early 2016 on whether the Energy East and Eastern Mainline construction applications are complete. The ruling will trigger a legislated 15-month legislated deadline for finishing regulatory approval reviews.

The cost dispute raises a possibility of further delay. The gas distribution companies said responsibility for project expenses should be clarified in advance of brisk proceedings on complex construction, safety and environmental issues which are liable to leave little time for no less complicated economic matters.

Enbridge and Union said they face "real and substantial" risks of being held liable for big and growing costs of TransCanada's grand design. "Certainty" that old gas customers will not be unfairly made to pay for new oil service "is required well before the Energy East applications are considered by the NEB," said the gas distribution companies.

TransCanada is on its own in the cost dispute. No oil shippers have stepped forward to support the pipeline's method of covering expenses for developing the plan to carry 1.1 million b/d. Nor have governments of the western oil-producing provinces.

The Ontario and Quebec ministries are backing the complaint by Enbridge and Union. Their declared industry supporters include Gaz Metro in Quebec, Centra Gas in Manitoba, Utilities Kingston in eastern Ontario, Northland Power in Toronto, the Canadian Industrial Gas Users Association, fabric and building materials manufacturers Morbern Inc. and Iko Industries Ltd., Ontario Power Generation, TransAlta Corp., and three customers of TransCanada gas export services in the U.S.: New York State Electric and Gas Co., St. Lawrence Gas Co. and Alberta Northeast Gas, a supply procurement agency of distribution companies in New England, New York and New Jersey.

The NEB has made no promises about when rulings on how the dispute will be made but is expected to act as soon as it can wade through the factions' regulatory arguments, to keep to a minimum the delays developing in the Energy East plan.

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