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NEB Scrutinizing Entire BC NatGas Transportation Grid

Recurring international disputes over separate delivery branches have escalated into a potential overall review of pipeline tolls and services for natural gas exports out of British Columbia (BC).

While rejecting an appeal to reverse a ruling on the latest network addition, the National Energy Board (NEB) has commissioned Vice Chairman Lyne Mercier to determine if a review of the entire BC gas transportation grid is warranted.

The review will be held if popular demand, especially by western U.S. gas importers, sways Mercier. Her assignment grew out of protest against the status quo by Washington, Oregon and California distribution companies and pipelines and their main Canadian link to BC supplies.

The U.S. chorus demanding a new deal, organized as the Western Export Group and Export Users Group, includes Cascade Natural Gas Co., Portland General Electric Co., Puget Sound Energy Inc., Northwest Natural Gas Co., Northwest Pipeline LLC, Avista Corp., Pacific Gas & Electric Co., Sacramento Municipal Utility District, San Diego Gas & Electric Co., Southern California Gas Co. and Sierra Pacific Power Co. North of the border, FortisBC Energy Inc. and Westcoast Energy (Spectra) are aligned with the Americans.

The alliance formed as a united front against an NEB ruling that enables TransCanada Corp.'s Alberta and BC supply collection grid, Nova Gas Transmission Ltd. (NGTL), to build a major new siphon out of the Montney Shale supply development region. Construction starts this month on the project, named Towerbirch after its service area and designed to start with initial Montney gas flows of 590 MMcf/d.

The board granted NGTL permission to cover the C$470 million ($352 million) cost of the new pipeline leg along the west side of the Alaska Highway with "rolled-in" tolls -- the same bargain rates charged by its half-century old Alberta network.

The protest coalition appealed for reversal on grounds that the ruling gave NGTL unfair competitive advantage against the Westcoast-Spectra pipeline family and enables gas to be diverted to Alberta, central Canada and eastern U.S. markets.

Although one of three members on the NEB's Towerbirch approval panel dissented from the tolling decision, the board said the appeal failed to satisfy its procedural requirements for prompting a second look at the outcomes of cases.

Instead, the NEB immediately issued an announcement of Mercier's directive to examine "the competitive landscape in BC." Her mandate includes the tolling methodologies and tariff provisions of the province's major systems: Alliance Pipeline as well as NGTL and Westcoast-Spectra.

"These companies, each with distinct tolling methodologies and tariff provisions, compete for gas supply and transportation in a geographically concentrated area," said the NEB.

"In the past, facilities applications in Northeast BC have been contested on commercial grounds. In addition, parties have requested that the board undertake a generic inquiry regarding tolling in Northeast BC, outside of the confines of any particular facilities application."

Especially in Westcoast-Spectra's case, costly stand-alone toll to pay for network additions arises from the formerly separate evolution of the BC and Alberta pipeline networks. Until TransCanada bought NGTL parent Nova Corp. in 1998 for C$14 billion ($10.5 billion), both were confined to their home provinces.

Under the old regime, the NEB regulated the BC system. The Alberta Energy Regulator’s ancestor supervised NGTL. The takeover enabled TransCanada to expand NGTL into BC. The NEB acquired jurisdiction over both provincial pipeline grids.

The patchwork of uneven toll regimes and competitive advantages rooted in history has potential to affect cross-border trade in gas, the U.S. importers told the NEB during the Towerbirch project review.

The U.S. coalition reported that imports account for nearly two-thirds of 2 Bcf/d of U.S. deliveries by Northwest Pipeline, and 80% of the Canadian gas comes from Westcoast. The U.S. firms receive only the one-fifth minority of their imports from NGTL and say increasing deliveries from the Alberta system would require costly, time-consuming pipeline additions.

The NEB gave all concerned a deadline of April 21 to make submissions on a possible BC inquiry process, factors that should be taken into account and the scope of the review.

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