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NW Territories Calls for NEB Control Over Nova

NW Territories Calls for NEB Control Over Nova

On the heels of a spectacular discovery on its turf, Canada's Northwest Territories has tossed a red hot potato into the lap of the nation's natural gas community. The government in Yellowknife is calling on the National Energy Board to take control of the 11,000-mile Nova pipeline grid's tolls and development away from the Alberta government.

A formal legal demand by the territories says the time has come to end a division of powers that has lasted for 45 years since the Alberta legislature created Nova, as Alberta Gas Trunk Line, to build the grid as an instrument of provincial economic development policy under the supervision of provincial regulators. The tradition has been rendered obsolete by expansion of the gas industry and the 1998 takeover of Nova Corp.'s gas transportation operations by TransCanada PipeLines Ltd., according to territorial leaders.

Service and tolls on the Nova grid are key factors in prospects for northern gas development - but attempts by territorial authorities to break into the inner circle that controls the system have been repeatedly rebuffed. The demand was crafted at the same time Chevron Canada dramatically demonstrated the North's gas potential with a discovery in the Liard area in the southern territories. A single well found reserves of 400-600 Bcf, which it is expected to produce at a rate of up to 100 MMcf/d.

Replies to the territorial appeal have not yet started to surface before the NEB, although industry sources say the demand has ignited a flurry of activity among gas producers, shippers, transporters, marketers, regulators, governments and their lawyers. The NEB has yet to decide to hold special hearings, incorporate the issue into other cases involving TransCanada or refer it to the courts as a national duel over constitutional divisions of powers and resource rights. A similar dispute in the early 1990s over Nova's British Columbia counterpart, Westcoast Energy, ended up in the courts. The NEB was awarded jurisdiction over Westcoast, over claims by the B.C. government.

The action on Nova comes as no surprise to industry veterans, who have been waiting for it almost since the beginning of deregulation and integration of the Canadian gas industry with its American counterpart. The dean of Canadian oil and gas lawyers, John Ballem, predicted eight years ago that it was only a matter of time before a challenge to the old order like the territorial demand came along. In a celebrated 1991 paper in the Alberta Law Review, Ballem also warned that a legal appeal would have strong chances of ending what he called Nova's "charmed life." Even at that time, before the Westcoast ruling and smaller cases decided Ottawa's way since, Ballem observed that virtually all the precedents favor federal control over major installations like the Nova pipeline grid.

Numerous cases had evolved a legal "test" with predictable results. Canadian courts repeatedly have ruled that if facilities within one province are "essential" for national or international transportation, they are under federal jurisdiction. About four-fifths of the gas flowing in the Nova grid goes to long-distance pipelines to the U.S. and central Canada.

Ballem warned that an appeal for federal authorities to take over supervision of Nova could be lodged by any organization dissatisfied with its tolls or access to its lines. The demand by the Northwest Territories is such a case.

The territorial government's lawyers - the Vancouver firm of Lawson Lundell Lawson & McIntosh, which includes departing NEB member Diana Valiela as of June 1 - say their client needs "relief" from the way the Nova grid's affairs are handled now. The appeal says territorial authorities repeatedly attempted - only to be rebuffed - to get in on negotiations on a new tolling system among Nova, the Canadian Association of Petroleum Producers and the Small Explorers and Producers Association of Canada.

The Northwest Territories stands to lose under the new system, which is now awaiting approval by the Alberta Energy and Utilities Board. The change creates distance-based rates - the farther gas travels, the higher the tolls - to replace a "postage-stamp" fee set at a uniform level regardless of where production originates. Territorial authorities point out development of northern gas depends on access to markets across the Nova and Westcoast grids within Alberta and B.C. The territorial government points out that while northerners have a say at the national level before the NEB on Westcoast services and tolls, they have no such recourse in Nova's case. The territorial appeal for a change says switching to federal control over Nova "will permit the NEB to ensure that the tolls and tariffs for the Alberta system are designed in a manner consistent with those applying on the Canadian system (of TransCanada), and will ensure that the tolling methodology reflects the need to encourage continued exploration and development of new natural gas reserves wherever located within Canada."

While Westcoast has built an extension into the Northwest Territories, delivery options via the B.C. grid are limited. Nova has yet to reach into the territories. The territorial government suggests that regulatory politics are to blame. A border crossing would erase any claim for the Nova system to stay under Alberta jurisdiction, and protecting this "provincial status" by refusing to extend the lines "serves as a significant impediment" to delivering northern gas, the territorial government said.

The appeal suggests that Nova's special status also is steadily becoming less deserved because TransCanada continues to integrate the operations and staff of the Alberta pipeline grid into a "seamless" system spanning the continent. While TransCanada has always been under federal jurisdiction, it was able to keep Nova's special provincial status at the time of the takeover by assuring the NEB that the Alberta grid would stay a separate legal entity for purposes of tolls and services.

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