The promised new era of competition is officially off andrunning in Canadian gas transportation after the National EnergyBoard approved a small project with large implications, AECSuffield Gas Pipeline Inc.

The ruling is a landmark package that included authorizing abypass around Nova Corp.’s 40-year-old franchise in the chiefgas-producing province of Alberta, introduction of “market-based”negotiated tolling, and rejection of attempts to preserve the oldorder by the Alberta Department of Energy and environmentalists.

AEC Pipeline, wholly-owned by Alberta Energy Co., was told to goahead and build by Nov. 1 a C$22.8-million (US$16-million), 72-mileroute for 175 MMcf/d of capacity from the parent company’s prolificSuffield field in southeastern Alberta to a connection withTransCanada PipeLines in southwestern Saskatchewan at Burstall.

The construction application ignited a hot flurry of protests byNova when it was made last September, as an allegedly unnecessaryduplication of facilities that would reduce use of the traditionalgrid and generate rate increases under traditional cost-of-servicetolling enforced by the Alberta Energy and Utilities Board. Thefight lasted until late spring, when Nova withdrew all itsobjections to comply with the spirit of an accord on competition itand TransCanada signed with Canadian gas producers’ tradeassociations. The old-line transporters agreed to switch ratherthan fight, by working on new approaches that will let them competeon an even footing with upstarts like AEC Pipeline.

The new bypass departs sharply from Canadian tradition with amarket-based tolling system, where shippers negotiate fixed ratesfor the lifetimes of service contracts and earn discounts bysigning long-term agreements. AEC’s shippers, primarily AlbertaEnergy’s AEC Marketing and also GEX Resources and Channel LakePetroleum, estimate they will achieve annual savings of C$6.2million (US$4.4 million) compared even to revised, distance-basedrates under negotiation between Nova and the rest of the Canadianindustry. AEC shippers pay fixed rates ranging from C14.7 cents(US10.5 cents) per gigajoule under 20-year service contracts toC17.5 cents (US12.5 cents) under five-year deals.

Allowing for the customary reserve of Canadian regulatorylanguage, the NEB gave the new tolling regime a ringingendorsement. The board observed that the negotiation approach torate-setting and the system of fixed rates relieves shippers ofrisks of increases associated with regulated cost-of-service tollswhile letting the pipeline builder earn as much profit as it can bybeing efficient with both construction and operating expenses. Andnot least, the new approach achieves a long-stated goal of the NEBleadership, including new chairman Ken Vollman as well as retiredpredecessor Roland Priddle, of replacing regulators’ opinions withthe verdict of a market for transportation capacity.

In addition, the NEB makes it plain it believes the presence ofcompeting transportation, far from causing tolls to riseautomatically to cover overlapping service offerings, will serve asa built-in check on rates. The board observed “shippers have thealternative of utilizing Nova’s system for transportationservices.” Gordon Jaremko, Calgary

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