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Spare Capacity Opens Up On TransCanada

Spare Capacity Opens Up On TransCanada

Vacant capacity on TransCanada PipeLines Ltd. will rise to about 1.7 Bcf/d, or 24% of total capacity, by Nov. 1 as shippers of Canadian gas production turn to transportation alternatives coming available to them for the first time in industry history.

TransCanada reported that 1.1 Bcf/d of firm delivery capacity has been relinquished as of the end of the current contract year. The loss comes on top of about 580 MMcf/d in firm transportation contracts that were dropped as of last Nov. 1. The trend is also spreading to TransCanada's Nova gathering grid in Alberta, which received notices of non-renewals for 2.7 Bcf/d in receipt capacity and 257 MMcf in daily space at its delivery points.

In disclosing the non-renewals, TransCanada predicted new bookings will make up for the lost old contracts on Nova, but was not so optimistic about its long-distance mainline to central Canada and the United States. There will be higher tolls on the mainline for remaining holders of firm-service contracts, TransCanada said.

Just how high the tolls will go remains uncertain. TransCanada has already filed with the National Energy Board for an 11% increase in its benchmark "eastern zone" rate to C$1.009 (US70 cents) per gigajoule from the 1999 average of C$0.906 (US62 cents). In evidence laid before the NEB in recent rate cases, TransCanada has predicted the firm-service toll could jump by more than 50% to C$1.56 (US$1.08) by 2004.

TransCanada blamed the latest abandonments of firm capacity on an April NEB decision rejecting its proposals for a competitive response when its principal new rival, Alliance Pipeline, goes into service this fall. The Alliance route to Chicago from northern Alberta and British Columbia bypasses both TransCanada's long-distance system and Nova. Traffic is also increasing on other alternatives including Atco Gas Transmission lines within Alberta, Saskatchewan's TransGas system, a southern bypass being expanded by Alberta Energy Co. and the expanded Foothills-Northern Border system.

In the NEB case, TransCanada sought power to vary prices of spare, "interruptible" capacity in a range of 65%-125% of firm-service tolls depending on its readings of market conditions. The NEB, doubting that the excess capacity situation will last for long and acknowledging concerns over TransCanada's remaining market power, instead gave the mainline a raise in interruptible tolls to 80% of firm rates from 50% and refused to grant the request for flexibility. Despite the new pipeline competition, the TransCanada organization continues to carry 77% of western Canadian gas production. Senior vice-president Garry Mihaichuk said "in light of this decision, TransCanada believes there is no real economic incentive for customers to choose long-term firm contracts over IT or STFT (similarly-priced short term firm transportation)."

The NEB ruling said TransCanada can apply for further toll changes "to reflect this changing environment." The board also took note of evidence that "TransCanada and its stakeholders are engaged in broader services and pricing negotiations that may lead for further proposals to short-term pricing methodology to be effective as early as 1 January 2001."

Gordon Jaremko, Calgary

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