Natural-gas shippers have again been promised they will gainfrom the proposed merger of TransCanada PipeLines Ltd. and NovaCorp., but not before a spell of increased tolls.

In a 1998 rate filing with the National Energy Board,TransCanada predicts “the new organizations” resulting from thecombination with Nova “will benefit shippers through significantoperating and capital cost savings.” The pledge gives no figures ordates. TransCanada just requests creation of a “deferral account”to record costs of implementing the merger, for the NEB to sharearound the gas community in a future tolls case. For 1998,TransCanada seeks a toll increase retroactive to Jan. 1. Expressedas an annual average, the proposed new rate of C90.4 cents (US66.5cents) per gigajoule represents a C3.3-cent (US2.4-cent), 3.7% risefrom 1997. But the increase the filing calls for customers actuallyto pay for the rest of 1998 would be C5.8 cents (US4.3 cents) or6.6% because the plan calls for the bill to be compressed into thelast nine months of the year.

Meanwhile Monday, Nova Gas Transmission announced a significantstep away from postage stamp rates in a new rate design proposalfiled with the Alberta Energy Utilities Board (AEUB). The filingstems from consultation with a multi-party industry task force,which began in early 1997 and wrapped up in January 1998. “Ourcustomer base is very diverse – including large producers, smallproducers, marketers, aggregators and end-users – and these groupshave varying, sometimes conflicting, transportation needs,” saidNGT President Bruce Simpson. “In the coming months, in addition toworking with industry to build understanding for the proposal,we’ll be working with individual customers to enable them tocustomize gas transportation portfolios that best meet theirspecific needs.”

Achieving consensus won’t be easy, as at least one industryobserver predicts Nova’s rate changes will be “divisive.” RickDeWolf, Ziff Energy Group senior vice president, noted the changeswould mean some shippers moving gas within Alberta could end uppaying rates 10 cents higher than those paid by shippers moving gasoutside of the province, which has never been the case in the past.”You’re going to see a fair amount of divisiveness within theprovince, both within the producing community and the consumingcommunity. Some industrials are going to end up paying a muchhigher rate than they used to.” DeWolf added the new rate designlikely would give the Alliance Pipeline project more momentum,noting northern producers moving gas on Nova would be faced withhigher rates under the new rate scheme.

The proposal for new rates follows a settlement by Nova that puta stop to a bypass challenge from the Palliser Pipeline Project.Palliser’s sponsors, led by PanCanadian Petroleum, shelved theproject in exchange for discounted rates, called “load retentionservice” by Nova. The AEUB last winter authorized Nova to pass on75% of the service’s costs to its entire community of shippers.Transportation pricing for gas delivered inside Alberta (under theBasic Service option)will range from $0.04 to $0.27/Mcf – comparedwith the current single price of about $0.13/Mcf. For gas deliveredoutside Alberta, pricing under the Basic Service option will rangefrom about $0.17 to $0.40/Mcf-versus the current single price ofabout $0.26/Mcf. The new approach will be neutral to NGT’sEUB-approved revenues specified under the existing incentiveagreement with customers.

For shippers, the first recovery of some of the TransCanada tollincrease may not be at the expense of the pipelines. Instead,savings are likely to be at the expense of the NEB itself. Theboard made a mistake in directing the gas industry to help paymoving expenses for its relocation seven years ago to Calgary fromOttawa, says TransCanada, citing a ruling by the Federal Court ofCanada in a case involving Ontario Hydro. It was affected by therelocation because the NEB also regulates Canadian electricityexports. The pipeline requests “refund of the amounts improperlycharged” for the move as part of annual cost recovery levies thatthe board collects from industries it regulates, “with interest andappropriate carrying costs.” The amount of money involved is notidentified.

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