TransCanada PipeLines Ltd. won a reprieve from a feared revenuehemorrhage but lost a battle for rights to administer strongmedicine of its own making against recurrences of the threat. In aruling on lengthy, hard-fought winter hearings, the National EnergyBoard authorized TransCanada to raise floor prices forinterruptible delivery service on excess capacity to 80% of ratesfor firm service from 50%, effective May 1. But the NEB rejectedpleas by the pipeline to decide independently on setting variableminimum charges on leftover space depending on its reading ofmarket conditions.

It was a landmark decision on how much freedom TransCanada willbe granted from traditional cost-of-service regulation to counternew competition, chiefly from Alliance Pipeline after itscompletion in October. The NEB ruling sided with natural gasshippers and producers in maintaining regulatory supervision oftolls and in setting the discount allowed for selling sparecapacity.

TransCanada sought flexibility to set reserve bids or floorprices for daily auctions of interruptible capacity in a rangebetween 65% of firm-service tolls in summer and 125% in winter. Thepipeline’s marketing affiliate — TransCanada Gas Services —also unsuccessfully suggested that its parent should be allowed tocreate an “access charge” that would minimize the revenue damagefrom shippers dropping long, firm-service contracts.

TransCanada requested the changes after shippers dropped 580MMcf/d in firm-service contracts as of Nov. 1. The loss was blamedon the emergence of excess capacity in the Canadian pipeline systemwhich is widely rated as likely to reach 2 Bcf/d in the monthsfollowing Alliance’s completion and stay there until drillingactivity can catch up with the transportation grid’s expansions.TransCanada predicted the “decontracting” could reach 1.8 Bcf/d asof this November or about 25% of its capacity, potentiallyresulting in toll hikes exceeding 50% to C$1.56/ gigajoule(US$1.08) by 2004 for remaining holders of firm service.

The new 80% floor was recommended by key holders of firmcapacity on TransCanada, chiefly central Canadian localdistributors that require the traditional arrangements to underpincommitments to serve “core” markets of small-volume, space-heatingcustomers in their franchise areas. Other shippers, and especiallythe Canadian Association of Petroleum Producers, opposed lettingTransCanada control prices of spare capacity on its own andindicated willingness to let the floor rise to the extent it couldbe justified by costs of service. Some increase was generallyconceded to be reasonable, in light of strengthening Canadianprices that have raised the cost of gas used for pipelinecompressor fuel.

Throughout the case, industry sources described it as only thefirst round in a long process ahead of adapting transportationservices and regulatory oversight to the budding new era ofpipeline competition in Canada. TransCanada has repeatedly promisedto try to negotiate new arrangements to let it compete effectively,and the fight over floor prices for spare capacity only developedwhen prolonged discussions broke down late last fall.

The NEB ruled that a combination of an increased floor price onspare capacity and continued restrictions on varying it remainappropriate under current Canadian conditions.

TransCanada’s critics vehemently pointed out that it continuesto own by far the dominant share in the transportation-servicesmarket, even excluding its subsidiary Nova gathering grid in theprincipal Canadian gas fields in Alberta. While Alliance has 1.325Bcf/d in firm bookings and expects to carry 1.5 Bcf on average outof British Columbia as well as Alberta when it enters service, themain TransCanada system alone has about 7.2 Bcf/d of capacity.TransCanada’s exit capacity from Alberta adds up to 12Bcf/dcounting its 100% ownership of the Alberta Natural Gas inlet toPacific Gas Transmission and 70% of the Foothills Pipe Linesgateway into the Northern Border system.

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