TransCanada PipeLines won the opening heat in its race to equipitself for the new era of competition in Canadian gastransportation, but much remains to be decided by a regulatory andnegotiating marathon.

The Alberta Energy and Utilities Board gave TransCanada ahistoric approval to replace uniform, “postage-stamp” tolls withdistance-based rates on its Nova gathering grid in the chiefgas-producing province. But the EUB opened doors for morebargaining with shippers and further regulatory cases by rejectingproposals that amounted to a cash pipeline access fee and a freehand to introduce new services.

The ruling ends a 20-year history of government, regulatory andindustry consensus on using Nova’s tolls as a form of developmentincentive by charging uniform rates regardless of where gas wasfound in 256,000-square-mile Alberta. In negotiations prior to theregulatory case, TransCanada-Nova secured general agreement thatchange was overdue.

The EUB agreed to allow the scrapping, effective in about twomonths, of a postage-stamp toll that stood at about C28 cents/Mcf(US19.3 cents). Under the new regime, charges will be C19.9-35.9cents/Mcf (US13.7-24.8 cents) for shipments bound forout-of-Alberta destinations via Nova connections with long-distancepipelines such as TransCanada’s mainline. Tolls for deliverieswithin Alberta to major domestic markets such as petrochemical andoil-sands operations will be about half the rates forout-of-province shipments, reflecting average distances traveled.

While distance will be the chief driver of the new tolls,exploration of big drilling targets in relatively remote northernareas is not expected to be discouraged because there will be otherfactors that effectively reward large discoveries. Rates for eachshipper will also vary depending on the diameter of pipe theyrequire: the bigger the shipments, the lower the rates. There willalso be reductions for shippers that sign long-term transportationcontracts, by as much as 5% for five-year terms. The new system isintended to be revenue-neutral, and includes a “collar” orcompensating mechanism in case the Nova grid ends up gaining orlosing more than C$5 million (US$3.4 million) annually.

The EUB rejected a TransCanada-Nova appeal to charge an accessfee as cash up front to cover alleged costs of transportationaccounts. The pipeline sought the right to charge each shipperC$48,000 (US$33,000) annually spread over 12 monthly installmentsinvoiced as minimum bills, with the cash to be offset at the end ofeach year by actual transportation fees. Critics described the feeproposal as discrimination against users of the system for domesticgas deliveries, and the EUB agreed.

The board also turned down a TransCanada-Nova request for aright to introduce new services at its own risk – or for its ownreward – without asking regulatory permission first. The pipelineurged the EUB to agree to a system that would rely on complaints totrigger regulatory review. The EUB rejected the request because thepipeline provided no examples of new services. The regulatorsnoting warnings by shippers that the proposal’s wording suggestedold services might just be redefined as new, with tolls modified asand when thought necessary to counter competition.

TransCanada accepted the decision with good grace even thoughthe EUB also refused to comply with a request either to approve theentire package or none of it – a demand made on grounds, alsorejected as incorrect, that the new system was a negotiatedsettlement with the shipper community. Pipeline President DougBaldwin said the favorable decision on distance-based tolls atleast “increases TransCanada’s ability to deal with competition byenabling the company to introduce prices more reflective of costs.”The Nova grid was allowed to keep a discounted-toll rate, known as”load retention service” adopted earlier to fend off a major bypassproposal in southern Alberta. New bypass proposals continue to cropup, and Alberta Energy Co. is moving ahead on plans to build a linebetween southern Alberta and eastern Saskatchewan.

Still to come is a major ruling by the NEB on TransCanada’sproposals for making its long-distance mainline competitive. Theplan centers on a hotly-contested request for permission to setfloor prices for daily auctions of interruptible capacity, which isprojected to open up rapidly as shippers drop long-term servicecontracts and turn to rivals such as the new Alliance Pipeline.

Gordon Jaremko, Calgary

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