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Quebec Regulator Backs Utilities on TransCanada Mainline Conversion Costs

Quebec’s public utilities board has thrown its weight behind distribution company demands for national protection against the costs of TransCanada Corp.’s proposed Energy East partial conversion of its natural gas Mainline to oil service.

The C$12 billion (US$10 billion) project poses a risk that distributors could “cross-subsidize” the plan by paying too much for new capacity that TransCanada proposes to build to replace conversion losses, the Regie de l’energie said in a report Wednesday.

The document, a review requested by the Quebec government, says Energy East also has potential to create consumer savings -- but only to the extent that its effects stay confined to eliminating costs of excess capacity on western legs of the national Mainline.

“Such a [controlled] conversion could help limit increases in transport fees for natural gas,” the Regie said in one part of its conclusions, which drew immediate praise from TransCanada executives.

But the Regie’s report also echoes warnings that there is no room to spare on eastern legs of the Mainline by Canada’s top gas distributors: Union Gas (Spectra) in southwestern Ontario, Enbridge Gas in Toronto and eastern Ontario, and Gaz Metro in Quebec.

The Quebec regulator forecasts that gas demand in its jurisdiction will grow by an average 2% per year and points out that a provincial ban against fracking in populated regions of French Canada rules out development of local shale supplies.

The distribution trio has asked the National Energy Board (NEB) to hold a special inquiry into Energy East’s effects on Ontario and Quebec gas prices and delivery costs before accepting TransCanada’s application as complete and ready to enter the hearings stage. Federal legislation sets a 15-month time limit on deciding major pipeline cases.

The Energy East package includes a construction application for more than C$1 billion (US$850 million) in facilities to maintain the status quo in Mainline gas service. The distribution companies say TransCanada and oil shippers should foot the whole bill.

“Energy East was designed to serve oil shippers above all,” the Regie said.

“The gas element of this project introduces costs and risks that natural gas shippers do not bear now. TransCanada should review the project so as to ensure that gas shippers won’t cross-subsidize the oil portion of the project.”

The NEB has not yet ruled on a formal request by the distribution companies for a separate, preliminary inquiry into Energy East’s effects on gas delivery costs and prices. But a proposed issues list, circulated by the board this week to case participants, suggests considering the Ontario and Quebec gas grievances simultaneously with all other special topics covered in TransCanada’s 30,000-page application.

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