TransCanada Corp. is defending a C$1.14 billion ($910 million) natural gas pipeline toll revenue surplus against demands for a refund in the form of rate cuts for shippers squeezed by supply gluts and low prices in Alberta and British Columbia (BC).
In a contested case before the National Energy Board (NEB), TransCanada says its gas Mainline -- and the entire industry -- need the fat “deferral account” to cushion rough times such as early-2000s weather disasters in the United States.
“In 2005 and 2006, demand for Mainline long-haul transportation increased unexpectedly as a result of Hurricane Katrina and Hurricane Rita negatively affecting production in the U.S. Gulf Coast,” TransCanada said.
“The results were significant [Mainline] positive deferral account balances that were credited the subsequent years based on the annual toll-setting mechanism then in place. Toll reductions of nearly 25% took place between 2004 and 2006 as a result.”
But the American industry turned the tables on Canadian gas suppliers and their biggest pipeline by adding the “shale gale” of U.S. production growth to restoration of capacity that the storms in the Gulf of Mexico only interrupted temporarily.
“These toll reductions were not sustainable and larger increases of approximately 40% followed between 2006 and 2008. This period of instability ultimately led to the implementation of a multiyear tolling methodology,” TransCanada said.
The Canadian Association of Petroleum Producers (CAPP), leading demands for a refund, predicts tolls would drop by 17-36% for three years on Mainline segments if the NEB ordered TransCanada to drain the revenue surplus built up since 2014.
Echoing CAPP, distributor Centra Gas Manitoba Inc. has told the NEB, “TransCanada has more than C$1.1 billion of shippers’ money in the bank and the board need only decide how it should be fairly returned.”
TransCanada describes the Mainline nest egg, titled the long term adjustment account or LTAA for short, as a natural symptom of North American market fluctuations and insurance that will be tapped to prevent steep toll hikes in the future.
“Any model that fixes tolls for a multi-year period will necessarily result in variances, whether positive or negative. This in turn results in shippers in one period paying tolls that do not precisely match the costs incurred to provide service in that period,” the pipeline said.
“It provides market participants with long-term certainty and stability of Mainline tolls, while creating an environment that facilitates the investment required to support the efficient development of natural gas infrastructure in Canada.”
The NEB’s own market monitor reports highlight the pressure on Alberta and BC gas shippers to cut costs.
The benchmark NOVA Inventory Transfer (NIT) price fell to an average C$1.44/GJ ($1.20/MMBtu) for the first eight months of this year, down by 30% from C$2.06/GJ ($1.73/MMBtu) in the same period of 2017.
The price squeeze is getting harder, NEB market records show. In July, the NIT averaged only C$1.19/GJ ($1.00/MMBtu), or 17% off the eight-month average. In August, the benchmark plunged again to C$0.92/GJ ($0.77/MMBtu).
Regulatory review of TransCanada’s Mainline tolls continues, with shipper demands for cuts prolonging a case that was expected to be a routine renewal of the pipeline’s financial arrangements before Alberta and BC gas prices hit hard times.