The Alberta government and natural gas producers are vowing to stop TransCanada Corp.’s Nova pipeline network from growing like a weed far beyond the province at their expense.

Unanimous resistance has formed against a plan called ASE, short for Alberta System Extension, only three years after all concerned agreed to let TransCanada switch Nova over to federal jurisdiction as a way to add desirable new branches. The scheme will stunt the industry and choke provincial gas royalties with toll hikes of C$467 million (U.S. dollar at par) a year or C$3.6 billion by 2020, the end of TransCanada’s current forecasts, say the Canadian Association of Petroleum Producers (CAPP) and the Alberta Department of Energy.

The ASE is a pillar of a business and financial overhaul that TransCanada has submitted for approval to the National Energy Board (NEB), as way to prune runaway toll increases off its Mainline from Alberta to central Canada and the United States. The “restructuring” formula calls for costs of excess capacity on the long-distance Mainline to be grafted onto the regional Alberta grid. The implant would be done by expanding Nova’s service territory and revenue base to include TransCanada’s network in British Columbia and Saskatchewan.

Costs of a Canadian regime that enable a pipeline to keep on collecting its officially recognized revenue requirements when volumes of shipments deteriorate have been high. As Mainline traffic dropped due to depletion of aging Alberta wells, growing gas consumption by thermal oilsands projects, competition from shale supplies in the United States and changing trade patterns among central Canadian energy consumers, TransCanada’s benchmark Eastern Zone toll more than doubled to its current C$2.24/gigajoule (GJ) ($2.35/MMBtu) from C$1.03/GJ ($1.08/MMBtu) in 2007.

The historic jurisdictional transfer over to the NEB, from Alberta’s Energy Resources Conservation Board, won support on the strength of TransCanada pledges to extend Nova delivery and trading services into hot gas supply development regions of northern BC. The promises are being kept by projects that are currently entering service, under construction and advancing through regulatory approval stages.

The ASE calls for going steps farther by incorporating into Nova, at least for toll calculation purposes, 1,919 kilometers (1,190 miles) of old southern Canadian gas conduits: 615 kilometers (381 miles) of the Mainline across Saskatchewan to the Manitoba boundary, plus 430 kilometers (267 miles) of pipe in two legs of TransCanada’s Foothills export routes across southeastern BC and southwestern Saskatchewan to the U.S. border.

The protesting Alberta government and producers are urging the NEB to retain the original 1950s concept of Nova as a neutral, intermediary delivery grid and marketplace between all the province’s gas fields and long distance pipelines, which were separate companies prior to corporate takeovers by TransCanada.

Viewed through the traditional lens, “The ASE proposal unfairly imposes costs on Nova shippers for services they do not use,” the Alberta energy department says in written evidence filed with the NEB. The scheme spells toll hikes averaging 31% for producers injecting gas into the Nova grid, says a technical brief filed in support of the provincial government by Houston pipeline expert Richard Smead of Navigant Consulting Inc.

As a veteran of the U.S. regulatory regime, Smead describes the ASE as inconceivable in the United States. “A cardinal rule of U.S. regulation has been that the FERC [Federal Energy Regulatory Commission] regulates the pipeline operating company, not the parent,” Smead says. “The notion that ratepayers on any particular pipeline should be forced to pay higher rates because the parent of that pipeline bought something else would have no chance of success at the FERC. In fact, FERC policy tends to look with a high degree of suspicion on any transaction between affiliated companies, so being part of the same corporate family makes it less likely rather than more likely that some restructuring or rolling together of costs would be allowed.”

Alberta gas producers say they see the ASE as an attempt to plant a formula for making them cover costs of TransCanada corporate expansion across North America into Canadian pipeline regulation.

“One of the biggest concerns is that TransCanada is treating Nova as a financial backstop for the Mainline and Foothills, both now and into the future,” says a CAPP submission to the NEB. “TransCanada has not indicated that its ASE proposal has an end point. This raises the question of when, if at all, TransCanada would see an end to the shifting of Mainline costs to Nova, or for that matter the costs of any other business entity that TransCanada controls.”

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