NW Territories Calls for NEB Control Over Nova
On the heels of a spectacular discovery on its turf, Canada's
Northwest Territories has tossed a red hot potato into the lap of
the nation's natural gas community. The government in Yellowknife
is calling on the National Energy Board to take control of the
11,000-mile Nova pipeline grid's tolls and development away from
the Alberta government.
A formal legal demand by the territories says the time has come
to end a division of powers that has lasted for 45 years since the
Alberta legislature created Nova, as Alberta Gas Trunk Line, to
build the grid as an instrument of provincial economic development
policy under the supervision of provincial regulators. The
tradition has been rendered obsolete by expansion of the gas
industry and the 1998 takeover of Nova Corp.'s gas transportation
operations by TransCanada PipeLines Ltd., according to territorial
Service and tolls on the Nova grid are key factors in prospects
for northern gas development - but attempts by territorial
authorities to break into the inner circle that controls the system
have been repeatedly rebuffed. The demand was crafted at the same
time Chevron Canada dramatically demonstrated the North's gas
potential with a discovery in the Liard area in the southern
territories. A single well found reserves of 400-600 Bcf, which it
is expected to produce at a rate of up to 100 MMcf/d.
Replies to the territorial appeal have not yet started to
surface before the NEB, although industry sources say the demand
has ignited a flurry of activity among gas producers, shippers,
transporters, marketers, regulators, governments and their lawyers.
The NEB has yet to decide to hold special hearings, incorporate the
issue into other cases involving TransCanada or refer it to the
courts as a national duel over constitutional divisions of powers
and resource rights. A similar dispute in the early 1990s over
Nova's British Columbia counterpart, Westcoast Energy, ended up in
the courts. The NEB was awarded jurisdiction over Westcoast, over
claims by the B.C. government.
The action on Nova comes as no surprise to industry veterans,
who have been waiting for it almost since the beginning of
deregulation and integration of the Canadian gas industry with its
American counterpart. The dean of Canadian oil and gas lawyers,
John Ballem, predicted eight years ago that it was only a matter of
time before a challenge to the old order like the territorial
demand came along. In a celebrated 1991 paper in the Alberta Law
Review, Ballem also warned that a legal appeal would have strong
chances of ending what he called Nova's "charmed life." Even at
that time, before the Westcoast ruling and smaller cases decided
Ottawa's way since, Ballem observed that virtually all the
precedents favor federal control over major installations like the
Nova pipeline grid.
Numerous cases had evolved a legal "test" with predictable
results. Canadian courts repeatedly have ruled that if facilities
within one province are "essential" for national or international
transportation, they are under federal jurisdiction. About
four-fifths of the gas flowing in the Nova grid goes to
long-distance pipelines to the U.S. and central Canada.
Ballem warned that an appeal for federal authorities to take
over supervision of Nova could be lodged by any organization
dissatisfied with its tolls or access to its lines. The demand by
the Northwest Territories is such a case.
The territorial government's lawyers - the Vancouver firm of
Lawson Lundell Lawson & McIntosh, which includes departing NEB
member Diana Valiela as of June 1 - say their client needs "relief"
from the way the Nova grid's affairs are handled now. The appeal
says territorial authorities repeatedly attempted - only to be
rebuffed - to get in on negotiations on a new tolling system among
Nova, the Canadian Association of Petroleum Producers and the Small
Explorers and Producers Association of Canada.
The Northwest Territories stands to lose under the new system,
which is now awaiting approval by the Alberta Energy and Utilities
Board. The change creates distance-based rates - the farther gas
travels, the higher the tolls - to replace a "postage-stamp" fee
set at a uniform level regardless of where production originates.
Territorial authorities point out development of northern gas
depends on access to markets across the Nova and Westcoast grids
within Alberta and B.C. The territorial government points out that
while northerners have a say at the national level before the NEB
on Westcoast services and tolls, they have no such recourse in
Nova's case. The territorial appeal for a change says switching to
federal control over Nova "will permit the NEB to ensure that the
tolls and tariffs for the Alberta system are designed in a manner
consistent with those applying on the Canadian system (of
TransCanada), and will ensure that the tolling methodology reflects
the need to encourage continued exploration and development of new
natural gas reserves wherever located within Canada."
While Westcoast has built an extension into the Northwest
Territories, delivery options via the B.C. grid are limited. Nova
has yet to reach into the territories. The territorial government
suggests that regulatory politics are to blame. A border crossing
would erase any claim for the Nova system to stay under Alberta
jurisdiction, and protecting this "provincial status" by refusing
to extend the lines "serves as a significant impediment" to
delivering northern gas, the territorial government said.
The appeal suggests that Nova's special status also is steadily
becoming less deserved because TransCanada continues to integrate
the operations and staff of the Alberta pipeline grid into a
"seamless" system spanning the continent. While TransCanada has
always been under federal jurisdiction, it was able to keep Nova's
special provincial status at the time of the takeover by assuring
the NEB that the Alberta grid would stay a separate legal entity
for purposes of tolls and services.