With calls for protection against "rate shock" by the National Energy Board (NEB), international and domestic natural gas shippers are fighting the second attempt this winter to raise tolls on TransCanada PipeLines (TCPL).
Selkirk Cogen Partners LP (SCP) says its 345 MW, gas-fired power plant -- which burns Canadian gas exports in Albany, NY -- alone stands to lose C$20 million a year if TransCanada Corp. succeeds with the amended January revival of its rejected December rate request (see Daily GPI, Jan. 10).
"This revised application would see rates as they relate to SCP increase by over 40%. This increase follows a rate increase of equal impact during 2010," the New York power producer said in a filing with the NEB. "At a time when TCPL's customer base is eroding, rates should consider the long-term economic viability of customers."
Cardinal Power of Canada LP likewise predicts dire effects on its Ontario plant north of the St. Lawrence River midway between Toronto and Montreal. "Approval of TransCanada's Jan. 25 application for revised interim rates for 2011 will result in intolerable tolls, cause further rate shock and have material and long-term adverse consequences for gas-fired generators in Ontario," Cardinal told the NEB.
The Association of Power Producers of Ontario (APPrO) urges the NEB to reject TransCanada's latest move, saying the revised toll application spells "economic harm" for gas users that rely on the main pipeline between Alberta, central Canada and export connections to the U.S. Midwest and Northeast. North of the international border, APPrO says the scheme "could significantly disrupt the gas market in Canada."
TransCanada's second application seeks to increase the benchmark eastern zone toll (EZT) on its mainline to central Canada from Alberta to C$2.24 per gigajoule (GJ) (US$2.35/MMBtu) from C$1.64/GJ (US$1.72/MMBtu).
The first version, rejected by the NEB after heated shipper protests just before Christmas, sought either a hike to C$2.90/GJ (US$3.04/MMBtu) or a wholesale restructuring of rates and services agreed upon by the pipeline, the Canadian Association of Petroleum Producers (CAPP) and the Alberta government.
In a return salvo against the resistance, TransCanada insists that the tolls requested by its second application should be accepted by shippers for their own good because rejecting an increase now will lead to a worse shock later.
"Rate shock is a relative concept," TransCanada said in a new NEB filing. "Rate stability is a desirable objective of rate design. In this case, rate shock at some level is the reasonable expectation."
Under the status quo that was upheld after the Christmas shipper protests, TransCanada predicts its 2011 revenues will fall about C$750 million (about US$750 million, with the currencies currently at par) or nearly 60% short of its pipeline system's C$1.3 billion requirement authorized by the NEB.
"Recovering such a shortfall in 2012 would increase the EZT by an additional C$1.00/GJ," TransCanada warned the NEB. "The question in this interim toll application is, 'What is the appropriate toll to charge now that will reduce the subsequent adjustment?'"
The TCPL benchmark Alberta-central Canada toll has shot up from its formerly stable level C$1.03/GJ (US$1.08/MMBtu) since 2007 due to shrinking patronage of long-term, firm transportation services on the system, which has spread costs of the system thicker on reduced delivery volumes. The contraction is blamed on erosion of production from conventional Western Canadian gas wells; increased consumption by Alberta thermal oilsands plants; competition from the 10-year-old Alliance Pipeline to Chicago from northern British Columbia; shale gas development in the United States; and growing interest in central Canadian and the U.S. Midwest and Northeast in using the newer and much closer U.S. supply sources.
TransCanada's long-range answer is an agreement with CAPP and the Alberta government on rate adjustments on its Nova grid in Alberta that would be partly covered by royalty cuts in the chief gas-producing province, combined with toll increases for short-haul shipping on the eastern portions of the pipeline system. The scheme has ignited resistance by shippers that prevented a TCPL Tolls Task Force from reaching a settlement last fall.
Resistance against the new attempt to raise tolls is somewhat less complete than the opposition that the pro-supply side, western-based settlement proposal has ignited. The Canadian Industrial Gas Users Association and some traders, such as Tenaska Marketing Canada, have told the NEB they are willing to accept the second TCPL toll increase request as at least a stopgap to limit economic damage threatened by the first proposal, to buy time for negotiating a settlement acceptable to all sides.
But even traditional TCPL supporters are hanging back from endorsing any of the plans to revive Canada's national gas mainline. Centra Gas Manitoba Inc. has disclosed to the NEB that it is "soft-opposed" to the schemes advanced to date by withholding consent through the tolls task force. Centra says the settlement "did not present a long-term solution. It may have stabilized throughput at or near current levels but significant capacity would remain underutilized and stranded." The result would be lingering "exposure of long-term shippers to a high degree of risk going forward."
All concerned are awaiting an NEB ruling on whether a contested application can achieve regulatory acceptability as an interim step toward a negotiated settlement.
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