Peace lasted less than two months in the Canadian natural gascommunity. Now comes the hard part of its April 8 agreement onpipeline regulation and competition – thrashing out what it meansin a contest over a small project with big implications.

Nova Gas Transmission and Alberta Energy Co. are tangling beforethe National Energy Board over how the agreement among Nova,TransCanada, the Canadian Association of Petroleum Producers andthe Small Explorers and Producers Association of Canada affects anew 70-mile pipeline proposed by Alberta Energy’s AEC Suffield GasPipeline.

The AEC Suffield project aims to bypass the Nova system with alink from the gas-rich Suffield Military Range in southeasternAlberta to a connection with TransCanada PipeLines across theSaskatchewan border. The boundary crossing puts jurisdiction in thehands of the NEB and keeps the case away from the Alberta Energyand Utilities Board, the protector of Nova’s franchise.

Both sides in the feud insist they deserve to win under theApril accord. All sides pledged “to promote a competitiveenvironment and greater customer choice.” Nova and Alberta Energyare poles apart on what that means in practice.

In the jargon of the landmark Canadian agreement and the NEBcase, the quarrel centers on the word “incremental.” The gas accordrecognized “the need to construct competitive incremental pipelinecapacity from the Western Canadian Sedimentary Basin by both newcompetitors and existing pipelines in a timely, safe andcost-effective manner.”

In traditional Canadian pipeline and regulatory language,incremental is a loaded word that means additions to total gasdeliveries – the opposite is “displacement,” or taking businessaway from an established supply system. In the minds of Canadianproducers that have proposed or supported bypass routes,incremental means added service options or transportationalternatives.

In written submissions to the NEB, Nova says Alberta Energy’sproject should be rejected because “evidence fails to demonstratethat AEC Suffield has made any attempt to minimize the duplicationof existing pipeline infrastructure in a manner that is consistentwith the common objectives of the signatories to the accord.” Novasays “it is apparent.that the gas AEC Suffield proposes totransport on its pipeline is gas that the NGTL system has beendesigned, approved and constructed to transport.” Nova says itstands to lose shipping revenues of $16.9 million per year, causingupward pressure on its tolls, because AEC’s initial capacity for175 MMcf/d would be filled with gas that would otherwise run on theolder pipeline. Also, “unnecessary facilities will result inunnecessary environmental impacts.”

Alberta Energy’s hired-gun representative in the case – MarkDrazen, a veteran specialist in pipeline competition from St.Louis, MO – does not deny that AEC confronts Nova with rival,duplicate facilities. Those are just what the market requires tomake old-line gas transporters adapt to the new era of competitionand cost-cutting, he tells the NEB. “Although NGTL facilities canphysically move the gas, NGTL provides a higher cost, less economicservice than AEC Suffield will provide. The issue is not whatfacilities NGTL offers, but what service it offers to shippers.’Service’ is more than the physical handling of the gas. It alsoincludes the price and the responsiveness to customers’ needs.”

AEC Suffield, to be laid across easy prairie terrain for C$22.8million (US$16.5 million), proposes tolls ranging from C14.7 cents(US10.6 cents) per gigajoule for 20-year transportation contractsto C17.5 cents (US12.7 cents) for five-year subscriptions. When theproject was invented last year, its tolls were as much as 40% lessthan Nova’s former postage-stamp charge. AEC says it still offers abargain compared to distance-based rates proposed by Nova thisspring. Parent Alberta Energy, chief producer in the Suffieldregion, holds most of the capacity on proposed new line.

Drazen said AEC Suffield’s customers would have to pay C$12million (US$8.7 million) per year in Nova tolls if they stayed onthe old system – or, in just two years, more than the cost ofbuilding the new route. He says Nova can get rid of the rivalry bygiving toll cuts to AEC Suffield’s backers in the same way that itput a stop to a 1996 bypass project titled Palliser by granting theshippers discounts known as “load retention service.” The absenceof such offers, and a prospect of increased tolls in some casesunder Nova’s proposed distance-based system, are what has promptedthe Alberta Energy family to move ahead on the Suffield project.

AEC urges the NEB not to let itself be confused about the spiritof the April gas pact by quibbles over the letter of its language.Drazen says the board “is not being asked to define or interpretthe exact meaning of the accord. The real significance of theaccord lies in the recognition that the old rules of monopolyservice and limited choice no longer meet the needs of customers.NGTL’s narrow interpretation is inconsistent with the need forcompetitive alternatives.”

Gordon Jaremko, Calgary

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