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Nova Bypass Skirmish Soils Canadian Gas Accord

Nova Bypass Skirmish Soils Canadian Gas Accord

Peace lasted less than two months in the Canadian natural gas community. Now comes the hard part of its April 8 agreement on pipeline regulation and competition - thrashing out what it means in a contest over a small project with big implications.

Nova Gas Transmission and Alberta Energy Co. are tangling before the National Energy Board over how the agreement among Nova, TransCanada, the Canadian Association of Petroleum Producers and the Small Explorers and Producers Association of Canada affects a new 70-mile pipeline proposed by Alberta Energy's AEC Suffield Gas Pipeline.

The AEC Suffield project aims to bypass the Nova system with a link from the gas-rich Suffield Military Range in southeastern Alberta to a connection with TransCanada PipeLines across the Saskatchewan border. The boundary crossing puts jurisdiction in the hands of the NEB and keeps the case away from the Alberta Energy and Utilities Board, the protector of Nova's franchise.

Both sides in the feud insist they deserve to win under the April accord. All sides pledged "to promote a competitive environment and greater customer choice." Nova and Alberta Energy are poles apart on what that means in practice.

In the jargon of the landmark Canadian agreement and the NEB case, the quarrel centers on the word "incremental." The gas accord recognized "the need to construct competitive incremental pipeline capacity from the Western Canadian Sedimentary Basin by both new competitors and existing pipelines in a timely, safe and cost-effective manner."

In traditional Canadian pipeline and regulatory language, incremental is a loaded word that means additions to total gas deliveries - the opposite is "displacement," or taking business away from an established supply system. In the minds of Canadian producers that have proposed or supported bypass routes, incremental means added service options or transportation alternatives.

In written submissions to the NEB, Nova says Alberta Energy's project should be rejected because "evidence fails to demonstrate that AEC Suffield has made any attempt to minimize the duplication of existing pipeline infrastructure in a manner that is consistent with the common objectives of the signatories to the accord." Nova says "it is apparent.that the gas AEC Suffield proposes to transport on its pipeline is gas that the NGTL system has been designed, approved and constructed to transport." Nova says it stands to lose shipping revenues of $16.9 million per year, causing upward pressure on its tolls, because AEC's initial capacity for 175 MMcf/d would be filled with gas that would otherwise run on the older pipeline. Also, "unnecessary facilities will result in unnecessary environmental impacts."

Alberta Energy's hired-gun representative in the case - Mark Drazen, 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 to make old-line gas transporters adapt to the new era of competition and cost-cutting, he tells the NEB. "Although NGTL facilities can physically move the gas, NGTL provides a higher cost, less economic service than AEC Suffield will provide. The issue is not what facilities NGTL offers, but what service it offers to shippers. 'Service' is more than the physical handling of the gas. It also includes the price and the responsiveness to customers' needs."

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

Drazen said AEC Suffield's customers would have to pay C$12 million (US$8.7 million) per year in Nova tolls if they stayed on the old system - or, in just two years, more than the cost of building the new route. He says Nova can get rid of the rivalry by giving toll cuts to AEC Suffield's backers in the same way that it put a stop to a 1996 bypass project titled Palliser by granting the shippers discounts known as "load retention service." The absence of such offers, and a prospect of increased tolls in some cases under Nova's proposed distance-based system, are what has prompted the Alberta Energy family to move ahead on the Suffield project.

AEC urges the NEB not to let itself be confused about the spirit of the April gas pact by quibbles over the letter of its language. Drazen says the board "is not being asked to define or interpret the exact meaning of the accord. The real significance of the accord lies in the recognition that the old rules of monopoly service and limited choice no longer meet the needs of customers. NGTL's narrow interpretation is inconsistent with the need for competitive alternatives."

Gordon Jaremko, Calgary

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