NEB Boosts Canadian Pipeline Competition
The promised new era of competition is officially off and
running in Canadian gas transportation after the National Energy
Board approved a small project with large implications, AEC
Suffield Gas Pipeline Inc.
The ruling is a landmark package that included authorizing a
bypass around Nova Corp.'s 40-year-old franchise in the chief
gas-producing province of Alberta, introduction of "market-based"
negotiated tolling, and rejection of attempts to preserve the old
order by the Alberta Department of Energy and environmentalists.
AEC Pipeline, wholly-owned by Alberta Energy Co., was told to go
ahead and build by Nov. 1 a C$22.8-million (US$16-million), 72-mile
route for 175 MMcf/d of capacity from the parent company's prolific
Suffield field in southeastern Alberta to a connection with
TransCanada PipeLines in southwestern Saskatchewan at Burstall.
The construction application ignited a hot flurry of protests by
Nova when it was made last September, as an allegedly unnecessary
duplication of facilities that would reduce use of the traditional
grid and generate rate increases under traditional cost-of-service
tolling enforced by the Alberta Energy and Utilities Board. The
fight lasted until late spring, when Nova withdrew all its
objections to comply with the spirit of an accord on competition it
and TransCanada signed with Canadian gas producers' trade
associations. The old-line transporters agreed to switch rather
than fight, by working on new approaches that will let them compete
on an even footing with upstarts like AEC Pipeline.
The new bypass departs sharply from Canadian tradition with a
market-based tolling system, where shippers negotiate fixed rates
for the lifetimes of service contracts and earn discounts by
signing long-term agreements. AEC's shippers, primarily Alberta
Energy's AEC Marketing and also GEX Resources and Channel Lake
Petroleum, estimate they will achieve annual savings of C$6.2
million (US$4.4 million) compared even to revised, distance-based
rates under negotiation between Nova and the rest of the Canadian
industry. AEC shippers pay fixed rates ranging from C14.7 cents
(US10.5 cents) per gigajoule under 20-year service contracts to
C17.5 cents (US12.5 cents) under five-year deals.
Allowing for the customary reserve of Canadian regulatory
language, the NEB gave the new tolling regime a ringing
endorsement. The board observed that the negotiation approach to
rate-setting and the system of fixed rates relieves shippers of
risks of increases associated with regulated cost-of-service tolls
while letting the pipeline builder earn as much profit as it can by
being efficient with both construction and operating expenses. And
not least, the new approach achieves a long-stated goal of the NEB
leadership, including new chairman Ken Vollman as well as retired
predecessor Roland Priddle, of replacing regulators' opinions with
the verdict of a market for transportation capacity.
In addition, the NEB makes it plain it believes the presence of
competing transportation, far from causing tolls to rise
automatically to cover overlapping service offerings, will serve as
a built-in check on rates. The board observed "shippers have the
alternative of utilizing Nova's system for transportation
services." Gordon Jaremko, Calgary
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