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NEB Boosts Canadian Pipeline Competition

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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