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NEB Outlines Competitive Policy in Approving Vector

NEB Outlines Competitive Policy in Approving Vector

For the second time in five months, the National Energy Board has served notice that competition has arrived to stay in the Canadian natural gas pipeline community.

In approving the Canadian leg of the Vector Pipeline Project, the NEB set aside traditional objections by TransCanada PipeLines, saying "the public interest is served by allowing competitive forces to work, except where there are costs that outweigh those benefits. The economic benefits of Vector relate to increased competition and the additional transportation option it offers to shippers."

The NEB, acting on a request by the Canadian Association of Petroleum Producers, directed Canada's share of Vector to wait until Oct. 1, 2000, to go into service. In effect, the board ruled there would not be much use for the new link between the boundary with the United States and the Dawn trading hub in southwestern Ontario before completion of Alliance Pipeline Project from western Canada to Chicago and the U.S. leg as a companion to relay gas farther east from there. The Canadian portion is just a small part of the 343-mile Vector Pipeline. About 15 miles of the route from Dawn, ON, to Chicago is in Canada.

The NEB said it was not disturbed by prospects that the 1 Bcf/d Vector would add to the overcapacity while middle-western and eastern U.S. markets, as well as central Canada, adjust to the arrival of all the new gas in Chicago. By October of 2000, there will be capacity for an additional 2 Bcf/d of Canadian gas to reach Chicago via the recently-completed expansion and extension of the Foothills-Northern Border system and then the Alliance route now under construction.

The board shares the optimism among Canadian exporters. It predicted "in this instance, underutilization of the proposed facilities or decontracting on existing network pipelines would likely occur only in the short term."

The NEB, noting the optimism was not challenged at its hearings, accepted enthusiastic market forecasts by Vector, a partnership of Alliance part-owner Enbridge Inc. of Calgary and Detroit -based MCN Energy Group. The projections call for annual increases in gas demand in Ontario and Quebec of 2.1% until 2005 and 1.6% in 2005-10, on top of an annual 2.1% growth rate in the U.S. Northeast (an average of forecasts by the Gas Research Institute, the U.S. Energy Information Administration and Cambridge Energy Resarch Associates). Also part of the outlook, although still too uncertain to be translated into numbers, is increased demand for gas as power station fuel due to closures of nuclear plants in Ontario. The NEB noted the Canaian leg of Vector has already landed 10- to 15-year contracts with shippers for 828 MMcf/d, or 83% of its capacity. The shippers include Enbridge, MCN's CoEnergy Trading and two whose identities are being kept confidential.

The NEB said it "accepts TransCanada's argument that, when capacity is added to a market, all pipelines and shippers in that market are potentially at risk." But,"risk is an essential element of competition." It is also only natural that letting newcomers into the gas pipeline business raises the stakes. "It should be noted," the NEB said, "that it is generally incumbents that have a competitive advantage in offering expanded capacity, because they are able to expand in smaller increments than a greenfield pipeline and can normally 'roll-in' tolls."

The NEB's competition doctrine, elaborated on a string of rulings since mid-1997, including the landmark Alliance approval last November, is distilled into a concise policy statement in the Vector ruling. The board said: "The market should be permitted to operate; undue influence on the market should not be exercised by any individual or small group of individuals; and shippers must be permitted to exercise choice to have access to alternative means of getting their products to market." Vector predicted it will receive its final certificate from the Federal Energy Regulatory Commission in the second quarter of this year.

Gordon Jaremko, Calgary

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