Traders, IPPs Convince NEB to Kill TransCanada Toll Hike
Gas traders and independent power producers won an early round in a long, many-sided contest developing before the National Energy Board over costs of excess capacity created by the Canadian pipeline expansion wave.
PG&E Energy Trading Canada, El Paso Merchant Energy Canada and the Ontario Non-Utility Generators persuaded the NEB to cancel a 12% toll increase granted in December and effective this month, to TransCanada PipeLines Ltd. TransCanada sought the increase --- to C$1.13 per gigajoule (US$82 cents per MMBtu in its benchmark "eastern-zone" toll for long-distance deliveries to central Canada and export points) --- as an interim step while a much larger filing for an overhaul of the rates is prepared.
PG&E, El Paso and the NUGs told the NEB they were left out of a quick vote on the issue held by TransCanada and a permanent shipper group collectively known as the TTF or tolls task force, which the board relies upon for negotiated settlements. The NEB said year-2000 tolls would continue to apply at least for this month while further review is done.
In a joint statement, the trading houses told the board "the interim tolls are higher than they should be and tend to reflect acceptance of the applicant's (TransCanada's) case concerning one of the most contentious issues in upcoming rate proceedings --- namely, whether the pipeline should be insulated against the cost consequences of competitive risk."
The NUGs agreed that the toll hike was "unacceptable," and said they too were "concerned by the proposition that all contract non-renewals be borne by remaining firm shippers." The protesters were referring a headache that developed last year on TransCanada as a result of expansion of its system and its part-owned Foothills-Northern Border export route, as well as completion of the 1.3 Bcf/d Alliance Pipeline. Shippers dropped about 1.7 Bcf/d in firm transportation contracts on TransCanada as of last Nov. 1.
In an interview, TransCanada president Doug Baldwin said discussions on ways to cover lost revenues were under way and he hoped for a cooperative settlement with shippers. But he made it plain he did not expect a negotiated resolution soon, and that there will be no surrender without a fight to the traders' long-range objective.
The traders would like to see the excess delivery capacity used to create a wide-open market in pipeline space akin to commodity exchanges for gas. At PG&E Canada, for instance, trading director Todd Lines asked "why not?" He pointed out there already is a yardstick of value for pipeline capacity, the "basis differential" or difference between prices fetched by gas delivered to trading points in Canada and the United States. It currently runs in a range of US30-40 cents per gigajoule, or about half the toll for long-distance deliveries via TransCanada to markets in the middle of the continent.
Baldwin said he could not conceive of the NEB scrapping the cornerstone of Canadian policy on pipelines since the industry began to build them. That remains a system of regulation crafted to make sure tolls recover costs of the investments, including profits deemed to be fair in light of current economic and financial conditions. Baldwin said TransCanada aims to work out a system in cooperation with shippers that will cover costs of the pipeline yet also let it be competitive, especially when the next expansion opportunities arise.
He described TransCanada's objective as pricing pipeline services like hotel rooms, with users earning savings by making long-term commitments. Baldwin predicted that TransCanada's excess capacity this winter will average about 1 Bcf/d. Industry analysts, including the Canadian Energy Research Institute, project capacity excesses in the range of 1.5-2 Bcf/d until gas producers catch up with the added delivery capacity.
The wrangling is expected to spread to TransCanada's Nova gathering grid in Alberta, which handles about four-fifths of Canadian production. It too has experienced "decontracting" as a result of new options created by the expanded pipeline grid, and has filed for interim toll increases with the Alberta Energy and Utilities Board.
Gordon Jaremko, Calgary
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