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Jurisdictional Battle Develops Over BC Pipeline
As predicted by National Energy Board (NEB) member Jean-PaulTheoret in a winter speech to a Quebec lawyers’ conference, thefirst results of unleashing competition in the formerly stableCanadian natural gas pipeline community are “messy markets” andpotentially “messy outcomes.” That became clear in one of the firsttests of the NEB’s declared intentions to encourage growth of atrue market in transportation services by making flexibility andadaptability the watchwords for a new era of light-handedregulation.
A big fuss has developed over a small deal, the sale of a68-kilometer (43-mile) link called Maxhamish Pipeline between anexpanding B.C. gas field and the mainstream transportation grid .After building it about two years ago as one of manyproducer-driven cracks in former Canadian monopolies, AlbertaEnergy Co. agreed to sell the Maxhamish link to Westcoast EnergyInc. for incorporation into its B.C.-wide system.
The B.C. Ministry of Energy is fighting the deal, saying theresult would be an excessive concentration of corporate power thatcould hurt development of provincial resources (and provincialgovernment royalties). As long as the contested pipeline belongs toAEC, it falls under the jurisdiction of the B.C. Oil and GasCommission. The ownership change would transfer authority overoperations and tolls to the NEB, which has ruled over the Westcoastgrid since its birth in the 1950s because it is primarily dedicatedto carrying gas destined for out-of-province markets.
In a “paper hearing” conducted by exchanges of documents ratherthan oral testimony before the NEB, the director of the B.C.ministry’s oil and gas branch said the case raises two concerns. Inan affidavit, Karen Koncohrada said the province “is concernedabout a provincially-approved and regulated pipeline falling underfederal regulation simply as a result of a change in ownership. Weare also concerned that the acquisition of the Maxhamish pipelinewill further concentrate the gathering assets in northeast B.C. inthe hands of a single owner.” Corporate concentration spells”market power” in Westcoast’s case, Koncohrada said.
Under a 1998 NEB decision that followed extensive industrydiscussions, Westcoast operates under a system that has come to beknown officially as “light-handed regulation.” It allows tolls andprocessing fees to be established by confidential, negotiatedagreements rather than the traditional cost-of-service apparatus ofpublic disclosure and hearings. The Maxhamish deal is part of awider package that covers Westcoast’s service terms for AECproduction in northeastern B.C. The NEB has taken a first steptoward enforcing the light-handed-regulation approach by rejectingan attempt by the B.C. ministry to force disclosure of the pipelinesale contract. The wider issues raised by this approach toregulation remain to be resolved, and a resort to the courts is notruled out.
B.C. maintains the issues are fundamental. Koncohrada said “theconcentration of ownership in Westcoast’s hands may not severelyaffect large producers who, because of their size, may be able tonegotiate effectively with Westcoast for the provision of gatheringand processing services. However, the ministry is concerned thatsmaller producers, simply because of their size and the quantity ofgas they provide, may not be in a position to negotiate aseffectively with Westcoast, and may be unable to obtain terms whichare as advantageous as those obtained by larger producers.”
No gas producers have stepped forward in outright opposition tothe Maxhamish pipeline deal. But the case is being monitoredformally by four corporate interveners: Imperial Oil Ltd., SouthernCompany Energy Marketing Canada Ltd., Burlington Resources CanadaEnergy Ltd. and Canadian Forest Oil Ltd. Burlington has told theNEB it is interested in any effects on cost of using Westcoastservices. Canadian Forest has predicted the deal “will affect thecost of, and access to, gathering and processing in northern B.C.and the Liard area (the nearby, gas-rich southwestern NorthwestTerritories).”
Westcoast describes the B.C. energy ministry’s thinking as”patently wrong.” The Vancouver-based pipeline company says “thefact of the matter is that Westcoast is in the business ofproviding transportation services to third parties. AEC is not.Through its ownership and operation of the (Maxhamish) pipeline,Westcoast will be able to provide gathering and processing servicesto third parties with gas supply in the area. In the future,Westcoast will be able to further expand and extend the pipeline toconnect additional sources of gas supply and to provide service toother area producers.”
The B.C. pipeline company says the policy of light-handedregulation “is specifically designed to allow all parties,regardless of their size, fair access to Westcoast’s gathering andprocessing services.” The NEB is urged to consider the Maxhamishsale to be part of the development that the B.C. government seeks.”AEC has invested significant amounts of capital in the province toexploit the province’s resources . . . benefits which accrue to AECand, for that matter, to Westcoast are part of the public interestconsideration.”
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