Peace broke out in the Canadian natural gas community. A newpact on competition in the industry virtually assures constructionof the Alliance Pipeline Project, approval of the merger betweenTransCanada PipeLines and Nova Corp., and a settlement on a newtolling regime on Nova’s Alberta gathering grid.

Along with TransCanada and Nova, the agreement includesvirtually 100% of Canadian gas production because it is signed bythe Small Explorers and Producers Association of Canada as well asthe Canadian Association of Petroleum Producers.

Alliance, while not directly a party to the accord, is at theheart of it as a producer initiative to inject competition into theCanadian gas transportation sector. Results showed immediately. Theworst enemy of the proposed export route to Chicago, Foothills PipeLines, withdrew a motion before the National Energy Board and thecourts that threatened to delay the project indefinitely bychallenging Alliance’s right to exist as a corporation for purposesof Canadian regulatory law. Alliance promptly announced placingC$1.4 billion (US$1 billion) in pipe orders. Vice-president JackCrawford said construction could start this fall.

TransCanada President George Watson told a telephone newsconference “this has been a terrific win for all of us.” But headded that the pact does not convert TransCanada-Nova into a fan ofAlliance. “We do not support Alliance. We support competition. Tothe extent they can make themselves a competitor, I guess theyare.” TransCanada Vice President Bob Reid explained that,regardless of the new agreement’s wording, TransCanada- Nova cannotbecome an active backer of Alliance in the same sense that Avisdoes not support Hertz, nor does Macy’s tell Gimbels.

The peace pact, crafted in months of negotiations behind thescenes while the Alliance case set a duration record for hearingsbefore the NEB, covers the full spectrum of issues that havedivided the Canadian gas community. CAPP and SEPAC agreed tosupport the TransCanada-Nova merger rather than hold it up beforethe Alberta Energy and Utilities Board, where early filings showedwidespread concerns over potential for monopoly that couldindefinitely stall approval of the combination in a morass ofregulatory and legal wrangling.

In exchange, TransCanada and Nova signed a declaration thattheir combination will not try to monopolize Canadian gastransportation. The agreement says: “In recognition of the dynamicnature of the Canadian natural gas industry, the parties are intentupon promoting a competitive environment and greater customerchoice.” The pact further declares all sides will respect “the needto construct competitive incremental pipeline capacity from theWestern Canadian Sedimentary Basin by both new competitors andexisting pipelines alike in a timely, safe and cost-effectivemanner.”

There also will be co-operation on promoting “regulatory changesthat will provide existing and new pipelines equal opportunity tocompete, recognizing that such competition is desirable and in thebest interests of all industry stakeholders.” The provisionsinclude a pledge by TransCanada-Nova to negotiate interconnectionswith Alliance after it receives regulatory approval. CAPP andSEPAC, in turn, agree to co-operate on negotiating ways for anyresulting added costs to the Nova grid to be incorporated into itstolls for a five-year period.

The agreement further sets a target date of May 8 for asettlement on a new tolling regime proposed by Nova to replace its15-year-old regime of uniform postage-stamp tolling – a changetriggered by Alliance among other bypass proposals. (See GPI, April8)

Other items in the peace accord call for: a continuation ofcost-cutting incentive agreements between shippers andTransCanada-Nova, a producer committee to participate in arestructuring of TransCanada’s marketing arm, TransCanada GasServices; and a settlement by Dec. 31 on proposals for a newregulatory regime giving TransCanada-Nova a better chance tocompete for future additions to the pipeline grid with changes suchas “differentiated” tolling to reflect duration of shippingcontracts, early-renewal incentives and shortened minimum termrequirements.

In another action, the U.S. Federal Energy Regulatory Commissionset its seal on the Nova-TransCanada merger, issuing an orderauthorizing disposition of jurisdictional facilities on April 6.The FERC action was required as a result of indirect interest heldby the companies in electric public utilities and power marketersin the United States. Nova owns 28% of NGC Corp., including theElectric Clearinghouse and Destec Energy, which are consideredpublic utilities under the Federal Power Act. TransCanada has twosubsidiaries, TransCanada Energy and TransCanada Power Marketingwhich have been granted FERC authority to operate as powermarketers.

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