Both sides of the Canadian natural gas market have lined upsolidly against the first attempt by the pipeline establishment toadapt to the budding era of competition in delivery services northof the border with the United States.

With plans to set floors under rates for interruptibletransportation (IT) while introducing discounts for short-term firmtransportation (STFT), TransCanada Pipelines Ltd. has madebedfellows of the Canadian Industrial Gas Users Association and theCanadian Association of Petroleum Producers. The odd alliancesurfaced in new evidence sent to the National Energy Board, inpreparation for hearings it has scheduled to start Jan. 18 onTransCanada’s plans in the Canadian gas capital of Calgary.TransCanada maintains it needs to take strong action to slow down”decontracting” that already cost it 580MMcf/d in long-term, firmtransportation (FT) contracts as of Nov. 1. The pipeline has warnedthe NEB to expect shippers to relinquish up to 1.8 Bcf/d indelivery capacity by November of 2000 unless an incentive to switchservice types is taken away from them.

The incentive to switch is said to be a long-standing practiceof pricing interruptible transportation at 50% of firm servicerates. New room on the Canadian pipeline grid — which is about tobe increased in the new year by completion of the Alliance andVector projects, as well as expansions proposed by U.S. pipelinesreaching TransCanada’s export outlets — makes interruptibleservice a realistic alternative because its users are no longerlikely to be squeezed off the system in periods of strong asdemand, the NEB has been told.

TransCanada’s plans call for flexibility to set “reserve” orfloor prices for daily auctions of interruptible capacity, within arange between 65% of firm-service tolls in summer and 125% inwinter. Freedom to discount firm capacity is also sought. Thealternative is a revenue hemorrhage liable to force rates forlong-term firm service up by more than 50 per cent to CDN$1.56 pergigajoule (US$1.04) by 2004, according to TransCanada’scalculations.

On the buying side of the Canadian market, Ottawa-based,industrial group IGUA maintains that the old delivery servicerelationships should be retained because raising rates will preventbig consumers from buying as much gas as they could. IGUA predictscentral Canadian distributors Union Gas and Gaz Metropolitain wouldrefuse to buy spare capacity on TransCanada during periods of peakdemand, curtailing supplies to interruptible industrial customersrather than take chances on increasing transportation expenses.

IGUA says “in a period of excess pipeline capacity, it is anunderstatement to say that this would be an undesirable result foreveryone concerned. This is because gas producers lose theopportunity to make additional sales, TransCanada’s shippers losethe benefit of the credits of the IT and STFT revenues to the costof service, Gaz Metropolitain and Union lose their incrementaldelivery revenue, and the industrials affected will experience theinconvenience and cost of having to switch to alternative fuelsduring the period of interruption.”

On the supply side, CAPP suggests TransCanada’s proposal is onlythe first step on trying to take advantage of limited pipelinecompetition to win a free hand for having all short-termtransportation services priced at negotiated rather than regulatedrates. “What TransCanada seeks today undoubtedly will be followedby a new proposal tomorrow.” The Canadian producers —throughexpert witness Andrew Safir, of Recon Research Corp. in Los Angeles— maintain that TransCanada is nowhere near losing the marketpower that has kept it under regulatory supervision for its firsthalf century. Safir, a prominent expert witness before Canadian aswell as U.S. economic agencies, calculates that TransCanada rankshigh on a scale of corporate power used by anti-monopolyauthorities on both sides of the international border as well asWashington’s Federal Energy Regulatory Commission, the HHI orHerschman-Herfindahl Index. TransCanada’s interests include 100%ownership of the Nova gathering grid in Alberta, 100% ownership ofthe Alberta Natural inlet into the California pipeline of PacificGas Transmission and 70% ownership of the Foothills route. Evenexcluding the Nova grid, which handles four-fifths of Canadianproduction, the TransCanada family owns 12 billion cubic feet perday in capacity out of the principal western gas fields in Alberta.Even if the affiliates are considered to be separate, 7.14 BcfTransCanada still scores high on the HHI scale.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.