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Shippers to TransCanada: Don’t Push Your Luck
TransCanada Corp. has been given unprecedented power to set prices for natural gas transportation and should try to make that work instead of seeking more concessions at the expense of shippers, according to filings with the National Energy Board (NEB).
The messages were sent by opponents of TransCanada’s latest move to bail out its beleaguered gas Mainline in the pipeline’s application for changes to an NEB ruling in March on restructuring services and finances for the route from Alberta to Ontario, Quebec and export conduits into the United States (see NGI, May 6).
The NEB’s decision cut tolls for long delivery contracts on the Mainline but granted TransCanada freedom to charge as much as seasonal markets for gas transportation will bear for short-term firm and interruptible service.
Changes now sought by TransCanada include a C10 cent, 7% increase — to C$1.52/gigajoule (GJ) (US$1.59/MMBtu) from $1.42/GJ ($1.49/MMBtu) — in the benchmark toll that the NEB set beginning July 1 for firm Mainline capacity bookings lasting a year or more. The proposed hike is forecast to save the pipeline from running about C$1 billion into the red by the end of 2017, the expiry date that the board set for the fixed rate on long transportation service contracts. However, more than the toll adjustment is sought in TransCanada’s request. It also wants surcharges granted to cover C$2.15 billion in projected abandonment costs, which would include shuttering and remediating the Mainline at the end of its useful life.
The Mainline environmental tab was set earlier this year by a parallel regulatory marathon before the NEB, a series of hearings on defining cleanup liabilities and raising funds to cover costs for Canada’s 13 long-distance gas and oil pipelines. A final phase, on revenue collection and savings methods, began earlier this spring.
Tenaska Marketing Canada, a vigorous participant in the marathon restructuring case since it began in 2011, insisted that enough help has been granted for the Mainline to pull itself out of the spiral that has cut traffic in half and more than doubled tolls since 2007. “The fact that the board gave the Mainline vastly more scope to exploit its market power than any other pipeline in North America does not imply that the board was obliged to go even further and implement all possible means of maximizing the pipeline’s ability to extract incremental revenue from the market,” Tenaska stated in a filing with the NEB.
Alberta Northeast Gas Ltd. (ANE), a coalition of U.S. Atlantic seaboard distribution firms, likewise urged the NEB to require the Mainline to fix itself instead of insisting on regulatory safety nets. “TransCanada has been provided with a large toolkit as a result of the [March NEB] decision, one larger than TransCanada or interveners had proposed. It includes wide pricing discretion, both upwards and downwards, with respect to discretionary services. The ability of TransCanada to maximize revenues with its new toolkit should not be discounted out of the gate; it should be embraced by TransCanada.”
A new wrinkle has been added to the wrangling over the Mainline’s fate: a hot dispute over how to implement TransCanada’s freedom to charge unregulated market rates will bear for short-term transportation services. A blueprint for the new regime, disclosed before the NEB as a “compliance filing,” includes an element of confidentiality. TransCanada is seeking to keep terms of short-term service bookings secret until delivery begins.
Tenaska and other voices of pipeline customers, including the Canadian Association of Petroleum Producers (CAPP), want the deals disclosed as soon as they are made in the name of establishing a “transparent” open market. “TransCanada’s proposal to eliminate all posting requirements for STFT [short-term firm transportation] has the potential to disrupt the orderly functioning of the competitive market, and specifically the predictability of the availability of STFT capacity,” Tenaska stated.
CAPP reported that in fruitless discussions with TransCanada on settling the dispute over Mainline contract secrecy, “It was evident that the parties had very different views on the importance of transparency with regard to the operation of the transportation market…It now appears that TransCanada…sees a competitor under every bed. Information is now viewed by TransCanada as commercially sensitive to itself. Such a fear-based approach can only lead to trouble.”
The pipeline conglomerate informed the NEB that requests by Mainline shippers are being accommodated “where doing so will be practical and will not unduly restrict TransCanada’s ability to use the pricing discretion that the board has given.”
No ground is being yielded without a fight in the feud over Mainline gas delivery services and finances. And the latest filings foreshadow another battle. TransCanada stated that it “strongly objects to adopting rules for setting bid floors or information reporting practices that would defeat the objective of the [NEB Mainline restructuring] decision by removing TransCanada’s ability to maximize revenues.”
The NEB responded to the fresh outbreak of regulatory hostilities by suspending TransCanada’s plan to implement the March ruling on Mainline restructuring while its request for changes is considered. All sides await board procedural rulings on whether to grant the application for review and variance, and how to proceed if another chapter is to be added to the epic duel.
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