TransCanada Corp. is setting up its battered Mainline for more falls by proposing to freeze tolls at current high levels through 2012, say shippers on the eastern consumer end of the natural gas conduit from Alberta to Ontario, Quebec and the United States.

The proposal, an interim rate application filed with the National Energy Board (NEB) in mid-November (see Daily GPI, Nov. 21), puts Canada’s biggest gas pipeline and its remaining committed customers in “unprecedented extremis circumstances,” says the Association of Power Producers of Ontario (APPrO).

“The current Mainline toll level” — C$1.89/gigajoule (GJ) (US$1.98/MMBtu) — “is the highest it has ever been and is more than 240% higher than it was at the outset of the 2007 settlement agreement [a five-year deal between TransCanada and shippers],” APPrO warns in a protest letter to the NEB.

“As evidenced by the dramatic exit of Mainline volumes, this toll level is significantly uncompetitive and clearly unsustainable,” say the Ontario power generators.

APPrO points out that as costs of emerging excess capacity drove up tolls since 2007, contracts for firm long-haul service have shrunk to about 1.4 Bcf/d, or only 20% of the Mainline’s 6.9 Bcf/d capacity.

The toll freeze jeopardizes the last remaining “significant tranche” of commitments to use the Mainline consistently for long-haul deliveries from western Canada expires in 2012, say the power generators.

APPrO predicts that “it is virtually certain” TransCanada’s toll proposal spells a loss of more than 1 Bcf/d in firm service contracts, which would leave the Mainline’s capacity only 4% booked for long-haul deliveries of 300 MMcf/d. “The loss…in 2012 would put significant incremental upward pressure on tolls, further reducing the sustainability and the usefulness of the mainline assets.”

TransCanada proposed the toll freeze as an interim measure until a complex, contested pipeline business restructuring application can work its way through regulatory proceedings, which all concerned expect to be an exceptionally lengthy case next year before the NEB.

Mainline troubles are blamed on dwindling production from aging western gas reserves, rising consumption by Alberta thermal oilsands projects and competition on two fronts: from the 11-year-old Alliance Pipeline to Chicago from northern British Columbia and Alberta, and from growing U.S. shale gas fields.

APPrO is urging the NEB to make TransCanada at least drop its 2012 interim tolls for the Mainline down to their last final level for a year, the 2010 rate of C$1.40/GJ (US$1.47/MMBtu).

The request is supported by other shippers that say the status quo squeezes them badly: Brooklyn Navy Yard Cogeneration Partners, which fuels a major New York City power plant with Canadian gas; the gas-fired York Energy Centre nearing completion of construction near Toronto; and Goreway Power Station in southwestern Ontario.

Even supporters describe TransCanada’s 2012 interim toll scheme as only the least bad current option for the Mainline. The nation’s top utility, Enbridge Gas Distribution Inc. in Toronto, is able to pass on delivery costs to consumers and says “toll stability is the dominant consideration during this period of debate over TransCanada’s restructuring proposal. Maintenance of 2011 tolls would appear to be least prejudicial to shippers, and certainly preferable to any further toll escalation.”

Canada’s second-biggest distribution company, Union Gas Ltd. in southern Ontario, agrees with Enbridge but adds that “this proposal does not address the uneconomic toll relative to competing pipeline paths nor the escalation of deferred costs yet to be collected in tolls.”

The NEB did not set a date for a decision but is expected to rule swiftly on TransCanada’s 2012 interim toll application.

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