TransCanada Corp. is seeking to freeze tolls on its natural gas Mainline at current levels until its grand design for reducing the troubled system’s charges — the proposed “business and services restructuring” — can be put into practice.

In a new filing for 2012 interim rates, Canada’s biggest gas transporter has asked the National Energy Board (NEB) to let the Mainline benchmark eastern zone toll stay fixed at C$1.89/gigajoule (GJ) (US$1.98/MMBtu).

The application suggests that any attempt to make changes before the restructuring is thrashed out through NEB hearings next year would arouse enough resistance to block approval.

“The proposed (2012 interim) tolls are consistent with the board’s position…that it is not appropriate to reflect significant changes to toll design and cost allocation methodology on an interim basis in the face of significant opposition,” the filing said.

TransCanada acknowledged that the benchmark rate on the Mainline would drop by 30% to C$1.26/GJ (US$1.32/MMBtu) in 2012 if the interim toll fell to the level sought by the permanent restructuring scheme.

But in the absence of other changes sought by the restructuring, the toll cut would be premature, the interim rate filing said. “Establishing interim tolls at this level would require implementation on an interim basis of the fundamental changes in the restructuring proposal application.”

The key ingredient of the restructuring is a contested plan to redraw the TransCanada pipeline map for accounting and tolling purposes. Mainline rates nearly doubled over the past five years because costs of the system have remained fixed while traffic has shrunk, forcing up tolls charged per GJ or MMBtu shipped. The rising excess capacity is blamed on depletion of aging Alberta gas fields, rising industrial consumption by thermal oilsands projects and competition from growing supply sources elsewhere.

The restructuring scheme calls for the Mainline to be drastically shortened by relocating its starting point east from Alberta across Saskatchewan and Manitoba to the western border of Ontario. The Mainline shrinkage — and resulting toll cut — would be achieved by expanding the definition of TransCanada’s Nova Gas Transmission grid to cover Saskatchewan and Manitoba as well as Alberta and British Columbia.

The idea has aroused protest from the Canadian Association of Petroleum Producers (CAPP) (see Daily GPI, Sept. 26). The group has predicted that the effect would be to increase costs for the western supply side of the Canadian industry by more than C$500 million (U.S. dollar at par) per year.

Much of the benefit of the proposed toll cut that the map redrawing would make possible on the Mainline is expected to go to central Canadian distributor and trader interests. They include gas dealerships and regional pipeline networks that aim to increase traffic in eastern U.S.-sourced shale gas production on the TransCanada system.

A new CAPP filing in a parallel TransCanada case before the NEB — an application for eastern facilities additions to the Mainline — made it plain that the western supply side of the industry is digging in for a fight (see Daily GPI, Oct. 10). The facilities scheme “cannot and should not be viewed in isolation from the business and services restructuring,” CAPP said.

“By seeking to expand eastern capacity TransCanada may exacerbate the very issue TransCanada and its stakeholders are trying to manage their way through in its restructuring application, namely high costs and low utilization of the long-haul Mainline.”

The eastern facilities proposal seeks to reverse flows on the Niagara border crossing route between Canada and the United States by making C$130 million in pipe and other hardware installations. The changes are designed to open capacity for 425 MMcf/d to travel north to the Dawn storage and trading hub in southern Ontario (see Daily GPI, Nov. 14).

In its NEB filing, CAPP estimates that about 80% of the proposed northbound flows will be U.S.-sourced gas from the developing Marcellus Shale.

“It is very much an open question how the facilities being applied for should ultimately be paid for,” CAPP said. The western producers suggest that, just as the proposed Niagara flow change would be a historic reversal of gas trade patterns, it might be time for an about-face in Canadian tolling practice.

“It would be inappropriate to assume that the traditional rolled-in toll methodology would apply,” CAPP said.

Customary Canadian practice rolls costs of any and all additions to pipelines into their overall expenses and covers them with tolls paid by all the shippers. The method is rooted in an economic philosophy that said all users of pipeline systems benefit from their growth.

Evidence that TransCanada has submitted to the NEB “does nothing to inspire confidence that Marcellus gas will do anything other than further displace long-haul flows on the Mainline,” CAPP said. “The growth of Marcellus production far exceeds any incremental demand.” CAPP describes the restructuring scheme, in combination with the eastern facilities addition, as “a proposed massive shift” of the TransCanada Mainline costs onto western Canadian gas producers.

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