As depressed prices compel industry to make every penny count, TransCanada Corp. has set out to pare up to 3% from its natural gas Mainline tolls by discarding a legacy of obsolete delivery privileges for a handful of shippers.
The savings — C$33-49.8 million (US$26-39 million) per year — would result from a modern replacement of a 1975 program called storage transportation service (STS), TransCanada said in an application to the National Energy Board (NEB).
Beneficiaries of the old regime — seven local distribution companies primarily in central Canada — are fighting the change. The resistance forced the NEB to open a contested case. Preliminary filings are under way, with oral hearings scheduled to start Sept. 20.
The old contracts date back to the pre-deregulation period when regional gas distribution monopolies were TransCanada’s sole delivery customers. STS let distributors store gas through summer consumption lows for use during heating season demand highs.
But “STS contracts were individually negotiated and often reflect different characteristics of service for each of the local distribution companies, the location of the market in relation to the location of storage, and other factors,” TransCanada told the NEB.
“The non-standard contracts vary significantly from one another,” said the toll reform application. “The variations in the contracts result in a service that is overly complex, lacking in consistency, and raises concerns about discrimination and equity.”
The special deals enable the old guard to take more gas out of storage in winter than they deposit in summer. The results are toll bargains subsidized by the array of rival shippers that grew out of 1980s and 1990s open pipeline deregulation, and a way for distributors to avoid long Mainline delivery contracts that cost more than STS, TransCanada said.
“As STS has undergone only minor modifications since it was implemented, the service today remains essentially the same as the original service designed 40 years ago,” according to the NEB application.
The reformed approach would “simplify and standardize” service and delivery capacity entitlements, align STS tolls with costs, and improve fairness both among distributors and between them and other Mainline gas shippers, TransCanada said.
Changes include establishing a standard toll for flexibly alternating storage and deliveries plus a premium charge for customers that “pool” or co-ordinate the timing of low- and high-volume seasonal service.
The pipeline firm acknowledged the reform would have winners and losers. TransCanada confirmed, “The revenue impacts of the application will be concentrated on those who have historically benefitted from this tolling inconsistency, while the revenue benefits to the overall system will be spread broadly among all other Mainline shippers.”
Canada’s largest distributors, Union Gas (Spectra) in southern Ontario and Enbridge in the Toronto-Ottawa region, are leading the resistance against TransCanada’s proposal. Union describes the old STS regime as “critical” to supply plans lasting into the 2020s and points out that no user of the traditional system has raised any complaints that justify making changes before current overall toll agreements between the pipeline and the rest of the gas industry expire in about five years.
Enbridge agreed. “The Application is premature,” it said. “TransCanada should not be proposing any substantive changes to Mainline services that are not supported by shippers prior to its 2021 toll application.”
The old STS regime has been a factor in supply contracting for the current period of gas transmission and distribution service additions for more than two million eastern Ontario customers, Enbridge said. The program includes improving access to shale gas imports from the United States with an array of changes to the international delivery grid.
“Shippers and natural gas customers will suffer negative consequences from implementation of a devalued form of STS as proposed by TransCanada, especially if shippers are not provided adequate time and opportunity to tailor gas supply portfolios to mitigate impacts,” Enbridge said.
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