A new dimension in international politics is being added to the marathon duel over rising tolls on TransCanada Corp.’s natural gas mainline to the United States and central Canada from Alberta.

Protests against escalating costs have been fired off to the National Energy Board (NEB) by New York City and members of both houses in the New York State legislature in Albany. A state senate committee investigation is on the horizon. A New York customer of TransCanada has raised the possibility of a complaint under the North American Free Trade Agreement.

TransCanada, in its last word on the latest barrage of toll filings with the NEB, dismisses the criticism as “replete with colorful rhetoric that does nothing to advance consideration of the issues.” The protests are studded with ignorance of Canadian regulatory procedures, the pipeline adds.

No compromise is offered to change a late June decision that set off the summer round in the quarrel, which began last winter and has grown steadily hotter ever since (see Daily GPI, July 25).

For 2011 TransCanada still intends to go ahead on a 36% increase in its benchmark eastern zone toll to C$2.24/gigajoule (GJ) (US$2.35/MMBtu). The package also keeps open an option for a retroactive additional increase for 2011 during 2012. The scheme creates a deferral account for any shortfall in collecting the mainline regulated revenue requirement once actual 2011 shipping volumes and payments become known.

TransCanada also insists that the rate hikes have to go ahead while it devises a new financial structure and business plan, which it promises to reveal at least partially in a new NEB filing by September.

In a letter to the NEB, New York City Deputy Mayor Stephen Goldsmith said distributors and consumers have made municipal authorities aware that “they have been subject to sharply escalating tolls in recent years — increases that have reportedly greatly exceeded those of comparable North American pipelines.”

The deputy mayor particularly cites the case of Brooklyn Navy Yard Cogeneration Partners (BNYCP), which annually provides 2 million MWh of power and five million pounds of steam to the city. The operation has had to eat annual delivery cost increases for its western Canadian natural gas fuel of 50% in 2010 and 35% this year, the civic official writes.

“A continuation of such a trend has the clear potential to jeopardize the viability of BNYCP, which is a critical source of supply of electricity and steam to the City,” Goldsmith said. The plant serves old and new businesses in a civic economic development zone plus a Brooklyn wastewater treatment plant, he adds.

Goldsmith describes the cogeneration plant’s headache as just “one illustration of the direct adverse results that excessive gas transportation charges can have.”

The deputy mayor’s message to the NEB is that “it is of paramount importance that the board recognizes the impact of ever-increasing gas transportation tariffs on TransCanada’s shipper customers and their ultimate energy consumers, and the resulting threat that such excessive tolls pose to reliable and affordable energy.”

A letter to the NEB from 10 New York State Assembly members makes a similar case, with copies also sent to board chairman Gaeton Caron and Canadian Natural Resources Minister Joe Oliver. “We urge an immediate and careful review by your board of the unprecedented increases in the level of charges imposed upon current shippers since 2007,” it said. The date refers to a settlement agreement that TransCanada insists its current rate hikes are only enforcing.

“Due regard must be given to the potentially devastating current impact of any further interim toll increases upon the individual, municipal, industrial and commercial customers who must fully bear the cost,” the letter said.

The request is seconded — and a commitment to take further action is added — by the chairman of the New York Senate energy committee, Sen. George Maziarz. In a letter to the NEB, likewise copied to Caron and Oliver, Maziarz said, “Our Senate Committee on Energy will be reviewing this matter further.” The committee chairman said the exercise will “determine what we — potentially in concert with other state and federal legislative and regulatory bodies — can do to ensure that the public welfare is recognized and respected.”

Maziarz writes the NEB that the effects of TransCanada’s toll hikes ripple out far beyond big gas users like the Brooklyn cogeneration plant. “Individual New York State gas consumers and small community hospitals, school districts and municipalities are adversely affected through the consequent transportation cost increases passed along by their local gas distribution utilities,” the state senator said.

BNYCP, in the latest in a series of protest letters to the NEB, raises the possibility of expanding the rate case into a trade issue between the U.S. and Canada. The cogeneration operator said, “This is not simply a private dispute. The underlying policy issues and regulatory philosophy have implications throughout the North American gas market. Canada has, in NAFTA, promised a ‘level playing field,’ and NEB and all Natural Resources Canada officials have an obligation to act to fulfill that promise.”

The current round of rate hikes is a case of TransCanada refusing to adapt to gas market changes including reduced exports from Alberta, rising U.S. shale production, construction of new pipelines to handle it, and desire by central Canadian consumers to shop around for supplies.

BNYCP said, “TransCanada should no longer be permitted by the NEB to continue to hide from the new realities of the competitive North American gas market. While TransCanada has delayed addressing these issues, it has been extracting unreasonable tolls from shippers like BNYCP to support the Mainline.”

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