Shippers should share cost of Mainline pipe, TransCanada says

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On the first day of a National Energy Board hearing that will determine the future of a vital piece of Canada's energy infrastructure, TransCanada Corp. insisted it should not bear the costs alone of running a half-empty pipe.

TransCanada's Mainline pipeline spans the country, delivering Alberta gas to Ontario, Quebec and New York homes and electrical generating stations. But new supplies of eastern U.S. gas, which are feeding central Canadian markets, along with falling Alberta production, have starved the Mainline, which has run far below capacity in recent years.

Who should pay the costs of building and maintaining a pipe that now runs largely empty? It's a question the NEB will ponder in a series of hearings that, with a few breaks, will extend through to mid-September, starting in Calgary before moving to Toronto and Montreal.

On Monday, in a sweltering downtown Calgary hearing room, TransCanada was granted the first word. Greg Lohnes, TransCanada's president of natural gas pipelines, said opponents who want the company to write down the Mainline, make huge financial contributions toward it, or stage large deferrals of its ability to recoup costs, "are wrong."

Mr. Lohnes acknowledged that the Mainline, as well as the western gas fields that have long fed it, "is at risk." But, he said, the regulatory system governing the Mainline for more than a half-century has rewarded gas companies and utilities with lower tolls, while precluding TransCanada "from exercising market power and charging market-based rates."

Translation: Shippers shared in the gain for many years. Now they have to share in the pain during tough times.

The objective for TransCanada's opponents is to persuade the NEB otherwise. A group of utilities, including Enbridge Gas Distribution and Gaz Métro, have proposed that TransCanada forego $427-million in earnings over nine years. The Industrial Gas Users Association wants to stick TransCanada with an $852-million bill. And the Association of Power Producers of Ontario wants TransCanada to suck up $250-million in costs over five years.

At Monday's hearing, Ian Mondrow, who is acting on behalf of the Ontario power producers association and several other utilities, moved to undermine the heart of TransCanada's argument. He cited the company's own regulatory documents, which refer to the need to "protect" shippers.

"Mr. Lohnes, you're the president of this pipeline," Mr. Mondrow said. "Do you feel it is your duty to make sure your customers have access to the utility at a fair price?"

Mr. Lohnes replied: "I think the [current] model has [resulted] in the lowest possible tolls for customers."

Among those represented at the hearing are BP Canada Energy Group, Cenovus Energy Inc., Enbridge Gas Distribution, Encana Corp., Shell Canada Energy, Talisman Energy Inc., Union Gas Ltd., and government ministries from Alberta, Ontario, Quebec and British Columbia.

A decision is expected from the NEB in early 2013.