The surging cost of moving energy on a critical Canadian natural gas pipeline is sparking an international political row, with several groups of U.S. politicians stepping in to ask for relief from rising transportation tolls.
The expense of bringing Alberta gas to Eastern markets is now high enough that it's threatening the power supply to a Brooklyn industrial park and wastewater treatment plant, the New York mayor's office warns in a letter to Canada's National Energy Board.
It's the latest salvo from groups opposed to toll hikes on the Mainline, the troubled TransCanada Corp. gas pipe network that has served as a cross-continental energy lifeline for many years. TransCanada is requesting a 50-per-cent toll increase this year that, if approved, would add roughly 60 per cent to the price of a unit of gas transported across the country. That has heightened issues surrounding the line, and New York legislators are now calling on TransCanada to take a financial hit to shield consumers and energy suppliers from cost pain.
The new opposition comes amid tough times for the Mainline, which provides about a fifth of TransCanada's pre-tax earnings but has, in recent years, run half empty amid a dramatic reshuffling of North America's energy geography. For decades, the West supplied energy to the East. The discovery of new Eastern energy supplies, and the looming possibility of Western gas exports to Asia, have cast into question the future usefulness of the Mainline.
TransCanada has argued that its problems are short term, and has offered to rewrite the way it collects tolls in order to rein in costs on the Mainline. The company points out that it sought to bring those changes in for 2011, but was unable to get enough support from shippers; it now hopes the rewrite takes effect in 2012.
In the meantime, TransCanada says, it has been forced to keep hiking tolls. For 2011, it has proposed charging $2.45 per gigajoule of gas sent from west to east, up from $1.64 in 2010.
That huge rise has prompted two groups of New York state legislators to write the National Energy Board, which must approve pipeline tolls, and Natural Resources Minister Joe Oliver. They argue the proposed tolls are now so high that they threaten the finances of municipalities, hospitals, consumers and industrial users.
In an interview, Aravella Simotas, a New York assemblywoman, called on the NEB to force TransCanada to absorb the costs – a sentiment shared by some industrial groups, who want the company to either take a writedown or shut down parts of the Mainline to trim costs.
"The NEB has a responsibility to balance the corporate interest of one entity with another group of people, which is ultimately the consumers," she said.
TransCanada has argued that it is setting rates according to a five-year deal struck in 2007, and says bluntly that those using its system "should honour the agreements that they have made."
But the 2007 agreement estimated tolls this year might hit $1.06 per gigajoule – less than half the potential 2011 levels – and politicians and corporations are now threatening to escalate the conflict as they seek relief.
In one letter, George Maziarz, a member of the New York State Senate and chairman of its Energy and State Telecommunications committee, warns that "we will be reviewing this further to 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."
In another letter, Brooklyn Navy Yard Cogeneration Partners LP refers to Canada's obligations under NAFTA to provide a "level playing field" and calls on the NEB to halt what it calls a financial "windfall" to TransCanada from the Mainline. Brooklyn Yard, which calls the proposed tolls "unjust and unreasonable," has even garnered support from the New York mayor's office.
Stephen Goldsmith, the city's deputy mayor for operations, points to consecutive 35-per-cent and 50-per-cent Mainline toll hikes that have hit the company, which powers a Brooklyn industrial park and municipal wastewater plant.
"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 [New York]City," Mr. Goldsmith wrote.
Others have issued similar warnings. Selkirk Cogen Partners LP, a New York electrical generator, says the past two years of toll increases, along with the proposed additional hike, stands to strip $20-million (U.S.) a year from its bottom line. That is having a "deleterious effect to our business," Selkirk states. A series of Ontario power generators has asked the NEB to roll back tolls to their 2010 levels.
TransCanada, however, argues that its proposed tolls are, indeed reasonable, and says it has successfully lowered costs on the Mainline. In a statement, the company also shrugged off the impact of international opposition, saying such comments are not "unusual."
"The National Energy Board will consider these submissions in the same manner as it does submissions from other interested parties," TransCanada said.
Natural Resources Minister Joe Oliver also issued a statement playing down the political pressure.
"The issue is before the National Energy Board, which is an independent regulator," he said.