|
Pipeline operator needs rate hike to carry Arctic gas through mainline system TransCanada PipeLines tells Energy Board that without a higher return on capital it will be forced to consider a bullet line from Alaska, Mackenzie Gary Park PNA Canadian Correspondent
TransCanada PipeLines Ltd., Canada’s dominant gas pipeline operator, has warned the National Energy Board that unless it wins its bid for a higher return on capital it won’t be able to deliver Alaska or Mackenzie Delta gas through expansions to its mainline system.
TransCanada PipeLines President and Chief Executive Officer Hal Kvisle opened pivotal regulatory hearings Feb. 27 with a direct message that expansion of TransCanada’s existing mainline to handle Arctic gas would benefit shippers by underpinning the long-term viability of the system.
But he said that TransCanada has no intention of trying to handle Arctic gas through incremental investments in the Canadian mainline if it continues to earn a return on capital of 5.8 percent. “That makes no sense,” Kvisle told the federal regulator.
TransCanada is a 50 percent partner in Foothills Pipe Lines Ltd., the lead proponent of the Alaska Highway pipeline project, and an obvious front-runner to participate in any pipeline along the Mackenzie Valley. Still seeking opportunities However, he said, TransCanada remains committed to seeking negotiated northern opportunities regardless of how the National Energy Board rules on its request for a 7.5 percent after-tax weighted average cost of capital for 2001 and 2002.
If approved, the increase would cost shippers an extra C$500 million for 2001 and 2002, the Canadian Association of Petroleum Producers has estimated.
But Kvisle said that without the increase, TransCanada would not be able to compete for Alaska or Mackenzie Delta gas through mainline expansions.
The only alternative would then be for TransCanada to propose a “stand-alone bullet line delivering gas straight through to a market like Chicago.” He assumed that such a line would by comparable to the Alliance Pipeline from northeastern British Columbia to Chicago, with a 7.5 percent to 8 percent return on capital compared to 5.8 percent TransCanada PipeLines is currently earning.
“The return we are earning at 5.8 percent is inappropriate for the level of risk we already have,” TransCanada PipeLines Chief Financial Officer Russ Girling told the National Energy Board. C$9 billion investment in line Kvisle said TransCanada currently has a C$9 billion investment in the main line and, under the current regulatory system, it will need 30 years to recover that capital., adding: “The events of the last few years have dramatically changed the risks of the next 30 years.”
Trans Mountain Pipe Line Co. Ltd., which operates an oil pipeline from Alberta to the British Columbia coast, supported TransCanada’s argument that a higher rate of return is needed to enable TransCanada to compete for capital in North America when U.S. pipelines mostly enjoy higher regulated returns.
Trans Mountain Executive Vice President Rich Ballantyne said U.S. pipelines are allowed returns of 12 percent to 13 percent compared with less than 9.5 percent for Canadian companies, based on the National Energy Board’s old system of calculating return on equity. Infrastructure aging He said that without increases, Canadian pipelines will have a tough job maintaining an aging infrastructure while financing major new projects, such as the Arctic.
But TransCanada faces a long haul before the National Energy Board, notably in a challenge from the Canadian Association of Petroleum Producers, which speaks for companies producing about 95 percent of Canada’s oil and gas.
Andrew Safir, president of Los Angeles-based Recon Research Corp. and an expert witness for the Canadian Association of Petroleum Producers, disagreed with TransCanada’s claims that its business risk has changed appreciably in the last seven years.
He said TransCanada’s assessment of changes to its mainline business risk is “exaggerated.”
| 