FTA FIGURES IN ALBERTA-CALIFORNIA GAS PRICE TIFF

Canadian government and industry officials are considering a grievance procedure under the Canada-U.S. Free Trade Agreement in a natural gas price conflict with California regulators. Industry groups and the federal and Alberta governments are considering action under the FTA and other possible responses to recent rulings by the California Public Utilities Commission. Other options being considered are appeals against the CPUC policy to the U.S. energy secretary and the governor of California

Dec. 9, 1991

4 min read

Canadian government and industry officials are considering a grievance procedure under the Canada-U.S. Free Trade Agreement in a natural gas price conflict with California regulators.

Industry groups and the federal and Alberta governments are considering action under the FTA and other possible responses to recent rulings by the California Public Utilities Commission. Other options being considered are appeals against the CPUC policy to the U.S. energy secretary and the governor of California or court challenges.

Meantime, Alberta's government said new export volumes of gas sales to California will be approved only after existing contracts with the 190 Alberta producers have been filled.

BACKGROUND

Canadian gas producers are fighting CPUC endorsement of capacity brokering in which available pipeline space would be allocated to brokers willing to cut prices.

Canadian producers, mainly in Alberta, sell about $1 billion/year (Canadian) in gas supplies to California. They say CPUC policies would violate long standing sales contracts with U.S. buyers.

In a new ruling, CPUC refused to delay implementing a capacity brokering policy despite a 1990 compromise agreement between Canadian suppliers and California customers to delay implementation.

The agreement, effective Aug. 1, opened 25% of space on the Pacific Gas Transmission Co. pipeline system but put strict limits on sales competition. The agreement was to be in effect until mid-1994 when further changes would be negotiated.

CPUC now says the PGT system should be open to a capacity brokering system by Oct. 1, 1992. A policy of capacity brokering would have to be approved by the Federal Energy Regulatory Commission, which is now reviewing proposals.

CANADIAN VIEWS

Canadian Energy Minister Jake Epp and Alberta Energy Minister Rick Orman are now considering a proposal by a major energy firm to use the FTA in the pricing dispute.

Esso Resources Canada Ltd., Calgary, proposed use of Article 905 of the FTA. It provides a consultative mechanism on energy issues. Federal authorities in Ottawa and Washington can call on state, provincial, and other agencies to cooperate on stopping practices that discriminate against free trade in energy commodities.

Epp said Ottawa is concerned over a domino effect if California regulators can abrogate existing contracts. He also questioned the unilateral nature of the CPUC action.

Peter Nettleton, a regulatory affairs specialist with Esso, said Canadian concerns go beyond the dispute with California regulators.

He said what is found to be of public interest by regulators in California can effectively be repeated by "overzealous" regulators in the U.S. Northeast or in eastern Canada.

Nettleton called for an international gas industry review to examine costs of pipeline projects, U.S. subsidies for coalbed methane production, and the cost of energy conservation programs.

The Esso official said pressure by consuming areas to drive down gas prices will have disastrous results for employment, investment, and development in the gas industry. He noted gas sales volumes in Alberta are at record levels but industry budgets and jobs have been severely cut back.

CPA PLANS

Meanwhile, the Canadian Petroleum Association will seek new hearings before CPUC on proposals to open pipelines. CPA said the CPUC decision on early capacity brokering will affect as much as 1 bcfd of Canadian gas shipped to California and negate the sanctity of long term contracts.

Many CPA members belong to the Alberta & Southern Gas Co. producer supply pool, which has contracts with California customers to 2005. CPA also will press a bid to have Canada's National Energy Board review actions taken by the CPUC.

The stakes are high in the dispute. In addition to gas sales prospects, there are several pipeline projects planned to increase shipments of Canadian gas to California by 75% within 2 years.

Pacific Gas Transmission Co. plans to start construction in January on a $1.5 billion expansion of its Alberta-California pipeline system.

The Altamont Gas Transmission Co. group headed by Tenneco Inc. plans a new $573 million line from Alberta to connect with the Kern River Transmission system at Opal, Wyo. Both projects plan to be in operation by Nov., 1993. Most industry observers believe the market will support only one of the two rival projects.