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UBC Theses and Dissertations

Canadian natural gas deregulation Black, Alexander Joseph 1988

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CANADIAN NATURAL GAS  DEREGULATION  By ALEXANDER JOSEPH B.A.(Hons),  BLACK  Lakehead U n i v e r s i t y ,  L L . B . , The U n i v e r s i t y THESIS SUBMITTED  o f Dundee,  1982 1984  IN PARTIAL FULFILLMENT  THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS in THE FACULTY OF GRADUATE STUDIES (FACULTY OF  We  accept t h i s t h e s i s to  the  required  LAW)  as conforming standard  THE UNIVERSITY OF B R I T I S H COLUMBIA July (c)  1988  Alexander Joseph Black,  1988  In presenting t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e h e a d o f my d e p a r t m e n t o r by h i s o r h e r r e p r e s e n t a t i v e s . I t i s understood that copying or p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l gain s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n .  Faculty  of  Law  The U n i v e r s i t y o f B r i t i s h 1956 M a i n M a l l V a n c o u v e r , Canada V6T-1Y3  Date:  July,  1988  Columbia  ii ABSTRACT  Canadian government market  natural  price  forces.  remains  setting  in  However,  the  regulated  distribution preclude  due  system  business  whether the  and  of  forms  of  this  the  Canadian  of  regulatory  new  regime  of  While  and  the  the  have  proposed  possibility been  law  which discern  the  a  legal  exacerbated  certain  rates  undue  and  or  herein  that  pervasive  allows  of  prohibits  thesis  the  regulation.  setting  i t  to  i s following  regulatory  in  of  scale  attempts  by  commodity  nature  interest i s therefore  The  may  the  public  services,  discrimination  of  utility  paper.  theory  determined  economies  paper  terminated  public  the  discrimination.  prices  monopolistic  This a  of  has  transportation the  discrimination  provision  favour  to  t r a n s i t i o n to  Promotion of  deregulation  rivalry.  p r i n c i p l e s underlying  theme  gas  unjust  focuses  incidents by  the  the  of  on  undue  deregulation  process. The  examination  discrimination Act is  1867,  the  directed  begins  provisions so-called  to  application to  public the  discussed  including  involving  the  of  with  section  92A  review of  the  " R e s o u r c e Amendment". utilities  natural an  commodity  a  gas  theory  industry.  analysis as  well  p i p e l i n e d i s t r i b u t i o n systems.  as  of  given  More its  sale"  "bypass"  the  Constitution attention compelling  Deregulation  "direct  the  of  of  is  then  contracts the  local  iii Some c o n c l u s i o n s changing to  commercial  whether  a  market  i s that  encouraged  i n the core  market  the  by  interest. resolved which direct  Finally, by  will  sales  demand v o l u m e  direct  sale  Board  gas  i t i s hoped  are voiced  that  related  i n order  (RH-1-88)  doubts  promote public will  public  self-displacement  (ODV) m e t h o d o l o g y .  the  to deregulation,  be  industrial to  in  One  should  i n the  these  as  the transition  contracts as  and  applying the  environment.  producers  i n i t s new  and t h e a n c i l l a r y  gas  as w e l l  Energy  issues  doubts  i s properly  natural  among  t h e Board address  Board  market  National  competition  Grave  competition  regulation during  oriented  conclusion  upstream  Energy  of public u t i l i t y  more  important  conditions.  the National  principles to  a r e t h e n made c o n c e r n i n g  be  hearing  including  and o p e r a t i n g  iv  TABLE OF CONTENTS  1.  Introduction  2.  Jurisdiction  2.1  S e c t i o n 92A o f t h e C o n s t i t u t i o n A c t 1982: The R e s o u r c e Amendment.  3.  A d m i n i s t r a t i v e S t r u c t u r e and Theory o f P u b l i c U t i l i t y Regulation  3.1 3.2 3.3 3.4 4.  1 Over Canadian N a t u r a l  Gas U t i l i t i e s  The N a t i o n a l Energy Board Regulatory T r i b u n a l s i n A l b e r t a , Manitoba and O n t a r i o The N a t u r e o f R e g u l a t i o n R a t e D e t e r m i n a t i o n and D i s c r i m i n a t i o n Deregulation Regimes  of Natural  Gas P r i c i n g  5 5  15 15 21 26 35  and M a r k e t i n g 46  4.1 4.2 4.3  The D e r e g u l a t i o n P r o c e s s " S u r p l u s Gas" and S e c u r i t y o f S u p p l y The Commercial N a t u r e o f a Take-Or-Pay C o n t r a c t  46 53 58  5.  The D i r e c t S a l e s  66  5.1  D i r e c t Purchases of Natural  5.2  Contractual  6.  The "Cyanamid" B y p a s s I s s u e  6.1  Background  6.2  Commercial  8.  Conclusion  Controversy  i n Manitoba Gas  Implications o f Displacement i n Ontario  66 70 85 85  Implications  Bibliography  90 96 101  i  1.  INTRODUCTION  Promotion public are to  of  utilities  presently clarify  meaning  a b o u t by  formerly  terminated  favour  However, not  in  transportation  of  The  s y s t e m and  local  rivalry.  public  the  present  price  of  commodity  to  of the  a  is  to  attempt  free  is  the  old  Ltd.(TCPL) also  acts  always  be  as  the a  a  market  fact  that  regulated  of  out  the of  scale  the  role  to  act  as  to  mirror  regulation  preclude of a  the  business  natural  gas  substitute  for  supply  and  demand  market.  regime. is  by  interprovincial pipeline  However t h i s r o l e i s i n h i b i t e d t o of  been  market-oriented  the  remains  monopolistic  i t  where  has  determined more  have  process gas  new  difficulties.  difficulties  economies  of  exigencies  natural  prices  commodity  regulators  interest in light these  in  utilities  inducing  so-called deregulation  regulators  and  is  theme  gas  d i s t r i b u t i o n companies a l l r e q u i r e  Therefore,  transportation  pervasive  natural  particular,  transition  these  Canadian  competition  the  the  of  Canadian f l u x which  In  the  of  necessity.  the  interest is a  been e f f e c t e d w i t h o u t  Inherent  controls  of  prescribed  in  regime has  since  state  conditions.  been brought  forces.  public  regulation.  in a  the  commercial  the  the  For  instance,  monopolistic  broker  of  the  relationship  some e x t e n t by TransCanada  interprovincial commodity. between  the  While  a  legacy  Pipelines  carrier  who  there  will  marketing  and  2 transportation  segments  pre-deregulation consumers prices  into  might  consumers  salient  the  u s e r s who affect  former  this  will  of  be  bypass  on  decisions  provincial  jurisdiction  constitutional enroute  over  the  for  latter  negotiate  less  producers. functions  concept  TCPL  refers  expensive  Although of  of  direct  and  the  that  these  companies  They  could  adjust to the  from  the  of  federal  pricing  the  Two  direct  sale  certain  end-  main  appears  interest  companies  trunk  line.  prudent,  its  remaining  LDC  Concern over has  been  the  intense.  government  e n t e r p r i s e y e t an  confirm  interesting  competence  continues  Canada. to the  ability  commodity  sales  sales  LDC's,  could p r o f i t new  gas  distribution  legislative  t o t h e Supreme C o u r t  The  and  ability  local  the  the  process.  higher rates.  against  battle  the  public  gas  intergovernmental  discriminatory to  the  Appellate  1985  competition  have t o absorb  lower  environment,  competitive  bypass  service  downstream  actually  to  locked  because  deregulation  to the  cheaper  to  the  refers  connections  obtain  will  include  the  contracted.  31,  the  Although  deregulated  fully  that  have  benefitting  October  commenced  seems  TCPL  prices.  from  t o be  i t  of  i n the  precluded  in  The  though  effect  high  obtained  provisions  and  industry,  provisions pertaining  users to sever  Even  be  that  concepts.  (LDC)  inordinately  now  contained  Agreement  the  contracts  system tends  Several are  supply  are  distribution  of  dispense i t is  with  end-users  directly with  carriage  environment  to from  the  nevertheless  fair  competitive  of  broker thought charges.  in  their  3 brokerage  capacity  reflect  changed  promote  a  sale  initiative  federal  that  that  the  might  have  Energy  to  Board.  industrial  Board  has  In  brought  users  has  unduly  Manitoba  lower been  Since  concerns,  contracts  Furthermore, t h i s  competition.  commercial  National  existing  conditions.  upstream  and  been a l l o w e d  renegotiating  commercial  healthy  residential  by  gas  could  a  direct  prices  rebuked  direct sales  to  by  the  have  only  a l l e g a t i o n s have  discriminated  to  between  surfaced customer  classes. This  paper  process  follows  regulation. of  the  prices  and by  the the  public  amendment  the  of Thus,  thought  and  a  constitution  However,  its  before  in  to  instance,  the  has  yet  natural a  philosophy  of  new  supplies  not  been  present  significant or  setting  have  addressing  the  prices  impact  may  of  makes  utility  i n the  important  discussion For  deregulation  underlying  services  is  discrimination  provinces.  the  undue d i s c r i m i n a t i o n  process. i t  whether  principles  regulation.  to  concerning  of  overview  utility  discern  provision  deregulation,  jurisdictional  to  legal  Incidents  exacerbated gas  attempts  resource provisions  by  been  producer judicially  considered. Hence, consensus services the  a  salient  that will  subject  of  regulatory  discrimination  in  public  always  discrimination  preferential customers.  occur  becomes  prices A  properly  are  yet  should  undue  or  sometimes  structured  only  is  the  rates  and  prohibited  when  utility be  unjust. afforded  price  theory  For to  advantage  instance, industrial  can  inhibit  4 them  from  switching  Contemporaneously, of  the  benefitting  those  who  if  commercial  gas  energy  contribute  diststribution  pay h i g h e r  rates,  source.  to the overall system  such  as  this  discounts  in  p r e f e r e n c e c a n become u n d u l y the  industrial  s u b s i d i z e d by u n j u s t i f i a b l y markets.  residential  sector  high prices  Indeed  there  discriminatory  are,  in  s e c t o r s o f t h e market, no  effective  i s an i n h e r e n t  topic  will  immediate  and  regulatory insight  be  regulation  extensively compelling  tribunals.  into  such as t h e r e s i d e n t i a l  competition  the  of natural  exists.  developed  relationship Hopefully  specific  tendency f o r  gas s e r v i c e s .  because to  the  topics facing  i n those  and commercial,  This  these  problems  effect,  i n t h e r e s i d e n t i a l and  a m o n o p o l i s t i c m a r k e t e r t o c h a r g e a s much a s p o s s i b l e  where  thereby  users.  However,  commercial  another  these customers  maintenance  and  to  discrimination of  i t s more  decisions will the  of  provide Canadian  5 2.  JURISDICTION OVER CANADIAN NATURAL GAS U T I L I T I E S  Canadian point  f o r an a n a l y s i s  since  both  rights This  the  chapter  of  natural the  Constitution  ultimate  is  a  fundamental  commodity  and  its  transportation.  new  element o f the  on  a  relatively  to public  1867  will  provisions be  In  have  particular,  i n section  addressed  i m p a c t upon p r o d u c i n g p r o v i n c e s  92A  because  as w e l l  of  as t h e  determination of rates.  Other  commentators  to natural gas.  jurisdictional chapter  provinces  utilities.  SECTION 92A OF THE CONSTITUTION ACT RESOURCE AMENDMENT  and  utilities  the  2.1  relating  gas  and  discrimination Act  reference  government  the  pertains  resource  their potential  oil  to  concentrates that  law  o f t h e Dominion's n a t u r a l  federal  pertaining  constitution the  constitutional  1  have  resources Rather  addressed  a  relevant  including  re-iterating  parameters of the C o n s t i t u t i o n  addresses  THE  the c o n s t i t u t i o n a l  exploitation, than  1982:  amendment  that  the  A c t 1867,  law of  basic 2  following  this the  U s e f u l c o m m e n t a r i e s i n c l u d e : G.V. L a F o r e s t , Natural R e s o u r c e s and P u b l i c P r o p e r t y u n d e r t h e C a n a d i a n C o n s t i t u t i o n (U. T o r o n t o , T o r o n t o , 1 9 6 9 ) ; M. C r o m m e l i n , " J u r i s d i c t i o n o v e r O n s h o r e O i l and Gas i n C a n a d a " (1975) 10 U.B.C.L.Rev. 86; J . B . B a l l e m , " O i l a n d Gas u n d e r t h e New C o n s t i t u t i o n " (1983) 61 Can. B a r Rev. 547; B.W. Semkow, " E n e r g y and t h e New C a n a d i a n C o n s t i t u t i o n " (1984) 2 J . E . R . L . 107; A.R. Thompson, "An O v e r v i e w o f O i l , Gas, and M i n e r a l D i s p o s i t i o n S y s t e m s i n C a n a d a " (1986) 32 R o c k y Mt. M i n . L. I n s t . 3-1. C o n s t i t u t i o n A c t , 18 67, 30 & 31 V i c t , c.3 (Imp.); f o r m e r l y t h e B r i t i s h N o r t h A m e r i c a A c t 1867, renamed by S c h e d . l o f t h e C o n s t i t u t i o n A c t 1982, w h i c h i s Sched.B o f t h e Canada A c t 1982, c . l l (UK).  6 patriation 1982.  of  Canada's c o n s t i t u t i o n  Under  section  92A,  Amendments,  provincial  strengthened  in  a  accommodated. federalism nation. by  the  trade it  On  4  one  the  the  producing  hoped  to  conservation in The  the  relation  to  has  resources.  is  7  basic  interests  tenet  free-trade  of  control  as  additional  Canadian  successfully  over  the  sought  nationwide  also  and  free-  jurisdiction,  their  economic  convey  in  make  must  resources  powers  provincial to not  and  facilities.  non-exclusive  relation  laws  management  energy  Plenary  taxes  to  non-renewable  electrical  subjects.  such  empowered  development,  as  conferred  However,  were  5  resources, well  was  throughout  the  in  Resources  resources  divergent  exclusively  Amendments  been  natural  balance  exploration,  forest  province,  Resource  power  of  to  Kingdom  Natural  c h a n g e s were  regional  increase.  the  a of  hand,  that  province  pertaining  hand,  United  expanding p r o v i n c i a l resource  development would Each  whereby  provinces  i n t e r e s t . By  was  over  existence  other  so-called  power  process  On  is  the  from the  their  8  in  taxing natural  differentiate  C o n s t i t u t i o n A c t 1867 as amended by s s . 5 0 and 51 o f t h e C o n s t i t u t i o n A c t 1982, d e s i g n a t e d a s s. 92A o f t h e C o n s t i t u t i o n A c t 1867 and S c h e d . 6 . M.A. C h a n d l e r , " C o n s t i t u t i o n a l Change and P u b l i c P o l i c y : The I m p a c t o f t h e R e s o u r c e Amendment ( S e c t i o n 92A)" (1986) 19 Can. J . P o l . S c i . . 103 a t 122-3. R.D. C a i r n s , M.A. C h a n d l e r , W.D. M o u l l , "The R e s o u r c e Amendment ( S e c t i o n 92A) and t h e P o l i t i c a l Economy o f C a n a d i a n F e d e r a l i s m " (1985) 23 Osgoode H a l l L . J . , 253 a t 263. supra note 3 at s.92A(l)(a). Id. s.92A(l)(b). Id. s . 9 2 A ( l ) ( c ) .  7 between and  production  that exported Whereas  taxes,  a  of the resource  t o other province  retained  provinces.  9  previously  i t i s no l o n g e r u l t r a  vires  i n the province  could  only  to indirectly  of  t o the the non-differentiation  those  Amendments been  provincial may  s e t out  provincial  extent  o f competing,  federal This  paper in  utility  discrimination. Amendments from  would  be  suijuris  paramountcy.  deregulation public  laws  is light  before  though  i n the ameliorated  those  Act.  1 1  rendered  federal  in  proviso.  enjoyed  n o t b e made e v e n  arise,  of  powers  direct  tax resources  •  subject  levy  Derogation the  Resource  powers have n o t  Should  a  conflict  inoperative t o the  laws under t h e d o c t r i n e  1 2  concerned of  the  regulation, Perhaps  with legal  including  Canadian principles those  one o f t h e more  i s t h e one p r o v i d i n g  natural  underlying  pertaining  relevant  f o r the export  gas  of  to  Resource resources  provinces. "s.92A(3) I n e a c h p r o v i n c e t h e l e g i s l a t u r e may make laws i n r e l a t i o n t o t h e e x p o r t from t h e p r o v i n c e t o another p a r t o f Canada o f t h e p r i m a r y production from non-renewable n a t u r a l r e s o u r c e s and f o r e s t r y r e s o u r c e s i n t h e p r o v i n c e and t h e p r o d u c t i o n from the f a c i l i t i e s i n the province f o r t h e generation o f e l e c t r i c a l e n e r g y , b u t s u c h l a w s may n o t a u t h o r i z e or provide f o r d i s c r i m i n a t i o n i n p r i c e s or supplies exported t o another part of Canada. (emphasis added) , , l j  11 12 13  Id. s.92A(4). F o r a u t h o r i t i e s on t h e p r e - 1 9 8 2 p o s i t i o n , s e e : C a n . I n d u s t . Gas & O i l L t d . (CIGOL) v . S a s k a t c h e w a n , [1978] 2 S.C.R. 545, [1977] 80 D.L.R. (3d) 449; s e e a l s o C e n t r a l C a n . P o t a s h Co. v . S a s k a t c h e w a n , [1979] 1 S.C.R. 42, [1978] 88 D.L.R. (3d) 609. supra note 3 a t s.92A(6). Id. s.92A(3). Id. s.92A(2).  8 "Primary  production"  Constitution While  the  A c t 1867 provinces  international applying not  been  potential concerning  1949 to  under  application exports  have  includes  Canada.  92A,  Although  considered,  exists  thereby  i n t r o d u c i n g t h e requirement gas from  1984  periodic  with  Evidently,  and  the controversy  not unsubstantiated  usurps  federal  •  including  legislation  the  1 7  Act i n i n order  Act  and  1 6  again  present  was in  date.  1 8  statute involves  by  commentators  that i t  have  control  over  their  natural  resources,  jurisdiction.  Undoubtedly, conservation  of i t s  This  1 5  i n 1956, to  held  example  of a permit  attaching to this  view  laws  s e c t i o n 92A h a s  Preservation  the province.  tinkering  control  c a n make  Alberta  Resources  replaced  to  province.  enacted  natural  an  with  from t h a t gas r i c h t h e Gas  they  of the  n a t u r a l gas.  jurisdiction  section  judicially  repealed  valid  not  within  successively  •  implicitly  Alberta  remove  the  and do  exports  t o exports  yet  i s d e f i n e d i n t h e S i x t h Schedule  1 4  and  the  provinces  production 1  i  o i l and g a s .  3  of  the  Q  While  t h e A c t makes  conservation provisions f o rthe present  prima  facie  and f u t u r e needs  of A l b e r t a n s , criticism of i t s predecessor remains a p t t o Id. s.92A(5). 15 For a d i s c u s s i o n o f t h e r e g u l a t o r y process i n v o l v e d , see n o t e 64 a n d a c c o m p a n y i n g t e x t i n f r a . 16 S.A. 1949 (2nd S e s s . ) c . 2 . 17 Gas R e s o u r c e s P r e s e r v a t i o n A c t , S.A. 1956, c . 1 9 . 18 Gas R e s o u r c e s P r e s e r v a t i o n A c t , S.A. 1984, c.G-3.1, S.A. 1986, c.17 a n d c.D-18.1; S.A. 1987, c . 2 3 . 19 S p o o n e r O i l s L i m i t e d v . T u r n e r V a l l e y Gas C o n s e r v a t i o n B o a r d [1933] S.C.R. 629, 4 D.L.R. 545, [1932] 3 W.W.R. 447. 20 Gas R e s o u r c e s P r e s e r v a t i o n A c t , s u p r a n o t e 18 a t s . 8 . 21 C r o m m e l i n , s u p r a n o t e 1 a t 119-120.  xr  2 0  2 1  9 the  extent  that  i t controls  impugned c o n t r o l mechanism may  be  inserted  government.  in  stipulates  that  monopolistic  gas  let  market  1  States. over  bubble".  4  issue  this  Pipelines  from  those  contained  But  in  particular  reaction  the  lost  determine  the  Canadian with  these expected  supply  to  must  honour  these  are  (TCPL),  which  a  plays  a  in  that  Deregulation commodity's consumers  increased  removal c o n d i t i o n s  the  was price,  exports  original had  been of  government supposed  to  presumably  defraying to  a of  incidents  ended  while  e x p o r t s d i d not  if  arrangements  unplanned  s i t u a t i o n , more c o l l o q u i a l l y  Thus, the  former  conditions  initiative  commodity.  revenue  The  m i n i s t e r i a l consent  downstream  These  to  so-called  Ltd.  company  that  Alberta  the  Invariably,  the  of  cost  the  distributors  requires  deregulation  forces  by are  change  Alberta  conditions  The  broker.  condition to  marketing.  conditions.  2 4  contracts.  gas  the  producer s  2  by  fixing  lowering  an  a commodity  application.  Canadian  price  to  TransCanada  exports  promulgated the  permit  "markets"  supply  with  wants  Alberta permit  gas  markets  licensee  and  2 3  removal  interprovincial pipeline  r o l e as The  the  t e r m s and  extra-provincial  existing  arrangements  dual  involves  Significant  "self-displacement"  their  e x t r a p r o v i n c i a l gas  the  the  United  m a t e r i a l i s e due known a s  seek t o p r o t e c t  the  to "gas  Alberta  Gas R e s o u r c e s P r e s e r v a t i o n A c t , s u p r a n o t e 18 a t ss.4,13(2),6; t h i s A l b e r t a regulatory function i s c o n d u c t e d by t h e E n e r g y R e s o u r c e s C o n s e r v a t i o n Board (ERCB) and t h e L i e u t e n a n t G o v e r n o r , n o t e 72 i n f r a . S.6 o f A l t a . Reg. 271/87. N.B.Both c o n d i t i o n s apply to short-term permits. S . 4 ( l ) o f A l t a . Reg. 271/87.  10 producers term  by i n h i b i t i n g  distributors  from  abrogating the long-  TCPL c o n t r a c t s a n d e n t e r i n g i n t o c h e a p e r Except  for  development Parliament including  and  exports,  questioned  division  Prior  will  trade  which  subsection provincial  competence.  typically  92A,  even  Amendments,  of similar  o f powers  to section  the other  Hence,  Resource  the v a l i d i t y  in  a  powers of  t h e t r a d e and  be  paramount  before  the  1982  commentators by  to  have  using  an  n o t attempt  to  2 7  province  i s properly  (1) ,  I n t h e case  legislation  analysis.  2 5  exploration,  i t c a n make l a w s u n d e r  which  and  provincial  powers  export  legislation.  Patriation  concern.  92A(2)  heading  provincial  regulate  conservation  section  commerce  exclusive  c a n o v e r r i d e o r match  interprovincial  orthodox  the  arrangements.  could  a matter  of  interprovincial  L a s k i n , C.J.C. s t a t e d :  " I t i s t r u e t h a t a P r o v i n c e cannot l i m i t t h e export of goods from the province, and any provincial m a r k e t i n g l e g i s l a t i o n must y i e l d t o t h i s . " ^ 2  8  Accordingly,  w h i l e t h e removal permit  c o n d i t i o n s may b e v a l i d  contractually  as regards  producer-permittee,  Alberta  Legislature  distributors Instead 23 26 27 28  the gas w e l l  does n o t enjoy  privity  and t h e c o n d i t i o n s cannot  be  with  the  t h e downstream  imposed  o f preoccupation with production concerns,  upon  them.  the current  D e r e g u l a t i o n i s e x p o u n d e d upon i n C h a p t e r 4 i n f r a . Thompson, s u p r a n o t e 1 a t 3 . 0 3 [ 3 - 4 ] ; s . 9 2 ( 2 ) s u p r a n o t e 2; P.W. Hogg, C o n s t i t u t i o n a l Law o f C a n a d a (2nd e d . , C a r s w e l l . ' T o r o n t o , 1985) a t 354. J.B. B a l l e m , " C o n s t i t u t i o n a l V a l i d i t y o f P r o v i n c i a l O i l and Gas L e g i s l a t i o n " (1963) 41 C a n . B a r Rev. 199 a t 218219. R e f r e A g r i c u l t u r a l P r o d . M a r k e t i n g A c t [1978] 2 S.C.R. 1198, 84 D.L.R. (3d) 257 a t 319, 19 N.R. 361.  11 Alberta  Gas  matters  Resources  in  general,  Nevertheless, ultra  Preservation  vires  since  i n the  and  1982,  as  to prices Not  as  "authorise despite  nature  of  the  law.  particular. would  between  not  be  consumers  2 9  the  for"  plethora  type  promising technique comparative  in  consumption  supplies.  provide  this  with  conditions  discrimination  removal  being unconstitutional  or  deals  exports  permit  absence of  surprisingly,  questioned  But  or  gas  the  •  Act  of  section of  permit to  the  discrimination  has  that  been i t  may  discrimination.  written remains  t h a t might c r y s t a l l i s e  One  extent  92A(2)  articles  system  the  3 1  the  unclear. matter  h e l p f u l d e f i n i t i o n i s found  3 0  legal 3 2  A  involves  i n a work  on  E u r o p e a n Community Law: " D i s c r i m i n a t i o n always i n v o l v e s uneven t r e a t m e n t o f subjects or objects in essentially similar s i t u a t i o n s by a s i n g l e p e r s o n o r b o d y . . . " 3 3  S. B l a c k m a n , Gas Removal P e r m i t s i n A l b e r t a : Constitutional Questions ( F a c u l t y o f Law, U n i v e r s i t y o f B r i t i s h C o l u m b i a : A p r i l 20, 1988) u n p u b l i s h e d , a t 57,17,10,58. S.92A d i s c u s s i o n was i n f l u e n c e d by t h e l u c i d c o m p a r a t i v e a n a l y s i s o f my c o l l e a g u e S u s a n B l a c k m a n . M.Kay, " D e r e g u l a t i o n And I n t e r p r o v i n c i a l T r a d e : D i r e c t S a l e s o f N a t u r a l Gas" i n J.O. S a u n d e r s ( e d . ) , Trading Canada's N a t u r a l R e s o u r c e s ( C a r s w e l l : T o r o n t o , 1987), a t 282. s u p r a n o t e 1; o t h e r u s e f u l c o m m e n t a r i e s i n c l u d e : J.P. M e e k i s o n , R . J . Romanow & W.D. M o u l l , O r i g i n s and M e a n i n g o f S e c t i o n 92A: The 1982 C o n s t i t u t i o n a l Amendment on R e s o u r c e s (The I n s t i t u t e F o r R e s e a r c h On P u b l i c P o l i c y , 1985); W.D. M o u l l " P r i c i n g A l b e r t a ' s Gas - C o - O p e r a t i v e F e d e r a l i s m and t h e R e s o u r c e Amendment" (1984) 22 A l t a . L.Rev. 348. B l a c k m a n , s u p r a n o t e 29 a t 19. H. S m i t & P. H e r z o g , The Law o f t h e E u r a p e a n E c o n o m i c Community: A Commentary on t h e EEC T r e a t y , ( M a t h e w Bender:New Y o r k , 1976) vol.3 at 556. f  12 Like  other  federal  comparison, an  treaty  nationality. similar  flow  o f people,  enterprises  enabling  that  J 4  might  provide  t h e E u r o p e a n E c o n o m i c Community  unfettered  business  systems  between  enjoins Thus  3 6  services, the  against the  a  useful  i s predicated goods,  Member  upon  capital  States.  and Its  3  d i s c r i m i n a t i o n on t h e b a s i s o f  European  t o a f e d e r a l o r economic  Community  system  experience  is  s u c h a s Canada t h a t i s  37 b a s e d on t h e n o n - d i s c r i m i n a t o r y Differential from l e g i s l a t i o n is  the type  to  prevent,  in  point.  Member the  based  providing  that  Thus d i s p a r i t i e s  matter.  can e x i s t  that  results  p r a c t i s e s o f a Member  mischief  there  of trade.  on n a t i o n a l i t y t h a t  or administrative  of discriminatory  States  For  treatment  f r e e flow  that  i s a common  the treaty Community  State seeks policy  a r i s e from t h e l e g i s l a t i o n o f  i n t h e absence  o f a common  p o l i c y on  3 8  instance,  allowable  catch  allocating  quotas  i n a fisheries on  species  t o Member  case,  Denmark p r e s c r i b e d t h e  within  States  based  her  waters  on t h e i r  thereby  history of  fishing there. T h e s e m e a s u r e s were t r a n s i t i o n a l , made i n See B l a c k m a n , s u p r a n o t e 29, who c o m p a r e s t h e E.C., U.S.A., & A u s t r a l i a p r o v i s i o n s t o S . 9 2 A d i s c r i m i n a t i o n . S m i t a n d H e r z o g , s u p r a n o t e 33 a t v o l . 1 , p . 1 7 ; s e e a l s o C o m m i s s i o n o f t h e EEC v . F r e n c h R e p u b l i c , d e c i s i o n 167/73 [1974] E.C.R. 359 a t 369, (1974) 14 C.M.L.R. 216 a t p . 22 8. A r t i c l e 7, T r e a t y E s t a b l i s h i n g The E u r o p e a n E c o n o m i c Community, U.N.T.S. 298, No.4300 ( 1 9 5 8 ) . On t h e n e c e s s i t y o f n a t i o n w i d e f r e e t r a d e , s e e : B.W. Semkow " E n e r g y a n d t h e New C o n s t i t u t i o n " (1985) 23 A l t a L.Rev. 101 a t 103. Smit v . Commissie G r e n s o v e r s c h r i i d e n d Beroeps G o e d e r e n v e r v o e r , d e c i s i o n 126/82, [1983] E.C.R. 73 a t 92, (1983) 38 C.M.L.R 106 a t 123. See a l s o : C r i m i n a l P r o c e e d i n g s v . F i r m a J . v a n Dam en Z o n e n d e c i s i o n s 185204/78, [1979] E.C.R. 2345, (1980) 27 C.M.L.R. 350. F  13 consultation with policy.  The  British  ship  f o u n d t o be population in  the  the  Court  Commission p e n d i n g held  c a p t a i n were n o t  and  the  region  during  the  been  Canadian  noted. supply  past  time,  h i s t o r y by The  whether  question the  conservation term  the  provinces.  change  faire the  are  of  While  issue  is  the  is tied  address  status  quo  While  the  analogy  has  have they  placed expire.  to  their  4 0  by  section  protects  an  the  Canadian  with  were  littoral  according  suggest  92A  that  is  effects  alters  the  problems  the  consuming is  not  stay  present of  long  to  in  to  a  economic  answer  seems l i k e l y  the  these  deregulation  system  long term  a  until  laissez  deregulating  h a v e b e e n e x a c e r b a t e d by  transportation up  to  a  o b j e c t i v e l y conducting  scheme,  rather  the  3 9  until  system.  f e d e r a l government  that  flux  addressed  commodity p r i c e o f n a t u r a l g a s  and  of  quotas  an  i s thought  against  the  transition.  proponents  should  pipeline  preserve  incidentally  phenomenon, b u t  i n the  be  Alberta  which  needs o f  penalised  policy. Succinctly stated,  regulated  40  state  could  justifies  interprovincial  T9"  a  Interestingly,  transitional a  in  The  usefulness,  removal permit  scheme,  discrimination  its  consumers  province  conservation  of  deregulation  that  contracts.  period  reduces  contracts  this  the  conservation  charges  discriminatory.  need t o t e m p o r a r i l y  period  During  overfishing  o b j e c t i v e , contemplating  transitional  gas  that  a common  that  an  remains  contracts.  A n k l a g e m y n d i q h e d e n v . J a c k N o b l e K e r r , d e c i s i o n 287/81, [1982] E.C.R. 4053 a t 4076-4077; (1983) 37 C.M.L.R 431 a t 453. B l a c k m a n , s u p r a n o t e 29 a t 49.  14 In  my  view,  it  seems  Progressive  Conservative  politically  alienate  would  ultra  vires  t h a t the  p o l i c y of  lobbying  of  the  Canadian  interest  discrimination  in  to  the  hiccups  upon  traditional  While a  in  introduce  prohibit  the  mischief  removal  oil  and  permit  natural  of  differential  treatment  and  probable  cause  the  word.  of  legislation reaped In  that  by  fact,  it  the seems  western  upon t h e  alleged  utility  any  a  attacks that  process,  may b e appear  concepts  of  action,  those  thought in  the  to  attributable to  public  be  sense  claiming have  the  based  discrimination.  broad c o n s t i t u t i o n a l  action  to  powerful  gas p r i c e s  are  attempt  industry,  Thus,  i n the  will  current  i n f l u e n c e d by  deregulation public  system.  the  was s t r o n g l y  gas  group.  cause  government  and  deregulation  discrimination  possible  federal  that  Albertans  unequivocally  arguably  unlikely  a  remains  unjustified  more  utility  immediate sense  of  15  3.  ADMINISTRATIVE STRUCTURE AND REGULATION  An the  important  formal  structure  a g e n c i e s who This  facet  are  chapter  of  Ontario,  interest.  regulation  is  equitable  the  identifies  and  principal  Manitoba.  The  the  same  in  to  the  of  an  ^  of  them  philosophy  public  the  Board  w i t h the A  is  stewardship.  provinces are  of  public  the  of of of the  utility  provision  problematic  financial  tools  furthering  due  of  to  a  factors.  major  (NEB)  passing impetus  was of to  created  natural  Canadian markets.  by  the  statute  its  creation  f e d e r a l government t o promote the  all-Canadian  central  All  the  is  provincial  characteristics  straightforward,  the  Energy  1959  name.  d e c i s i o n by  resource's  law  NATIONAL ENERGY BOARD  National  Parliament  and  common r a i s o n d ' e t r e o f  relatively  THE  utility  federal  f o r the  number of t e c h n i c a l economic and 3.1  public  legislative  Although  services  gas  PUBLIC UTILITY  agencies i n Canada, and  government h a v i n g the public  natural  responsible  petroleum r e g u l a t o r y Alberta,  of  THEORY OF  gas  trunk p i p e l i n e  The  p i p e l i n e had  Canadian 4 1  bearing was  the  construction  from A l b e r t a  been l o n g  to  delayed  N a t i o n a l Energy Board Act, S.C. 1959, c. 46; p r e s e n t l y : RSC 1970, c.N-6, amended by: c c . 10,27,44,(1st Supp.), c. 10 (2nd Supp.), 1973-74,c.52, 1974-75-76,c.33, 197778,c.20, 1978-79,c.9, 1980-81-82-83,CC.80,84,116, 1984,c.18(s.209),c.40. ( h e r e i n a f t e r r e f e r r e d t o as the NEB A c t ) .  16 by  problems  These  in  obtaining  pecuniary d i f f i c u l t i e s  American  Federal  Canadian  gas  of  Power  v i a the  Emerson,  after  which  the  i t had  attained  guillotine  debate  concerns  Debate  saw  the  Prime  Minister  unanswered  handling  of  questions  timely  the  two  matter  4  4  the  Royal  use  Bill  of  town  Ontario pipeline Lakes,  the  4 2  segment  the  of  of the  closure  the 1956  the  project. Pipe  many  debate  which  focused  about  government  Commissions  the  contracts.  whose  questions on  merits.  scheme  findings  by  all-Canadian  1958,  its  Line  headed  October  than  to  legitimate  Government  Although  4 3  governmental  despite  of  Liberal  rather  on  and  the  result  uncertainty  formation of the NEB. ^  the  purchase  financing  in  from  profiteering  by  of  completed  included  of  enabling  St.Laurent.  remained  and  of the Great  to  following  the  collapse  was  the border  construct  construction  political  pipeline  to  the  purchase  Dominion  north  allowed  the  on  the  the  the  of  s u f f i c i e n t solvency.  the  Subsequently,  line  financing.  reluctance  allow  branch  Shield  accentuated  for  to  private  the  l o a n s and  was  over  was  from  Eventually,  company  assistance  addressed  proposed  Canadian  Controversy  charges  arose  a g r e e d t o advance  through the rugged  necessary  Commission  Manitoba.  governments  once  the  the These  as  well  They led to  as were the  4 4  H.G.J. A i t k e n , "The M i d w e s t e r n C a s e : C a n a d i a n Gas And The F e d e r a l Power C o m m i s s i o n " (1959) 25 Can. J . o f E c o n o m i c s & P o l i t i c a l S c i e n c e , 129 a t 130. C D . H u n t and A.R. L u c a s ( e d s . ) , C a n a d a E n e r g y Law S e r v i c e . ( R i c h a r d De Boo: T o r o n t o , 1981) a t 10-1511. B.D. F i s h e r , " T h e R o l e o f t h e N a t i o n a l E n e r g y B o a r d i n C o n t r o l l i n g The E x p o r t Of N a t u r a l Gas From Canada (1971) 9 Osgoode H a l l L . J . 553 a t 556.  17 In  1957,  establishment energy  power.  Gordon  Commission  o f a comprehensive  authority  supervisory  Prime  The  with  powers  over  energy  advisory export  recommended  policy  powers  contracts  and a  on  national  energy  Minister  by  Commission  w i t h a b r o a d mandate t o make r e c o m m e n d a t i o n s  on t h e  regulation  of pipeline  competence consequences continuous  company r a t e s a n d o p e r a t i o n ,  o f energy  of  policy  Parliament.  of the Pipe regulatory  depoliticize  which  the  quickly  Energy  including  continuous the  4  6  4  8  studies  Minister  Line  and  debate,  issued passed  of  under  was  i t was the best  these  i t s report,  advisory the  and r e p o r t s Energy,  on Canadian and  that  mechanism  a to  4 6  i n July  of natural gas. were  and  t h e government  4 7  ascribed  requirement  Mines  thought  on t h e c r e a t i o n  functions  present  nature  policies.  the legislation  i t s recommendations  as w e l l as  the legislative  the vociferous  Board and t h e c o n t r o l  Act, certain  Board,  Given  t h e m a t t e r and implement  implemented  National  falling  framework  When t h e C o m m i s s i o n responded  the  lead  Royal  matters  appointed  and  Borden  those  Diefenbaker  and  f o r gas, o i l  A f t e r w a r d s , t h e new C o n s e r v a t i v e g o v e r n m e n t  4 5  the  that  energy  Resources.  1959  of the Under  4 8  to the i t  make  sources t o 4 9  Other  Canada, R o y a l C o m m i s s i o n on C a n a d a ' s E c o n o m i c P r o s p e c t s . F i n a l R e p o r t . November, 1957. ( W a l t e r G o r d o n , C h a i r m a n ) . I . M c D o u g a l l , "The C a n a d i a n N a t i o n a l E n e r g y B o a r d : E c o n o m i c ' J u r i s p r u d e n c e ' I n The N a t i o n a l I n t e r e s t O r S y m b o l i c R e a s s u r a n c e ? " , (1973) 11 A l t a . L.Rev. 327 a t 335-337 a n d A p p e n d i x B, I I I . Canada, R o y a l C o m m i s s i o n o n E n e r g y . F i r s t R e p o r t . O c t o b e r , 1958. (Henry B o r d e n , C h a i r m a n ) . A s e c o n d r e p o r t was i s s u e d i n J u l y , 1959, c o n c e r n i n g e n e r g y s u p p l y , demand a n d e x p o r t . B.D., F i s h e r , s u p r a n o t e 44 a t 558. NEB A c t s u p r a n o t e 41 a t s . 2 2 .  18 functions  of  prohibit  an  the  adjudicatory  construction  and  interprovincial  oil  and  lines,  without  the  approval  issues  i n the  is  form  non-assignable Licensing  functions. in  Pursuant be  to  the  other  prohibits  the  The  or  normal  favouratism  This  rates  and  "any  burden onus o f  natural  gas  equitable  discriminatory  problem,  nature of the  inexorably industry,  This  other  under  the  any is  practices  i s discussed  i t  Canada.  to  are  required rates  discrimination or upon  is  with the at  length  Act  tolls,  of  such  discrimination problem  ferreting not  to  locality."  proof  However, t h e the  5 2  and  the  in  any  justified  53  and  intertwined  authority  Significantly,  reversed  proving  5 0  disallow  person  and  Board's  a l l tolls  unjust  approval  quasi-judicial  import  B o a r d may  or  power  convenience  consent.  are  company.  rates  Board. public  stead.  against  evidential the  the  international electrical  Board  or  which  and  of  powers,  in their  facilities,  determining  from  s e t t i n g of  r e s t s with the  unjustified  gas  issue  rate-making  since  the  absence of  reasonable"  prescribe  of  prescribed  of  pipelines  certificate  must  are  operation  ratemaking  export  " j u s t and  service  a  Licences  to  gas  i n the and  5 1  order  of  nature  out  of of  straightforward. complex  economic  below.  Id. ss.26,27,40,43(1),44,17(3). R.C. C a r t e r , "The N a t i o n a l E n e r g y B o a r d Of Canada And the American A d m i n i s t r a t i v e Procedure Act: A Comparative S t u d y " , (1969) 34 S a s k . L.Rev. 104 a t 110-112. That commentator s t a t e s t h a t t h e " d u t y t o d e c i d e " f u n c t i o n w i l l " a f f e c t r i g h t s o r impose o b l i g a t i o n s " : S e c u r i t y E x p o r t Co. v . H e t h e r i n c r t o n [1923] S.C.R. 539, 549-551. NEB A c t s u p r a n o t e 41 a t s s . 8 1 , 8 2 , 1 7 ( 3 ) . Id. a t ss.50-57.  19 Various identified.  other  adjudicatory  The Act places  5 4  functions  have  l i m i t a t i o n s upon  been  commercial  p i p e l i n e transactions, such as the necessity of the Board to approve  sales,  enterprise.  amalgamation  Another  3  or  adjudicatory  abandonment function  of  involves  the the  procedure for the expropriation of p i p e l i n e r i g h t s of way. Altogether, Board's  these  ability  procedure.  functions  to make  i t s own  With the approval  57  are  the Board may use i t s delegated  facilitated  rules  56  by the  of p r a c t i c e  and  of the Governor i n Council, powers to make p i p e l i n e safety  rules and compel the production  of books of a c c o u n t .  58  Given  the d e t a i l e d finances of the industry and the a v a i l a b i l i t y of creative  accounting  techniques,  this  latter  provision i s  important i n cost analysis v e r i f i c a t i o n . F i n a l l y , the statute appears t o oust  the j u r i s d i c t i o n of the courts  t o grant the  prerogative remedies of mandamus, c e r t i o r a r i and p r o h i b i t i o n by  providing  conclusive"  that  except  a l l Board  decisions  f o r a limited  appeal  Federal Court of Appeal on of j u r i s d i c t i o n . " Despite NEB,  55 56 57 58 59 60  a "question  are which  "final lies  5 9  and  to the  of law or a question  6 0  the extensive  statutory control exerted  upon the  i t i s not accurate to describe i t as a mere amenuensis of  Carter, supra note NEB Act supra note Id. ss.74-75. Id. s.7. Id. ss. 39(2),88. Carter, supra note NEB Act supra note  51 at 111-112. 41 at s.63.  51 at 112. 41 at ss.19,18.  20 Parliament  or  the Minister  portfolio.  This  responsible  i s exemplified  f o r the  supervisory  i n the milieu of policy.  "Few NEB members a d m i t t h a t t h e B o a r d i n any way makes p o l i c y " . . . (but) "It is clear that the e x t r e m e l y g e n e r a l n a t u r e o f t h e s e g u i d i n g government policies leaves considerable scope for policy formulation by t h e Board through decisions in p a r t i c u l a r a p p l i c a t i o n s and t h r o u g h i n t e r p r e t a t i o n in the establishment o f p r o c e e d i n g s and standard c o n d i t i o n s . T h e r e c a n b e no d o u b t t h a t t h e B o a r d makes P o l i c y . 1 1 6 1  Thus,  the  separate the  Board  from  Act.  has  the policy  application via  denied  by the  the  against  the proposal,  re-evaluation  volumes  bT 62 63  the decisions  of  public  was g r a n t e d  parties line  markets.  6 3  of  underlining  the  following  a  consultations and  handle  upon  the  50%  of the  Therefore,  i tis  federal  natural  opinion  and a c c e p t e d t h e  considerations",  Ontario  t h e main initially  o f t h e B o a r d may h a v e a n  policies  policy  of  Cabinet  back-tracked  interested  f o r Canadian  contemporary the  other  through  formidable.  L t d . t o extend  face  Approval  the Northern  destined  including  i t later  "political  and  that  possible that upon  of  i t inherits  Although  6 2  the  b y t h e NEB.  t h e Board  condition  Pipelines  in  development  p o i n t may be drawn w i t h t h e 19 66  States.  application  policy  i n f l u e n c e c a n be  of this  United  in  directives that  TransCanada  view propounded  with  influence  The impact o f t h i s  One i l l u s t r a t i o n  line  an  gas  influence  government, deregulation.  A.R. L u c a s & T. B e l l , The N a t i o n a l E n e r g y B o a r d : P o l i c y P r o c e d u r e a n d P r a c t i c e (Law R e f o r m C o m m i s s i o n o f C a n a d a : O t t a w a , 1977) a t 35-36. See (Canada) R e p o r t t o G o v e r n o r - i n - C o u n c i l , August, 1966. L u c a s & B e l l s u p r a n o t e 61 a t 37.  21 However, also  the  p r o b a b i l i t y and  a f u n c t i o n of 3.2  other  extent  of  f a c t o r s and  such  an  regulatory natural  tribunals  are  p a r t i c i p a n t s which  gas  industry.  originates  from  the  the  other  exert  Like  control  the  over  NEB,  federal state,  earlier.  Often,  tensions  involved  chanelled  t h r o u g h them.  surprising  that  locus  tribunal  of  the  a  that  o i l and  leading has  gas  as  rich  competence of  succinctly outlined in  the  province  provincial natural  considerable  of  Canadian  apportionment  power i n o u r  i n t e r p l a y are  tier  the  their  legislative  provincial  AND  important  constitutional  the  is  participants.  REGULATORY TRIBUNALS IN ALBERTA, MANITOBA ONTARIO  Provincial  the  influence  Hence i t not of  Alberta  resource  impact  upon  1938,  the  federal-  the  is  management natural  gas  industry. Originally Resources agency  broadened various  Conservation whose  U J  over  and  5?  The The now  the  Board have  statutes  land  in  6 4  years.  underground  efficiency  prudent  powers  provincial  allowed adjacent fugacious  created  in  (ERCB) been  1970,  included  owners t o  petroleum pools,  measures.  present  its  recovery  receive  and  the  progressively  Until  exploration  conservation  is  Alberta  a the  fair  principal  reformed mandate  return  under  the  as  that  from  promotion of  1971,  and  measures  exploitation In  Energy  the  safety  well  Board  T u r n e r V a l l e y Gas C o n s e r v a t i o n A c t , S.A. 1932, E n e r g y R e s o u r c e s C o n s e r v a t i o n A c t , S.A. 1971, R.S.A. 1980, c.E-11.  as was  c.6. c.30,  22 integrated and  gas,  to  administer  hydro-electric  inter-provincial regulatory  to  the  authority  to  orderly  natural  in  mineral  of  from  the  concern  resources,  investigatory °  government technical  Gas  policy  augmented  both To6-  67 68 69 70  impetus  for  to  the  non-  o i l  and  and  advisory  with  the the  the  powers  Board  a  public  view  by  licence over  the  practices requirement  of  to  the of  i n order t o conduct natural  legislative  and  gas  is  a  and  on  waste.  petroleum  and  by  with  related  are  the  supply  of and  6 9  contractually  specifically  enhanced  In  6 7  dissemination  n a t u r a l gas  of  formulation of  determining  ERCB  "economic,  i s endowed  the  not  interest"  of  ERCB  assists  acquisition  with  ERCB i s  orders  include  prevention  purposes,  the  of the A c t which are  i n the  the  Act  reasonable  purposes  development  these  information  and  purposes  These  Consequently,  Conservation  Control  and  especially  demand o f t h e r e s o u r c e s u n d e r i t s s t e w a r d s h i p .  Board  to o i l  quarries  over  Conservation  "just  addition  facilitate  matters.  make  efficient  gas,  to  O i l and  stated.  and  and  wide  Much  t o promote t h o s e  specifically  order  of  and  pertaining  gas.  directions"  oil  coal  pipelines.  nature  Pursuant given  power,  statutes  r e - o r g a n i z a t i o n came  renewable natural  numerous  conditioned  well  drilling.  combination  contractual provisions that  are  aimed  C.L. Brown-John, C a n a d i a n R e g u l a t o r y A g e n c i e s ( B u t t e r w o r t h s : T o r o n t o , 1981) a t 44. O i l and Gas C o n s e r v a t i o n A c t , R.S.A. 1980, c.O-5, s s . 4 , 7 ; a s amended by t h e O i l and Gas C o n s e r v a t i o n Amendment A c t , 1982, S.A., c.27. Canada E n e r g y Law S e r v i c e s u p r a n o t e 43 a t 30-3015. I d . a t 30-3019. I d . a t 30-3037. O i l and Gas C o n s e r v a t i o n A c t , s . l l ( l ) .  7 0  of at  23 preventing of  both  physical  conservatory  schemes  mineral  interests  generate  the  and  is  called  shared  in  relation  sharing  is  common  the  efficient  to  rate  where  market  promoted  by  of  pipelines  Board's  plants  deemed common  From b o t h a p r o v i n c i a l and functions  of Alberta be  gas.  obtained  applications. conditions  of In  from  of  removal  order  The  7 2  including  gas  may  considerations,  the  the  removed f r o m e a c h supply  equitably production  regulation  common  to  Another  is  commodity may  deemed  as  of  be  of  declared  carriers,  and  71  processing  key  so  Equitable  •  the  pooling  recovery.  production  the the  or  examples  reservoirs  demand.  whereby b u y e r s o f  purchasers,  separation  u n i t i z a t i o n of  proration  also  transportation  economic waste. Upstream  include  the  maximum  scheme  and  ERCB to  export  gas,  following  licence  may  d a i l y and  be  Albertans  and  interrupted the  ERCB the  must  extent  or  a an  annual  the  over  removal  various amount o f  the  7 3  present  established  may  into  all  terms  and  gas  reasonably  diverted.  of  export  permit  circumstances  the  one  the  inquiry  specify  assess of  perspective,  i t s control  l o c a t i o n , p e r m i t term,  to  needs o f A l b e r t a n s ,  a national is  Board  the  processors.  to  priced  in  which  Among and  reserves  be  the  future and  the  D.E. L e w i s & A.R. Thompson, C a n a d i a n O i l And Gas ( B u t t e r w o r t h s : T o r o n t o 1954, r e v i s e d by N.D. Bankes,1988) a t ss.166-173. Gas R e s o u r c e s P r e s e r v a t i o n A c t , R.S.A. 1980 c.G-3.1, as amended by S.A. 1984, c.G-3.1, s . 2 ( l ) , S.A. 1986 c.17, s.3, c.D-18.1 and S.A. 1987, c.23. Id. s.5.  24 prospects  for  new  deemed r e 1 e v a n t . This the  removal  Gas  be  licence  well  criteria  Resources  that  as  as  any  other  matter  4  latter  1984  provided  7  discoveries  "the  in  Commentators o p i n e d t h a t  framed  Preservation  expected  assessed  was  Act  economic  respect  costs  to  the  that provision  differently which  and  expressly  benefits"  public  in  of  interest.  7 5  allowed  "the Board t o r e g u l a t e t r a n s a c t i o n s such as d i r e c t s a l e s , where t h e p r o d u c e r and end u s e r a r e t h e same person, and ensure that the economic costs and benefits of such t r a n s a c t i o n s are i n the public i n t e r e s t of A l b e r t a " . 7 6  Similarly, permit  the  these  the  to  that  allowing  economic  the  matters  are  76 77 78  commodity  longer  present  considered  criteria  and  as  welfare  no  facie,  i t  comprehensive r e g u l a t o r y  75  provision  is  price  other of  removal  conditions  province.  law.  to  the  7 7  sufficient  criteria  Board"  7 8  authority  be  pertaining However  Nevertheless,  licence by  the  conditions  the  plenary relevant  expanded  i t of  is "any  encompasses to  maintain  objectives. Prima  7"4~~  1984  l i c e n c e as w e l l  provisions  former  their  the  by  expected  thought other  additional  criteria  attached to  an  would  appear  c o n t r o l of  the  that  Alberta  has  downstream d i s p o s i t i o n  I d . s.8. See a l s o : Canada E n e r g y Law S e r v i c e , s u p r a n o t e 43 a t 30-3076-86. Gas R e s o u r c e s P r e s e r v a t i o n A c t , 1984, c.G-3.1, s.5(3)(c). R.P. D e s b a r a t s , L.W. C a r s o n , D.E. G r e e n f i e l d , " R e c e n t D e v e l o p m e n t s i n t h e Law o f I n t e r e s t t o O i l and Gas L a w y e r s " , (1985) 24 A l t a L.Rev. 143 a t 190. Gas R e s o u r c e s P r e s e r v a t i o n A c t , 1984, c.G-3.1, s.6. Gas R e s o u r c e s P r e s e r v a t i o n A c t , s . 8 ( c ) s u p r a n o t e 72 (as amended by S.A. 1986 c.17, s.3).  25 of  i t s natural  gas  resources,  at least  commodity p a s s e s t h e p r o v i n c i a l regulatory it  actors  may  gas,  the  eventually  TransCanada local  Pipelines  distribution The  former  jurisdiction latter  there  seek  while  control  surprisingly,  consumer  or  main-line,  are other  commodity  before  In the case  ramifications  of  this  of  control  end-user  and  has  been  federal  shown  via  the  subsequently  government  to  fall  and  the  are purchaser-distributors  for  the  i n which  legal  assert  by  the the  tensions  The  are subject  to  inter-provincial  trade  interests  Clearly,  inter-partes  attempts  of  as  the  regulatory  to of  the  the  NEB.  intra-provincial  government  consumer  who  under  they are s i t u a t e d .  their  federal  consumer  agencies  that  Board  ft 0 (PUB)  the  the  assert  its  gas.  buying  Not  provinces  from t h e marketing i n t e r e s t s o f A l b e r t a .  Two  Energy  the  to  over  But t h e r e  as  companies.  scope  provinces  differ  Ltd.  of the province  is  rights  the  entity  of  entities  laws  to  on  such p o i n t  i n other provinces.  commercial  flow  boundary.  authority  reaches the burner-tip  east-bound  the  exerting  until  are (OEB)  provinces pertinent 7 9  and  the  and to  their this  Manitoba  respective study  are  Public  regulatory the  Ontario  Utilities  Board  •  which  regulate  jurisdiction. regulatory  and  the  domestic market  Within Ontario, advisory  t h e OEB  tribunal  i n each  respective  i s the p r i n c i p a l  having  energy  jurisdiction  over  ft i pipelines 7^ 8  0  8  1  as w e l l  a s t h e power t o  O n t a r i o E n e r g y B o a r d A c t , R.S.O 1980, c.33. The P u b l i c U t i l i t i e s B o a r d A c t , R.S.M. 1970, amended. O n t a r i o E n e r g y B o a r d A c t , R.S.O. 1980, c.33,  C.P280,  as  Part I I I .  26 "make o r d e r s a p p r o v i n g o r f i x i n g j u s t a n d r e a s o n a b l e r a t e s and and o t h e r c h a r g e s f o r t h e s a l e o f gas by by t r a n s m i t t e r s , d i s t r i b u t o r s a n d s t o r a g e c o m p a n i e s , and f o r the transmission, d i s t r i b u t i o n and s t o r a g e of g a s . " 8 2  Likewise,  the  provincial  pipelines  reasonable by  jurisdiction  and t h e a u t h o r i t y  8 3  o r schedules"  are legislatively  provinces  of  has a s i m i l a r  government  Ontario  structure  underlies 3.3  Despite  and purposes,  contemporaneously  woven  and  must  provided  Manitoba.  be  and  followed  f o r i n the Even  though  f o r i t s i n t r a - p r o v i n c i a l gas for exporting  the  different  there  seems  through  each  t o be  a s does t h e  administrative a  golden  regulatory  t h e b a s i c purpose o f r e g u l a t o r y  board  thread which  bodies.  THE NATURE OF REGULATION  Heuristically, Canada  "Fix just  pertaining t o the i n t e r - p r o v i n c i a l trade of  commodity.  structures  intra-  g a s p i p e l i n e r e g u l a t i o n and  i t has a d i f f e r e n t s t r u c t u r e  federal  over  8 4  s e t t i n g procedures  J  to  which  of natural  Alberta  the  utility.  has  Thus t h e s t r u c t u r e  consuming  use,  PUB  rates...tolls  a public  rate  Manitoba  the natural  may b e b r o a d l y  thought  e n t i t i e s have been t h e s u b j e c t  gas d i s t r i b u t i o n  industry i n  o f as a p u b l i c  utility.  of considerable  study  Such  i n Canada  Id. s . l 9 ( l ) . The Gas P i p e L i n e A c t , R.S.M. 1970, C.G50, a s amended, ss.2,3,12. I d . s . 1 2 ; T h e P u b l i c U t i l i t i e s B o a r d A c t , R.S.M. 1970, as amended, C.P280, s s . 7 7 , 7 4 . P u b l i c U t i l i t i e s B o a r d A c t , R.S.A. 1980, c.P-37; Gas U t i l i t i e s A c t , R.S.A. 1980, c.G-4.  27 and  a fortiori,  economy.  Many  are  helpful  our  country,  including Hence,  has been  public  Public  perfect  about  by  monopoly  monopolies  the established  existing i n structural public  right  of the  scheme  for particular  public  services  without  of the particular  behaviour  the  opposite  o r t h e optimum  competition  inhibiting  necessary  are the  competition  of  rivals.  Occaissionally, to failure.  which  only  permit  brought  In a  amongst  realization  that  free  by e l i c i t i n g  of  an  individuals profits  the  Sometimes  due t o t h e e f f e c t s o f i n d u s t r y  o f t h e market  markets  efficiency  consumers  resources  skewed  of  which  enterprise.  and p e r f o r m a n c e .  benefits  i s susceptible  work i n p r a c t i c e size  concepts  subject  characteristic of a  regulatory  involve  distribution  competition  to this  o f d e f i n i t i o n a l and  as  special  competitive  system,  business  a  in a  enjoy  thereby  the related  those  i t s huge a n d d y n a m i c  pertaining  a preliminary  utilities  Theoretically,  efficient  given  8 6  result  market  concepts  described  t o provide  industries.  often  of their  States  i n understanding  categories. utility  the United  theory  a of  i t cannot  costs  the existence  by  and t h e  of a  sole  J.Bauer, E f f e c t i v e R e g u l a t i o n Of P u b l i c U t i l i t i e s ( M a c M i l l a n : N e w Y o r k , 1925) a t 1. A l u c i d C a n a d i a n a c c o u n t o f p u b l i c u t i l i t y r e g u l a t i o n and n a t u r a l gas c o n t r a c t u a l o b l i g a t i o n s i n O n t a r i o c a n be found i n " O n t a r i o E n e r g y B o a r d , EBRO # 410-1,411-1,412-1, December 12, 1986, r e p r o d u c e d i n Canada E n e r g y Law S e r v i c e , s u p r a n o t e 43, OEB D e c i s i o n 41. E.W. C l e m e n s , E c o n o m i c s a n d P u b l i c U t i l i t i e s ( A p p l e t o n C e n t u r y - C r o f t s : New Y o r k , 1950) a t 25.  28 firm.  This  latter  phenomenon  is  better  known  as  a  natural  DO  monopoly.  0 0  The  distinction  monopolistic  e n t e r p r i s e has  simplification. competition  or  would  is  rare  free  are  of  the  market.  industry  is  one  way  find  types  public  of  of  business  inefficiency Accordingly,  of  coping  with  over-  "perfect"  such  may  as  the  natural  gas  monopolies  is  to  such  as  a  technical  natural  exigencies  i f i t were  not  for  n a t i o n a l i s a t i o n of  the  a  utilities  natural  a f f e c t e d by  an  absolute  available  notion  and  f o r being  competition,  fuels  the  economic  monopoly  to  of  frequently  induce  competition  market,  forms  Certain  pure  been c r i t i c i s e d  substitute  sound.  pipeline,  that  the  Nevertheless,  basically gas  i t  experience  alternative users.  While  in  conversely  between  politically  a  the  perceived  pq  failure  of  a  "substitute utilities  market for  monopolies  where  uneconomic where one a  many  the  study  namely  9 0  are  addresses  that  of  business  can  the  of  services  business'  operate  environment  natural  associated  duplication  because  competitive  have  competition",  This  of  another  natural  gas  with  economies  of  by  competitors  is  regulation.  Natural scale,  economy.  fixed  more e f f e c t i v e l y  could.  monopolies,  high  9 1  the  Although  costs;  than  Canada  downstream  those does  natural  and in not gas  industry forms p a r t of this category, at both the local ^ E. G e l l h o r n & R . J . P i e r c e , R e g u l a t e d I n d u s t r i e s i n a N u t s h e l l (2nd ed., W e s t : S t . P a u l , 1987) a t 19-44. J.C. B o n b r i g h t , P r i n c i p l e s o f P u b l i c U t i l i t y Rates ( C o l u m b i a U n i v e r s i t y Press:New Y o r k , 1961) a t 10-11. I d . a t 10. G e l l h o r n & P i e r c e , s u p r a n o t e 88 a t 9-10. 9  9  9  0  29 distribution For  instance,  small of  level  direct  distance  a r e some o f t h e f a c t o r s p r e v e n t i n g  the entry  for  TransCanada  interprovincial natural regulation  Pipelines  of  natural  and  particular;  providing  a  as  well  resources  could  for  in  result  as  type  from  Their  9 3  as  enabling  contractual  of  industry  in  an  the  the rates  inefficient  the  higher  Invariably, which  determine type  of a monopolist  activities  monopolies  bodies that  well  transmission  f o r a v a r i e t y of reasons.  regulation,  regulatory  services  rates  the  or partial  discriminatory" the  as  gas  o f r e s t r a i n t on  to the monopolist.  monopolies  available.  Therefore,  monopolies  t h e excess p r o f i t s  mechanism  Without  statutory  natural  can i n h i b i t  engages.  are  the  appears necessary  Regulation  consumers  the  •  *  charges,  Ltd.,  gas p i p e l i n e .  Q2  by  level.  relatively  governmental  general,  pipeline and  competitor  monopolistic  a t the long  t h e enormous s i z e o f t h e c o u n t r y  population a  and  of  legislation provisions  that i t  i n which  i t  a l l o c a t i o n of  prices  paid  by  public  utilities  a r e c o n t r o l l e d by inter  services  tends with  c h a r g e d be " j u s t a n d r e a s o n a b l e " .  alia, to  charges be  to require  made "non-  customers and t h a t 9 4  E c o n o m i c C o u n c i l O f Canada, R e s p o n s i b l e R e g u l a t i o n : An I n t e r i m R e p o r t ( M i n i s t e r o f S u p p l y a n d S e r v i c e s Canada, 1979) a t 46. E c o n o m i c C o u n c i l o f Canada, R e g u l a t i o n R e f e r e n c e : A P r e l i m i n a r y R e p o r t (1978) a t 20. T.G. Kane, Consumers and t h e R e g u l a t o r s (The I n s t i t u t e f o r R e s e a r c h on P u b l i c P o l i c y : M o n t r e a l , 1980) a t 3; s e e f o r e x a m p l e : s.321, R a i l w a y A c t , R.S.C. 1970, c.R-2 a s am.  30 One  of  utilities pricing  the  most  regulation  compelling  reasons  i s the prevention  and p r o v i s i o n  of services.  in  support  of  of discrimination  Broadly  in  speaking:  "Social norms of fairness may be v i o l a t e d when individuals are subject to different (discriminatory) treatment. P r i c e discrimination, in effect, is a form o f income redistribution r e s u l t i n g from t h e a b i l i t y o f t h e s e l l e r t o s e p a r a t e consumers i n t o d i f f e r e n t c l a s s e s based on d i f f e r e n t i n t e n s i t i e s of preference ( e l a s t i c i t y of demand). 9 5  The  extent  Canadian  of discrimination natural  controversial deserves  a  regulation below,  gas  utilities  question. larger  in  treatment  a  is  I t i s also  can provide.  both  i n the provision  than  of services  believed  a  problematic  this  overview  Hence i t s r a m i f i c a t i o n s  philosophical  to  sense  a  which  utilities  are  and  be  one  of  by  elaborated  later,  with  a p p l i c a t i o n t o changes i n t h e i n d u s t r y . Another for  fiscal  rationale  policy". of  prices  offered  offset to  be  by o t h e r  this  postage  latter stamp  one.  services  reason rates  may  which  i s i t s u s e "as a proxy  frequently where  below  services  of whether a l e t t e r distant  This  9 6  subsidization to  f o r regulation  their  provided  regulators actual above  be s e e n w i t h comprise  i s intended  occurs  i n the allow  cost,  cost.  crosscertain  only  9 7  An  to  be  analogy  t h e system  of uniform  t h e same p r i c e  regardless  f o r a nearby l o c a t i o n o r f o r a  Cross-subsidization  i s an  effective  tool  that  R e g u l a t i o n Reference:A P r e l i m i n a r y Report, supra note 93. G.B. D o e r n , " R e g u l a t o r y P r o c e s s e s a n d R e g u l a t o r y A g e n c i e s , " i n G.B. D o e r n a n d P . A u c o i n ( e d s . ) , P u b l i c P o l i c y i n Canada ( M a c m i l l a n : T o r o n t o , 1 9 7 9 ) 158 a t 164. Id.  31 provides  a  basic  particular  of  jurisdiction,  c o m m e n t a t o r t o be  sole  level  service having  " t a x a t i o n by  Economic  reasons  criteria  since  to been  has  are  committed  not  or s o c i a l  Historically,  at  least  the  Canadian  railroad, to  partly  achieved  Pacific  Railway  and  foster  the  implementation  industry.  though  The to  Canadian  promote  Radio  creative  industries  objectives  besides  case  of  Railway  Act  federal  cabinet  Committee Railway  99  cultural nation  support  for  trade  In  tariffs  contemporary  i n the broadcasting  Television  Commission  content  the e l u s i v e  have  been  the  communication  o b j e c t i v e s are not s t a t i c the  industry.  Canadian  known  there,  Canadian  has  a  even  9 9  identity  doubtful.  Other  9F  and  the  transcontinental  of protective  illustrated  i t s success i n preserving  remains  by  be  a  as  of t h i s  regulatory  create  the nascent manufacturing  C a n a d a t h e s e o b j e c t i v e s may  mandate  to  one  to well  such  the b u i l d i n g  through  by  necessarily  itself  f o r non-economic r e a s o n s  was  a  9 8  r e g u l a t o r y measures concerns.  within  described  regulation".  for regulation  Canada  a l l persons  railway  of  of the  1903,  but can  rates  control  Commissioners  Council.  to  social  policy  industry.  These  change o v e r t i m e as  i n Canada.  sub-committee Privy  subjected  over  From  rates  1886  was  which  was  called  The  Act  created  i s shown until  vested the the  a s t h e body w i t h t h e r e q u i s i t e  in  a  Railway Board  of  "detached  R.A. P o s n e r , " T a x a t i o n By R e g u l a t i o n , (1971) 2 B e l l o f E c o n . & Management S c i e n c e a t 22-50. R e s p o n s i b l e R e g u l a t i o n s u p r a n o t e 92 a t 52. 1 1  the  J  professionalism"- -  necessary  1  f o r the  daily  supervision  of  the  railways. It  was  Commission Act  consumed (CTC)  which  in  pursuant  recognised  to  the  national  transportation  extensive  advisory  regulatory  national from  1967  policy  Canadian  National  systems.  and  capacity.  transportation  the  previous  primarily to  Transportation  growth  The  Transport  in  CTC  the  was  various accorded  functions  to  compliment  its  emphasis  o f t i m e and  with social,  instance,  take-overs  of  controlled  Attention  was  s h i f t e d to  the  by  concern  Canadian  g o v e r n m e n t l e d by  nationalism  and  s u p e r s e d e d by  by  i t  as  stringent  a new  an  instrument  an  foreign economic  and  Hence  1 0 2  in  Trudeau. of  new  the  in  that  businesses  creation  1973  The  foreign  by  the  relative federal  of  government  investments recession,  as  had  been  well  as  former  agency  headed  concerning  the  economic  I n v e s t m e n t Canada, c r e a t e d  attitudes  the  effluxion  commerce,  and  (FIRA)  Conservative  used  political vicissitudes.  trade  criteria  enterprise  change w i t h t h e  resulted  Mr.  agency,  Parliamentary of  to  businesses  Review Agency  Progressive  Mulroney.  over  non-Canadians,  Liberal  alia,  a v i a b l e economic  e c o n o m i c and  Investment  regulation  on  i s subject  Foreign  the  -  promote n a t i o n a l p o l i c y o b j e c t i v e s . regulation  For  UJ  s y s t e m as  f u n c t i o n of  101 102  the  the  • 1 0 1  strict  TuTF  by  d i v e r s i t y and  .  by  turn  was  in  1985  by  Mr.  the  affected criticism  direct inter from  H.N. J a n i s c h , "The R o l e Of The I n d e p e n d e n t R e g u l a t o r y A g e n c y i n C a n a d a " (1978) 27 U.N.B.L.J 83 a t 90, 89-94. IdR e s p o n s i b l e R e g u l a t i o n s u p r a n o t e 92 a t 52.  33 international Under  the  "Canada  f i n a n c i e r s and  capitalist  is  open  that previous  directly  thus  of  coerce is  can  tend  "one  of  delegation  functions  closely  responsibility  a  is  from  of  the  bound  f o r the  by  i s one  political  of  to  instead  in  the  be  a  a  range  to  of  resolution  accountability to  quasi-  the  mandate of  the from  departments.  body's  decisions.  and  obtained  having  of  whose  so-called  doctrine  conventions.  which  research  government  regulatory  regulatory  of p o l i c y advice,  regulatory  the  instrument  A d v a n t a g e s may  regular  the  from  powerful  responsibilities  by  of  individuals. After a l l ,  specialized  board  business.  way  governing  a  implying  composition  legitimate  of  rendering  control  doctrine  non-legal  history  It  regulatory  performed  inhibited  u  government,  tacitally  t i n k e r i n g with  i t is  1 0 5  the  of  being  upon  involve  subsidies.  can  The  to  government.  present  1 0 4  political  conduct  government as  the  States'  the  again",  instrument  the  administration  independent  of  desired behaviour  include  disputes,  the  the  instruments".  process  business  Politically,  regulation other  ideology  for  in  framework.  United  r e g u l a t o r y m e a s u r e s had  Changes government  the  same The  without  ministerial  1 0 6  Parliament  Canadian  based  regulatory  displays:  E . J . A r n e t t , "From FIRA To I n v e s t m e n t C a n a d a " (1985) 24 A l t a . L.Rev. 1 a t 1-3. See " N o t e s f o r a s p e e c h by t h e P r i m e M i n i s t e r t o t h e members o f t h e E c o n o m i c C l u b o f New Y o r k , December 10, 1984". D o e r n , s u p r a n o t e 96 a t 160. I d . a t 172-174.  34 "a constant process of working out the tensions inherent to our commitment to parliamentary r e s p o n s i b i l i t y and t h e n e e d f o r r e g u l a t o r y t r i b u n a l s which f a l l to some d e g r e e o u t s i d e the sphere of immediate p o l i t i c a l c o n t r o l " . 1 0 7  In  the  United  States,  independent than the function  and  yet  they  The  President  not  part  public their  may  are  of  regulatory  Canadian model.  frame l e g i s l a t i o n  otherwise doesn't the  executive  behaviour  than  accrues  to  to  seemingly  of  more  decisions,  them  control.  since  they  government.  the  the  their  congressional  direct  branch  accrues  reverse  from  or  are  Congress overviews t h e i r  to  distanced control  accountability  of the  agencies  Canadian  American  are More  1 0 8  cabinet  for  cabinet  because  regulation,  certain  d i f f e r e n t government h i e r a r c h i e s .  Despite  the  benefits  problems have been benefits  may  administration effective enormous  be  by  outweighed  by  of  of  regulatory is  some  technological  changes  concern  that  private  nominal  regulators.  commentators  utilities  identified  regulation size  of  allege  U  said  critics the  to  be  caused  interests 3  that  the  costs  programmes.  utilities.  has  of  related  Cost  problems may  in  unduly  Furthermore,  some  the  analysis  and  due  to  to  market  addition  to  influence public  intervention  J a n i s c h , s u p r a n o t e 100 a t 87. I d . a t 87-91. G.B. R e s c h e n t h a l e r , " R e g u l a t o r y f a i l u r e and (1976) 19 C a n a d i a n P u b l i c A d m i n i s t r a t i o n 466  The  to  impracticable Adaptation  government  process.  in  the or the  their finance  general,  competition" a t 470-471.  35 and in  regulatory agencies the event A  its  pernicious aspect  otherwise  to  the  commentator s u g g e s t s exagerated  regulatory especially  regulation  i s worthwhile  with  public  utility  An  as  could  American  o f a n a t u r a l monopoly  h a s an a d v e r s e  and  that  the  i t s deficiencies,  Perhaps  regulation  social  submitted  despite  leviathan.  which  monopolies.  i n Canada w h i c h h a s a more l i m i t e d economic  identified  competition  I t i s nevertheless  1 1 1  process  neighbouring problems  regulated  better  1 1 0  has been  that the detriments  and t h a t  impact.  the  not f a i r e  failing.  of regulation  stifle  challenge  economic  will  o f t h e c o m p e t i t i v e market  inclination  are  i n particular,  economy t h a n i t s  one  of the leading  i s i n i t s attempt  to  l e v y e q u i t a b l e p r i c e s t o customers f o r s e r v i c e s rendered.  3.4  RATE DETERMINATION  Natural substitute the  free  this  gas  utilities  f o r the market.  goal  by  AND  regulation  invisible The  hand  regulatory  determining  the  p r o v i d e d by t h e r e g u l a t e d f i r m . a  particular  inherent  i n running  financing, scale 1  1  0  1  1  1  period  labour  i s then  set  DISCRIMINATION  and  they  the business,  and o t h e r which  is  and  competitive  process  cost  thought  of  to  prices  normally  the  be  service  a of  achieves to  be  These c o s t s a r e e s t i m a t e d f o r may  comprise  such  as d e p r e c i a t i o n , p l a n t ,  operating  costs.  simultaneously  allows  the  expenses  A maximum enough  rate  revenue  B~! L e s s e r , "Comments on ' R e g u l a t o r y f a i l u r e a n d c o m p e t i t i o n ' by G.B. R e s c h e n a t h a l e r " (1977) 20 C a n a d i a n P u b l i c A d m i n i s t r a t i o n 389. R.A. P o s n e r , " N a t u r a l M o n o p o l y and I t s R e g u l a t i o n , " (1969) 21 S t a n . L . R e v . 548 a t 635-636.  36 to  be  generated  reasonable  Their rate  from  profit.  Public  utility  role  includes  of return  position  to  charges  try  the  rates  the venture  attract  further  production  costs,  in  competition  encourages  design  adjustment  in a  with higher  function  transferring the  by  determine  functions  since  consume.  Various  the  rates  1  1  3  1  1  4  is in a These  through  lower  way  which  in  of  rates.  imitates  demand or  may  A  well  the  the  i s generally  conversely  of  i s the desire  utilities power  1 1 4  function  is  customers  do  or  lessen  has  A  the  fourth, goal  r e d i s t r i b u t i n g income and  However,  not  economically  service.  rates  company,  not  to  eventually  entirely soley  based  pay  s o c i o - e c o n o m i c and p o l i t i c a l  of from  to i t s  the standard  used  on  f o r what  to  fiscal they  f a c t o r s tend t o  i n f l u e n c e t h e p r o c e s s a n d i n d u c e one c l a s s o f u t i l i t y TTT  fair  Consumer demand  and  adequate u t i l i t y  and c r e d i t o r s .  criteria  for  prices  a  expansion.  price  the design  lower  allow  1 1 3  purchasing  this  for  m a r k e t where  consumers t o t h e u t i l i t y  shareholders  that  pricing.  the  with  a community w i t h  distinct  a  functions.  t h e company  efficient  competitive  increase  capital  efficient  adjusts  rates.  plus  important  so t h a t  substitution  Inherent t o these provide  an  influenced  structured  to  several  the s e t t i n g o f charges  promote  expected  have  from  purposefully  customers  1 1 2  to  be  utilities'  users to  S.B. B r y e r & R.B. S t e w a r t , A d m i n i s t r a t i v e Law a n d R e g u l a t o r y P o l i c y (2nd e d . , L i t t l e , B r o w n & C o . : B o s t o n , 1985) a t 223-224. B o n b r i g h t , s u p r a n o t e 89 a t 49-58. I d . a t 59.  37 subsidize  the  costs  of  redistribution  may  inelastic  those  of  than  service  for  for  should  occur  pay  higher  unjust to  whether  designs  the  that  the  this  social  set  contributing  to to  may  order  levy,  expenses its  i t and  facilities  and  economic  the  called  former  or  allowable  permitted  base.  The  and  answering  of  It  than  former  or  question  is  possible  that  rates  base and  that  a  its  is  the  assets  is  a  equation  regulated  In A N u t s h e l l  to  operating  in  another  percentage i s the  monopoly on  utility  employed  which  a  system  of  return  the  same  value  i s m u l t i p l i e d by  i m p l i c a t i o n , pass  J . P . T o m a i n , E n e r g y Law 1981) a t 111, 116.  the  figure  of  inhibit  of  determine  rate  to  prices.  maximum  investments  of  rate  source while at the  higher  to  undue  various  is  maintenance  firm's  product  by  less  tribunals  this  effects  first  This  rate  return earn  A  capital  the  figure.  to  pay  to  service.  cost  the  constitutes  prices.  overall  necessary  parameter  of  another energy  is  the  that  more  the  a c e r t a i n c u s t o m e r c l a s s and  the  and  be  regulatory  bias  way  calculate  rendering  the  of  to  rate  may  argued  of  One  t h e r e b y b e n e f i t t i n g t h o s e who In  are  Although  class  income  1 1 5  discriminatory  switching  a  been  duty  type  a p r i c e advantage t o  them f r o m time  is  example, rates  users.  as  has  rates.  discrimination.  consider  give  i t  users  i t  For  residential  industrial  users,  Accordingly, determine  of  class.  when  industrial  residential  class  another  amount  will  investors  (West:St.  of  Paul,  be in  38 the  concern.  the  equitable Unlike  Thus a major  1 1 6  evaluation  Canada,  constitution  protecting  unique  method  evaluating  appellate  from  expropriating  property  a  held  rate  firm's that  just  under  the  Fifth  and  maximum  rates  were  based  upon  reference  property, the  the original  market  value  estimated rates.  states  competing requires  "fair  the  result  b  1  1  7  1  1  8  value"  an  early  or  were  effect  of  without  due  Amendments.  "fair  value"  The  test  that  replacement  cost  construction  costs  depreciation,  i t s stocks  less  and bonds, under  not continue  which  tests.  as  of the  well  particular  test.  to  i s itself  a  The U n i t e d  a detailed rate  reached  factor  Presently,  l  the  property the  compensation  the  have  the present  capacity  do  method  the  main  There,  had  Fourteenth  these  i t s  regarding  base.  that  in  as t h e  statutory  1 1 7  evaluation  longer  of  earning  Most  other  to  and  owners o f p r i v a t e  process  included  has p r o v i s i o n s  challenges  rate  hearings i s  i n the venture.  rights,  regulation  i t without  used  States  constitutional  decision  protected  i n regulatory  of the capital  the United  presented of  issue  follow  compromise States  base  "just  involves  employed"  and  economics  base  between  two  Court  predicated  The p r e v a i l i n g r u l e s t a t e s  i n determining  rate  Supreme  formulae  a n d n o t t h e method  the matter  this  reasonable  that that  no  upon  i t "is i s the  rates".  1 1 8  and t h e s e l e c t i o n o f  A.J.G. P r i e s t , P r i n c i p l e s Of P u b l i c U t i l i t y Regulation ( M i c h e : C h a r l o t t e s v i l l e , 1969, v o l s . l & 2) a t 138-142. Smvth v . Ames 169 U.S. 466 (1898) p e r H a r l a n J . FPC v . Hope N a t u r a l Gas Co. 320 U.S 591, 601-603 (1944) per Douglas J .  39 a  formula  One  way  to  is  to  equipment, greater  cope  with  the  effect  determine  the  reproduction  but  than  this the  c o m m i s s i o n s and of  the  it  may  original tend to  expressed  cost  as  by  rate  does  levied in  the  to  as  are  nor  the  percentage  not  comprise  and  objective  financial  of  needs,  that  encouraging are  eschew  undue  represent structure can  simple,  be  represents  l  y  1  2  0  1  2  1  a  restructured  distribution l  discrimination.  conflicting  of the  the  a  of  rate  structure  this  compromise  waste o f  time  these  to  is  as A be  found  referred that  1 2 0  i s to  meet  equitably the  service  include  rates  and  criteria  Inevitably, among  will  rates  burden  criteria  But  base  i s also  specific  may  return.  p u b l i c l y acceptable  1 2 1  though  firm  that  customers.  exigencies.  from  even  of  Other  understandable,  calculation  parameter  concept  distribute  use.  value  regulatory  i t s rate  rates  this  while discouraging  optimal  book  of  rate  specific  utilities'  a  level  termed  latter  installing  federal  rate  figure  categories  yet  amongst i t s c u s t o m e r s , and  the  assets.  1 1 9  i t apportions  a  in  expenses p l u s ,  This  of  depreciation  values.  the  on  espouse the  i n t e r - r e l a t i o n s h i p as  design,  cost  The  less  mathematically,  chargeable to various The  its  book  inflation  result  commissions  assets  structure.  rate  can  costs.  i t s operating  their  rate  of  lower the  multiplied level  original  most s t a t e  When v i e w e d be  technique  of  that often  the  these  factors  time  to  rate and  alter  i t the  system's b e n e f i t s .  L.W. Weiss & A . D . S t r i c k l a n d , R e g u l a t i o n : A Case Approach ( M c G r a w - H i l l : N e w Y o r k , 1976) a t 16. T o m a i n , s u p r a n o t e 115 a t 112-115. B o n b r i g h t , s u p r a n o t e 89 a t 291-293.  40 Individual the  relationship  cost  is  that  incremental avoiding  an  cost  or  forgone"  of  one  to  produce  cost  marginal  costs  decisions reflect  the  supply costs  pertain  to  widget.  The  marginal  cost  production additional of  a  direct  or  referred  to  as  unit.  the  Given at  fact  the  of  make or  any  one  should  of  an  because  variations joint costs  they in  costs of  two  output.  and or  may  item,  from  are  are  must  expenses  The not  such  the  not  types  are  the of  a  the  overall  costs  dependent  They  by  as  affected  latter  include  more  reflect  item  production  distinguished  production.  more  purchase  contemplated  widget  of  1 2 3  expenses  which  be  less  producing  intelligent  variable  costs  time,  must  production is  the  corollary decision  less  less.  by  that  that  structure  to  more  gained  t o p r o d u c e more o r  rate  are  another  or  reduced  non-attributable  123  A  of  savings  s o c i e t y makes a  for  constant  as  By  o f more o r  formula  to  the  and  Marginal  a particular service  character  proportionate  T2~Z  good.  involve  a to  or  fixed  cost  production  alternatives  choice  another.  demand  price.  for production the  i f consumers  since  Marginal that  or  of microeconmics and  the  commodial  "for  particular service, l e s s of  from  capacity  particular service  of  that  e x i s t s from the  1 2 2  cost  alternatively  finite  opportunity  subject  marginal  incurred  production a  involve the  between  unit  economy h a s  a  rates  by are  on  nor  sometimes  indirect  and  natural  gas  A.E. Kahn, The E c o n o m i c s o f R e g u l a t i o n : P r i n c i p l e s and I n s t i t u t i o n s ( J o h n W i l e y & Sons:New Y o r k , 1970) V o l . 1 a t 66. I d . a t 65-66.  41 service  to  system.  various  structures  distributed  that  or  even  can y i e l d  allocation  of  joint  appears  is difficult  because  i t doesn't  are high of  schedule  i n order  marginal  costs  down,  pricing  criterion.  Furthermore, regulated classes  purchased"  volume as  1  2  and  gas  4  2  5  1  2  6  in  cost  the  due  to  to a regulated  costs may  setting  marginal  natural  n o t be  firms  set  time  marginal-cost and  and m e t e r i n g .  d i f f e r e n t amounts periods.  rates  include  rates  also  when  rate  the  sole  parameter  prices of  charges  fixed administration These  as  for  service  Components  1 2 6  cost  keeping the  this  "different  in  Some  i n the  used  to calculate  o f customers,  cost  monopoly  small.  used  i t i s not easy usually  arbitrary  of fixed costs  be  One  i t s efficiency  are very  of  mechanism  Marginal  more c u s t o m e r s t h e r e b y i t can  fully  f o r a firm.  Nevertheless,  pricing  however  the  relatively  f o r the recovery  different  of  f o r the  costs  such  proportionally  W.K. J o n e s C a s e s And M a t e r i a l s On R e g u l a t e d I n d u s t r i e s (2nd e d . , The F o u n d a t i o n P r e s s I n c . r M i n e o l a N.Y., 1976) a t 191-195. G e l l h o r n & P i e r c e s u p r a n o t e 88 a t 194-197. W e i s s & S t r i c k l a n d , s u p r a n o t e 119 a t 18. f  1  pipeline  avoid  customers.  desirable  t o apply  o f gas purchased,  connection  its  among  to e l i c i t  overall  natural  one  straightforward  is  and t h e m a r g i n a l  elements  different  costs  allow  to  aggregate revenue  method  more  tended  a  resources.  pricing  since  from  measurement  i t provides  the  allocation of  these  customers  have  cost  the required of  rate-setting  i n use  average  though  disadvantage  the  of  1 2 4  Rate  rates,  classes  42 comprise service  the  natural  capacity  to  gas the  plant  costs  customer  w i n t e r - t i m e when demand i s g r e a t e r Hence, that  a  they  pervasive cover  difficulty  hearings  where  socio-economic  position  of  t h e i r respective  directed  to  the  as  the  revenues  made  by  groups.  Once a l l t h e  indeed  be  under postage between  R e g u l a t o r s must justifies  is The  of  regularly to  rates  1 2 8  subject  data  as  public utilise  advocate  the  Much e f f o r t  is  i n an  attempt  to  discrimination. can  not  rates  desirable, rates  country  therefore  discrimination  be  of  are  such  as  does  u n d e r what  entirely aggregate  different  e v e n when a  users  to  made,  customer  discrimination  to  distribute  cost  analysis  not  d e c i d e when t h e and  prevented  contribution  considerations  stamp-like and  i s the  such  1 2 7  utility  t e c h n i c a l data  divergent  socially  city  summer.  i n t e r e s t groups.  disproportional the  providing  periods  public  financial  discrimination  by  may  and  p r o o f o f undue  shown  of  in  intervenors  examination of  Admittedly,  than  t h i s value  complex  t e a s e out  peak  in  "value-of-the-service".  i n a r r i v i n g at  regulatory  at  criterion  the  incurred  justify  analysis  as  circumstances  gas made  i t . a  1  2  9  whole  i t does  not. Marginal  cost-based  fully-distributed rates the Tfl 1  2  8  1  2  9  or  multipart  rates  rates.  Certain  rates  consumer-rationing  are  exist  not  at  only  discriminatory  yet  advantages  I d . a t 20-21. P r i e s t , s u p r a n o t e 116 I d . a t 344-345.  the  337.  they of  do  not  alternative rates, have  un-qualified  to  block  " a l l of marginal-  43 p r i c i n g . 130  cost  theoretically qualified  by  more the  will  remain  some  regulatory  but  cost  the  short  run,  expectation  of  consumers  that  for  assumption  be  the  ratesetting  costs  long  economists  stability  that  the an  has  technique. incurred  by  are  rights  of of  relatively  relatively  resulted popular  natural  gas  pipelines, way.  high,  rate  long-run  that  encouraged cost  marginal  be  enhanced  capacity. or  use  1 3 1  short-run  of  a  notable  alternative derives utilities  in  compressor their  a  marginal  long-term  the  Although their  rates  estimating  long-run in  be  Accordingly,  will  in plant  strict  This  construction of  increase  with  pricing  costs  output  must  believe  in  the  be  utility  i n r a t e s w o u l d be  problems  may  they  time.  p e r s i s t e n t or  inherent  following  marginal-cost  acquiring  and  b a s e d on  Dissatisfaction  intensive  relatively  f o r t w e n t y y e a r s o r more, and  indefinitely  joint  a  They argue t h a t  functions  rates  in  commentators  should  acknowledge  marginal-cost  efficient  stable  rate design costs.  While  the  capital  stations, fixed  incremental  from  and  overhead  costs  are  low.  " I n s u c h an i n d u s t r y , p r i c e s s e t t o e q u a l t o the incremental cost of increasing production or services by another unit will not earn enough revenue t o cover f i x e d overhead c o s t s , . . . A long run p o l i c y of incremental or marginal cost p r i c i n g w i l l t h e r e f o r e n o t be p o s s i b l e i n s u c h an i n d u s t r y . " 1 3 2  In  order  order T3TJ 131 132  to  to  pay  the  minimize  the the  so-called  wages  inefficiency,  B o n b r i g h t , s u p r a n o t e 89 a t 395. I d . 400-402, 319. B r y e r & S t e w a r t , s u p r a n o t e 112 a t  of  capital,  regulators  514.  and  in  advocate  44 discriminatory to  a  structure  elasticity For rates to  prices  example,  their  inverse  of  demand  higher  gas  utilities  because  fuels  an  such  i f gas  allowance  classes  i s less  place  share a  of  greater  normal  might  set  customers  demand  i s priced  customers,  costs  is  utilities  that  fosters  decreasing of  regulatory  as  price  to  cover  fixed  is  designed  on  to  do  costs  for this  form  minimise  long total  these  as w e l l  are  because  they  (due t o h i g h  1 3 5  increases.  service  of  while  with the unit Thus  1 3 6  been  a  o r economy  another  justified  rate  block  cost  by b o t h  I d . a t 516. W e i s s & S t r i c k l a n d , s u p r a 119 a t 22. B r y e r & S t e w a r t , s u p r a n o t e 112 a t 515-516. W e i s s & S t r i c k l a n d , s u p r a n o t e 119 a t 22-23.  by  rate.  sufficient  a demand a n d c u s t o m e r c o s t s .  t o pay f o r t h e e n t i r e  who  price  waste  costs,  customers  a  fixed  of regulatory  has  of  pay  the i n a b i l i t y  i s the t r a d i t i o n a l declining charges  rates  in  classes  environment  run decreasing  that  costs  i n d u s t r i a l users  allocative  i n an  output  higher  service,  investment.  are often  at a  customers  Given  average  f o r fixed  initially costs  gas  than  discrimination  agencies  structure  costs  t o cover  or paying  Public  value  switch  higher  Since  1 3 4  s e t low  may  f o r the actual  on t h e s e r v i c e .  the j u s t i f i c a t i o n  recovering  example  elastic.  of the fixed  discrimination  scale  a  lesser value  incremental costs) ,  according  the  l e v i e d t o r e s i d e n t i a l and commercial  customers  134 135 136  making  divergent  usually  This  natural  competing  Despite  serving  cost  i s the  f o r i n d u s t r i a l users  rate.  of  that  customer c l a s s e s  curve.  alternative  place  among v a r i o u s  It small  45 and  large  lowering  users,  the  rates  discrimination justified the  i t  more o f  between  However,  the  that  not  acceptable, certain  all  and  maximum  forms  of  consumption  is used.  customers the  is  economic  out  by Rate  1 3 7  therefore  exigencies  without  being  "discrimination"  of  of  types  customers have  a  may  be  while  duty  the  of  unjustly  to  Canadian  process  understand  i n the  natural  gas  the  is  may  a  have  general  of  to  be  at  and  gas  been  117-118.  undue  to  prohibit  users  is  to  while  discrimination. inadvertently prices  necessary,  alleged  are  unfair  regulation  of  the  affords.  effect  discussion  industry.  T o m a i n , s u p r a n o t e 115  of  price  deregulation  thought  extent  goal  by  benefitting  identify  undue  instances  Accordingly,  better  to  in  patently  a l l natural  savings  instances  tainted  discrimination  some  invariably  normally  cost  exacerbated commodity.  utilities  The  such  by  gas  discrimination.  Unfortunately,  deregulatory  of to  practices  indeed  unjust  ferreting  greater  commodity  natural  word  Regulators  undue o r  due  Canadian  the  classes  others.  the  classes  instances  discriminatory  connotation  encourages  monopoly.  Finally,  provide  as  i n many  natural  conduct  yet  in  for  the  of  the  order  to  discrimination  46  4.  DEREGULATION OF NATURAL GAS PRICING AND MARKETING  Natural government legal  control  change  certain the  gas p r i c e s since come  long-term  left  a  various  the a l t r u i s t i c  commodity's 4.1  The  legacy.  price  industry  government  more  i t seems t h a t have  has t h e p o t e n t i a l involved  to  i n the  deregulation.  pricing  and m a r k e t i n g  of natural  1985 when t h e g o v e r n m e n t s  Columbia  and Saskatchewan  market-oriented  agreeing regime.  Program  t h e former regime  principles  by  THE DEREGULATION PROCESS  i n March  British  and  i n 1984  Energy  gas  undergoing a remarkable process o f deregulation. began  for this  facilitated  National  legacy  free-market  direct  interests  Nevertheless,  This  from  The impetus  Conservative  government.  freed  i m p e t u s was  a r r a n g e m e n t s made u n d e r  continuing  inhibit  This  the interventionist  of t h e former L i b e r a l the  from  of a Progressive  dismantled  have been  O c t o b e r 1986.  economic e x i g e n c i e s .  election  which  has  i n Canada  REGIMES  to 1 3 8  natural  establish  the  required  market  is  process Alberta,  t h e need  mechanism  necessary  However t h e c o n d i t i o n s  This  o f Canada,  recognized  gas p r i c i n g  i n Canada  for a thereby  sensitive  f o r such a regime  The W e s t e r n A c c o r d : An A g r e e m e n t b e t w e e n t h e Governments o f Canada, A l b e r t a . S a s k a t c h e w a n a n d B r i t i s h C o l u m b i a on O i l a n d Gas P r i c i n g a n d T a x a t i o n . M a r c h 28 1985.  47 were  set  forth  in  October  31,  a  separate  document  signed  by  the  same  parties. On  1985,  the  intergovernmental 1  Natural  Gas  express  intention  oriented"  Prices  and to  regime  1 4 0  for  was  a  the  on  TO  Markets  create  Agreement  "more  executed  flexible  domestic  pricing  with  and  the  market-  of  Canadian  n a t u r a l g a s . The A g r e e m e n t d e c l a r e d a n i n t e n t t o : "foster a competitive market f o r n a t u r a l gas i n Canada, c o n s i s t e n t w i t h t h e r e g u l a t e d c h a r a c t e r o f t h e t r a n s m i s s i o n and d i s t r i b u t i o n s e c t o r s o f t h e g a s industry". In  other  not  words,  the transmission  t o be d e r e g u l a t e d  domestic November sold  commodity 1,  1986.  would  i n interprovincial  Canada's  and  abilities and  consuming  provinces  -  140 141 142 143 144  management  encouraged  to  who  d i d not purport  Also  1 4 3  promote  effective  over  protected  to  gas  interprovincial were  t h e powers  natural  resources.  not s i g n a t o r i e s t o the the  derogate  signatories i n relation  of their were  deregulated  i s determined by n e g o t i a t i o n .  of the p r o v i n c i a l  ownership  was  o f n a t u r a l gas as a  the p r i c e of natural  constitutional authority  international trade.  TT9  totally  t h e Agreement  and  were  be  trade  of the industry  the p r i c i n g  Subsequently,  1 4 2  Significantly, from  whereas  segment  effectiveness  of  t o the  1 4 4  The  Agreement  the  market-  A g r e e m e n t Among The G o v e r n m e n t s Of Canada, A l b e r t a , B r i t i s h C o l u m b i a and S a s k a t c h e w a n on N a t u r a l Gas M a r k e t s and P r i c e s . O c t o b e r 31, 1985; ( t h e s o - c a l l e d H a l l o w e ' e n agreement). Id. C l a u s e 1. Id. C l a u s e 4. Id. C l a u s e 2. Id. C l a u s e 21. Id. C l a u s e 22.  48 sensitive  gas  legislation order  to  and  pricing  and  direct  provide  gas  forces until  price  hikes  by  federal  National natural  gas  substitution  n a t u r a l gas  replacing November exports  1  4  147 148  exported  crude 1,  1984,  The  oil  been  value  was  federal  export  the by  in  and  demand  "extreme  p r i c e s caused  i n the  the  pricing  was  to  the the  Canada.  the the the  price  pursuant  related  eastern  of  through  export  States with  prices.  Exporting  and  government,  policy  t o t h e U.S.A. a t n e g o t i a t e d  o i l embargo  Petroleum  This  United  imported  of  by  of  determined  method.  the  price  determined  1973  regulated  1977  in  sources,  in  The  increased  federal  (NEB)  to  enact  regime.  previously  as  supply  efficacy  Canadian n a t u r a l gas  in April  to  i n f l u e n c e d t o some e x t e n t  intervene d i r e c t l y  Board  which  the  1970's.  well on  1 4 6  enjoined  flexibility  Organization  commodities.  Energy  so-called of  as  government t o  respective  had  t h e mid the  (OPEC),  upward p r e s s u r e "  seems t o be  prices  are  alternative  greater  of the previous  market  Countries  with  Nevertheless,  1 4 5  effects  Natural  They  r e s p e c t i v e regulatory agencies  with  deregulatory process after  their  consumers  distributors  determination.  the  regime.  of the  price  cost  of On  1 4 7  revised to  allow  1 4 8  IdL C l a u s e 26. P i p e l i n e Review Panel Report, A R e v i e w Of The R o l e And O p e r a t i o n s Of I n t e r p r o v i n c i a l And I n t e r n a t i o n a l P i p e l i n e s I n Canada Engaged I n The Buying;. S e l l i n g . And T r a n s m i s s i o n Of N a t u r a l Gas J u n e 1986, a t 69. IdD e p a r t m e n t o f E n e r g y M i n e s and R e s o u r c e s , Backgrounder document 85/162 (a) a t 1.  49 Legislation government or  to  the  prices  the  The  price  threat  countered  for  to  gas  of  effect  artificially  province  set  pricing  practical  Canada,  i n June  unilaterally  conclude  provinces. had  to  enacted  1 4 9  these of  city  gate"  for  commodity  deduction  A  of  both  formula  the  prices  were d e t e r m i n e d  carriers'  Following headed  by  government dismantle  Mr.  the  Trudeau,  l e d by the  Mr.  administration.  market  brought  4  y  1  5  0  1  5  1  1  5  2  defeat  Alberta  Mulroney  When  alternatively  o i l prices  to  "Toronto  reference  which  price.  gas  of  was  price  allowed  for  1985  Alberta,  and  1 5 2  Liberal  with  Energy collapse  approximately  1,  interprovincially  Progressive elected  in  From November  sold  the  National the  border  t r a n s m i s s i o n charges  present  interventionist  former  1  and  field  natural  the  in  permitted  so-called  t o crude o i l p r i c e s .  1984  gas  producer  a g r e e m e n t s b e t w e e n Canada and  t h e s e p r i c e s were l i n k e d  powers  o i l and  or  whole-sale  a  pipeline  by  minimum  which  of Alberta  producing  that  1 5 0  upon t h e  producers'  petroleum  the  largest  s i d e s agreed  there,  the  federal  government.  deliveries  order t o d e r i v e the 1975  the  i t s territory,  was  for  domestic  set the  outside  the  regulatory  legislation  negotiate a p r i c e with the federal Ultimately,  with  overriding  Alberta,  unilaterally sold  prices  keeping  similar  enabled  domestic  agreements  low.  with  1975  the  government Conservative  a mandate Policy  of  i n the same  to the  world  level  Petroleum A d m i n i s t r a t i o n Act, S.C, 1974-75-76, c.47. N a t u r a l Gas P r i c e A d m i n i s t r a t i o n A c t , S.A. 1975, c.70; N a t u r a l Gas P r i c i n g A g r e e m e n t A c t , S.A., 1975 c.38. P i p e l i n e R e v i e w P a n e l R e p o r t , s u p r a n o t e 146, a t 70. B a c k g r o u n d e r , s u p r a n o t e 148.  as  50 the  Canadian  deregulation increase  of  that  would  opposition. deregulated Natural  regulated  June  Markets  period  of t r a n s i t i o n ,  implemented producer  1985, and  f o r gas  the  1 5 4  Prices sold  since  and  the  former  delegated  the market  of Canadian  for  prices,  a  netback  1 5 6  regime.  pricing  1986  o i l was  Agreement a  one The  on  year period  allowed f o r  governments.  benchmark A l b e r t a  legislation  1 5 5  price  political  crude  "Hallowe'en" provided  for  drastic  engender  domestically.  pricing  climate  no  o f p r i c e s by t h e r e s p e c t i v e  Afterwards, by  the p r i c e  ideal  November 1,1985 t o November 1,  the p r e s c r i p t i o n  eliminated  1,  an  arose  consumers  Although  Gas  transition  commodity  reach  1 5 3  price,  border p r i c e  which  was  effectively  Instead of regulated system  was  introduced  whereby: "producers r e c e i v e d t h e netback from t h e " (marketing arm of TransCanada Pipelines Ltd.) "Western Gas Marketing (WGML)-distributor negotiated wholesale prices rplled-in with the netback from export sales." 1 5 7  To3~  154 155 156  157  A . J . B l a c k , "Comparative L i c e n s i n g A s p e c t s o f Canadian and U n i t e d Kingdom P e t r o l e u m Law" (198 6) 21 Tex. I n t . L . J . 471 a t 492. The W e s t e r n A c c o r d , s u p r a n o t e 13 8 a t 3. N a t u r a l Gas M a r k e t s and P r i c e s A g r e e m e n t , s u p r a n o t e 139 a t C l a u s e 3. O r d e r SOR/86-1049 d a t e d O c t o b e r 30, 1986 w h i c h d e c l a r e d t h a t s s . 53-65 o f t h e E n e r g y A d m i n i s t r a t i o n A c t (Canada) d i d n o t a p p l y t o any p r o d u c e r p r o v i n c e e f f e c t i v e November 1, 1986; and R e g u l a t i o n SOR/86-1050 d a t e d O c t o b e r 30, 1986 w h i c h r e v o k e d t h e E n e r g y A d m i n i s t r a t i o n A c t , P a r t I I I R e g u l a t i o n s , CRC c . 1 2 6 1 ; and t h e A l b e r t a N a t u r a l Gas P r i c e s R e g u l a t i o n s , 1986 SOR/86-838, w h i c h w e r e r e v o k e d e f f e c t i v e November 1, 1986. R. Hyndman, Impact o f N a t u r a l Gas D e r e g u l a t i o n i n P r o d u c i n g P r o v i n c e s : A l b e r t a ( A l b e r t a Dept. o f E n e r g y : 1 9 8 7 ) a t 8.  51 This  system  requiring netback  was  intended  their  approval  prices.  of  give  deregulation,  purchases  from  the  at  transition  new  purchases  or  an  input  downstream  distributors  shippers  negotiate  producers  shippers*  During  1 5 8  complete  directly  to  negotiated  period  could  before  either  renegotiated  from  producers  by  make  prices,  providing  or that  1 5Q existing  contacts  The  are  governments  commercial  honoured. undertook  transactions  not  for  to  the  obstruct prices  the  resulting  under  existing  c o n t r a c t s w h i c h were r e q u i r e d t o be r e n e g o t i a t e d i n g o o d • i fin p r i o r t o November 1,1986. Failure to renegotiate contracts  would  arbitration. permitted prices  to  directly  given  Unfortunately,  of  the  the  downstream  transmission For  price  November from  via  were  and  1,  due  the  consumers  producers  of  to  at  negotiated  the  continued  in  negotiating  monopolistic existence  TransCanada  Pipelines Limited  new  prior  i s the  Canada  a  eastern well  as  markets,  a carrier.  operating  as  both  sole  western  commodity  TransCanada both t r a n s p o r t s  —m. 1  5  9  1  6  0  1  6  1  1  6  2  1 6 2  nature  of  from  as  with  carriage.  C a n a d i a n p i p e l i n e system t r a n s p o r t i n g n a t u r a l gas  broker  were  arrangements contract  by  arrangements.  instance,  to  those  determined  1985  encountered  contracts  system  being  buy-sell  availability  problems  carriage  the  purchase  indirectly  distributors  gas  in  Effective  1 6 1  or  natural  result  faith  N a t u r a l Gas M a r k e t s and 139 a t C l a u s e 10. Id. Clause 13. Id. Clause 14. Id. Clause 5.  P r i c e s Agreement,  supra  note  gas  52 volumes of  owned  Canada's  700  by  production  so-called  Alberta. system  others,  system  The  and  under  is  purchased  producers  then  volumes  which  distributor  the  Since  many s u p p l y  lack  of  the  prices  contracts  with  legislation law  of  TCPL the  •  L b J  1  6  4  1  6  5  i f their  i n order  located  under  or  of  in the  long-term Therefore  1 6 3  or  been  nearly  pools  USA.  non-system  obviate  those  purchased  by  border  this  to  essential  promulgated  not  price  a  by  bound  in  parties  subject  to  Alberta's  Hence,  s a l e s p r o m i s e d by  to  loci.  to  1  6  5  supply  arbitration the  some d i s t r i b u t o r s  are  arrangements  deregulation,  the  order  g o v e r n e d by  term supply  benefits of  the  binding  lex  are  of long  the  Given  Alberta its  gas.  parameter,  1 6 4  who  jurisdiction.  to* r e a p  this  a  by  deals  for  term,  r e s p e c t i v e agreements a r e  validity  cheaper d i r e c t  deregulation  unascertainable.  contracts  are  with  made r e f e r e n c e  distributors TCPL  the  the  have  Alberta  became  was  of  a different  questioning  the  for  procedure  those  resold  displace  encountered  contracts  prices  However,  gas  independent  to  would  of  certainty  arbitration  various  40%  TransCanada.  termination  contract  set  potential  difficulty  their  from  with  primarily  i n Canada and  otherwise  from  Another with  the  the  approximately  contracts  are  invariably  directly  has  who  from  contracts to distributors gas  long-term  producers  production  producers  i t purchases  new  with  including  regime.  A n n u a l I n f o r m a t i o n Form, T r a n s C a n a d a P i p e l i n e s L t d . , M a r c h 24, 1987, a t 3. N a t u r a l Gas M a r k e t i n g A c t , S.A. (1986) c.N-2.8, s . l 2 ( l ) , I d . s , 1 2 ( 2 ) and A r b i t r a t i o n A c t , R.S.A. 1980, c.A-43 as am. by S.A. 1983 c.18 and S.A. 1986 c.10, s.17.  53 In policy  addition  gas p r i c i n g  instance,  r e v i e w s would much  contractual  matters are involved  natural For  to private  gas  producing address  i n t h e p r o c e s s from  regime  both  t o t h e new  tiers  b e made  of  t o Canadian  province.  These  presumably  public  "result  broader  the regulated  deregulated structure.  government  anticipated  that  o f t h e procedures used t o determine  i s surplus  the  arrangements,  reviews  interest in  needs  in  and t h e needs of surplus  security  significantly  freer  of  how  of the  tests  would  supply  access"  and to  1 6 7  Canadian and e x p o r t markets. 4.2  "SURPLUS GAS" AND THE SECURITY OF SUPPLY  Removal subject be  made  to legislation t o t h e Energy  authorizing permits  of natural 1 6 8  be  made  which  Resources  t h e removal.  may  prescribed  gas from  the province requires  of Alberta i s  that  an  application  C o n s e r v a t i o n Board  Issuance  according  b y t h e ERCB a s a p p r o v e d  a n d amendment  to  terms  and  (ERCB) of  1 6 9  removal  conditions  by t h e L i e u t e n a n t  Governor  17 0 in  Council.  unless  having regard  particulars  167 168 169 170 171  a  t h e ERCB d e c i d e s t h a t  Alberta  T6-5-  However  inter  removal  permit  will  i t i s i n the public alia,  t o t h e needs  not  issue  interest  of  of Albertans,  o f r e s e r v e s a n d any o t h e r r e l e v a n t m a t t e r s .  1 7 1  N a t u r a l Gas M a r k e t s a n d P r i c e s A g r e e m e n t , supra note 139 a t C l a u s e 16. IdGas R e s o u r c e s P r e s e r v a t i o n A c t , S.A. 1984, c.G-3.1, a s am. b y S.A. 1986, c . 1 7 . Id. ss.2, 1(1)(a). I d . s.4. I d . s.8.  54 One to  the  effect  of  public  the  interest  producing provinces •  of  request  made t o t h e  their  review  ensure  was  1 7 4  of  that  environment.  These  calculated future  those  15  defined  than  gas  pertaining  that  respective  surplus  rely  Columbia  new  customers  with  in  did  not  tests, of  based gas  a  the  and is  the  period,  present  ERCB d e v i s e d  that provides  users.  This  1 7 6  residential  industrial  judgement issue.  retained  year  the  the  and  in 1 7 7  to  be  deciding  for  the  group  is  Alberta  The  new  used  in  whether  Under t h i s  to protect  a  customers,  users.  approximation  should  and  1 7 5  test  core  to  deregulated  25  to  contracts,  small an  a  1 7 3  Board  surplus  new  surplus  include  ERCB's  gas  the  used  The  gas  a  Energy,  province.  upon  province.  of  procedures  used  suit  s o l e l y on  to  and  that  previously  removal permits  expected that  initiate  Following  Alberta Minister  needed t o p r o t e c t  calculation  conjunction  the  tests.  formulae  supply  volumes  arbitrarily  commercial  175 176 177  Agreement  British  y e a r b a s e d mandated s u r p l u s  volume o f  174  and  the  the  requirements of the  Rather  7  of  the tests  1  require  surplus  ERCB by  deliverability  is  Alberta  so-called  made  security  concluded  not  to  1985  17?  of  new  was  31,  •  review  a  October  or  test, i t consumers  N a t u r a l Gas M a r k e t s and P r i c e s A g r e e m e n t s , supra note 139 a t C l a u s e 23 ( i ) . L e t t e r d a t e d 2 December 1985, from A l b e r t a M i n i s t e r o f Energy. A l b e r t a Energy Resources Conservation Board Report 87-A, Gas S u p p l y P r o t e c t i o n F o r A l b e r t a : P o l i c i e s And P r o c e d u r e s . March 1987. Id. a t v. I d . a t 20. I d . a t 17.  55 will  not  differ  s u b s t a n t i a l l y from  those  volumes  expected  to  1 7ff be  under  contract  A  further  conjunction  hearing  with  the  was  Alberta  conducted  Public  by  Utilities  .  the  directions  recommended deemed  to  of  the  that be  a  residential  government.  and  market  o  of  in  following  on  The  u  commercial  worthy  ERCB  Board 1  provincial  core  the  Boards  customers  special  be  protection  because t h e i r : " d e p e n d e n c e on n a t u r a l g a s i s so fundamental that a s s u r a n c e o f s u p p l i e s i s a l w a y s a p r i o r i t y " . . . and that "[T]hese c u s t o m e r s may be protected either through reliance on gas utility companies...or through direct sales arranged with producers or brokers, provided that these d i r e c t s sales involve l o n g t e r m commitments on b o t h s i d e s . " 1 8  These customers • approximately notably the  one been  be  This  TT8~ 179 180 18-1 182 183  be  protected  1fto years. "  from  this  to  effect  reassess  the  definition that  1 8 3  i t s enabling of  by  the  of  term  contracts  industrial of  core  inclusion  31,  public  users  of  were  customers of  legislation.  October  nature  long  Small  0  believed  contrary  deregulated  the  PUB  noteworthy to  to  10-15  excluded  Alberta  would  are  that  as  group  Nevertheless,  1985  agreement  interest  in  the  has new  p r i c i n g system. public  federal  level  interest issue following  a  was  concurrently  review  by  the  addressed  National  at  Energy  I d . a t v. A l b e r t a PUB/ERCB R e p o r t NO.E87128/87-C, Gas S u p p l y and T r a n s p o r t a t i o n S e r v i c e I n q u i r y , Dec. 29, 1987. O r d e r i n C o u n c i l 484/87. A l b e r t a PUB/ERCB R e p o r t NO.E87128/87-C, s u p r a n o t e 179 a t 11. Id. I d . a t 20.  56 Board  (NEB)  natural  gas  Canada  is  of  the  surplus. subject  order or l i c e n c e inter in  alia,  to  Procedure"^ The long  to  the  regulatory  legislation  f r o m t h e NEB,  1 8 5  gas.  reflected  which  scraps the  of  interference  letting  market  should  185 186 187 188  policy  complements  elements  procedure might to  are  and  have  gas  an  from  export  B o a r d must h a v e r e g a r d and  public  new  trends interest  "Market-Based  regulated  met  surplus  test.  the  providing  exports  as for  prevent  demand.  procedure  the  determine  induced  while  additional  amount o f r e s e r v e s f o r e a c h  procedure  requires  the  former  Canadians  reserves-to-production-ratio  former  of natural  national  in  determining  requirements  a d o p t i o n of the Market-Based  times the  in  p r e v e n t s i n t e r f e r e n c e w i t h t h e market  supply of f o r e s e e a b l e Canadian The  which that  These  1 8 6  are  needs  used  S i n c e the removal  1 8 4  present procedure as  formula  f o r e s e e a b l e Canadian  discovering  requirements  Canadian  procedure which  required  national prices,  public  energy whereas  policy the  i n exports interest.  1 8 8  the  fifteen  year's production.  restrictions  national  supersedes  The of  latter  contrary In  N a t i o n a l E n e r g y B o a r d R e v i e w o f N a t u r a l Gas S u r p l u s D e t e r m i n a t i o n P r o c e d u r e s . Reasons F o r D e c i s i o n . J u l y 1987. B r i t i s h Columbia has a l s o r e v i e w e d i t s s u r p l u s d e t e r m i n a t i o n p r o c e d u r e s and h a s p r o m u l g a t e d a 15 y e a r s u r p l u s t e s t : B.C. M i n i s t r y o f E n e r g y , M i n e s and P e t r o l e u m R e s o u r c e s , R e v i e w Of The B r i t i s h C o l u m b i a N a t u r a l Gas S u r p l u s D e t e r m i n a t i o n P r o c e d u r e s , R e a s o n s F o r D e c i s i o n , J u l y 1987. The N a t i o n a l E n e r g y B o a r d A c t , R.S.C 1970, c.N-6. I d . s . 83. NEB S u r p l u s D e t e r m i n a t i o n P r o c e d u r e s , s u p r a n o t e 184 a t 26. B a c k g r o u n d e r : N a t i o n a l E n e r g y B o a r d News R e l e a s e 87/44, "NEB A d o p t s New N a t u r a l Gas S u r p l u s D e t e r m i n a t i o n Procedure", S e p t . 9, 1987, a t 1-2.  57 applications now  for licenced  protect security  consisting the  hearings  staff  The  of  a biennial  public  hearings A  of  users  Canadian  purchases proposed deny  on  the  decision.  by  procedure  s t a g e s u r p l u s gas  test  surveillance  of  include publication  by  1 on  .  I f a complaint  to  export  correct  the  to  analysis.  consist  of  entertain  contract terms  ,  three  grievances  for  to  commodity  those  of  .  i s m e r i t o r i o u s , t h e NEB  application  or  facilitate  situation  by  staying  the  0 : 7  a may an  its  an  Canadian  impact  assessment  energy  market  must  licences.  c o n t i n u e t o be v e t t e d by public  interest  as  of  the  be  filed  Finally,  t h e NEB  required  proposed with  export  1 9 2  having  by  the  the  regard Board's  1  only  disclosed NEB 26. Id. 190 Id. 192 Id. The  demand  1 9 1  Canadian  Agreement  and  will  identical  a l l a p p l i c a n t s f o r export  complaints  3  will  itself  not  empowering A c t .  9  will  similar,  •  would  stage  supply  unable  relevant  on  the  1  t h e NEB  ongoing  will  are  proposals s h a l l  1  the  who  Additionally, exports  energy  complaints  export.  opportunity  9  and  of the marketplace  components.  1  a two  gas,  marketplace.  NEB  to  of natural  o f s u p p l y by  of public  Monitoring  NEB  export  be  3 J  However,  able  procedure is  to  some c o n c e r n  monitor i f  implemented.  the  exports recent  Indeed,  one  exists and  not  Canada-US 1987  that  the  utilise Free  federal  NEB the Trade  report  that some e x p o r t prices had fallen below their S u r p l u s D e t e r m i n a t i o n P r o c e d u r e s , s u p r a n o t e 184 a t a t 24. a t 25. a t 25-26. N a t i o n a l Energy  Board  A c t , R.S.C. 1970,  c.N-6,  s.83  58 Alberta the  and  federal  British  Columbia  government  domestic  to assert  counterparts,  causing  i n d i f f e r e n c e t o such  early  1 Q4.  results.  '  4.3  THE COMMERCIAL NATURE OF A TAKE-OR-PAY CONTRACT  The surplus  new  gas volumes  initiatives 31,  f e d e r a l and p r o v i n c i a l  aimed  security  of  f o r determining  supply  are public  law  a t f u r t h e r i n g t h e i n t e n t i o n o f t h e October  1985 A g r e e m e n t .  states  and  criteria  3  One i m p o r t a n t  J  object  o f t h e Agreement  that:  " A c c e s s w i l l be i m m e d i a t e l y enhanced f o r Canadian b u y e r s t o n a t u r a l gas s u p p l i e s and f o r Canadian p r o d u c e r s t o n a t u r a l g a s m a r k e t s w h i l e a t t h e same time assuring that the reasonably foreseeable requirements of gas f o r use in Canada are protected." 1 9 6  Despite  this  privately or  ideal  enforceable  distributors,  a  legal  practical •  1  L y 4  9  196 197  one.  effect  by e i t h e r  since 1 Q7  not  the provisions  o f t h e Agreement  consumers, p r o d u c e r s ,  t h e Agreement  is a political  •  Accordingly,  are not shippers document  .  i t i s thought  of the deregulation  process  may  that be  the  better  E n e r g y P r i c i n g News, N a t u r a l Gas R e p o r t . V o l . 7 No. 10, O c t . 13, 1987. S e e : F r e e - T r a d e A g r e e m e n t Between Canada a n d t h e U n i t e d S t a t e s o f A m e r i c a , t e x t a s i n i t i a l e d b y C h i e f N e g o t i a t o r s on December 10, 1987, S i g n a t u r e o f t h e A g r e e m e n t : J a n u a r y 2, 1988. N a t u r a l Gas M a r k e t s a n d P r i c e s A g r e e m e n t , s u p r a n o t e 139. I d . a t C l a u s e 2. N a t i o n a l E n e r g y B o a r d R e a s o n s F o r D e c i s i o n . MH-1-87. d a t e d S e p t e m b e r 1987. M a n i t o b a O i l a n d Gas C o r p o r a t i o n , A p p l i c a t i o n d a t e d 25 May 1987, a s amended, f o r Orders D i r e c t i n g TransCanada P i p e l i n e s L t d . t o R e c e i v e , T r a n s p o r t a n d D e l i v e r N a t u r a l Gas a n d F i x i n g Tolls.  59 understood  following  arrangements  between  an  analysis  some  the  of  major  the  contractual  participants  in  the  industry. One  salient  obligations gas  is  fixed  between  the  provision  1  ubiquitous  and  that  pay  term,  pertaining  commercial  buyers  take-or-pay  stipulates that  term  during  aspect  a  buyer  though  and  the  not  voluntary  sellers  clause.  must  for i t despite  even  to  purchase having  d e l i v e r y may  of  This  type  gas  during  taken  be  natural  had  of a  delivery  at a  later  QR  time.  Many s u c h  deregulation consumers  of  or  (TCPL)  at  a  of  their  distributor  sales  contracts  time  These  volumes  separate  p r e d a t e t h e November  purchased  companies.  under  supply  prices  end-users  distribution majority  arrangements  eastern  gas  from  seven  Canadian principal  purchased  the  TransCanada  Pipelines  Ltd.  However,  these  CD  contracts  do  which  long  are  most  1986  distributors  from  so-called  when  1,  Contracts.  not  match  term  TCPL's  producer  "take-or-pay"  supply  arrangements. The  contracts  contemplate charge,  the  except  transportation company. |  y t >  The  between  existence for of  of  those gas  former  TransCanada a  charge  commodity  relatively  volumes  and  not  charge  few owned  i s f o r gas  the  distributors and  dealing by  the  a  demand  with  the  pipeline  a c t u a l l y taken  by  the  P i p e l i n e R e v i e w P a n e l R e p o r t , s u p r a n o t e 146 a t 16. TransCanada P i p e l i n e s L t d v. N a t i o n a l Energy Board (1986) 72, N.R. 172 a t 174, ( F e d . C . A . ) . A f f i r m i n g NEB d e c i s i o n RH-5-85 w h i c h i s r e p r o d u c e d i n t h e Canada E n e r g y Law S e r v i c e , s u p r a n o t e 43, NEB d e c i s i o n 41, "TransCanada P i p e l i n e s L t d - A v a i l a b i l i t y of S e r v i c e s " R e a s o n s f o r D e c i s i o n , May 1986.  60 gas  purchaser  whereas t h e  amount t h a t  the  is  taken.  actually  t h e peak be  (either  thought  service. clause, when a gas  .  u  of  as  a  of  a  then  annual  fixed  .  9  owe  with  natural  a  perceived  by  acceptance carrier  their  origin gas  of  from  exploiting War gave  lessened  probability  arbitrarily developed  with  this  c o n t i n u o u s l y expanding  2  0  1  2  0  3  the  high  as  supply other  carriers  mistreat  upon  buyer,  rate  may  for  gas  contractual  a minimum  must  first  applies  quantity  of  If deliveries  are  nevertheless  a  as  2 0 3  i n the  costs the  make  United  associated  desirability  a s s u r e d market. often  American  Since  prevented  a  markets  during  era, the take-or-pay  clause  predictable  contractual natural  an  their  them.  fixed  well  North  that  appeared  contracts  II construction  consequently the  based  gas  0?  in locating  long-term  the p o s t World  to  pipeline  producers  i f no  supplier.  These type o f c l a u s e s , which States,  maximum  obligation,  price.  purchaser  .  are  overall  himself to take  minimum p a y m e n t s t o t h e  which  take-or-pay  minimum  the  even  usage o f t h e  the  of  for a  f o r the  i s payable  or estimated)  certain  nominated  charge  charges,  variation as  is a  and  portion  obligates  a term  take  Demand  actual  known  buyer  may  2 0 0  Another  x  also  over  not  buyer  latter  cash  principal Eventually  practice  after  flow  buyers  and would  difficulties the  once  g a s m a r k e t became t h e v i c t i m  of  H.R. W i l l i a m s and C . J . M y e r s , O i l and Gas Law (Matthew Bender:New Y o r k , 1987) V o l . 8 a t 151. I d . a t 233. I d . a t 979. J.H. Foy, " T a k e - o r - P a y C l a u s e s i n Gas C o n t r a c t s : Why We Have Them and t h e P r o b l e m s T h e y A r e Now C a u s i n g " 23 E x p l o r a t i o n & E c o n o m i c s o f t h e P e t r o l e u m I n d u s t r y (1985) a t 17.01(1-2}.  61 the  1973  and  1979  o i l crises  c y c l e s o f o v e r s u p p l y and Between outstripped  1970  and  supply  precipitated  shortage.  1977,  and  that  instable  2 0 4  demand  during  the  for  that  Canadian  time  natural  TransCanada  gas  actively ?05  negotiated surplus  long of  difficulties for  that  annual  term  purchases  supply  then  with  the  period.  prepayments  due  by  for  take-or-pay to  the  the  not  were a d d r e s s e d  i n 1982  refinancing  agreement  its  TransCanada  effectively  pay"  obligations. Indeed,  the  over-supply freer  concession decreases world it  was  was in  price  a of  upwardly  the  to  gas  by  to  of  to  the  minimum  then  These  the  producers  lobby  United  for  rendered  considerable  so-called  "Topgas"  amendment meet  soft,  deregulated  exchange  o i l r e c o v e r e d and that  interfuel  were  immediate  States  in  d r i v e gas  delivery  money  made  forecasted  producers  subsequent  borrowed  Alberta  to  owed  whereby  i t s "take-or-  2 0 6  situation  access  financial  taken.  difficulties  A  causing  charges  take  producers.  carrier-purchaser  gas  and  Alberta  developed  Failure  obligation  from  export  for  the  domestic U.S.  price  gas  induced and  by  the  long  term  market. risk  market. reserves  of  This price  When  the  declined,  c o m p e t i t i o n would  prices.  Id. a t 17.01(4}. P i p e l i n e Review P a n e l Report, s u p r a n o t e 146 a t J . P a r k , " D e v e l o p m e n t s i n N a t u r a l Gas P u r c h a s e C o n t r a c t s " (1984), 22 A l t a . L. Rev. 43. Hyndman, s u p r a n o t e 157 a t 3.  16.  then  62 Therefore, "politically  the  gas  possible"  which i t had helped  bubble  rendered  as a r e s u l t  2 0 8  t o create.  deregulation  of the contracts  problem  Hence t h e H a l l o w e ' e n A g r e e m e n t :  "was p r e d i c a t e d on t h e U.S. m a r k e t o p e n i n g up f o r a d d i t i o n a l e x p o r t s i n a d v a n c e o f , o r i n tandem w i t h , Canadian deregulation. The f a i l u r e of that to h a p p e n h a s p u t s e v e r e s t r a i n s on t h e d e r e g u l a t i o n package." 2 0 9  Some  of  these  deregulation the  issues  is  thought  in  order  remedial  process  that at  and  inadequacies  are discussed  of direct  sales  below,  the  including  t o the  However, i t  of the take-or-pay  juncture,  resultant  pertaining  and p i p e l i n e bypass.  an e l a b o r a t i o n  this  of  problem i s  discussion  of the  T o p g a s programme.  Topgas with  tensions  established  the producers  modified  and  approximately  two b a n k i n g a  companies  consortium  2400  of  of  in  lender  TransCanada s 1  conjunction banks  gas  which  purchase  pin  contracts. "financial 98%  of  x  u  In  intermediary"  TransCanada's  make t a k e - o r - p a y reduction  in  obligations. and  209 210 211  1982,  another  arrangements 2 1 1  contracted  advances. the  Topgas  This  were  Holdings  producers  Limited to  1  minimum  I n 1983 t h e o v e r - c o n t r a c t e d intermediary,  Id. I d . a t 1. P a r k , s u p r a n o t e 206. TransCanada "Annual I n f o r m a t i o n 9.  with  the  and  over  refinance  and  arrangement p r o v i d e d  TransCanada s  financial  made  f o r a 60%  yearly  purchase  problem  persisted  Topgas  Two  I n c . was  Form", s u p r a n o t e 163 a t  63 created  in  association  with  93%  of  the  producers  and  the  s y n d i c a t e of banks. Referred  to  initiatives prior  to  monies  agreement  due  to  TransCanada,  for  the  TransCanada  over  the  upon  loans  liabilities  upstream  to  of  service,  1  3  2  1  4  ?15  ttZ-  I d . a t 9-10. Park, supra note TransCanada 1  0  subsequent  by  Topgas  to  delivered  to  be  who  will  repay  the  onto  producers.  the is  take-or-pay  based  f o r which when  obtain the  minimum be  due  arrangement  balance  at the Alberta  prices.  of  effect,  share  the  otherwise  which i s a charge  w e l l - h e a d gas  2  unpaid  take-or-pay  The  upon  TCPL  i t had  made  the  markets  revenue  required  2 1 5  refinancing  the  the  latter  Hence,  then  reduced  would  by t h e p r o d u c e r  fT?  would  TransCanada  over-contracted  shall  interest  arrangements.  also  the on  TCPL  both  by  advanced  the  In  and  payments.  that  interest  period,  producers  Topgas  However,  10  from  owed  advancement  which  i t s downstream m a r k e t  make t h e s e  exposure  gas  2 1 4  programme,  the  was  prepaid  principal  the  by  f o r the  year  Topgas  advanced  billion  shifted  supply  expanded  $2.7  resale.  were  of  maintaining  a  then  producers  provision  Over  the  prepayments  and  the  with  2 1 3  producers  payment  as  refinanced the the  payments.  collectively  be  border.  from  further  added  deducted  annual  obligation TransCanada.  provided  that  t o TransCanada•s  from  the p r i c e  This resulted  cost  received in  lower  2 1 6  206  "Annual  at  44.  I n f o r m a t i o n Form", s u p r a n o t e  163  at  '  Hyndman, s u p r a n o t e 157 a t 5. P i p e l i n e Review P a n e l R e p o r t ,  supra note  146  at  16-17.  64 While  lower  prices  Topgas  Agreement  losing  tax  revenues, some  monies.  the  TCPL.  interest service costs  carrying charges,  fund".  the  sales  modification export between demanded  of  dropped  217 218 219 220  levy  on A l b e r t a  Gas  company  i t s producers  the  agreements.  took  borrowed 1986  with  delivered  collecting  to collect  into  place  a  the  these  "take-or-pay  Even  i n huge v o l u m e s  of long-term  buyers  though  as domestic  t h e exposure  50% o r was  forgiven  natural  successive Canadian  i n the United  Canadian  that  a n d sometimes  long-term  instance,  d u r i n g t h e 1970's,  fell  cases,  of  For  2 2 0  illustrates  to effect  enforcement  place with  1979 a n d 1984.  nearly  incurring  out of i t s cost of  TCPL them  market  and and r e n e g o t i a t i o n  I n some  royalty  2 1 9  demand f o r t h e i m p o r t s 1980's.  notionally  in  and d e p o s i t  contractual  contracts  and  responded  the pipeline from  tax  the  government  1  government for a  costs  federal  TransCanada s  e x i g e n c i e s have t h e a b i l i t y  neutralise gas  Alberta  from  the producers,  both  the Act designates  reality  commercial  the  losing  due  than  in  by  o f government  i t s customers  costs sharing The  tiers  providing  L O  Rather  from  Alberta  interest  The  2 1 7  received  resulted  revenue,  legislation"• to  also  and b o t h  of  were  natural  domestic  gas  States g a s was  American  production rose i n the t o take-or-pay  entirely  charges  by p r o d u c e r s  who  Id. T a k e - O r - P a y C o s t s S h a r i n g A c t , S.A. 1986, c . T - O . l . I d . , s.3-5. G.B. G r e e n w a l d , " N a t u r a l Gas C o n t r a c t s U n d e r S t r e s s : P r i c e , Q u a n t i t y , a n d T a k e o r P a y " (1987) 5 J . E . R . L . 1 a t 8.  perceived natural and  the  gas  seriousness  transportation  contractual  provisions  e x i s t s w i t h b u s i n e s s and  of  the  i s not since  commercial  situation. only an  2  Therefore,  1  affected  by  regulatory  interdependency  considerations.  clearly  66  5.  THE DIRECT SALES CONTROVERSY IN MANITOBA  Canada's natural  gas  deregulation f o r consumers  Interprovincial TransCanada  Pipelines  arrangements companies  than by  Nevertheless, take-or-pay contracts forced and  carriage  gas  in  local  their or  11  Hence,  grant  transmission  rates.  discrimination  This  i n prices  more  competitive  function.  to  which  extensive  the sanctity are  contracts  with  with  National  has r e s u l t e d  to distribution  broker  them  orders  i n Manitoba  monopolistic  companies  service  the d i r i g i s t e  the  Under  self-displace"  cheaper  producers.  v i s a v i s the  distribution  long-term  from  sold  i t s  renegotiations.  association  residential  involving  carrier  by  under  contract  obviate  operative  (TCPL)  promised  sales  made  i s a certain irony  principle,  to  be  there  arrangements. refused  would  those  has  v i a direct  Ltd.  that  t o honour  not  process  a  third  wants  being  direct  Energy  of  TCPL sale  Board has party  co-  to alleviate  i n allegations of unjust  and i n e f f i c i e n t  interference  i n the  s u p p o s e d l y d e r e g u l a t e d p r i c e o f t h e commodity.  5.1  DIRECT PURCHASES OF NATURAL GAS  Following Province  of  Natural 139.  the  October  Manitoba  sought  31, to  1985 take  Agreement, advantage  Gas P r i c e s a n d M a r k e t s A g r e e m e n t , s u p r a  the  2 2 2  of note  the  67 deregulated natural  environment  gas f o r Manitobans.  and  Gas C o r p o r a t i o n  its  agent  future  province.  that  sales was  $1  contacts. provincial Party,  National  MOGC Energy  1987.  was Board  fiat  MOGC  Alberta  2  reflected  price  then  as  required  to  under  New  had f a i l e d ,  make  against  of the  Democratic cheaper  2 2 5  i n order t o  transport  these  application  order.  gas  t o the  prescribed  After  the applicant  price  existing  t o provide  (NEB) f o r t h e s t a t u t o r i l y  gas transmission  at a  customers.  Limited  i n the  negotiated  the policies  i n i t s desire  Pipelines  The Board opined  to act  3  consumers  by t h e s o c i a l i s t  f o r carriage  t h e NEB d e c i d e d  2  producers  t h e $3/Mcf  formed  negotiations  interprovincial hearing  than  adamant  TransCanada  volumes,  with  g a s f o r i t s 200,000 r e s i d e n t i a l  Since have  was  priced  t h e Manitoba O i l  and r e s i d e n t i a l  corporation  activity  government  which  natural  cheaper  lower  o f n a t u r a l gas f o r b o t h p r e s e n t and  Crown  agreements  This  obtain  I t had created  commercial  The  2 2 4  to  (MOGC) b y l e g i s l a t i v e  i n thebrokering  industrial,  direct  i n order  a  2 2 6  public  i n September  t h a t t h e proposed:  "gas volumes t o be t r a n s p o r t e d would i n essence d i s p l a c e a l l volumes p r e s e n t l y b e i n g p u r c h a s e d by e a c h o f t h e d i s t r i b u t o r s - ICG a n d GWG" ( I n t e r C i t y Gas U t i l i t i e s [Manitoba] L t d . and G r e a t e r Winnipeg Gas Co.) " t o s e r v e m a r k e t s i n M a n i t o b a . T h i s would e f f e c t i v e l y r e s u l t i n t h e t o t a l replacement o f t h e distributor's contracted firm supply..." and " c o n s t i t u t e s s e l f - d i s p l a c e m e n t i n substance and i s not i n t h e p u b l i c i n t e r e s t . . . " 2 2 7  TZT *ZZ 225 226 227  M a n i t o b a O i l a n d Gas Corporation Act, C.C.S.M., c . 034 — _ NEB R e a s o n s f o r D e c i s i o n MH-1-87, s u p r a n o t e 197 a t 1. R. Gage, P a w l e y vows t o f i g h t NEB on n a t u r a l g a s p r i c e s . The G l o b e a n d M a i l ( T o r o n t o ) , S e p t e m b e r 29, 1987 a t B6. NEB A c t , s u p r a n o t e 41 a t s . 5 9 ( 2 ) . NEB R e a s o n s f o r D e c i s i o n MH-1-87, s u p r a n o t e 197 a t 6. -  -  -  J.-  *  '  -  68 The the  Board  further held  "orderly  transition"  contemplated Gas  Prices The  under  and  Pawley  appealing  the  making  the  cheaper  a p p e a l was  whose  market  31,  1987  a vociferous  cabinet  decision  another of the  Appeal  gas  a  October  invoked  NEB  Subsequently, expropriation  the  to  2 2 8  inconsistent  with  oriented  environment  Agreement  on  Natural  Markets.  decision  Premier  t h a t t h e p r o p o s a l was  then  to the  a  principal  promised  r e f u s e d by  by  from  announced  that  Federal Court  noteworthy  ICG M a n i t o b a  response  initiative gas  of  was  involving  in  deregulation.  i t  Appeal.  m o n o p o l y was  instrument  Manitoba  the  dropped,  obtaining  However,  the F e d e r a l Court of Appeal  2 3 0  the  leave  on A p r i l  to 24,  1988. Afterwards, government general formed  of 2 3 1  Manitoba's concerns  2  2  2  3  3  9  the  the  New  Democratic  defeated  Manitoba  a m i n o r i t y government.  parties;  ™  Pawley's  resoundingly  election,  pleasure  voiced  was  Premier  The  provincial  in  over  i n a new  the  gas  latter  Liberal  policy.  availability  forum.  Prior  April  Conservative  obviously the nature of t h i s natural  an  will and  Party  New  coalition  Significantly, of  direct  to the r e f u s a l  27,  party  now  sales  (NDP)  rule  1988 having at the  Democratic will  affect  provincial are  being  f o r l e a v e by  the  ii: E n e r g y P r i c i n g News, N a t u r a l Gas R e p o r t V o l . 7, No. 12, December 8, 1987. On November 18, 1987, a N o t i c e o f M o t i o n was f i l e d f i l e d f o r L e a v e t o A p p e a l t o t h e Federal Court of Appeal. G. Y o r k , M a n i t o b a d r o p s p l a n t o buy g a s f i r m . The G l o b e and M a i l ( T o r o n t o ) , J a n u a r y 5, 1988. G.York, M a n i t o b a NDP w i l l p e r m i t T o r i e s t o assume power. The G l o b e and M a i l ( T o r o n t o ) , A p r i l 28, 1988 a t A1-A2.  69 Federal new  Court  of  hearing  matters called  Appeal,  (RH-1-88)  including  the  responses  underlying  incident  of  the  customers  been  sales  have  commentators for and  the  been have  province  sellers  work.  small  made  when  its  so-  reflect  the  their  or  the  make  sales  so-called  attempts  to  seek  some  bid  the  to  industry  transmission meant by  Agreement direct  decision to  by  might  sales  Accordingly, process  insider  i t s definition  elucidation  of core  direct  as  broker  of  buyers  sensitive  pricing  to  the  redress large  be  induced  question  by  what  to  the  the  present  industrial that  the  studied  N a t i o n a l Energy Board, H e a r i n g 17, 1988.  NEB's  federal  He  situation  users  the  Manitoba  government  suggested that  so-called  efficacy to  the  the  of deregulation.  parties  i t is felt  should  was  but of  which  not the  2 0  '  1 9 8 7  allows  others.  per  2 3 4  deregulation  extent  O r d e r RH-1-88.  that February  -  See Gage, s u p r a n o t e 225, p r e s i d e n t o f ICG.  an  Hallowe'en  D. S l o c u m , P r o p o s a l by M a n i t o b a O i l n o t i n p u b l i c i n t e r e s t : NEB. The G l o b e and M a i l ( T o r o n t o ) , October 2 3 4  as  industry  act  threshold  market  large  allegations  Conversely,  from  Since  direct  process,  t h a t Manitoba's  to  of  to  to negotiate  customers  detract  necessary  range  sale controversy.  thwarted.  would  wide and  a  2 3 3  One  - .j _  r e s p e c t i v e l y thought direct  argued  a  ordered  controversy  deregulation  towards  to  Board  2 3 2  have been a b l e  discrimination have  sale  rule.  are  Energy  pertains  direct  causes of the  commercial buyers  National  which  self-displacement  These  an  the  Gary Hoffman, v i c e -  i t  70 contemporaneously  promotes  regime  private  and a f f e c t s  For  instance,  pipeline direct  system  sales  specific  arrangements decision well  a  largely  objective,  i t s use  interests,  position. decisions  between  A  provincial  ones  distribution  protection  i s therefore new  of  of natural  arrangements  to  the  Z  J  b  2  3  6  to  NEB R e a s o n s T C P L v . NEB  31,  Board's as  contracts  distributors  must  doctrine  be  i s an set  TCPL's  marketing  tough  regulatory  forcing  distributor-producer  arrangements  contractual  gas  relations  1985  exists  i n the  from t h e w e l l - h e a d t o t h e b u r n e r -  o f t h e new by  DISPLACEMENT  the  regime's d i r e c t "inappropriate  Agreement.  sales  They  affected  duplication  customers.  were f o r e s e e n by t h e g o v e r n m e n t s  October  or supply  Energy  long term  of  demand c h a r g e s " t o some o f T r a n s C a n a d a • s difficulties  approvals related  o f t h e monopoly c a r r i e r .  layer  Implementation  of  designed to serve a p a r t i c u l a r  the  the  approvals  servanda  CONTRACTUAL IMPLICATIONS OF  multiple  certain  the  sunt  TCPL  o f d i s p l a c e m e n t gas  the e x i s t i n g  pacta  access t o the  National  that  appears  Deregulation  The  pricing  capacities.  a l l t h e market  the concept  this  namely  and t h e e x i s t i n g 5.2  and  and  earlier  these  d i d not usurp  t u r n e d on  While  2 3 5  rights  from  that  distributor.  TransCanada  honoured.  tip.  and  oriented  of Manitoba's  grounds  as t h e s t i p u l a t i o n  between  of  of  market  distinguished  the  end-users  more  contractual  the denial  was  on  a  who  These  2 3 6  were  of  parties  recognized  the  f o r D e c i s i o n MH-1-87, s u p r a n o t e 197 a t 6-7. ( a f f i r m i n g RH-5-85) s u p r a n o t e 199 a t 172.  potential  problems  involved  in  direct  " c o r r e s p o n d i n g volume" t h a t would •  end-user  from  avoid  this  Board  to  a local  anomaly  inappropriate  double  of  Manitoba  rulings  the  and  that  an  company. ~"  enjoining  charges  An  the  through  being  attempt  National  the  that  utilised  Corporation  October  might  to  Energy  prevention  the  mischief  distributors with  TCPL.  arise  of self-displacement  Counsel  and  of  from  that  i s to  This  adopted  by  for  the  involves  the  subsequent  NEB  simpliciter  of t h e i r  2 3 9  by  (MOGC)  Agreement  displacement  However,  contracts  definition Board  Gas  the  t h e d i s p l a c e m e n t by supply  p u r c h a s e d by  ft  arguments  authorize  purchases.  a  volumes.  Oil  submission  displacing  9 T 7  sales  demand 0T  One  •  made by  direct  •  d i s p l a c e d gas  o t h e r w i s e be  distribution  was  facilitate  •  sale  be  by  direct  prevented  C o n t r a c t Demand follows  from  the National  is (CD) the  Energy  i n t h e RH-5-85 and RH-3-86 d e c i s i o n s : "Generally, self displacement occurs when a d i s t r i b u t o r r e p l a c e s any p o r t i o n o f i t s p r e s e n t l y c o n t r a c t e d f i r m s u p p l y w i t h an a l t e r n a t e s u p p l y o r makes any o t h e r a r r a n g e m e n t that accomplishes the same e n d . " 2 4 0  From the 23T 238  239  240  this key  definition, issue  as  the  being  NEB  i n the  whether  the  Manitoba proposed  action  listed  arrangements  I d . a t 174. N a t u r a l Gas M a r k e t s and P r i c e s A g r e e m e n t , s u p r a n o t e 139 a t c l a u s e 7 and 10. M a n i t o b a O i l And Gas C o r p . N o t i c e o f M o t i o n F o r L e a v e t o A p p e a l O r d e r No. MH-1-87, R e p r e s e n t a t i o n s S u p p o r t i n g L e a v e t o A p p e a l , F e d . C A . A c t i o n No. 87-A-402 a t 7; Andrew R. Thompson, C o u n s e l f o r t h e A p p e l l a n t . N a t i o n a l E n e r g y B o a r d d e c i s i o n RH-3-86, s.11.2, a t 72. RH-5-85 i s r e p r o d u c e d i n t h e Canada E n e r g y Law S e r v i c e . s u p r a n o t e 43, NEB d e c i s i o n 41.  72 constituted, While  "in  the Board  "self  constituted  the  alia  and/or  d i d not  constituted  application  form  find  the  that  displacement" concept  in  f o r leave to  that  NEB  made  an  salient  issues  instance,  when  concludes  a  to  TCPL  But p r i o r a  charges and  which  he  payable  in  allocation  service  they  in  their inter  applying  and  to  the  a  toll  these  design  being  local  to  pay  under  are  displaced.  to  provincial  the  its  latter's  than  these  burden demand  regulators  had  Thus,  in  the  response  t o the governments' r e q u e s t t o p r e v e n t d u p l i c a t i o n  charges,  allocation Under investment  the  purchaser.  pay  indemnify  of  with  to  imposed  demand  direct  charges  arrangement.  Rather  customers gas,  demand  p u r c h a s e r had  because  For  distributor  that  distributor  unabsorbed  the  of  the d i r e c t  f o r the untaken on  Hence  2 4 1  law  i s obliged  remaining  costs  that  *  1988,  were  volumes  distributor's  charges  toll  i t held  Appellants averred  in  customer  transportation  demand  arrangement the  sale,  1,  arrangements  self-displacement controversy.  previous  t o November  duplicate  demand  a  H  sale  p  A  cost  i n the  direct  for  gas  form,  the  error  r u l i n g s to the present f a c t s . Equitable natural  in  appeal,  self-displacement.  the d i r e c t  substance.  O  the  substance"  N a t i o n a l Energy  Board  2 4 3  adopted  a  new  of  cost  system. the  old  return  system,  the  fixed  o f TCPL were a l l o c a t e d  costs with  and  allowable  reference to  the  "contract demand" volumes specified in i t s gas service ^ NEB d e c i s i o n MH-1-87. s u p r a n o t e 197 a t 6. N o t i c e o f M o t i o n , s u p r a n o t e 239 a t 5-6. RH-5-85, Canada E n e r g y Law S e r v i c e s u p r a n o t e 43, NEB d e c i s i o n 41, a t 10-4422, p a r a . 2 . 2 . 4 l  2  4  2  73 contracts. volumes  These  of  deliver, less.  charge  a c t u a l l y purchased  concurrently amount  contracts  received  owes f i x e d t r a n s p o r t a t i o n gas  even  that  the  though  demand v o l u m e  (ODV)  f o r those  from  criteria.  to  have nominated  This  2 4 5  The  buyer  f o r t h e maximum  agreed  a l l o c a t i o n i s based  commodity  TCPL.  charges  carrier-broker  t h e b u y e r may  Present cost  2 4 4  and  a buyer  on  and  the  i s defined  sell  as  and  received  operational follows:  "A d i s t r i b u t o r s o p e r a t i n g demand v o l u m e w i l l be d e t e r m i n e d t o be t h e c o n t r a c t e d demand, a s s p e c i f i e d i n t h e d i s t r i b u t o r ' s CD c o n t r a c t w i t h TCPL, l e s s t h e t o t a l amount b y w h i c h t h e d i s t r i b u t o r ' s CD v o l u m e s are d i s p l a c e d . 4  Rather  than  making  charges,  the  new  pay  the  amount  for  receives will  from  all  a  direct  system of  TCPL.  l i k e w i s e pay  service that  6  stipulates that contract  i t receives  Fundamentally, help  fixed  the  pursuant  to  the  meaning  Although  the  NEB  does  not  gas  a  commodity,  i t  2  4  24 2  4  6  Z 8  costs.  operating  to  free  up  (CD)  pipeline  does  service  displace  will  that  i t  system  gas  transportation recover  2 4 7  demand v o l u m e m e t h o d o l o g y i s  the  have  demand  distributor  Hence, TCPL w o u l d  natural  of  double  f o r the actual  f r o m TCPL.  intended  interprovincial  demand  demand c h a r g e s  pay the  D i r e c t p u r c h a s e r s who  of i t s authorized  as  purchaser  gas  markets  October  authority have  company  in  1985 over  Canada  Agreement. TCPL's  jurisdiction its  in  sale  over  function  TCPL v . NEB ( a f f i r m i n g RH-5-85) s u p r a n o t e 199 a t RH-5-85, Canada E n e r g y Law S e r v i c e s u p r a n o t e 43, d e c i s i o n 41, a t 10-4424, p a r a . 2 . 2 . T C P L v . NEB ( a f f i r m i n g RH-5-85) s u p r a n o t e 199 a t Ida t 178. Canada, NEB News R e l e a s e . 17 J u n e 1987 a t 2.  2 4 8  of the  as 177. NEB 177.  a  transporter entitles  or  carrier  the  National  transportation  charges  contracts  between  Unfortunately, of  contract  functions.  Thus,  Board.  in  relations  an  operating  2 5 2  sanctity  the effect the  local  becomes  t h e ODV's between  a  that  fixing  of varying  the 2 5 0  variation  variation  of a  contemplate  both  interfered  and  power  distributors.  wrongful  effect  TCPL  orders  where a l a w f u l  "self-displacement" i n RH-5-85  demand v o l u m e  undermining  TCPL  and  of  the  and  with the  i t sdistributors, i t m a k i n g power o f t h e  by  a  RH-3-86.  (ODV)  rationale  relief  ICG-GWG  these  interests  o t h e r w i s e be  affected.  of  The to  Board  under c o n t r a c t  distributors  must  ordinary  do be  in  has  to  direct  contracts" Manitoba.  not state respected  direct  was  distributors  of existing  o f t h e NEB  arrangements  distributor  attempts t o prevent  "the s a n c t i t y  the reasons  contractual  251 252 253  and  This  2 4 9  make  t h e i r own g a s v o l u m e s c u r r e n t l y  Unfortunately,  250  have  to  arrangements  This particular  from  between  7?T  Board  e n t i r e l y b a s e d upon t h e t o l l  exception  who d i s p l a c e  sales  TCPL  commodity.  2 5 1  denied  TCPL.  that  while  Significantly, made  Energy  charges  commodity  was a n a c t i o n  the  i t i s n o t always c l e a r  transportation  contractual  of  2 5 3  why t h e when t h e  purchasers  may  NEB A c t , s u p r a n o t e 41. S e c t i o n 50 p e r m i t s t h e B o a r d t o make o r d e r s r e l a t i n g t o " t r a f f i c , t o l l s , o r t a r i f f s . " S a s k a t c h e w a n Power C o r p . e t a l . v . T r a n s C a n a d a P i p e l i n e s e t a l . [1981] 2 S.C.R. 688 a t 702, 39 N.R. 595, p e r Laskin, C.J. TCPL v . NEB ( a f f i r m i n g RH-5-85) s u p r a n o t e 199 a t 180. N o t i c e o f M o t i o n , s u p r a n o t e 239 a t 16-18. s e e : NEB d e c i s i o n MH-1-87, s u p r a n o t e 197 a t 5.  75 When t h e NEB h e l d essence  displace  distributors definition to  a l l volumes"  a n d TCPL,  applicant  the  local  of  entity  that  that  as  imaginative  leap  third  "opting  party  i n order  Energy this  Board  sort  public  t o self-displacement  would  requires a  First  of a l l ,  reasons  given  i n c l u d e d an  not displace a l l  importantly,  self-displacement  i t i s thought  the  wrongfully  applying  squelch this  October  TCPL-local  31,  I D . a t 6.  distributor  purchase  i s derived  1985 w h i c h  that  that  i t s transportation  MOGC's d i r e c t  argument  legislation  A  separate  the  National  f o r holding  that  was a g a i n s t t h e  interest.  preserved  for  a  notdisplace i t s e l f  MOGC  explicit  whereas  arrangements.  t h e arrangement  More  of constructive  Furthermore,  to  amount  referred  n o t one o f  MOCG,  t o those  earlier  sale  was c l e a r l y  t o be c o n v i n c i n g .  so t h a t  d i d not give  its  i s a misnomer t h a t  Secondly,  arrangements.  from  definition  I t was  MOGC c o u l d  nature.  o u t " procedure  contractual  2  volumes  a matter o f semantics,  its  " ^  companies.  between t h e  a direct  was n o t a p a r t y  a l l thedistributors  big  That  hearing  t h e a p p l i c a t i o n would  contract  digressed  t o conclude  i n t h e Manitoba  distribution  corporate Saying  i t arguably  attempt  a p p l i c a t i o n would " i n  under  2 5 4  of "self-displacement."  a distributor's  the  t h a t t h e Manitoba  from  may  arrangements, jurisdiction  have while  i n order  o f t h e commodity.  Support  t h e H a l l o w e ' e n Agreement o f  contemplated  might p r o v i d e  t h e Board  changes  in  " a l t e r n a t i v e sources  provincial o f supply"  to  consumers.  3  shepherded  the  customers"  such  free to  Agreement as  arrange  secure d i r e c t of  A fortiori,  3  NEB may  between For  expressly  prohibits  services,  facilities  f i n d the this  59(2)  direct  by  it  Minister  commercial  that  would appear  Manitoba  was  "little  users  or deals  who  would  be  order  to  in  that  the  supported  type  by  the  regards  the  deregulation.  the  displacement.  under  Thus,  2 5 6  requested  p u b l i c p o l i c y of  d i d not  and  federal  commented  c o - o p e r a t i v e arrangements  arrangement  relationship  former  publicly  residential  sales.  Moreover,  the  the  unjust  in  the  National  levying of access to  Rather,  it  law  as  interest  discrimination  or the of  erred  public  instance,  denial  heading.  have  in  tolls,  carriage  and  Energy the 2  5  7  self-  Board  provision yet  the  the  of  Board  services to  distinguished  Act  fall  section  s a l e t r a n s m i s s i o n o r d e r s t h a t had been p r e v i o u s l y  granted. "The e f f e c t o f g r a n t i n g t h i s a p p l i c a t i o n w o u l d b e t o permit s e l f - d i s p l a c e m e n t , w o u l d n o t be c o n s i s t e n t with the orderly transition to market-sensitive p r i c i n g a s c o n t e m p l a t e d i n t h e A g r e e m e n t and w o u l d be c o n t r a r y t o t h e p u b l i c i n t e r e s t . " 2 5 8  Since  all  granted facie 2315 256  257 258  to  previous large  appears  direct  industrial to  unduly  sale  transmission  users the discriminate  orders  were  B o a r d ' s d e c i s i o n prima between  classes  of  N a t u r a l Gas M a r k e t s and P r i c e s A g r e e m e n t , s u p r a n o t e 139 a t c l a u s e 26. H o n . P a t r i c i a C a r n e y , M i n i s t e r o f E n e r g y , M i n e s and Resources (Canada), p r e s s conference c i r c a O c t . 3 1 , 1 9 8 5 ; which i s RH-5-85 E x h i b i t B-29, as c i t e d i n : N o t i c e o f M o t i o n s u p r a n o t e 239 a t 15 e t i n f r a . NEB A c t s u p r a n o t e 41 a t s . 5 5 . NEB d e c i s i o n M H - 1 - 8 7 . s u p r a n o t e 197 a t 7 .  77 9  .  customers. this  In  against  wrongful  in  although  the  the  grounds the  hearing prior  held  to  following and  a  the  matter to this  was  not  it  of  void  made.  and  marginal  Utilities  is  Thus involves  technical,  cost  Board  decision. to  set  commodity-carriage GWG-ICG.  direct  In  sale  it  pricing  to  uncertainty by  Alberta if a  o f October 31,  new  a  (PUB)  and  2 6 1  provincial of  In  Manitoba  Basically,  contract  while  expire  in  Manitoba  affair  particular,  regulated  date  concerns  application  canvassed  order  T h e s e were made  w i t h an e x p i r y  259" 260 261  in  stipulated  for  s u c h as  cost c r i t e r i a .  narrow  of  regulatory  Manitoba  the  both  were  distributors  arrangement.  termination  Public  long-term  the  contract  made  the  convened  local  commercial  appeal  issue  issues  federal  was  .  gas.  these by  the  hearing  for  to  are  broader  reasonable rates of  that  small  acceptable  leave  .  end-user discrimination  and  absence of  Manitoba  entails  Some  words,  residential  alternative also  other  .  fact,  gas  rates  between  TCPL  an  ancillary  involves the that  October Border pricing  this  term  so-called  31,  of CD  1995,  the  would  have  provisions  were  price  Gas P r i c i n g A g r e e m e n t  (GPA),  1988.  N o t i c e o f M o t i o n , s u p r a n o t e 239 a t 2 0 - 2 1 . B o n b r i g h t . s u p r a n o t e 89 a t 3 7 0 - 3 7 4 . M a n i t o b a PUB O r d e r 8 9 / 8 7 . d a t e d May 1 3 , 1 9 8 7 ; p u r s u a n t t o a P u b l i c H e a r i n g To I n q u i r e I n t o The A p p l i c a t i o n s Of G r e a t e r W i n n i p e g Gas Company And ICG U t i l i t i e s ( M a n i t o b a ) L t d F o r An O r d e r Or O r d e r s A p p r o v i n g A Change I n R a t e s And O t h e r M a t t e r s , h e l d i n W i n n i p e g , F e b . 9 t o 14, 1 6 , 17 and M a r c h 16 t o 2 0 , 1987.  78 In the absence of v i t a l p r i c i n g terms, i t i s thought the  CD  S e r v i c e c o n t r a c t would  be  unenforceable.  subsequent t o the NEB's Manitoba d e c i s i o n , utilities  and  the  agent  of  TCPL  c o n t r a c t w i t h Manitobans p a y i n g more than  the  t h a t the GPA see why which there  direct  c o n t r a c t was  the  NEB  would  price  of the  be  be  no  a  before  one  f o r gas  commodity.  effective  other  October  31,  a  Competitive  differential discounts. have price  discouraged  to  arrangements  since  whatsoever  t h a t the NEB  to  failed  to  prices.  P r i c i n g Agreement are p r o v i s i o n s f o r  Marketing scheme  Program  whereby  large  (CMP)  which  end-users  is are  a  price  afforded  I t i s estimated t h a t s i m i l a r d i s c o u n t s i n O n t a r i o  resulted for  i n t h e Gas  yet  Given  263  1987  advance the p u b l i c i n t e r e s t i n f a c i l i t a t i n g lower gas Included  year  s a l e t r a n s m i s s i o n orders  T h e r e f o r e , i t i s thought  2 6 4  into  gas  soon t o e x p i r e , i t i s d i f f i c u l t  r e f u s e d MOGC d i r e c t  otherwise  would  displace.  sale  than  However  2 6 2  the p r o v i n c i a l  entered  less  that  in  residential  natural from  gas  at  switching  users  that to  paying  time.  non  TCPL  almost  Large system  twice  end-users gas  by  the are these  A . J . Black, The V a l i d i t y of the 198 6 N a t u r a l Gas " C o n t r a c t For Demand S e r v i c e " between TransCanada P i p e l i n e s L t d . and G r e a t e r Winnipeg Gas Co., unpublished D i r e c t e d Research f o r P r o f . Andrew R. Thompson, F a c u l t y o f Law, U n i v e r s i t y of B r i t i s h Columbia, Jan. 18, 1988. J a n e t Keeping, "Righteous I n d i g n a t i o n , The P u b l i c I n t e r e s t and D e r e g u l a t i o n of N a t u r a l Gas" (1988) 21 Resources 5 a t 7; (The N e w s l e t t e r of the Canadian I n s t i t u t e of Resources Law). The new r a t e i s $2.30/Mcf, down from approximately $3.00. The November 1, 1988 s i t u a t i o n i s what i s now b e f o r e the NEB i n the RH-1-88 Hearing. No p r i c i n g arrangements have y e t been made by TCPL and i t now appears g e n e r a l l y accepted t h a t i f no new agreements are made then the CD C o n t r a c t s w i l l not be e n f o r c e a b l e a f t e r Nov. 1, 1988.  79 concessions which are set forth i n s p e c i a l long term commodity supply c o n t r a c t s . these discounts  2 6 5  to be  not cost b a s e d . "  266  competitive  the  to  Accordingly,  one  commentator  considered  "unduly discriminatory because they are Hence, discounts extent  that  i n d u s t r i a l users from concluding  of t h i s nature are they  inhibit  anti-  the  large  d i r e c t sales with non-system  users. Indeed, the Manitoba PUB  considered  that these  might r e s u l t i n unduly discriminatory r a t e s .  For  2 6 7  discounts instance,  due  to the Canadian economy of scale, the monopolistic  of  natural  efficient free  gas  transportation  i f regulation  market  and  attempts  marginal  cost  may to  only mirror  be  economically  the  principles.  nature  2 6 8  competitive Thus  the  Manitoba Board concluded that:  M.J. Trebilcock, Manitoba Hearing supra note 2 61, "Pref i l e d Evidence on Behalf of the Ministers of Consumer and Corporate A f f a i r s and Energy and Mines" submission of Professor Michael J . Trebilcock, at 13 & 9. Id. at 14. N.B.: A new buy-sell contracting arrangement, c a l l e d a PRC, i s being used by TCPL to support the CMP. Following a series of paper transactions, end-users i n Ontario pay a uniform p r i c e and obtain t h e i r discount i n Saskatchewan. This l e g a l " s l i g h t of hand" appears to have the e f f e c t of eliminating the j u r i s d i c t i o n of the Ontario Energy Board to to make a finding of p r i c e discrimination. Manitoba PUB Order 89/87, supra note 261 at 22. The PUB can investigate public u t i l i t y t o l l s or charges. I f i t opines these to be excessive, unjust, unreasonable or unjustly discriminatory, i t has plenary power to f i x j u s t and reasonable rates: Public U t i l i t i e s Board Act, R.S.M 1970, as am., C.P280, ss. 64(1)(2),74,77. For a thorough discussion of rate design and marginal cost p r i c i n g , see: Bonbright supra note 89 at 49-59, 291-293, 395; Bryer & Stewart, supra note 112 at 223224, 514-516.  80 "Due t o a number o f c o n s t r a i n t s , t h e r e i s n o t a f r e e competitive market for natural gas sales to distributors for resale to core customers in M a n i t o b a . ... The B o a r d d o e s n o t c o n s i d e r t h a t the Companies were a b l e to negotiate on a voluntary b a s i s ... b e c a u s e o f t h e c o n s t r a i n t s l e v e r e d a g a i n s t them and the overwhelmingly superior bargaining power o f T C P L . " 2 6 9  Some o f  these  identified rule the  and gas  r e s t r a i n t s to  as  sanctity  double removal  contractual chagrin,  demand  the  permit  the  P r i c i n g Agreement Hence, provincial  the  since  there  commodity.  not  7  However,  is  renegotiate  0  there  i s no  by  were  CD  of  see  set  included  Alberta  But  and  much t o i t s  any  forth  Utilities  plausible in  long  and  is  an  toll)  the  the  CD  to  term  the  Gas  or  Contracts  to  producers, since  be  to  in  pay  a  fixed  not  take-  f o r gas  as  contracts  do  contracts. i t is  i t would  Since  reluctant  receive  producers.  M a n i t o b a PUB O r d e r 89/87. s u p r a n o t e 261 I d . a t 18 & 19.  a  Contracts  pay are  distributor sales supply  other  distribution  Contracts take  and  CD  local  obligation  obligation to these  Board  thought  the  over-contracted the  province  are  TransCanada  revenue t o repay the  2  boards  (CD  constraints  not  match TCPL's t a k e - o r - p a y p r o d u c e r  TransCanada to  did  that  self-displacement  w i t h TCPL.  Public  caused  charge  the  were  2 7 0  Manitoba  Although  transportation  a  (GPA).  between  companies.  or-pay  Board  prices  largely  in  competition  the  Other  associated  regulatory  predicament  contracts,  system  Manitoba  to  oriented  charges.  constraints  alternative  existing  of  market  at  17  &  19,  less  81 Regulatory distributors concerned  boards  i n an about fuels  residential  and  economically  with small  rates.  therefore  losing  alternative  higher  must  efficient  large  the result  that  commercial  users  Therefore  they  the  local  a s an i n c e n t i v e  local  They a r e  customers  the remaining will  have  are w i l l i n g  to  discounts  f o r them  of  "core"  to  bear  approve  offered  t o remain  to  the  to large  connected  with  d i s t r i b u t i o n system.  Furthermore,  there  does  sense i n p r o t e c t i n g  local  third  sales.  party  carrier  manner.  industrial  s t r e a m i n g o f g a s by t h e c o m p e t i t i v e industries  vet the rates  direct  would  costs,  as  Any  to  be  Therefore,  to  an i d e n t i f i c a t i o n  opposition  as long  well  services. involve  seem  much  economic  d i s t r i b u t o r s from t h e c o m p e t i t i o n  seem u n f o u n d e d  transportation  not  from  the pipeline  as i t i s assured  as  a  the d i r e c t sale  fair  return  controversy  of  One commentator s a y s  its  fori t s  really  o f t h e p a r t i e s who w i l l  bear t h e burden o f displacement.  of  seems  actually that:  "The interests principally injured by such d i s p l a c e m e n t must s u r e l y b e t h e s y s t e m p r o d u c e r s who e i t h e r l o s e s a l e s o r must c u t p r i c e s t o f o r e c l o s e displacement. This form of competitive injury, however, is consistent ^Mf efficient f u n c t i o n i n g o f market f o r c e s . " t  n  n  e  1  In to  o t h e r w o r d s , t h e p r o d u c e r s who a r e u n d e r l o n g - t e r m the  TCPL  competition.  "system"  would  Additionally,  stand TCPL  to would  lose lose  e x t e n t o f i t s i n t e r e s t a s a commodity b r o k e r . of ^  1  economic  injury  Trebilcock.  would  be  healthy  s u p r a n o t e 265 a t 6.  money money  contract by  t o the  While t h i s  f o r the  such  economy  form as  a  82 whole,  various  interests sale  lobby  against  groups  disruption  t h e absence  t h e government  as  a s TCPL,  a r e keen  possible  from  well  revenue is  submitted  reflect  those  surprising,  former  appears  that  needs  should  amount o f  do  not  who in  should  be  interests  t o be  exist  necessarily better is  addressed  between  not  i s the  c o n s u m e r s and  unbundled t h e t r a n s p o r t a t i o n  indirectly  influencing  component, t h e or  "regulating"  latter.  downstream  this  the d i s t r i b u t i o n of natural beleagured.  dissatisfaction  TransCanada's  gas marketing  dissatisfaction,  conduct  a public  other new  hearing  inquiry will  t o be  until  One of  the  g a s i n Canada i s for this  protection Partly  i s the  afforded  Designated  to  as a r e s u l t o f  Energy Board has decided  on T C P L ' s t o l l s ,  proceed  as w e l l  as a  as Hearing Order  to  myriad  RH-1-88,  i n two p h a s e s a n d i s n o t e x p e c t e d  a f t e r October  addressed  reason  interests.  the National  related issues.  conclude  issues ? T 2  public  difference  United  interprovincial sale.  gas from t h e m e r c h a n d i z i n g  t o be  administratively  *  vested  associations  the greatest  interests  Although deregulation  Accordingly,  to  the  the question  component o f n a t u r a l  the  their  to the  the producer  to receive  of relationship that  producers.  of  the  quo b y t h e d i r e c t  exports  t h e commodity's  that  While  new  of Alberta,  o f t h e consuming  protected.  the  of the status  of significant  States,  type  represent  arrangement. In  It  effectively  1988.  2 7 2  are displacement  Included  among t h e  and o p e r a t i n g  N a t i o n a l E n e r g y B o a r d , H e a r i n g O r d e r RH-1-88. 17, 1988.  demand  February  83 (ODV)  methodology.  For instance,  the hearing  self-displacement should  now b e a l l o w e d ,  should  Also  be  phased-in.  necessity  of  maintaining  circumstances volumes.  Oil  residential  and  not,  provisions with Therefore,  that •  276  barring  i s  concept  for  the  and t h e  self-displacement  27  the position  (MOGC)  natural  gas  customers  of  2 7 4  the local  the fact  after  o f t h e new h e a r i n g ' s  while  prices that  t o the Province.  that the self-displacement  distributors  t h e proceedings  of the  and i t s e f f o r t s t o  r e - n e g o t i a t i o n , have  However,  2 7 5  inter  alia,  that  enforceable October  scope,  31,  1988.  one i n t e r e s t e d  as t h e " f i r s t prohibition  meaningful t o be r e -  t h e NEB h a s c u r i o u s l y  the correctness  price  of i t s  stated earlier  ft  0  decisions w i l l  275  relief  affect  against  i t i s not "questioning •  whether i t  f o r examination  f o r the self-displacement  decisions,""'  zTT 274  core  be framed  has described  examined."  cost-based  other  i nlight  opportunity  will  MOGC h a s r e q u e s t e d  issues  TCPL w i l l  hearing  more  Particularly,  party  and i f so,  be g r a n t e d  a n d Gas C o r p o r a t i o n  lower,  ODV  i t should  t h e new  Manitoba  and  t h e ODV  a s k whether  2 7 3  Thus  bring  when  slated  will  i tnevertheless be r e - e v a l u a t e d  seems  otherwise,  i neffect,  since  these  i f not nominally.  I d . a t A p p e n d i x IV, p . l . A.R. Thompson, C o u n s e l f o r MOGC a n d t h e M i n i s t e r o f E n e r g y a n d M i n e s , G o v ' t o f M a n i t o b a ; RH-1-88 N o t i c e o f I n t e r v e n t i o n a t 3. J.D. B r e t t , C o u n s e l ( o f Thompson, Dorfman, Sweatman; B a r r i s t e r s a n d S o l i c i t o r s , W i n n i p e g ) f o r GWG a n d ICG U t i l i t i e s ( M a n i t o b a ) L t d . ; l e t t e r t o NEB d a t e d M a r c h 3, 1988, a t 5. J . S . K l e n a v i c , NEB S e c r e t a r y ; l e t t e r d a t e d M a r c h 8, 1988 t o J.W.S McQuat, Q.C., V i c e - P r e s i d e n t , TCPL.  84 Although  the  interprovincial impact  upon  decisions Manitoba  decisions in  consumers  in  described  the  provincial  natural  decision  has  such  an  may  What cystallise  be  National they  mere  In  that  Board  are  have  an  tribunals  that  one  handmaiden  whose  particular,  fettered  manner  "a  invariably  customers.  effectively  as  Energy  regulatory  .  process."  it  gas  obtuse  Board  077  Board t o  the  jurisdiction,  those  affect  of  the  province's  commentator to  the  has  political  ,  is  needed  i t s own  understood  in  now  is  for  the  concept of p u b l i c  light  of  the  National  Energy  i n t e r e s t so  competitive  that  natural  gas  environment. It  is  therefore  satisfactory  decision  order  to  than  protecting  galvanize  liabilities, direct  sale  the  their  TCPL  supply  competition benefits  of  from  should  transmission  induce  and  is  the  grant  thereby  needed  to  Keeping,  s u p r a n o t e 263  at  7.  issue  a in  over-contracted  supply  either  MOGC  or  commodity expire.  producers fostering distribute  deregulation.  at  Rather  service contracts gas  arrives  deregulation.  once t h a t  natural  NEB  displacement  of  its  order  contracts that  the  objectives  TCPL NEB  that  regarding  the  m o n o p o l y p i p e l i n e ' s CD might  hoped  ICG/GWG seller  Such  to  a and  actions  re-negotiate the  the  upstream downstream  85  6.  THE  "CYANAMID" P I P E L I N E BYPASS ISSUE IN ONTARIO  One  noteworthy  provision  for individual  distribution  company  interprovincial  constitutional bypass  which have  recently  of  pipelines,  6.1  to  fall  in  Canadian  a  the  these  state  of  a  will  pertaining  to  is  Canadian of  appeals  undertakings  flux  affirmed,  main  control  provincial  Supreme C o u r t ,  i f  the  set of j u d i c i a l  under  i n the  consumers at  policy to  purchase  competence.  until  provincial have  i t  is  control  significant  negotiated  prices  are p a r t i e s  Alberta  or  indirectly  via  buy-sell  of contract  distribution  to  pricing  from  2 7 8  Canada  gas  directly  distributors.  Most l o c a l  natural  gas  given the a v a i l a b i l i t y  l i i  over  local  enterprise  jurisdiction,  powers,  arrangements,  z  former  to  a  BACKGROUND  producers  eastern  the  raging  of  bypass  implications.  Changes allows  the  is  d e r e g u l a t i o n i s the  connection  In a unique  is  by  own  under f e d e r a l  held  matter  gas  to l i t e r a l l y  While  division  adjudicated  commercial  line.  argument  the  been  the  bypass  their  pipelines.  addressed  Although  end-users  fall  law  of natural  with  trunk  widely accepted to  local  aspect  long-term  N a t u r a l Gas p r i c e s and M a r k e t s a t C l a u s e 5.  carriage  companies supply  from  (LDC's) i n  contracts with  Agreement, s u p r a n o t e  139  86 TransCanada  Pipelines  commercial  Ltd.  customers  from  this  policy.  have  either  do  not  taken  and  appear  However,  some  advantage  programmes o r n e g o t i a t e d of t h e i r  (TCPL),  of  direct  their to  residential  have  large  yet  The  2 7 9  customers  competitive marketing  purchases a f t e r  contracts with the L D C ' s .  benefitted  industrial  TCPL's  and  the  former  expiration  transactions ion  are  programmes  that  accords  t h e gas  sold  In in  provided  price  the  through  one  LDC's.  This  "pipeline  Cyanamid  Canada  construct bypassing Ltd. the is  its the  local  Cyanamid significant  a  rates that  matter could would  of  280 281  The  large  pipeline  to  distribution  supply  concern  to  cost  the  company,  venture  remaining  LDC  increase  given  be  to  the  available costs.  meet  a  battle gas  rather is  that  system,  than better  seeks  Conversely,  the Local  Gas  lower  to  Co.  because  customers.  is  entirely  Consumers  attractive  savings.  costs.  i n the matter  plant  TCPL  that  natural  phenomenon  protagonist  so  fuel  take  suppliers  fertilizer  considered the gas  customers  to  deregulation  Agreement  i s leading  proportionally  Companies' f i x e d 2T9-  a  desire  pipeline  bypass".  Inc., own  end-user  popular from  known a s  Hallowe'en  industrial  industrial  directly  the  the  competitive with alternative  increasingly  deliveries  in  discounts to  remains  Ontario,  for  of  bypass Their volumes  Distribution  2 8 1  J . K e e p i n g , "Bypass P i p e l i n e s " (1987), 20 R e s o u r c e s 1 (The N e w s l e t t e r o f t h e C a n a d i a n I n s t i t u t e o f R e s o u r c e s Law) . N a t u r a l Gas P r i c e s and M a r k e t s A g r e e m e n t , s u p r a n o t e 139 a t C l a u s e 8. K e e p i n g , s u p r a n o t e 279.  87 In  order  Cyanamid  proceed,  Canada  incorporated for  to  Pipeline  company.  authorization  bypass  Shortly  Ontario  Energy  motion  in  The  Board  the  Cyanamid's  and  the  the  Ontario  O.E.B. t h e n Divisional  verified.  On  jurisdiction  over  be the  a  local  work  province,  or  purpose may  must they  not  be  have  any  the  order  are  and  must  inter  effect  could  alia,  of be  i t to  92(10)  criteria.  separate  are  N.E.B.  declaring  located  own  provincial  section  to certain  the  its  opinion  affirmed  to  the  jurisdiction  opinion  facility  they  essential to direct  its  maintained  which  on  f o r the  2 8 5  entirely  km.  December  P r i o r to the  pursuant  they  hearing i t had  court  bypass  6.2  in  2 8 3  Board  application,  a  2 8 4  that  subject  to  the  a case  1867,  facilities  work  operate  that  the  undertaking  controlled,  interprovincial  1987  typical  that  bypass  operated,  26,  the  C o n s t i t u t i o n Act, Provided  nor  March  federally  and  N.E.B.  so  a  Energy  province.  Court  as  subsidiary,  National  commenced  stated  a  the  determined  over bypass p i p e l i n e s i n the decision,  to  granted  (O.E.B.)  matter  (CCPI)  construct  NEB  after  incorporated  Inc.  It applied to  2 8 2  pipeline.  1986.  Cyanamid  within be  of  2 8 6  the  owned,  from  the  connected.  Their  interprovincial  work,  upon  i t but  rather  their  NEB A c t , s u p r a n o t e 41 a t s.49. Canada E n e r g y Law S e r v i c e s u p r a n o t e 43, N.E.B. d e c i s i o n 42, "Cyanamid Canada P i p e l i n e I n c . " , Dec. 1986. See a l s o NEB O r d e r s XG-13-86 and MO-63-86. Id. O.E.B. d e c i s i o n 41, " B y p a s s o f L o c a l Gas D i s t r i b u t i o n S y s t e m s " (OEB f i l e #EBR0 410-1,411-1,412-1) Dec. 12, 1986. O n t a r i o E n e r g y B o a r d A c t , R.S.O. 1980, c.332, s.31. Re O n t a r i o E n e r g y B o a r d and Consumers' Gas Co. e t a l . (1987) 59 O.R. (2d) 766.  88 purpose  must  result,  Cyanamid  withdrew  utility  abandoned  i t s NEB  with  prima  subject upon.  be  to  facie  to the  may,  threat  to  according  The  Appeal.  bypass  that  Appeal.  On  2 9 0  decision  at  jurisdiction vires  the  Court  of  work  federal  T8T 288 289 290  Cyanamid  which  i f indeed  o f one  another's  local  are acted  jurisdiction's  decision be  nugatory  a  "natural  federalism.  was  legislative  referred  competence  to the  over  Ontario Court  was  a r e f e r e n c e review  granted d i r e c t i n g decision 27,  to  1987,  the  that  proposed  court  of  kind  government under s e c t i o n Furthermore,  of  the  be  expressly  92(10)(a)  endeavour  was  Court  NEB  d i d not  which  were  an  the  of  overruled  Parliament.  consider i t to the  the  facilities  competence  d i d not  Federal  to  of  application  the  legislative  the  orders  Ontario  instance, holding that  undertaking  1867.  albeit  this  a f t e r w a r d , Cyanamid's  November  over  and  This l e f t  commentator,  provincial  original  first  Appeal  or  one  Board  Board's  appeal.  ability  render  After  2 8 7  proceedings  orders  peculiar  pipelines  N a t i o n a l Energy  user.  o f s a n c t i o n s by  Shortly  2 8 9  the  decision  of Canadian of  Ontario  from  NEB  to  issue  typical  an  effectively  consequence"  Act  valid  Therefore, t h i s  tribunal  of  serve  The  the have  ultra  Federal  interprovincial reserved  of the not  to  the  Constitution viewed  as  an  Id. Kay, s u p r a n o t e 30 a t 284. O r d e r i n C o u n c i l O.C. 1079/87, d a t e d A p r i l 30, 1987; p u r s u a n t t o : C o u r t s o f J u s t i c e A c t , S.O., 1984 c . l l , s. 19. N a t i o n a l E n e r g y B o a r d O r d e r d e c i s i o n d a t e d May 29, 1987; p u r s u a n t t o : N a t i o n a l E n e r g y B o a r d A c t R.S.C. 1970, c.N6, s. 1 7 ( 1 ) ; F e d e r a l C o u r t A c t , S.C. 1970-71-72, c . l , s.28 (4) .  89 express Order in  e x c e p t i o n from  and  Good  section The  to  91(29).  15,  concurred decision  Court  2  9  Ontario  decision  2  9  2  293  294  25,  of Appeal  of  court Appeal  to  Any  the  Supreme  a N o t i c e of Appeal  Inc.  and  in  f o r leave  i n the  Federal  1988  apparently  matter  the  f o r at least  two  made  Cyanamid  would  the  matter  i f not  authorities remains  in  was  Canada  as  the be  to  the  Leave similar before  both  cases  one  constitutional  longer.  a  matter.  event,  schedule  in  appeal  because  i n any  Court  Court's  a year  compelling the  Supreme  to  Court  Currently, i t i s intended that  However  competence, -  Pipeline  Court  right  1988,  the  MacGuigan.  of  on  i s subject  essence,  Federal  as  12,  i t s decision  pipeline  In  Justice  lies  was  Canada  April  together  question.  zjyJ  of  on  Court  Court.  these  CCPI  the  Mr.  on A p r i l  application  Court  granted  argued  the  of  by  Canada  released  authority.  decision  Cyanamid  Peace,  3  Supreme  the  Appeal  reasons  o f Canada, and by  of  holding that  the  that  Another  was  Court  enunciated  from  filed inc.  as  to the  (POGG) d e c l a r a t o r y p r o v i s i o n s f o u n d  legislative  with  power p u r s u a n t  2 9 1  1988,  provincial  appeal  Government  Ontario  February  provincial  may 2 9 4  favour state  of  will  preclude  be  a  Thus, d e s p i t e of  provincial  flux  until  a  R e f . r e B y p a s s P i p e l i n e s . [1987] F.C.A., u n r e p o r t e d . R e a s o n s f o r j u d g e m e n t by M a c G u i g a n , J . , c o n c u r r e d i n by: Mahoney and S t o n e , J J . Ref. r e Bypass P i p e l i n e s [1988] Ont.C.A., u n r e p o r t e d . P e r s o n a l C o m m u n i c a t i o n , C. Kemm Y a t e s , C o u n s e l f o r C y a n a m i d , 27 A p r i l 1988. The A p p e a l i s a v a i l a b l e p u r s u a n t t o s.37 o f t h e Supreme C o u r t A c t and s . l 9 ( 7 ) o f t h e O n t a r i o C o u r t s Of J u s t i c e A c t . Id.  90 final  adjudication  bypass  remains  is  a  rendered.  compelling  Nevertheless,  matter  due  to  its  pipeline commercial  implications. 6.2  COMMERCIAL IMPLICATIONS  Support Review  for  bypass  who  discussed  panel  of  non-discriminatory  The  panel  believed  to construct that  and  h a v e t o be in  the  In  a market  producer  and  be  able the  to  type  including  could  distributor  "best  Pipeline  the  users  provision services.  should  s e r v i c e met  and  to  offer  that over  be  able  providing  the  the  could  standard  bypass  not  be  competitive  in  with  interests  of  of  would  warranted  distribution  bypass core  reported  direct  services.  initiative  Although  regulators option  higher  provided  customers".  P i p e l i n e Review P a n e l R e p o r t ,  a  that  bypass  costs  to  would r e s t w i t h  the  option." should  gas  from  services  transportation  bypass  that  sales  transportation  significantly  the  the  Panel  negotiate  "unbundled  provincial the  the  bypass  result  competitive  approval  in  Importantly,  regime,  remaining system customers,  thought  the  bypass p i p e l i n e s ,  another reasonably  choose  desired,  be  own  by  transportation  justifiable  oriented  should  operations  will  use  industrial  specifications.  economically  stated  2 9 5  customers  they  large  gas  a p p l i c a t i o n f o r the  presence of  system.  natural  that  was  i t s optional  operate t h e i r  a regulatory  construction  pipelines  rates  Thus t h e  have that  the i t  Provincial  s u p r a n o t e 146  which Panel  power is  in  of the  regulators at  s.3.2.5.  91 could  then  approve  distributor  those  i n order  b y p a s s o p t i o n . 296  special  to  transportation  prevent  a  large  user  Yet d e s p i t e these p r o v i s i o n s ,  rates  of a  seeking  the  opposition to  the bypass o p t i o n has c r y s t a l i s e d . Some o p p o n e n t s increasingly residential  higher  costs  and commercial  to alternative particularly economic  t o bypass c r i t i c i s e  fuels  upon  colourful  turn  impact o f a bypass  core  u s e r s who  as e a s i l y  i t s potential  of  customers  cannot  as c o u l d  such  afford  large  phrase  as a death  t o place  to  switch  industries.  has  as  One  described  the  spiral:  "Death s p i r a l r e f e r s t o t h e impact on r a t e s o f a customer b y p a s s i n g t h e system c a u s i n g t h e r e m a i n i n g customers t o cover t h e f i x e d c o s t s t h a t are not a b s o r b e d b y t h e c u s t o m e r who l e f t t h e system t o bypass. Rates a r e increased causing others t o leave the s y s t e m . " 2 9 7  Since the relevant long  term  gas  charges under buyer l e f t These would  local  supply  that  contract  arrangement  the inter-provincial  c h a r g e s would have  customers.  29  to  be  against  a public  each  application,  298  TCPL,  i t s fixed  c o n t i n u e once  pipeline's  apportioned  recognising  2-9-6" 297  would  company was a p a r t y t o a  by  t h e bypass  so-called  by t h e bypass the  demand  "system."  e n d - u s e r and  remaining  utility  8  decided  bypass  from  be unabsorbed  Given the unrelieved tribunal  distribution  demand c h a r g e s , O n t a r i o ' s a policy  interest inter  opposing  need alia  regulatory  the option,  to meritoriously considering  while  evaluate  economic  I d . a t s.5.3.5. C a n a d a E n e r g y Law S e r v i c e , s u p r a n o t e 43, O.E.B. d e c i s i o n 41 a t s.5.36; p.60-1843. I d . a t s.5.37; p.60-1844.  and  cost  factors.  has  endorsed  S i m i l a r l y , the province  y  bypass  deregulation  and  competitive.  An  contracts of  of  service  the  best  J  L  that  this  type.  via  of  its  utilities  new  of  form  gas  However,  3 0 0  ability  the  gas  to  utilities  a s was  as  cost  to  glean  well  market  f o r by  bypass  true  speculation  regulatory  hoped  the  to  remain  the  i n order  service  "allow  provincial  utilities  "reflect  negative  Columbia  commitment  i s that  customers"  of  British  its  important desiratum there  bypass'  distributor  desire  result  a l l categories  from  conventional  flow" "-  a  a  i n d u s t r i e s and  to  concerning  as  of  as  the  persists  signals  Boards  to  to  the National  the  Energy  Board. Manitoba being  has  inefficient  that  province's  distribution position  i s alive  problem.  States  where  that  and  against  view  system  spiral  said  unequivocally  to  can for the  This  a death  the  be  public  has  their  bypass  option  as  interest,  which  in  served  franchise  economic  on  the  better  each  problem  commentators  opposed  by  area.  noted  deregulation  single Their  3 0 2  ramifications of been  a  the  i n the  death United  process  have  spiral:  I d . a t s.6.9; p.60-1845. B r i t i s h Columbia, M i n i s t r y o f Energy, Mines & Petroleum R e s o u r c e s , News R e l e a s e , 1987:10, M a r c h 19, 1987. Canada E n e r g y Law S e r v i c e , s u p r a n o t e 43, NEB d e c i s i o n 42 a t s.7.5, p.10-4474. M a n i t o b a P u b l i c U t i l i t i e s B o a r d , O r d e r No. 158/86, a t 21.  93 " c o n s i s t s o f response t o a h i g h l y e l a s t i c market whereby h i g h e r p r i c e s mean l o s s o f b u s i n e s s with fewer s a l e s u n i t s over which t o spread f i x e d c o s t . The r e s u l t i s a f u r t h e r i n c r e a s e i n p r i c e t o c o v e r t h e i n c r e a s e i n u n i t c o s t u n t i l t h e b u s i n e s s i s no longer v i a b l e . " 3 0 3  In order  t o prevent the d u p l i c a t i o n o f f a c i l i t i e s  inefficiency, utility  others  reduce  have  i t s rates  suggested  to large  contemplating a bypass o p t i o n . lessen  the  increase  i n the  customers  and  attractive  t o t h e proposed  contemplated using  advantage resolved  304 305  3 0 5  By  cost-based  approach  would  the make  federal  o f Canada," i n favour  the dispute  would  utility's  other  the option  less  government declaratory with  t o assume j u r i s d i c t i o n them  who a r e  3 0 4  t h e s e c t i o n 92(10)(c)  deeming  distribution users  C o n s t i t u t i o n A c t 1867, w h i c h when r e a d  pipelines.  a  industrial  to  bypasser.  the  would enable P a r l i a m e n t  3U3"  rates  contemporaneously  Significantly,  the  This  that  and economic  to over  be  not  powers o f  section  91(29)  o v e r t h e Bypass  " f o r the  jurisdiction  o f c e n t r a l government.  has  general could  For instance,  be this  F o s t e r A s s o c i a t e s , I n c . , D e r e g u l a t i o n O f N a t u r a l Gas S a l e s To L a r g e Volume I n d u s t r i a l U s e r s , r e p o r t p r e p a r e d f o r The A m e r i c a n Gas A s s o c i a t i o n ( W a s h i n g t o n , D . C , A u g u s t 1987) a t 44. Canada E n e r g y Law S e r v i c e s u p r a n o t e 43, NEB d e c i s i o n 42 a t s.7.2; p.10-4472. F o r a more t h o r o u g h d i s c u s s i o n on t h e f e d e r a l d e c l a r a t o r y power, s e e : I.H. F r a s e r , "Some Comments on S u b s e c t i o n 92(10) o f t h e C o n s t i t u t i o n A c t , 1867" 29 M c G i l l L . J . (1984) 558; V.C. M a c D o n a l d , Parliamentary J u r i s d i c t i o n By D e c l a r a t i o n [1934] 1 D.L.R. 1; P. Shwartz, " F i a t by D e c l a r a t i o n - S . 9 2 ( 1 0 ) ( c ) o f t h e B r i t i s h N o r t h A m e r i c a A c t " ( 1 9 6 0 ) , 2 Osgoode H a l l L . J . 1; K. Hansen, "The F e d e r a l D e c l a r a t o r y Power U n d e r The B r i t i s h N o r t h A m e r i c a A c t " (1968) 3 Man. L . J . 87; A. L a j o i e , L e P o u v o i r d e c l a r a t o i r e du P a r l e m e n t ( U n i v e r s i t e de M o n t r e a l : M o n t r e a l , 1 9 6 9 ) .  94 power h a s of  been used  railways,  refineries federal  and  over  declaration  times  canals,  telegraphs,  other  enterprises.  regulatory  jurisdiction  469  was  competence  assumed  that grain  is  Progressive action has  however  over  of  resulted  Nevertheless, declaring  while  bypass  that  ideology.  the  federal  pipelines  to  by  itself  According with  the  market. motivate 3tnr 307 308  seem t o be to  efficient Capacity large  one  commentator,  functioning of costs  end-users  Meech  i n the p u b l i c  are to  allocated commit  following were  3 0 6  a  works  present  federal,  consider  such  this Lake  for  of  an  philosophy Accord.  i s not  work  disposed the  3 0 8  to  general  intervention  does  interest.  bypass the  Parliament,  mills  Recently,  type  when  3 0 7  would  a  incident  trade  government be  oil  to  the  so-called  harbours,  an  related  country.  a d v a n t a g e o f Canada, t h i s p a r t i c u l a r not,  grain  government  the  in  denied  the  doubtful  their  in  Thus  e l e v a t o r s and  Conservative  because  telephones,  was  f o r the g e n e r a l advantage of the It  i n Canada, o f t e n i n r e s p e c t  is  not  Canadian in  social  such and  consistent natural  a  way  economic  as  gas to  waste  R. v . E a s t e r n T e r m i n a l E l e v a t o r Co. [1925] S.C.R 434, [1925] 3 D.L.R. 1. Hogg, s u p r a n o t e 26 a t 491-492. Meech L a k e A c c o r d , An i n t e r g o v e r n m e n t a l A g r e e m e n t s i g n e d J u n e 3, 1987 by t h e P r i m e M i n i s t e r and a l l 10 P r o v i n c i a l Premiers ( i n o f f i c e a t t h a t time) t h a t i n t e r a l i a r e c o g n i z e s t h e d i s t i n c t n a t u r e o f Quebec, and g i v e s t h e p r o v i n c e s t h e r i g h t t o 1) s e l e c t j u d g e s f o r t h e Supreme C o u r t o f Canada, 2) s e l e c t S e n a t o r s f o r a p p o i n t m e n t t o C a n a d a ' s u p p e r House o f P a r l i a m e n t , 3) v e t o f u t u r e c o n s t i t u t i o n a l amendments. I f i m p l e m e n t e d a s an amendment t o t h e C a n a d i a n C o n s t i t u t i o n , c e r t a i n powers o f t h e f e d e r a l g o v e r n m e n t w i l l be l e s s e n e d i n f a v o u r o f the Provinces with arguably adverse e f f e c t s f o r n a t i o n a l unity.  95 by  duplicating  Furthermore,  transportation  the remaining  c u s t o m e r b a s e who  facilities users  distribution  company  Rather  than  the i n e f f i c i e n t  promote  bypass,  i t  therefore  upstream  competition  component  seems among  while  deregulated,  with  i t  remains  the  has  an  constitute  increase  producers, i  regulated  given  natural  that  regime  transition  friction.  One  gas  users  i t appears  deregulation  will the  pragmatically regulation current  T*??  factor  adapted  and/or  likely  incidents either  private  the  been  transportation nature  Unfortunately,  been  effected  i s the dual  role  of the  without of the  (TCPL) p i p e l i n e a s a c a r r i e r and a  continue  legal  commercial  See  not  uncompetitively  Consequently,  Hopefully,  has  seems t o h a v e l o c k e d  into  has  the monopolistic  regulatory  merchant which  promote  through  gas  the  d i s t r i b u t i o n companies.  TransCanada  of the  rates.  to  preferably  of  seen  exacerbating  smaller  U  pricing  been  exist.  o f downstream  efficacious  TCPL and t h e l o c a l  Interprovincial  a  in  competition  more  of direct sales.  Finally,  already  would have t o a b s o r b t h e f i x e d c o s t s  local  instrumentality  will  that  r e s i d e n t i a l and higher  that over of  purchase  t h e Canadian the  commercial  next  process few  the participants  through  negotiation,  responsible so  as  reality.  T r e b i l c o c k . s u p r a n o t e 265 a t 5-6. t h e t e x t a c c o m p a n y i n g n o t e 271 s u p r a  prices. of  years. will  be  public  to reflect  the  96  7.  CONCLUSION  Transitional deregulation not  process  totally  market  difficulties  expectations  gas  Several  they  i t seems  thwarting service  Energy Board  Earlier  the  displacement prohibition  by to  for  Corporation  (MOGC).  result  in  contracts that  the  form, in  gas  application  the  third  i t nevertheless  substance  i f  not  opined  granted.  influenced  considerations  execution  of  attempt  a  new  to  seen  the  in  the  to  obtain  commercial  users.  the  decision  of  prohibited then  the  transmission  i t hitherto While  self-  expanded  difficult  Gas  to  how  see  order  had the  no  appear  its legislative  system  Board  public  decisions  to  could  self-displacement  the  the  this  O i l and  i t would a c h i e v e t h a t  Furthermore,  unconvincing.  i n the  is  constitute that  u n d e v e l o p e d and  be  were  of  up  Manitoba  displace.  that  NEB  i t  since  considerations  Political  party  direct sale  to  the  matter.  However,  did  can  and  d i s t r i b u t o r and  volumes  lived  This  as  problems  promises  effectively  self-displacement or  not  Manitoba's  had  MOGC's a p p l i c a t i o n f o r a  these  r e s u l t from  in this  to  encountered  the  residential  local  apply  have  of  NEB a  that  have c r e a t e d .  c r i t i c i s m s therefore  National  being  Although  environment  that  administrative cheaper  evolves.  unexpected  oriented  are  have  held in  result  interest are  influenced  mandate t o p r o m o t e  both  the the  97 public  interest  accurately not  a  and  noted  legal  that  the  digressed  from  utilities  theory  discrimination.  but  was  National  rather  Energy  i t s legislative by  Hallowe'en  placing  Board  mandate  too  i s well to  known  that  the  the deregulation  failure  of  these  producing  industry  that  true  competition  that  producers  kept  artificially  consumers. the  exports  reluctant  asked  With  Having  direct the  been  Energy  sales  might  as  to  distributors  to  i n order  encouraged Board  seems  have  to  basic  public on  through were  the  from  be  f o r t h e economy  partly quo f o r  I t seems has  left  the domestic  when  be  prices  to benefit  that the  losses  remembered were  eastern  being  Canadian  i n the free  market  f o r producers has paled.  by  to  becoming  competition  t h e Hallowe'en breach  of  TCPL's  a  stand  contracts rule  to lose  t h e economic whole.  i n the Manitoba Hearing  by i t s  p o n t i f i c a t e d on  unenforceable.  producers would  as  Agreement, t h e  contracts  i t then  uphold  d i r e c t gas s a l e s ,  o f t h e NEB  States.  i t s self-displacement  system  pro  I t should  Paradoxically,  TransCanada  healthy  industry quid  o f gas p r i c e s  enabled  contracts  a  absorb  provide.  the decline  of  contracts  reasons  was one.  materialise  f o r deregulation  low  policy.  sanctity  those  Agreement  attention  producing  process  attraction of deregulation  National  NEB  political  and  much  expected enhanced e x p o r t s t o t h e U n i t e d the  a  The  considerations.  It agreed  undue  the so-called  document  Unfortunately,  political  prevent  with  even  when  Although  the  money b y t h e injury  would  Unfortunately, do n o t e x p l a i n  the why  98 the  sanctity  of  contractual  to  be  facilitate  the  extent  that  charges  the  rates that  of  are  class  Canada's Energy  by  to  rates,  customer  lower  rates  that  rates  usually  customers. will  This  understandably  to  should  would  balance  be  where  that  regulated  gas  consumers of  the  This  allege  discrimination and  theory.  discrimination preferential  to that  this  of  less  utility  is  in  prices  will  the  higher  commercial some  fuels  i f i t is  are  justified  other  detriment.  a l l customer  incur  Although  regulators i f  the  maintained.  and  competing  this  fuels,  elastic,  theory.  change  significant  concerns  users  residential  switch  prevent  competitive  utility  is  to  transportation  important.  throughput  to  submitted  suffer  the  to  the  to  gas  demand  i s acceptable  endeavouring  NEB  d i s t r i b u t i o n system  some  in  the  Therefore,  limits  for  volume  levied  i t is  be  legislation  switching  their  economic,  customers  need  remaining  because since  direct  I f such d i s c r i m i n a t i o n d i s c o u r a g e s  from  Conversely, are  a  especially  industry.  be  regulatory  is  to  gas  when  the  the  occur.  continues  permissible  may  in  monopolistic  exceed  gas  arrangements  pricing.  Board  when  ordinary  commodity's  that  result  more  the  services  of  users  of  affects  there  and  commodity c o n t i n u e s  pronounced  Canadian afforded  sale  more  Clearly  respected  e f f e c t however i s t h a t  becomes  or  be  TCPL  efficaciously  regulation  National  importance  The direct  could  indirectly  stewardship by  new  p r i c i n g of the  must  between  altered.  form of c o m p e t i t i o n The  contracts  arrangements  p u r c h a s e r s can failed  these  classes  classes  of  Regulation since  the  99 benefits  of  achieved  a  while  non-discriminating the natural  free  market  gas i n d u s t r y  can  continues  not  be  to display  monopolistic characteristics. Eventually becomes  there  undue.  Given  discrimination", the  abstract  existing "undue  in a  and  conversely  the  gas t h a t  afforded  protect  supply  arrangements.  Board  actions  interest.  can  the  position  the  to  protect  there  applying  Board  will  i n my  ability the  a r e grave  condoned t o  redress  and  of  Like  their  National the  gas  Energy relevant  provincial  doubts  the  sales  i s indirectly  public  as t o whether  principles of u t i l i t y  d i s c r i m i n a t i o n and t h e a v a i l a b i l i t y  view  o f TCPL.  protection  in  conditions  lower p r i c e d d i r e c t  the pivotal  affect  "undue  point  the  d i s t r i b u t i o n companies  Accordingly,  Hopefully,  on  and i s b e i n g  this  Hence,  of  this  Nevertheless,  the marketing  tribunals  NEB i s p r o p e r l y  meaning  judgement  inhibit  downstream,  discrimination  to define  has happened  to the local  regulatory  a  when  legal  case.  NEB p o l i c i e s  flows  point  broad  as  particular  that  a  difficult  than  discrimination"  extent  the  i t seems  rather  the  the  arrives  regulation.  problem  of  o f d i r e c t gas s a l e s  undue at the  RH-1-88 H e a r i n g . However, n o t a l l o f t h e p r o v i n c i a l r e g u l a t o r y been  emasculated  decisions. provincial undertakings bypass  In  as the  shown Federal  legislative  From  the  Court  a  recent of  competence  i s classically  pipeline.  by  reaffirmed  natural  bypass  Appeal  over  powers  vis a  appellate  decision,  local  works  vis a  gas r e g u l a t o r y  have  the and  typical  standpoint,  100 this  decision  province's  is  significant  power t o  control  the  because  i t  confirms  the  undue d i s c r i m i n a t i o n i n  rates  t h a t m i g h t accompany a b y p a s s p i p e l i n e . In local  other  distribution  have t o a  words,  be  death  met  by  should  be  healthy would  company the  spiral  competition,  i t  is  would discourage  with  this  by  type  since  of  that  the  direct  Rather  the  leave  which  sales.  The priced  l e a v i n g the  risk  downstream  producers  regulation  a  would  than  unhealthy  competitively  end-users from  could  costs  customers.  responsible  through  orders  unabsorbed  suggested  encouraged  stopped  bypass  remaining  with  competition  be  industrial  to  upstream engage  death  spiral  direct  local  in  sales  distribution  system. Natural equitable present  regulators  natural  gas  controversies,  utilities Hopefully  regulation the  responsibly i n the  gas  to  National the  deregulation  have  rates the  and  for  certainly  Energy  epoch.  compelling  services.  future  will  challenge  a  of  Board  will  concern  In  view  natural not be  gas  over  of  the  public  be  uneventful.  able  to  changing commercial  respond  conditions  101 BIBLIOGRAPHY  TABLE  OF  CASES  Anklagemyndigheden v. Jack Noble Kerr, E.C.R. 4025, (1983) 37 C.M.L.R. 431.  case  C o m m i s s i o n o f t h e EEC v . F r e n c h R e p u b l i c , E.C.R. 359, (1974) 14 C.M.L.R. 216.  287/81,  case  167/73  C r i m i n a l P r o c e e d i n g s v . F i r m a J . v a n Dam en Zonen, 204/78, [1979] E.C.R. 2345, (1980) 27 C.M.L.R. 350. FPC v . 1944) .  Hope N a t u r a l  National Canada.  Gas  Co.  320  Energy Board d e c i s i o n  U.S.  591  (U.S.  RH-3-86. 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