BUSINESS/ECONOMY

Heating up the gas wars

DOUG SMITH June 22 1987
BUSINESS/ECONOMY

Heating up the gas wars

DOUG SMITH June 22 1987

Heating up the gas wars

Manitoba Premier Howard Pawley appeared to be fighting back a grin when he rose from his seat in the provincial legislature on June 9. For the past three weeks political debate in the province has swirled around speculation that his New Democratic Party government was going to take over the province’s privately owned natural gas distribution system. Pawley savored the suspense as long as possible and then, as one of his aides put it, “He started firing the cannons.” When the smoke cleared, Pawley had announced that negotiations were under way to purchase the natural gas supply network belonging to Winnipegbased Inter-City Gas Corp. (ICG). He accused ICG of price-gouging and claimed that a government-run system would save provincial consumers $50 million a year. Said Pawley: “Manitobans deserve a long-term supply of natural gas at a fair price.”

The proposed takeover of the ICG supply network, which has assets of some $150 million and about 550 employees, could cost the province as much as $200 million. It is the Pawley government’s solution to continuing concerns over how the deregulation of natural gas prices in 1985 should be applied to such small consumers as homeowners and small businesses. But more importantly, Manitoba’s move set the stage for an explosive battle between Alberta, Canada’s major producer of natural gas, and Ontario, the biggest consumer. Last December the Ontario Energy Board,

which regulates utility rates in the province, told Ontario companies supplying its small consumers with Alberta gas to come up with new and cheaper contracts by this fall. But Alberta made its position clear late last month when it introduced legislation that could allow the province to block the sale of any natural gas at prices lower than those in existing contracts.

Ottawa and the three provinces producing the bulk of Canada’s natural gas—Saskatchewan, Alberta and British

Columbia—signed the so-called Halloween agreement of Oct. 31, 1985, which eliminated most government controls over the price of natural gas. Since then, gas distributors have been free to sell cheap long-term supplies to major industrial customers. But it was never made clear how residential and other

small users would be treated under the agreement. And despite deregulation, the federal government still insists that gas producers must keep a vast supply of gas in reserve to meet the future needs of primarily residential consumers in Ontario. As a result, Alberta is insisting that those consumers should pay for security with higher prices.

ICG, the only distributor of natural gas in Manitoba, has signed a number of contracts that do not expire until 1995 at close to $3 per thousand cubic feet (mcf). But that, claimed Pawley, is the same as the old regulated price. And he argued that large industrial consumers, including some Americanbased firms, were now striking supply agreements for Alberta gas that were running a full $1 per mcf less than the ICG deal. And those cheap U.S. sales, say some Manitoba officials, including Energy Minister Wilson Parasiuk, clearly violate the spirit of deregulation because they claim Canadians should never have to pay more for their gas than their U.S. counterparts.

But ICG officials said that even if the company wanted to take advantage of deregulation for its small customers, it could not because it was already locked into a long-term natural gas supply contract. Said ICG’s chief financial officer, Peter Marriott: “The cheap gas the Manitoba government is talking about was never available to us.”

Pawley, however, claims that the Halloween agreement killed the ICG contract, leaving ICG free to strike a deal for cheap gas with whatever customer it wants. And that is what the government is asking its new firm, to be called the Manitoba Consumers Gas Corp., to do.

The nationalization program is expensive. And a number of court cases may still be fought over details of the arrangement. For their part, ICG officials said that they would rather sell than be regulated to the point where profits deteriorate. But for now the focus of the political debate will likely shift to Ontario, which uses 700 billion cubic feet of western natu| ral gas a year, compared with Manitoba’s 6,552 billion. Ontario Energy Minister Vincent Kerrio said that, like Manitoba, Ontario takes the position that deregulation has “relieved Ontario utilities of existing contracts.” But Alberta’s proposed legislation is a clear indication that it intends to battle Manitoba and Ontario over the right to set residential gas prices across Canada.

— DOUG SMITH in Winnipeg