Standoff at Dawn: ETP, Enbridge and TransCanada Look to Clear Regulatory Hurdles

Natural Gas Projects
May 23, 2017
Winter 2017 was set to be one of momentous change for the Dawn Hub. Historically, it has been one of the few outlets for gas from the Western Canadian Sedimentary Basin. Despite the proximity of the Dawn Hub to the burgeoning Marcellus and Utica basins, Western Canadian supplies have been shielded by a lack of takeaway capacity from the region. That is about to change, as both Phase II of Energy Transfer Partner’s Rover Pipeline and Enbridge/Spectra’s Nexus Pipeline are scheduled to come online in late 2017, but recent regulatory challenges are complicating that plan. And in an attempt to keep its market share, TransCanada has made several strategic plays, including stomaching a significant toll cut on its Canadian Mainline in exchange for longer contract terms as well as rate changes on its Great Lakes Gas Transmission. While producers are gearing up, U.S. and Canadian regulators seem to be holding the cards.
Rover and Nexus Face FERC Delays
Nexus could not obtain its FERC certificate before the FERC’s non-quorum period began in early February, resulting in serious doubts (see Special Report: Trump Announces FERC Nominees) about its planned November 1 in-service date. The Trump administration’s recent announcement that it had finally sent two FERC nominations to the Senate has given the project a shot in the arm, pending the timing of when those nominees actually take office. On its earnings call yesterday, Thursday May 11, Nexus’ new Enbridge ownership expressed hope that if FERC were to issue the certificate in the second quarter, “it is possible” that Nexus would be able to come online by the end of 2017. 
Assuming the speedy confirmation hearings promised by Senator Lisa Murkowski come to fruition for President Trump’s nominees, a number of challenges remain. Although the nominees are both presumably pro-infrastructure Republicans, it may take them some time to get up to speed on the policy issues, and for the newly reconstituted Commission to issue approvals. After receiving its certificate, Nexus must then obtain a number of the required state permits, including an Ohio Section 401 Water Quality Certification, and, finally, a Notice to Proceed before putting shovels in the ground. 
Despite getting its certificate, full notice to proceed, and making its tree clearing window, new concerns have arisen about Rover Pipeline facing additional delays. On Wednesday, May 10, the FERC issued an order preventing Rover from starting any new Horizontal Directional Drilling (HDD) holes (See Breaking News: FERC Issues Stop work Order to Rover) until an independent third-party contractor is hired and completes a report. Despite Rover’s insistence that this order will not affect project timing, Rover has little margin for delays if it’s to achieve its ambitious in-service dates – July 1 at the Defiance Hub and November 1 at the Dawn Hub. 
TransCanada Rates Face Scrutiny on Both Sides of the Border
North of the border, TransCanada’s mainline has the advantage of already being operational, but its rates are under further scrutiny by the National Energy Board (NEB) of Canada. On March 29, TransCanada filed an application with NEB for new ten-year agreements with Western Canadian producers, to be effective on November 1, 2017. In response to TransCanada’s application, the NEB replied on April 24, agreeing to the Streamlined Regulatory Process, despite First Nation and competitor calls for an Environmental Impact Statement and an extra round of information requests. According to the NEB’s schedule, oral arguments will begin on August 29, after a round of information requests. However, the NEB did not provide a deadline for deciding the case, so the status of the rates may be up in the air until at least September 2017. 
On the U.S. side of the route, one of the three pipelines servicing the Western Canadian Route is also seeking FERC approval of new rates. Great Lakes Gas Transmission (GLGT), a TransCanada affiliate, which operates along this long haul route on the U.S. side of the border, filed a rate case pursuant to Section 4 of the Natural Gas Act last month, claiming it is facing massive decontracting as a result of the competition. Our analysis of the contract data shows that almost 70% of its firm contracts are set to roll off in 2017 or 2018. However, GLGT filed the case as a requirement of a previous settlement and, almost 50% of total capacity under firm capacity is held by other Transcanada companies, including ANR Pipeline. Settlement talks are set to start in the first week of August, so new rates are unlikely until Fall 2017.