Content
Strategy
Alliance Canada manages its operating assets and infrastructure with the objective of maximizing shipping capacity, excelling in operating performance and increasing the competitiveness of its tolls. Looking to the future, Alliance Canada is focused on pipeline optimization, expansion opportunities and other development initiatives with an aim of increasing the competitiveness of its tolls and demand for services to ensure steady and sustainable cashflow.
Asset Optimization Projects
In order to maximize AOS levels and minimize fuel usage, Alliance is continuing to focus on strategies that will enhance the performance of its mainline compressor units primarily through increasing the longevity and efficiency of its units through cost-effective equipment upgrades. Alliance Canada recognizes that fuel gas is an increasingly important component of the unit cost of transportation.
Enhancement of Existing Compressor Units
In 2007, Alliance Canada initiated a Product Improvement Program ("PIP") for its LM2500+ units at the Windfall and Morinville compressor stations. These two sites are the first stations on the mainline delivery System and are the only sites that have the LM2500+ units installed to which this upgrade program is applicable.
PIP is expected to extend the maintenance interval to 50,000 hours from the current 25,000 hour requirement as well as yield annual fuel savings for the shippers' benefit. Alliance Canada has achieved the expected operating performance improvements associated with the program including meeting required emissions levels with the new combustor design.
Alliance Canada has completed PIP upgrades to two of the three LM2500+ gas turbines (the unit) at the Windfall compressor site. An Environmental Kit Upgrade (EKU) was also installed with one of upgraded Windfall units. An additional EKU will be installed in April 2008 for the other upgraded Windfall unit. The third unit at Windfall has been upgraded to a G4 system, more fully described in the following section.
The Morinville compressor site upgrade with the new PIP and the EKU hardware was completed in September 2007. This upgrade utilized the unit from the Windfall compressor site that was replaced as a result of the G4 project. The unit that came out of Morinville will be upgraded with the new PIP and EKU hardware and then will become a spare unit. From a logistical standpoint, this spare arrangement will improve flexibility over the current situation in which Alliance Canada draws from a vendor's equipment lease pool.
The total installed cost for the program for Alliance Canada is forecasted to be $9.8 million.
New Gas Generator and Power Turbine
A LM2500+ G4 version gas generator and power turbine was installed during the second quarter of 2007 at Windfall replacing one of the three existing gas generators and power turbines in Windfall. This project is expected to decrease ongoing maintenance and turn-around costs. The operating performance for this latest generation G4 unit is meeting all expectations for power and heat rate.
The capital cost for this program for Alliance Canada was just under the budgeted amount of $8.4 million.
Alameda Cooler Project
Alliance Canada has installed additional aerial cooler facilities at the Alameda compressor station in Saskatchewan. Aerial coolers remove heat developed by the compression of natural gas by transferring the heat to the ambient air. Cooling increases the density of natural gas, thereby improving hydraulic characteristics. This in turn gives rise to reduced fuel consumption at stations downstream of Alameda. The NEB approved this project in May 2007, civil construction activities commenced in June and mechanical construction activities started in July. In November 2007 the installation of the new coolers at the Alameda compressor station was completed. The total cost of this enhancement project for Alliance Canada was slightly below the expected cost of $8.0 million.
BCX Expansion Project
Alliance Canada is constructing an expansion project in British Columbia (BCX) that will enhance its capacity for natural gas receipts originating in northeastern British Columbia. The BCX project involves construction of a Taylor Junction compression station that would enable increased receipt capacity on the Taylor Aitken Creek lateral system. This project will not increase the mainline capacity but will enable existing shippers to increase gas nominations at receipt points in B.C.
In September 2007, the NEB approved the application for the BCX project. However, in October, the Canadian Association of Petroleum Producers (CAPP) filed an application for review and stay with the NEB as well as a motion for leave to appeal the NEB's decision with the Federal Court of Appeal. Alliance Canada successfully opposed CAPP's motion and applications at the Federal Court of Appeal and with the NEB. In November, the Federal Court of Appeal denied CAPP's motion and on January 10, 2008, the NEB denied CAPP's application for review. In view of the denial, a decision regarding the stay application was not necessary.
Construction of this project can now proceed and is expected to commence in early 2008 with an expected in-service date in late 2008. Field survey activities were undertaken in October 2007. The total estimated cost to Alliance Canada is $30.3 million.
Toll Filing
On October 31, 2007, following consultation with its shippers, Alliance Canada filed its 2008 tolls with the NEB. Alliance Canada's 2008 tolls will increase 10.7% effective January 1, 2008, from $0.776/mcf to $0.859/mcf. This increase is due to higher operating costs, a scheduled increase in the negotiated depreciation rate for 2008 and higher property and income taxes. The increase in operating costs is primarily due to including compressor overhaul maintenance and other replacement equipment in operating costs for 2008. This is a change from prior year toll filings where the overhaul program and equipment replacement costs were included in property additions. Other increases in operating costs included in the 2008 toll filing reflect increased pipeline integrity costs and the expenses associated with the implementation of a new SAP information system. These increases are partially offset by reduced interest expense and return on equity due to a declining investment base. On December 12, 2007, a shipper on the Alliance system filed an objection to the tolls with the NEB and requested either the tolls not be approved or be approved on an interim refundable basis pending a hearing and final decision. On December 19, 2007, the NEB responded to Alliance's application and the shipper's objection by placing Alliance's proposed 2008 tolls on an interim refundable basis, effective January 1, 2008, until a final decision can be made by the NEB. The NEB also requested comments from interested parties on Alliance's 2008 tolls application. Two shippers and CAPP have filed letters with the Board. One shipper and CAPP stated they did not object to the 2008 tolls. The other shipper stated that it supported the 2008 tolls. The Partnership does not anticipate that the NEB review will have a material impact on the Partnership's operations or financial position.