Alliance Canada consists of approximately 1,560 kilometres of the Alliance System’s mainline beginning near Gordondale, Alberta and connecting to Alliance US at the Canada/US border near Carnduff, Saskatchewan. Alliance Canada also includes the Alliance System’s lateral pipelines, which connect the mainline to a number of upstream receipt points, primarily at natural gas processing facilities in northwestern Alberta and northeastern British Columbia, and related infrastructure.
The Alliance System is designed to transport 1,325 mmcf/d of natural gas from supply areas in northwestern Alberta and northeastern British Columbia to delivery points near Chicago, Illinois. Shippers have executed transportation service agreements (TSAs) with each of Alliance Canada and Alliance US, which have an initial 15-year term expiring in November 2015 and provide for 98.5% (2007 – 98.5%) of the Alliance System’s available firm transportation capacity. The TSAs are designed to provide Alliance Canada with a steady and predictable cash flow stream through 2015. Additional transportation capacity is available to shippers for no additional cost other than the cost of the associated fuel requirements through Alliance Canada’s AOS. Beginning in December 2010, each TSA may be renewed on five years’ notice for successive one-year terms, beyond the initial 15-year term, at the option of the shipper. The remaining 1.5% (20 mmcf/d) of firm capacity has been contracted on a short-term basis to March 2010.
Tolls and tariffs for Alliance Canada are regulated by the National Energy Board (NEB). Alliance Canada’s TSAs are designed to provide toll revenues sufficient to recover prudently incurred costs of service, including operating and maintenance costs, costs of indebtedness, an allowance for income tax, capital taxes, depreciation and an allowed return on equity based on a deemed 70/30 debt-to-equity ratio. Each shipper’s charges are proportionate to the shipper’s contracted capacity. Toll adjustments, based on variances between the cost of service forecast used to calculate the toll and the actual cost of service, are made annually. Following consultation with the shippers, tolls are filed with the regulator for approval.
Depreciation expense on the transmission plant included in the cost of service is based on negotiated depreciation rates contained in the TSAs while the depreciation expense in the financial statements is recorded on a straight-line basis of 4% per annum. The negotiated depreciated rates are generally less than the straight-line rates in the earlier years and higher than straight-line depreciation in later years of the TSAs. This results in the recognition of a long-term receivable, referred to as deferred transportation revenue, expected to be recovered from shippers in subsequent rates. As at December 31, 2008, $79.8 million (2007 – $65.6 million) was recorded as deferred transportation revenue.
Alliance Canada’s maintenance program maintains its productive capacity and helps to ensure the future sustainability of its distributions. The program includes semi-annual inspections of all compressor stations as well as internal corrosion coupon inspections and annual Pipe-to-Soil surveys, atmospheric inspections, above-ground indirect assessments and the repair and replacement of compressor parts. Mainline pipeline inspection is completed on a seven-year recurring schedule. Other maintenance performed includes soil resistance surveys and corrosion deficiency reports. Maintenance expenditures may vary from year to year.