In the latter half of 2010 a serious Canadian gas market issue that has been brewing for some years came to a head. The Trans Canada Pipelines Inc. (TCPL) "Mainline" runs from Alberta across the country, and has traditionally brought gas from the western Canadian sedimentary basin (WCSB) to markets in Eastern Canada and the North East United States. A confluence of factors (declining WCSB production, increased intra-Alberta gas consumption, decreasing Eastern Canadian gas demand, and perhaps most importantly competitive gas transportation routes across the continent) have for some years been driving down gas volumes transported through the Mainline. As volumes have declined, and costs have declined less, tolls have risen. As tolls have risen, more volumes have switched to alternative routes and markets, causing volumes to further decline and tolls to rise further, and so on. Some have characterized this pattern as a "death spiral".

For the last few years TCPL has managed to maintain agreement among its shippers to proposed toll levels, and has thus managed to obtain National Energy Board approval for toll changes (generally increases) on the basis of consensus from its shippers. However, late in 2010 this historical shipper consensus broke down.

The substance of the negotiations between TCPL and its shippers is subject to understandings as to confidentiality. It is now, however, a matter of public record that there was significant opposition to the proposal filed by TCPL with the NEB in December for interim tolls as of January 1, 2011. The application filed by TCPL outlined, at a very high level, a number of fundamental changes to the regulatory accounting, cost allocation and toll design model underlying tolls on its Mainline, and tolls on the system of shorter length routes which constitute its "short haul" system within Ontario. The result was a proposal to decrease Mainline tolls, but increase, significantly, short haul tolls. The proposal was presented as based on an agreement between TCPL and the Canadian Association of Petroleum Producers (CAPP). The detailed support for this proposal is to come "early in 2011", but in the interim TCPL requested that the NEB set tolls at the level contemplated by the "agreement" effective January 1, 2011 and on an "interim" basis. Setting tolls on an interim basis would allow them to be made permanent as of January 1 once determinations on final tolls are made by the NEB later in 2011.

While a number of individual stakeholders, including producers and Mainline shippers, supported the interim toll proposal, a number, including short haul shippers and the main gas distributors in Ontario and Quebec, opposed the proposal. In the result, faced with what the NEB has interpreted based on unsolicited submissions made to it as "significant opposition" to the proposal, the regulator rejected the proposed interim tolls. Instead, the NEB declared the current (2010) tolls interim, pending review of a TCPL application for final 2011 tolls.

In its transmittal letter covering the interim tolls order, the NEB "encourages continued efforts to collaboratively address these matters through negotiations with all parties". Unless TCPL is able to modify its proposal to avoid significant increases in short haul tolls while at the same time maintaining decreased and stable Mainline long-haul tolls, it is quite likely that the NEB will receive a hotly contested final 2011 toll application rather than a negotiated proposal. If so, this will be the first time in a long while that the NEB will have to engage in a full review, supported with detailed evidence, of TCPL's Mainline tolls. The looming flood of eastern continent shale gas predicted by most observers (though with different opinions as to the pace and timing for growth in shale gas production) will make the issues facing the Mainline even more difficult, but probably also make a more careful review of Mainline tolls, current and prospective, more important and more timely.