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TransCanada to Face Regulator Audit Over Safety of Pipelines

Nov. 1 (Bloomberg) -- TransCanada Corp., facing opposition from campaigners to its planned Keystone XL oil pipeline, will undergo a comprehensive audit by Canadian regulators to check whether it meets safety and management standards, following complaints by a former employee about the company’s practices.

The review involves all units of Canada’s largest pipeline company, based in Calgary, that are regulated in the country, including the subsidiary overseeing the portion of the 1,661-mile (2,763-kilometer) Keystone XL line between Canada and the U.S., according to a letter sent by the National Energy Board to TransCanada Chief Executive Officer Russ Girling. The regulator published the letter dated Oct. 30 on its website.

“The Board expects TransCanada to demonstrate, and provide adequate supporting documentation of, the adequacy and effectiveness of its integrity management program as well as its compliance with” rules, Secretary Sheri Young wrote.

The NEB will study management, company internal audits, training, inspections and corrective actions, the letter said. The audit was planned and information a former company engineer sent the regulator “helps to inform” the review, board spokeswoman Rebecca Taylor said in a phone interview today.

The former employee alleged TransCanada wasn’t meeting the regulator’s standards in a May letter and the board said it was “concerned by TransCanada’s non-compliance” following a subsequent board investigation, according to an Oct. 11 letter to TransCanada on the regulator’s website. There weren’t immediate safety or environmental threats and TransCanada verified “many of the allegations,” in an internal audit, proposing and implementing remedies, the letter said.

Audits Doubled

The Canadian government’s 2012 budget doubled the comprehensive audits the board must complete this year to six.

Texas landowners raised objections to the Keystone XL project in a court hearing last month, citing property rights. Actress Daryl Hannah echoed concerns the pipeline may contaminate water in Nebraska’s Ogallala Aquifer in an opinion piece in the Guardian newspaper on Oct. 17, saying she was arrested while trying to block excavators building the line.

Southern Leg

TransCanada started building the southern leg of Keystone XL, renamed the Gulf Coast project, in August after the U.S. withheld a cross-border permit for the line earlier this year, following ecological concerns raised in Nebraska. A hearing for a new route TransCanada proposed in the state to avoid the aquifer will take place on Dec. 4. TransCanada said it expects a U.S. decision on the entire line in the first quarter of 2013.

The audit will focus on TransCanada’s “ongoing and completed remediation measures” referenced in the earlier letter “to verify that they adequately address regulatory non-compliances and mitigate any safety threats to people or the environment,” the regulator said.

TransCanada welcomes and will “cooperate fully” with the audit, Shawn Howard, a company spokesman, said in an e-mail today. The integrity management program audits are “routine and normal” and the company has undergone four since 2002, he said.

‘Proactive’ Audits

The regulator said last year it would better communicate its work online to ensure greater transparency. In taking on this audit and another launched in August of Enbridge Inc., the NEB is being “proactive,” Steven Paget, an analyst at FirstEnergy Capital Corp. in Calgary, said in a phone interview.

“The only acceptable thing right now is for the NEB to be proactive, given the current public concern about pipelines,” Paget said. Taken together, the audits appear to examine a “large majority” of cross-border lines in Canada, he said.

The regulator’s audit comes as TransCanada takes on projects to boost earnings following Keystone XL. The company said today it received a contract to build, own and operate a 530-kilometer pipeline in Mexico to transport natural gas.

Mexico’s federal power company has agreed to a 25-year contract to ship gas on the Topolobampo pipeline, which will cost TransCanada $1 billion and be operational in the third quarter of 2016, according to a statement from the company.

The project demonstrates TransCanada’s “efforts to secure earnings growth following Keystone XL for the latter half of this decade,” Pierre Lacroix, an analyst at Desjardins Securities Inc. in Montreal, said in a note today.

TransCanada on Oct. 30 said third-quarter profit fell 4.4 percent as it transported less gas and carried out maintenance at some power plants.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Rebecca Penty in Calgary at rpenty@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net

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