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TransCanada Files for Services Restructuring and Mainline Tolls

September 2011

  • TransCanada has put forward a business and services restructuring proposal that it says is comprehensive and responsive to the changes in North American energy markets.
  • There are four main components to the proposal. They cover depreciation, an extension of the Alberta System to include parts of the Mainline and Foothills, changes to toll design, and changes to services and pricing.
  • TransCanada is proposing the elimination of toll zones. It is also proposing changes to the way Interruptible Transportation and Short Term Firm Transportation are priced as well as the elimination of the Risk Alleviation Mechanism.

On September 1, 2011 TransCanada PipeLines filed an application with the National Energy Board requesting approval of a business and services restructuring proposal and Mainline tolls for 2012 and 2013.

TransCanada has developed what it feels is a comprehensive response to the new market reality where changes in the business environment of natural gas supply, demand and transportation in North America have raised significant issues that impact the long-term economic viability of existing pipeline infrastructure and supply basins.

There are four basic components to TransCanada's restructuring proposal:

  • depreciation;
  • Alberta System extension;
  • toll design; and
  • services and pricing

Depreciation

TransCanada proposes to reallocate accumulated depreciation from the Prairies and Eastern Triangle to its Northern Ontario Line. A consequence of this reallocation is that the overall Mainline depreciation rate will be approximately 1% lower than the rate that would be applicable without the change.

Alberta System Extension

TransCanada proposes to extend the Alberta System service to the Saskatchewan/Manitoba border (SMB) on the Mainline, to Kingsgate, B.C. on the Foothills System Zone 8 and to Monchy, Saskatchewan on the Foothills System Zone 9.

To accomplish the extension, Nova Gas Transmission will contract for standard annual firm service on the Mainline and on the Foothill System. TransCanada believes this will enhance the economic viability of the Mainline and the Western Canadian Sedimentary Basin (WCSB) by reducing the transportation costs between WCSB and downstream markets.

Shippers who currently contract for long haul transportation service from Empress will now be able to contract for long haul service from NIT (AECO), Empress or SMB to downstream Mainline markets.

Toll Design

Proposed changes to TransCanada's toll design include:

  • the elimination of toll zones. For example, the Eastern Zone toll will be replaced with tolls to each of the individual delivery areas within the Eastern Zone (e.g. Union CDA, Enbridge CDA, Enbridge EDA);
  • changes to the allocation of costs paid to TransQuebec Maritimes for transporting gas for TransCanada;
  • changes to the delivery pressure toll methodology; and
  • improvements to cost allocation.

Services and Pricing

TransCanada is proposing a number of services and pricing changes. Those include:

  • raising the bid floors for Interruptible Transportation service from 110% to 160% of the Firm Transportation (FT) toll at 100% load factor. TransCanada will have the discretion to lower the bid floors for any given path and time period to a level no lower than 100% of the FT toll;
  • changes to the bid floor for Short Term Firm Transportation (STFT) with bid floors ranging from the FT toll in effect when the service is used to 140%, 150% or 160% of the FT toll depending on the term of the contract. The changes proposed for STFT service are also proposed for Short Term Short Notice service but the base toll will be the FT-Short Notice toll;
  • elimination of the Risk Alleviation Mechanism (RAM). The RAM service currently allows shippers the opportunity to mitigate any unutilized demand charges in the month; and
  • introduction of a new Multi-Year Fixed Price (MFP) service. The new service is similar to the FT service except that the applicable tolls are set for periods ranging from three to five years. In the first year of the MFP Block, the toll is the same as the FT toll. In subsequent years, the toll would be fixed at a level established by TransCanada prior to the start of the next MFP Block.

Other Changes

TransCanada believes that changes in business risk, developments in financial markets, and changes in the regulatory approach all warrant an increase in return for the Mainline for 2012 and 2013, and determination of a fair return using the After Tax Weighted Average Cost of Capital (ATWACC) methodology. TransCanada is seeking approval of an ATWACC of 7%.

As part of the package of proposals in the filing, TransCanada proposes to make a voluntary contribution of $25 million to reduce the Mainline revenue requirement for each of 2012 and 2013. The contribution is contingent on approval of the restructuring proposal.

Impact on Tolls

Due to the timing of the availability of detailed cost and budget information, TransCanada's application presently includes only representative information and illustrative tolls for 2012. The September filing is to be supplemented by the end of October 2011, with an overview of major costs included in the Mainline cost of service for 2012 and 2013 and the proposed tolls for both years.

The following table shows some of the illustrative tolls from NIT to various eastern delivery areas for 2012.

Path

Restructuring Proposal
2012 Illustrative Toll ($/GJ)

NIT to Union SWDA
1.41
NIT to Enbridge CDA
1.55
NIT to Union CDA
1.52
NIT to Union EDA
1.64
NIT to Enbridge EDA
1.60
Dawn to Enbridge CDA
0.23
Dawn to Union CDA
0.19
Dawn to Union EDA
0.36

The National Energy Board has announced that it will hold a pre-hearing planning conference on October 12-13. The purpose of the meeting is to receive input from shippers and other interested parties on procedural matters for a hearing in 2012 and on the issues list for the proceeding.

TransCanada's Proposed Business and Services Restructuring and Mainline Tolls - Executive Summary Read more »