TransCanada Mainline Tolls: What's Next?

June 2011

• The level of final tolls for TransCanada's Mainline is still being addressed by the National Energy Board. Under TransCanada's proposal, the final toll for long-haul transportation to the Eastern Zone would increase from the current interim level of $2.24/GJ to $2.45/GJ.
• The NEB has expressed concern over the continuing uncertainty surrounding TransCanada's tolls and how issues related to the competiveness of the Mainline will be addressed. To bring a resolution to these matters, the NEB has directed TransCanada to file its 2012-2013 tolls application earlier than planned, specifically by September 1, 2011.

Tolls for TransCanada PipeLines' Canadian Mainline have been in a state of uncertainty for some time now. Since the beginning of 2011, the Mainline tolls have been interim. TransCanada has asked the National Energy Board to approve a set of final tolls for 2011, a request that is still under consideration by the regulator. And then there is the question of what will happen in 2012 and beyond.

So what are the next steps in addressing the uncertainty around Mainline tolls?

Events leading to interim tolls

For some time, TransCanada and its stakeholders have been discussing measures for controlling rising long-haul tolls and improving the competitiveness of the Mainline. Parties were still engaged in this discussion as 2011 approached. In December 2010, TransCanada filed an application with the NEB seeking approval of interim Mainline tolls for 2011. The application presented a proposed 3-year agreement that was supported by only some of TransCanada's stakeholders. TransCanada had hoped to have the tolls resulting from the agreement go into effect on an interim basis while an application for final tolls, also based on the agreement, was being examined by the NEB. Elements of the multi-year plan represented a significant departure from traditional toll-making practices. The NEB determined that it was not appropriate to implement such fundamental changes on an interim basis and decided instead to make the 2010 tolls interim as of January 1, 2011. This meant that a shipper using long-haul capacity to move gas to the Eastern Zone on a firm basis continued to pay about $1.64/GJ.

At the end of January, TransCanada filed a request for an increase in the interim tolls, to take effect March 1, 2011. The proposed tolls were based on a previous NEB-approved settlement agreement between the pipeline and its stakeholders that covered Mainline tolls for the 2007 to 2011 period, with two adjustments to reduce tolls from what they would be if the elements of the agreement were strictly applied.

TransCanada explained that it was significantly under-collecting the 2011 revenue requirement resulting from the approved 2007-2011 Mainline settlement agreement. TransCanada reasoned that as a result, without an increase in interim tolls, there would be a significant revenue shortfall by the end of 2011, which would cause rate shock and market disruption when it came time for TransCanada to collect the shortfall from its shippers.

The NEB approved the increase in interim tolls, but noted that there was more than the usual level of uncertainty related to final tolls for 2011. It directed TransCanada to file a proposal for final tolls for 2011 by May 2, whether the proposal was supported by the pipeline's stakeholders or not.

On March 1, the toll for transporting gas from the Alberta border to the Eastern Zone increased by about 60 ¢/GJ to approximately $2.24/GJ.

What comes next?

At the end of April, TransCanada filed an application for final Mainline tolls for 2011. This application is still under consideration by the NEB.

The proposed final tolls are based on the elements of the 2007-2011 Mainline settlement agreement applied to 2011. The Eastern Zone long-haul toll that results is $2.45/GJ, about 9% higher than the interim toll in effect.

TransCanada has proposed that the interim tolls remain in effect for the rest of the year in order to provide greater toll stability and certainty for the remainder of 2011. TransCanada proposes to determine the difference in revenue between the final and interim tolls for 2011 and then carry this amount forward into the revenue requirement for 2012. Under this approach, the 2011 revenue difference would be one of the cost items that would be recovered through tolls for 2012.

In its application, TransCanada addresses it plans for 2012 and beyond. It said it will file an application for 2012 and 2013 by the end of this coming October that will include a comprehensive set of changes to the Mainline business model, toll design and services. TransCanada says the goal of the modifications will be to improve the competitiveness of its regulated Canadian gas transportation infrastructure through among other things, "material" reductions to Mainline tolls.

There has been one round of stakeholder comments on the pipeline's request for final tolls. They have ranged from not opposing the proposed 2011 tolls to support to strong opposition on the basis that the proposed tolls are not "just and reasonable". A common theme has been that the increasing level of tolls is unsustainable, and fundamental structural charges are needed to address Mainline competitiveness. Given the significant concern, many parties have called for TransCanada to files its plans for the next two years earlier than the end of October.

In mid-June, the NEB issued another procedural schedule. TransCanada has been directed to clarify how it proposes to deal with the difference in revenue resulting from the difference between final and interim 2011 tolls. Stakeholders have been given another opportunity to submit comments and TransCanada may respond to those submissions. The NEB will then decide on the applied-for final 2011 tolls.

The NEB re-iterated its concern with the continuing uncertainty related to Mainline tolls, indicating the level of uncertainty is contrary to the public interest. The regulator noted that TransCanada and its stakeholders have been discussing Mainline issues for more than a year. With respect to 2012-2013 tolls, the NEB has directed TransCanada to file its application by September 1, 2011, whether supported by a settlement agreement with its stakeholders or not. The NEB says it plans to hold a public hearing, if needed, in the first quarter of 2012 with a decision by the end of June 2012.

The uncertainty about 2011 tolls and what the TransCanada Mainline model will look like post-2011 will continue for a while yet. However, it is clearly the intention of the NEB to bring a resolution to the longstanding issues as quickly as is reasonably possible.

TransCanada's Interim Tolls Proposal Signals Potential for Major Change Read more »

Transportation Deserves Attention as Strategy to Control Energy Costs Read more »