UPDATE 2-Canadian regulator slashes tolls for TransCanada mainline

Wed Mar 27, 2013 6:41pm EDT

* Regulator sets new, lower, tolls on mainline

* Says new regime allows system to be competitive

* New tolls come as volumes on mainline system falling

CALGARY, Alberta, March 27 (Reuters) - Canada's National Energy Board on Thursday agreed to cut fixed tolls on TransCanada Corp's mainline, a cross-country natural gas pipeline network, which the regulator says will help keep the system competitive and profitable despite increasing supplies from U.S. shale gas producers.

Canada's National Energy Board on Thursday agreed to cut fixed tolls on TransCanada Corp's mainline, a cross-country natural gas pipeline network, which the regulator says will help keep the system profitable amid increasing competition from U.S. shale gas supplies.

The board approved new rates that will see the cost of moving gas from Empress, Alberta, to Dawn, Ontario, fall to C$1.42 per gigajoule from C$2.58 per gigajoule under TransCanada's current tolling structure.

The decision comes more than 18 months after TransCanada, the country's largest pipeline operator, first asked the board to approve sharply lower tolls for long-haul shippers on the mainline while increasing the amount charged to short-haul customers.

The 14,101-kilometer (8,762-mile) pipeline system once carried as much as 6 billion cubic feet of gas per day. However, as customers in Central Canada and the U.S. Northeast increasingly switched to gas from closer supplies like the Marcellus shale field centered on Pennsylvania, volumes on the system fell by half and tolls rose as a smaller pool of shippers were required to shoulder the regulated system's full costs.

"Mainline tolls have increased substantially over a short period of time as a result of throughput declines related to increasing levels of competition in the Mainline's supply and market areas," the board said in a statement. "The board found that tolls cannot continue to increase each year in response to throughput declines."

TransCanada said it is still reviewing the decision and cannot yet say how the new tolling structure will affect its operations.

"This is a long and complex decision and we will need time to complete a full analysis before we can comment any further on how this decision will impact TransCanada," the company said in a statement.

While setting the new tolls, the board disallowed TransCanada's bid to extend the tolling methodology used on the Nova system, its Alberta gas-gathering pipeline network, into British Columbia and Saskatchewan. The move could have raised tolls on the Nova system by a third.

"We're pleased that TransCanada's attempt to transfer costs from the mainline to (the Nova system) has been rejected," said Nick Schultz, vice-president, pipeline regulation, for the Canadian Association of Petroleum Producers, which lobbies for the country's largest oil and gas companies.

"We viewed that as imprudent ... and the NEB said clearly that it is imprudent from a (Nova) perspective and also that it is an inappropriate transfer from one affiliate to another."

Under the new rules, TransCanada will be allowed an 11.5 percent return on equity for the mainline and approved an incentive plan that will see the company's profits from the system rise further if revenues are higher than forecast.

TransCanada could not be immediately reached for comment.

TransCanada shares rose 10 Canadian cents to close at C$48.83 on the Toronto Stock Exchange on Wednesday. The board's decision was released after trading ended.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

How to get out of debt

Financial adviser Eric Brotman offers strategies for cutting debt from student loans and elder care -- and how to avoid money woes in the first place.  Video