CAPP, TransCanada Agree on New Nova Tolling System
A new gas tolling agreement between TransCanada PipeLines and
the Canadian Association of Petroleum Producers (CAPP) soon may
replace Nova Gas Transmission's 19-year-old, postage-stamp pricing
system with a formula based on distance- and the diameter of the
pipe used for transportation. A memorandum of understanding (MOU),
signed by CAPP and TransCanada, marks the culmination of a
settlement process started when the Canadian gas industry signed a
peace accord last April, which also assured construction of the
Alliance Pipeline and approval of the TransCanada-Nova merger.
"This has been a long but cooperative process, which has
required give-and-take on all sides," said TransCanada CEO George
Watson. "The end result is a new pricing structure that will
promote a competitive environment and greater customer choice in
the Western Canadian Sedimentary Basin (WCSB)."
TransCanada expects to file the new pricing structure proposal
with the Alberta Energy Utilities Board in the next few weeks. The
proposal would replace Nova's previous distance-sensitive tolling
plan (filed last April), which was designed prior to the merger
with TransCanada. The new rate structure would be implemented after
AEUB approval later this year and would be phased in over four
"This MOU marks the end of a long, broad and collective process
to restructure gas transportation in Alberta," said Norm McIntyre,
past chairman at CAPP and executive vice-president of Petro-Canada.
"The stage is now set for the industry to move forward to the
regulator and then to implementation."
The agreement calls for the replacement of the postage-stamp
tolling method, which dictates the same unit price for transmission
regardless of how far the gas is transported, with a 16-cent range
of prices from about 20 cents/Mcf to about 36 cents based on
distance of transportation and economies of scale/diameter of pipe
"We agreed to a narrower floor and ceiling, so a narrower range
of tolls," said CAAP's Greg Stringham, vice president of markets
and fiscal policy. "They had proposed rates that would change from
an average of about 26 cents/Mcf, which meant a low of 17 cents and
a high of 45 cents - a fairly wide dispersion of tolls. But we've
narrowed it down to a 16-cent range, with is the average toll plus
or minus 8 cents.
"We'll phase this in over four years. The rates go down faster
because [Nova has] some bypass threats at the lower end of their
rate schedule; then they go up. They go up about 8 cents over four
years [on the high end of the rate structure], but go down 8 cents
over only two years, and that leads to some revenue shortfalls
because the rates are going down faster than they are going up. But
at the end of the [period] there's no revenue deficiency."
TransCanada is contributing $50 million to help with the transition
Stringham said CAPP's 170 producer members agreed to the
proposal. "But it doesn't preclude any one party from taking a
[different] position but it does put a strong settlement before the
The new proposal also offers customers a new contract terms for
the same service they currently receive. "This proposal meets our
customers' desire for increased choice and greater contractual
flexibility," said Ron Turner, president of TransCanada's Alberta
system. "At the same time, it encourages TransCanada to be
innovative in meeting customer needs."
The tolling agreement also includes, but is not limited to, the
- Nova will provide term-linked receipt tolls.
- TransCanada may receive a maximum loss or gain of $5 million as
a result of the premium or discounts on one-, three- and five-year
contracts and 50% of the IT and short-term firm service premiums.
- Costs and revenues of new services are at TransCanada's
risk and reward subject to appropriate cost accountability.
- TransCanada shareholders no longer must pay 25% of the
shortfall from posted prices related to the Palliser Pipeline
discounted rate agreement but must pay 25% of the shortfall from
posted prices related to any future discount deals.
- Nova no longer will build extension laterals within its
regulated business and roll the costs into its regulated rate base.
- Nova will contribute $25 million/year over the first two
years during a transition period to the new toll structure, while
shippers will contribute up to $20 million from CEIS savings.