Tolls on TransCanada Corp.’s Canadian natural gas mainline will stay at elevated levels set as an “interim” measures last winter if the National Energy Board (NEB) approves an application for final 2011 rates filed Friday morning.

Benchmarks sought by the filing are an “eastern zone” toll of C$2.45/gigajoule (GJ) (US$2.57/MMBtu) for deliveries from Alberta to central Canada, and a “southwest zone” rate of C$2.07/GJ (US$2.17) for shorter hauls to trading hubs in southern Ontario. (Canadian and U.S. currencies are currently averaging about par, but an MMBtu is 5% more than a GJ).

Like the interim rates set in February after a fight with shippers, the proposed final 2011 tolls are up by 49% from the mainline’s 2010 eastern zone rate of C$1.64/GJ (US$1.72/MMBtu) and 52% from the 2010 southwest zone rate of C$1.36 (US1.43/MMBtu).

Earlier this year Shell Energy North America (Canada) Inc. urged the NEB to freeze rates on TransCanada’s west-east mainline until at least mid-2011 (see Daily GPI, Feb. 22).

The driver of the toll increases continues to be shrinking traffic that spreads costs thicker on mainline shipments. The reduced flows are attributed to declining western Canadian production, rising industrial consumption by thermal oilsands projects in northern Alberta, competition from 11-year-old rival Alliance Pipeline, and especially growth in U.S. shale gas supplies closer to markets in central Canada as well as the U.S. Midwest and Atlantic seaboard.

Other factors identified by TransCanada in its NEB filing include new U.S. pipelines for shale gas production, persistently reduced demand due to a weak economy, and shifts in shipper contracting practices towards short-term and interruptible service.

If the NEB approves the new benchmark rates sought by TransCanada, mainline rates for at least the rest of this year will be more than double their 2006 levels, which were an eastern zone toll of C94 cents/GJ and a southwestern zone toll of C80 cents/GJ.

Discussions with shippers on a proposed mainline service and financing overhaul that began in 2008 have yet to generate any consensus that would raise hopes for a settlement anytime soon, the NEB filing said. “TransCanada has continued to consult with stakeholders, both on an individual and a group basis.” But the principal vehicle for the consultations, a tolls task force, failed to establish an agreement in its last vote held April 15, the pipeline company said.

Prolonged regulatory proceedings are on the horizon. “While TransCanada remains willing to participate in further discussions, it now believes that a negotiated resolution of 2011 tolls will not be achieved and that final 2011 tolls should be determined by the NEB at this time,” the filing said.

Much more consultation, negotiation and regulatory activity on the longer-range future of Canada’s biggest gas transporter also awaits the industry.

The new filing sets a target date of Oct. 31 for a new rate application covering 2012 and 2013. TransCanada predicted that, regardless of the outcome of talks with shippers, the next filing “will include a comprehensive suite of business model, toll design and service changes. The objective of these changes will be to improve the competitiveness of TransCanada’s regulated Canadian gas transportation infrastructure, and of the Western Canada Sedimentary Basin as a whole, through material reductions of mainline tolls, greater toll certainty and stability, and improvements to the mainline suite of services.”

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