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NOVA, Shippers Reach Two-Year Rate Settlement

NOVA, Shippers Reach Two-Year Rate Settlement

While long-distance tolls continue to be hotly contested, TransCanada PipeLines Ltd. succeeded in reaching a settlement on key basics that will let it set 2001-02 rates without a fight for its Nova grid in Alberta.

The deal covers the deciding factor in determining tolls within the jurisdiction responsible for about 80% of Canadian production --- an agreed revenue requirement for the Alberta grid --- plus two new services and a commitment by all concerned to address additional issues over the next two years.

Participants in the settlement include the Canadian Association of Petroleum Producers, Industrial Gas Consumers Association of Alberta, and the Small Explorers and Producers Association of Canada, as well as consumer groups, marketers, exporters and others with interests in the pipeline system. The settlement is expected to generate savings or at least hold rates steady for shippers by dropping a formula approach to establishing the Alberta grid's revenue requirement and agreeing on a fixed amount. The figure goes down this year to C$1.39 billion (US$960 million) from C$1.42 billion (US$979 million) in 2000, then drops again in 2002 to C$1.347 billion (US$930 million).

TransCanada is also being given added incentive to pare costs of the system. All savings from efficiency improvements go to the pipeline during the next two years, compared to 50% during 1999 and 2000. For shippers with special needs or locations on the grid, the pipeline will introduce a point-to-point firm transportation services contract. There will also be a new one-year, non-renewable firm service arrangement will be made available and priced at a 10% premium. Under distance-based tolling adopted on the Nova system last year, the rates will depend on conditions in each deal. In the case of one-year contracts, shippers agreed to pay premiums over rates for traditional three-year agreements.

All parties also intend to resolve several rate design and service issues over the next two years, including those leading to operational and contractual flexibility, a tolling structure that is fair for intra-Alberta and ex-Alberta shippers and a structure that will provide NGTL with the incentive and opportunity to compete in the longer term.

TransCanada and the Nova shippers alike described the deal as an encouraging sign for all sides. TransCanada president Doug Baldwin described the agreement on the Nova grid as "another step toward achieving our common goal to enhance the competitiveness of the Western Canada Sedimentary Basin, and it is an excellent example of the benefits in working collaboratively with industry stakeholders." By competitiveness, he means the efficiency of Alberta production as a whole when compared with rival supply regions in the United States.

CAPP represents 160 member companies that produce 95% of Canada's oil and natural gas. The IGCAA represents nine large gas consumers that consume about 60% of the gas used in the industrial gas market in Alberta.

Gordon Jaremko, Calgary

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