TransCanada Pipelines said it expects a corporate earnings increase of C$29 million from the National Energy Board's decision to approve an increase in its Mainline common equity ratio from 33% to 36% effective Jan. 1, 2004. The equity ratio was four percentage points lower than requested by the pipeline company but TransCanada said it was a step in the right direction.
"TransCanada views the NEB's decision to move equity thickness to 36% as a positive step in recognizing the business risks faced by the Canadian Mainline and in maintaining its financial integrity," said TransCanada CEO Hal Kvisle. The company expects the increase to raise corporate earnings by $12 million in 2004 and $17 million in 2005.
The NEB concluded that, overall, the business risk to which the Mainline is exposed has increased since the last assessment of TransCanada's cost of capital (2001-2002 Mainline Fair Return Application) as a result of increases in supply risk and competing pipeline risk. It also concluded that an increase in TransCanada's common equity ratio is warranted to ensure that the Mainline continues to maintain its financial integrity and its ability to attract capital on reasonable terms and conditions.
In its application, TransCanada did not seek variance of the NEB's generic return on equity formula. Return on equity for the Canadian Mainline remains at 9.56% for 2004 and 9.46% for 2005.
In the NEB's Phase I decision issued in September 2004, it decided to approve a net revenue requirement for 2004 of C$1.7 billion and a rate base of C$8.2 billion. This compared to the 2003 net revenue requirement of C$1.9 billion and a rate base of C$8.6 billion. The board said it is satisfied that the decisions reached in this Phase II decision, in combination with the tolls and tariff provisions that in Phase I, will result in tolls that are just and reasonable for the 2004 Test Year.
The full decision is available on the NEB's website at http://www.neb-one.gc.ca. TransCanada's 25,600 miles of pipeline transport the majority of Western Canada's natural gas production to markets in Canada and the United States.
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