A new gas tolling agreement between TransCanada PipeLines andthe Canadian Association of Petroleum Producers (CAPP) soon mayreplace Nova Gas Transmission’s 19-year-old, postage-stamp pricingsystem with a formula based on distance- and the diameter of thepipe used for transportation. A memorandum of understanding (MOU),signed by CAPP and TransCanada, marks the culmination of asettlement process started when the Canadian gas industry signed apeace accord last April, which also assured construction of theAlliance Pipeline and approval of the TransCanada-Nova merger.

“This has been a long but cooperative process, which hasrequired give-and-take on all sides,” said TransCanada CEO GeorgeWatson. “The end result is a new pricing structure that willpromote a competitive environment and greater customer choice inthe Western Canadian Sedimentary Basin (WCSB).”

TransCanada expects to file the new pricing structure proposalwith the Alberta Energy Utilities Board in the next few weeks. Theproposal would replace Nova’s previous distance-sensitive tollingplan (filed last April), which was designed prior to the mergerwith TransCanada. The new rate structure would be implemented afterAEUB approval later this year and would be phased in over fouryears.

“This MOU marks the end of a long, broad and collective processto 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 theregulator and then to implementation.”

The agreement calls for the replacement of the postage-stamptolling method, which dictates the same unit price for transmissionregardless of how far the gas is transported, with a 16-cent rangeof prices from about 20 cents/Mcf to about 36 cents based ondistance of transportation and economies of scale/diameter of pipeutilized.

“We agreed to a narrower floor and ceiling, so a narrower rangeof tolls,” said CAAP’s Greg Stringham, vice president of marketsand fiscal policy. “They had proposed rates that would change froman average of about 26 cents/Mcf, which meant a low of 17 cents anda high of 45 cents – a fairly wide dispersion of tolls. But we’venarrowed it down to a 16-cent range, with is the average toll plusor minus 8 cents.

“We’ll phase this in over four years. The rates go down fasterbecause [Nova has] some bypass threats at the lower end of theirrate schedule; then they go up. They go up about 8 cents over fouryears [on the high end of the rate structure], but go down 8 centsover only two years, and that leads to some revenue shortfallsbecause the rates are going down faster than they are going up. Butat the end of the [period] there’s no revenue deficiency.”TransCanada is contributing $50 million to help with the transitionphase.

Stringham said CAPP’s 170 producer members agreed to theproposal. “But it doesn’t preclude any one party from taking a[different] position but it does put a strong settlement before theregulators.”

The new proposal also offers customers a new contract terms forthe same service they currently receive. “This proposal meets ourcustomers’ desire for increased choice and greater contractualflexibility,” said Ron Turner, president of TransCanada’s Albertasystem. “At the same time, it encourages TransCanada to beinnovative in meeting customer needs.”

The tolling agreement also includes, but is not limited to, thefollowing changes:

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