TransCanada Tax Plan Has NEB Scrambling

An attempt to score a quick tax coup by TransCanada PipeLines Ltd. set off a flurry of activity among legal and regulatory experts before the National Energy Board. Savings of C$8 million (US$5.3 million) per year off continuing taxes --- plus a reduction of C$75 million (US$50 million) off deferred tax liabilities --- are projected by the company if it can carry out its plan.

The money would be gained by taking advantage of a legal wrinkle made possible by TransCanada's acquisition of Nova Corp. two years ago. The plan calls for TransCanada to reconstitute itself as incorporated under the Business Corporations (Alberta) Act, by changing its legal registration to the provincial legislation from the federal Canada Business Corporations Act. The switch would be achieved by a formal amalgamation with Nova with a "short form" procedure that keeps legal formalities and government inquiries to a minimum. Made possible by Nova's historical status as an Alberta company, the switch would result in TransCanada becoming subject to provincial corporate tax rates which are lower than for federally-registered companies. The plan's mastermind --- TransCanada's senior vice-president for regulatory strategy, Celine Belanger --- sent the NEB a letter pledging that no drastic changes to the gas transportation scene are contemplated.

"The increasingly competitive market for pipeline capacity continues to drive TransCanada towards innovative ways of reducing costs," Belanger wrote. "This planned amalgamation represents one such initiative. It is not part of any broader plan."

Belanger also maintained that the NEB only had to be advised of the plan and TransCanada did not have to seek its permission. She pointed out that when Parliament enacted the quick amalgamation procedure in 1985, no provision directed regulated pipelines that might use it to ask for board approval even though a "public interest review" by the NEB has been necessary for combinations since 1970. Alberta authorities are understood to go along with the plan. Belanger said TransCanada intends to ask the provincial cabinet for an order-in-council exempting its scheme from a ban imposed by the Alberta Gas Utilities Act against Nova spreading its wings outside the province unless its government formally agrees otherwise. Without naming Alberta Premier Ralph Klein or any of his ministers, Belanger told the NEB "TransCanada discussed the plan with several stakeholders." The company also " knows of no detrimental effect the plan would have on any of its creditors, shareholders or shippers."

Canada's national energy watchdog made it plain that it cannot turn a blind eye to maneuvers to cut the federal treasury's revenues by changing a major corporation's legal composition. The NEB directed TransCanada to report the plan to government authorities across the country from British Columbia to Nova Scotia. The board also fired off a sheaf of tersely-worded questions about the pipeline giant's claims. Among the queries: Who outside of TransCanada's executive suite provided advice that it was steering a legitimate course? What evidence does the company have for an assertion that Parliament excluded the short-form amalgamations from public interest reviews because the politicians believed such deals did not make fundamental changes? What are the implications of a national transportation enterprise - and one that was created by a 1950s Act of Parliament in the first place --- redefining itself as a provincially-incorporated outfit? As TransCanada's legal staff scrambled to come up with answers, its chiefs pledged to carry out the tax-cutting plan after receiving approval to proceed at the company's annual shareholders meeting April 27.

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