TransCanada Reaches Pact With Mainline Stakeholders

After months of inconclusive sparring, TransCanada PipeLines Ltd. and its shippers have reached a truce by agreeing to negotiate rather than fight over ways to adapt to the onset of competition in Canadian natural-gas transportation.

As a key part of a settlement that temporarily resolved immediate tolling and service disputes, TransCanada pledged to present an adaptation plan by the end of August. The pipeline promised "a specific business and regulatory model for the future that will allow it to compete effectively for market demand and gas supplies." The settlement's schedule calls for negotiations to start by Sept. 17. A target of Feb. 28, 2002, has been set for completion of an agreement. While the negotiations proceed, TransCanada and its shippers agreed to follow a two-year settlement covering services and pricing on its long-distance Canadian mainline.

TransCanada president Doug Baldwin said "the settlement provides the foundation for further discussions to ensure the Canadian mainline system continues to compete effectively for market demand and natural gas supplies." While Baldwin is due to retire this year and an executive search for a replacement is under way, the pipeline's transportation specialists are understood to be well along in devising at least a wish list.

The two-year agreement covers TransCanada's revenue requirement, payment for delivery capacity booked but not used each year, cost-control incentives and detailed terms for various classes of transportation services. Only cost-of-capital debates among corporate accountants and economists were left out of the settlement, to be referred to the National Energy Board for hearings later this year. After a one-month reprieve during January, shippers are already paying a 12% increase in TransCanada tolls to C$1.13 (US$78 cents) per gigajoule that was approved as an interim measure by the NEB following a short, sharp feud with dissenters. The hike was supported - as the lesser of two evils on the horizon - by a majority including the Canadian Industrial Gas Users Association, Enbridge Consumers Gas, Union Gas Ltd., the Canadian Association of Petroleum Producers, BP Canada Energy and Imperial Oil.

The shippers agreed that if the NEB did eventually find that the pipeline deserved the raise, it spelled an even stiffer hike if it all had to be collected in the last few months of this year. A "rate shock" was forecast, with tolls potentially rising 30-50% to C$1.30-$1.50 (US$0.90-$1.03).

The complex regulatory cases and negotiations center on how services and tolls should be adjusted to permit competitive behavior to regain traffic lost as a result of additions to the long-distance gas delivery grid since 1998, including expansions by TransCanada and affiliated Foothills Pipe Lines Ltd. as well as completion of the new Alliance Pipeline to Chicago and Vector Pipeline from there to southern Ontario. TransCanada has borne the brunt of a glut of excess pipeline capacity estimated at 1-2 Bcf/d.

Baldwin has suggested that TransCanada should be allowed to develop a service menu that includes a pipeline counterpart to hotel or airline discounts for frequent customers, with gas shippers earning savings on tolls by taking out long transportation contracts. TransCanada has also sought - unsuccessfully, so far, in a hard-fought case before the NEB -a new right to vary minimum charges for interruptible delivery services depending on its reading of gas and transportation market conditions. Shippers, especially trading houses and independent power generators, have resisted changes they read as liable to pass on anything but temporary, reasonable shares of TransCanada revenue losses due to pipeline competition.

Gordon Jaremko, Calgary

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