TransCanada PipeLines Ltd. said Friday that it finally got some of what it wanted in a long, hotly-contested rate case before the National Energy Board. On Thursday the NEB approved key components of TransCanada’s 2003 Mainline Tolls application, including an increase in interruptible transportation (IT) floor prices and the pipeline’s depreciation rate, as well as a new Southwest Tolling Zone that will encompass the existing Southwest Delivery Area that is currently part of the Eastern Zone.

“We are encouraged by the NEB’s recognition of our need to manage the long-term risks of the Canadian Mainline,” says Hal Kvisle, TransCanada’s CEO. “This decision is an essential step towards ensuring the long-term sustainability of the Mainline, to the benefit of all stakeholders. We appreciate the timeliness and comprehensiveness of the NEB’s decision, and we look forward to commencing discussions with all our stakeholders as we move towards a timely filing of our 2004 Mainline Tolls application.”

Although lower than current interim tolls that were approved in January, TransCanada’s 2003 benchmark eastern-zone toll, for delivering natural gas as far as Ontario and Quebec, was raised to about C$1.20 per gigajoule (US$0.93 per MMBtu), from C$1.15/GJ (US$0.89/MMBtu) in 2002.

All financial aspects of the ruling remain officially “interim” or liable to change, with the NEB withholding final approval pending the outcome of a TCPL appeal against its last toll ruling to the Federal Court of Canada.

In more far-reaching aspects of its 106-page ruling, the NEB authorized two initial elements of a “new business model” being developed in response to the introduction of competition into the Canadian pipeline scene by the completion of Alliance Pipeline. TransCanada was allowed to take actions to discourage further erosion of its long-term transportation service contract base and encourage use of its system as a route to the principal, international trading point in central Canada rather than all the way to gas users.

The NEB authorized TransCanada to set the minimum cost of short-term, interruptible transportation service at 110% of the rate for long term, firm contracts, up from 80%. The move stems from cancellations of long service contracts by shippers taking advantage of excess capacity on the TransCanada system since Alliance went into service nearly three years ago.

TransCanada was also allowed to create a new, discount-priced Southwest zone toll for shippers wanting only to reach the Dawn trading hub. Located in southwestern Ontario, the site is an intersection with systems that carry gas routed in through the United States and move volumes out to points farther east in Canada and the U.S. TransCanada presented the southwestern zone toll proposal, known as SWZ for short, without first signing up shippers, but expects them to start stepping forward as a result of its approval.

The pipeline predicted the new service will be C$0.16-$0.19/GJ (US$0.12-$0.15/MMBtu) cheaper than its conventional eastern zone delivery, depending on the extent of use. TransCanada estimated it has capacity for southwestern zone service of up to 600,000 Dth/d. The proposal was opposed as liable to reduce eastern zone traffic and raise its toll still further by inciting shippers to switch. But the NEB observed that, at most, the penalty on users of the conventional service would work out to C$0.02/GJ (US$0.15/MMBtu) if the southwestern zone offering was used to capacity.

The NEB, in approving the new service offering, observed that it stands out as “a significant change to TransCanada’s toll methodology” of decades-old standardization. But the board said it still acknowledges “the landscape…has changed” in Canada and TransCanada is bound to keep on trying to adapt even though an attempt to win shipper co-operation on introducing a new suite of services was rebuffed. The NEB, rejecting opposition to the SWZ start on making changes, said “TransCanada should not be subject to restrictions that place it at an unfair disadvantage to other pipelines with which it competes…the creation of the SWZ is responsive to current competitive realities.”

TransCanada has 24,000 miles of pipeline and transports the majority of Western Canada’s natural gas production to markets in Canada and the United States.

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