Still stinging from the National Energy Board’s (NEB) decision in June to cut back its requested rate of return over the past two years and reduce its proposed eastern zone tolls, TransCanada filed a request for review of the order along with an application for a new tolling structure on its Canadian mainline in 2003.

“We remain disappointed with the NEB’s decision (RH-4-2001) on our Fair Return application,” said CEO Hal Kvisle. “We have concerns about the long-term implications of a financial return that discourages investment in existing gas transmission systems. In our opinion, the decision does not recognize the long-term business risks of our Canadian mainline. Therefore, we are asking the NEB to reconsider this matter.”

The Fair Return ruling cut TransCanada’s requested rates on the eastern mainline significantly as regulators apparently weren’t persuaded that greater competition and risk warranted a sharp increase in the pipe’s return. The board, saving gas shippers from added costs measured in hundreds of millions of dollars, rejected TransCanada’s request for a thorough overhaul of its finances. TransCanada had requested a C$265 million/year (US$175 million) raise, including a C$0.13/gigajoule (US$0.09), or 12% increase in eastern zone tolls, to about C$1.26/gigajoule (US$0.80 per MMBtu). Requested tolls were cut to C$1.15/GJ. The NEB granted TransCanada a 2% raise for its rate of return, achieved with a technical adjustment, projected to be worth C$30 million (US$20 million) a year. It held the pipeline’s allowed rate of return down to 9.61% for 2001 and 9.53% for this year (see Daily GPI, July 25, June 28).

In its 2003 tolls application, TransCanada is seeking approval of a new “Southwest” tolling zone from the Alberta border to Dawn, ON, to “enhance the competitiveness of tolls to this market area.”

“The creation of a new Southwest zone would provide a lower toll from the Alberta border to the Dawn, ON, gas hub,” said pipeline spokeswoman Heidi Feik. “Should we receive what we have applied for, we would have a Southwest zone toll of $1.17/gigajoule (GJ) versus the firm transportation toll to the Eastern Zone, which would be $1.34/GJ. Today tolls (to the Eastern Zone) are $1.15/GJ. Both tolls are in fact higher than what today’s Eastern Zone toll is.”

The company also has requested an increase in depreciation rates to better reflect the risk of recovery of its investment in the Canadian mainline. And it has asked regulators for an increase in the bid floor price for interruptible transportation (IT) service to address migration from firm transportation service to lower priced IT.

The new IT toll actually will be higher than the toll for firm service. “It would mean a hike (in IT tolls) from 80% of firm tolls to 110% of what that firm transportation toll would be,” said Feik. “It would more appropriately reflect the value of interruptible transportation and would help stem the migration from firm transportation to interruptible transportation, which is what we have been seeing.”

In its toll application, TransCanada said that over the past three years it has seen a net capacity held under firm contracts decline by 1,600,000 GJ/d (about 1.5 Bcf/d) to about 6,100,000 GJ/d (5.8 Bcf/d) due to contract expirations and nonrenewals. Over the same period, the quantity of IT on the system rose 800% or by about 700,000 GJ/d. “This is evidence that some shippers have chosen to meet firm requirements using IT service,” TransCanada told the NEB. The pipeline added that it expects IT customers to have virtually interruption-free service in 2003.

In addition to the IT changes, TransCanada is seeking the continuation of several current financial and operational incentive programs. They include a fuel incentive program to minimize total delivered costs, and a revenue and asset management program, which is essentially a commission to TransCanada of varying percentages to reduce asset costs and generate incremental value. “Both programs provide financial and operating benefits to our customers and the pipeline,” said Feik. “It aligns our interests and provides appropriate balances and decisions on costs, revenues and fuel.”

The complete applications can be found on TransCanada’s web site at www.transcanada.com under mainline regulatory information.

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