TransCanada Corp. (TRP), Canada’s second- largest pipeline company, won permission from the country’s National Energy Board to lower tolls on its Mainline natural gas pipeline that has seen declining volumes as eastern Canada gets more of the fuel from shale in the U.S. Northeast.
The board established a firm transportation toll from Empress, Alberta, to Dawn, Ontario, of C$1.42 ($1.40) a gigajoule through 2017, according to a release posted on its website today, 43 percent lower than what would have resulted from the Calgary-based company’s existing tolling structure.
TransCanada proposed to boost volumes by lowering rates on its 14,101-kilometer (8,762-mile) Mainline, a conduit from Alberta to Quebec whose tolls rose 140 percent from 2007 to 2011 due to falling throughput, as eastern Canada imported more U.S. shale gas, according to the company. Lower tolls probably won’t drive Mainline business because western Canadian natural gas producers can still make more money selling gas in Alberta, according to Ziff Energy Group.
“If everything goes as TransCanada forecasts, they’ll get a higher return,” Cameron Gingrich, senior manager of gas services at the Calgary consultancy, said in a phone interview. “Ziff Energy doesn’t believe TransCanada’s throughput forecasts.”
Due to “increased business risk,” the board allowed TransCanada a higher return on equity of 11.5 percent for its Mainline, based on a 40 percent equity ratio, which analysts at RBC Capital Markets and FirstEnergy Capital Corp. said was positive for the company. The National Energy Board approves tolls that allow TransCanada to recover costs of transporting gas, including a return on its investment.
The board didn’t approve other TransCanada proposals, including a plan that would have charged producers higher tolls to transport gas short distances on its western Canadian pipeline systems, which the board said was “inappropriate cost shifting among affiliate companies.”
TransCanada said the board approved some of its proposals and denied a number of “fundamental” concepts, reserving further comment, according to a statement e-mailed by spokesman Grady Semmens.
Enbridge Inc. (ENB) is Canada’s largest pipeline company by market value.
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