September 2, 2011 / 9:26 PM / in 6 years

TransCanada aims to make up for waning gas volumes

CALGARY, Alberta (Reuters) - TransCanada Corp has made another attempt to restructure how tolls are calculated on its natural gas mainline, the company’s historic foundation, as it tries to keep the huge network viable as conventional gas volumes dwindle.

TransCanada, the country’s biggest pipeline operator, said late on Thursday it has applied to the National Energy Board to make big changes to its tolling and regulated return structure for 2012 and 2013. It has made a similar attempts before without success.

The proposal offers sharply lower tolls for long-haul gas shippers by making adjustments to depreciation, where on the system service starts and ends, and how tolls are designed. Short-haul shippers, however, could have some of the current long-haul costs rolled into their tolls.

“TransCanada’s being quite innovative in trying to adjust the tolls so it’s competitive and works for its shippers,” said Juan Plessis, analyst at Canaccord Genuity.

“Now, of course, you’ve got so many different shippers with different interests. Some are just short-haul shippers, and they won’t like having some of the costs associated with the long-haul portion in the short haul.”

Under the company’s proposal, the 2012 charge for moving gas to Dawn, in southern Ontario, from the Alberta-Saskatchewan border, would be C$1.41 per gigajoule, or about 32 percent less than the current toll, TransCanada said.

Tolls on the mainline are a major issue for the company as they accounted for 19 percent of its 2010 earnings. Plessis estimated that will be reduced to 10 percent by 2013 as C$20 billion ($20.4 billion) worth of new growth projects, including the proposed Keystone XL oil pipeline to Texas from Alberta, expand the asset base.

Over the past several years, TransCanada has struggled with the costs of operating its massive gas transport network and charging competitive tolls as conventional supplies from Alberta have declined.

Meanwhile, the 14,101 km (8,762 mile) network has faced increased competition from burgeoning supplies of shale gas located in major market areas, such as the U.S. Northeast.

The system once carried around 6 billion cubic feet a day and now ships less than half that.

Because the pipeline system is regulated, shippers on the mainline pay for the line’s costs as well as a guaranteed return for TransCanada. But as volumes decline, there are fewer shippers to cover those fixed costs, threatening higher tolls that, at a time of weak gas prices, would cut into producer profits.

To make up for the lower tolls, TransCanada has proposed changing depreciation for the line’s three main geographical segments, extending service from its Alberta system to points on the mainline, modifying how tolls are designed and adding services to boost revenues.

“What we’re trying to address is everybody’s needs and issues in a way that makes sense,” TransCanada spokesman Terry Cunha said. “It’s been a long process and we’ve made quite a few applications before that not everyone’s been supportive of.”

The regulator is expected to rule on the application next year.

TransCanada shares closed up 16 Canadian cents at C$42.25 on the Toronto Stock Exchange on Friday.

Reporting by Jeffrey Jones; editing by Peter Galloway

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