November 17, 2010 / 4:06 PM / 7 years ago

UPDATE 1-TransCanada says discussing tolls with customers

* Seeks toll agreement with customers

* Could cut depreciation, amortize costs

* Share edge higher (Adds detail.)

CALGARY, Alberta, Nov 17 (Reuters) - TransCanada Corp TRP.TO said on Wednesday it is looking towards a three-year settlement with customers of its massive mainline natural-gas pipeline system as it looks to boost volumes on its lines.

The company, Canada’s largest pipeline operator, said it may lower depreciation charges by C$150 million to C$200 million ($147 million to $196 million) and amortize as much C$350 million in revenue shortfalls that arose from overestimating the amount of gas that would be shipped on its lines this year in order to keep its tolls competitive while gas prices are low.

The company may also re-jig how costs are allocated on its system, moving more costs onto the shoulders of short-haul shippers and away from long-haul customers.

“It’s in the shorter haul segments that we see more volumes and greater utilization and greater ability to recover costs,” Russ Girling, the TransCanada’s chief executive, said at a company investment forum in Toronto.

TransCanada is seeking to keep tolls on its mainline system competitive despite lagging volumes on the system. The system once carried around 6 billion cubic feet a day and now carries 3.1 bcfd as Western Canadian production falls.

It expecting volumes on its system to rise to around 4 bcfd by about 2014 as new shale gas discoveries in Western Canada are developed.

As a regulated pipeline system, shippers on the mainline pay for the line’s costs and a guaranteed return for TransCanada. But as volumes decline, there are fewer shippers to cover those fixed costs, threatening higher tolls, which in a time of weak gas prices would cut into producers profits.

TransCanada said if talks with producers aren’t successful, it plans to make a rate filing with Canadian regulators by the end of the year.

TransCanada shares rose 6 Canadian cents to C$36.06 midmorning on the Toronto Stock Exchange.

$1=$1.02 Canadian Reporting by Scott Haggett; Editing by Frank McGurty

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