National Energy Board OKs Canadian Mainline tolls hike; TransCanada expects profits to increase $29M

A decision to increase pipeline tolls for the Canadian Mainline is expected to boost earnings at TransCanada Corp. by about $29 million in 2005, the company said May 2.

Canada’s National Energy Board approved a four-percentage-point increase in TransCanada Pipelines Ltd.’s mainline common equity ratio April 29, increasing it to 36 percent from 33 percent, retroactively effective Jan. 1, 2004. TransCanada, Canada’s largest natural gas carrier and power generation company, had applied for a 2004 seven-percentage point increase to its deemed common equity ratio that would have hiked the ratio to 40 percent.

After considering the cost of capital aspects of the application during 22 days of public hearings in Calgary from Nov. 29, 2004, to Feb. 4, 2005, the NEB concluded that, overall, the business risk to which the mainline is exposed has increased since the last assessment of TransCanada’s cost of capital in 2001 as a result of increases in supply risk and competitive risk.

The board also ruled that an increase in TransCanada’s common equity ratio was warranted in order to ensure that the mainline continues to maintain its financial integrity and its ability to attract capital on reasonable terms and conditions. A common equity ratio of 36 percent is in line with that of other Canadian pipelines found to be at comparable risk, the Board added.

“TransCanada views the NEB’s decision to move equity thickness to 36 percent as a positive step in recognizing the business risks faced by the Canadian Mainline and in maintaining its financial integrity,” said Hal Kvisle, TransCanada’s chief executive officer.

TransCanada expects the increase to result in higher corporate earnings in 2005 of $12 million related to 2004 and $17 million related to 2005. All of the increase will flow to the company’s bottom line in 2005.

TransCanada did not seek a change in NEB’s generic return-on-equity formula. Return on equity for the Canadian Mainline remains at 9.56 percent for 2004 and 9.46 percent for 2005.

In the first part of its decision issued in September 2004, the NEB decided to approve a net revenue requirement for 2004 of $1.7 billion and a rate base of $8.2 billion, subject to any impact resulting from the second ruling. That compared with the 2003 net revenue requirement of $1.9 billion and a rate base of $8.6 billion.

NEB officials said they were satisfied that the decisions reached in both phases of the decision are just and reasonable for the 2004 test year.

TransCanada transports the majority of Western Canada’s natural gas via 41,000 kilometers of pipeline to markets in the United States and Canada.

—Rose Ragsdale