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Mainline Service and Pricing Settlement Presentation to the TTF April 6, 2001. Background. April 2000 Five year price cap proposal TransCanada shares in non-renewal risk Discretion on pricing & term July 2000 Five year price cap with some flow through Asymmetrical risk sharing

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Presentation Transcript

Mainline Service and Pricing Settlement

Presentation to the TTF

April 6, 2001


Background
Background

  • April 2000

    • Five year price cap proposal

    • TransCanada shares in non-renewal risk

    • Discretion on pricing & term

  • July 2000

    • Five year price cap with some flow through

    • Asymmetrical risk sharing

    • Discretion on short term pricing

  • August/December 2000

    • Continued discussions around risk and discretion


Background1
Background

  • December 2000

    • Determined parties too far apart on cost of capital

    • Decision to litigate cost of capital & negotiate two year settlement that would include:

      • COS elements other than ROE and Equity

      • Billing determinants

      • IT & STFT service and pricing

      • FT enhancements

      • New services

      • Incentives


Benefits of the settlement
Benefits of the Settlement

  • Evolution towards competitive environment

  • Avoid / Limit litigation

  • Incentive for TransCanada to cut costs and improve efficiency

  • Alignment on incentives for win/win

  • AOS and Make-up add value to FT

  • Migration from FT to IT may be reduced


Details of transcanada pipelines services pricing settlement for 2001 2002

Details of TransCanada PipeLines Services & Pricing Settlementfor 2001 & 2002


Settlement review
Settlement Review

  • Financial Components

    • John Lee

      • Revenue Requirement, Severance, Merger Benefit, Depreciation, Incentive Programs

  • Services

    • Steve Emond

      • FT Makeup, Authorized Overrun Service, IT Floor Price, New Services Expedited Approval, Turnback


Net revenue requirement article 4
Net Revenue Requirement (Article 4)

  • OM&A (Article 4.3)

    Amount set at:

    - 2001: $223 million

    - 2002: $217 million

  • Flow-Through Costs (Article 4.2)

    - forecast for each year of the Settlement

    - variances between actual and forecast costs flowed through subject to review (Article 17.4)


Net revenue requirement continued article 4
Net Revenue Requirement Continued (Article 4)

  • Miscellaneous Revenue (Article 4.4)

    • Discretionary and Non-Discretionary Revenue forecast for each year of the Settlement

      - Variances between actual and forecast revenues flowed through subject to review (Article 17.4)


Severance program article 5
Severance Program (Article 5)

  • Provides TCPL with incentive to reduce costs and share in benefits achieved

  • Provides shippers with immediate savings during the term through the sharing mechanism and sustained savings beyond the term

  • Mechanism

    • Severance costs in 2001 and 2002 amortized over three years

    • Cost savings determined from the date of termination

    • Severance benefits equal amortized costs less savings

    • Severance benefits shared 70% TCPL: 30% Shippers

  • Illustrative example in Schedule F


Merger agreement 2001 benefit article 6
Merger Agreement – 2001 Benefit (Article 6)

  • Recognition of sharing OM&A cost savings under Section 9 of the MCBA in 2001

  • Savings determination

    • If 2001 Actual OM&A (adjusted) < Actual 2000 OM&A the savings are shared 50/50 TCPL/Shippers

    • Actual 2001 OM&A adjusted for non-routine costs

    • Example shown in Schedule 13.0 of Schedule “D” Reporting Requirements


Depreciation expense article 7
Depreciation Expense (Article 7)

  • Negotiated rate increases for the term as follows:

    2000 Composite - 2.64%

    2001: 2000 Composite Rate + .10

    2002: 2001 Composite Rate + .15


Incentives
Incentives

  • Revenue / Asset Management (Article 9)

  • Fuel Gas & Power Incentive (Article 10.1)

  • Foreign Exchange Management Program (Article 10.2)

  • Interest Rate Management Program (Article 10.3)


Revenue asset management article 9
Revenue / Asset Management (Article 9)

  • Purpose

    - minimize TBO/Storage costs

    - generate incremental transportation & other revenue

  • Commission accrues to TCPL on total revenues and cost savings based on percentages defined in Article 9

  • TCPL Commission capped at $5 million in each year of term

  • Revenues and cost savings net of the cap flow back to shippers


Foreign exchange interest rate programs articles 10 2 10 3
Foreign Exchange & Interest Rate Programs (Articles 10.2 & 10.3)

  • Purpose

    - minimize foreign exchange and interest cost

  • Program savings/(losses) are shared 50/50

  • Continuation of programs implemented in the Incentive Settlement and carried forward in 2000

  • Details of program are unchanged and fully described in Articles 10.2 and 10.3


Contract demand
Contract Demand 10.3)

  • Variance between forecast and actual deferred and recovered in following year through a deferral account


Services

Article 11.1: FT Make-up and AOS 10.3)

Article 11.2: IT Floor Price

Article 11.3: New Service Expedited Approval Process

Article 12: Turnback Procedure

Services


Ft service enhancements description
FT Service Enhancements - Description 10.3)

  • FT Make-Up

    • Unutilized FT capacity

  • Authorized Overrun Service (AOS)

    • 4% of FT demand toll

  • Dollar credit to IT invoice

  • Credits expire if not used in the gas month


Ft service enhancements details
FT Service Enhancements - Details 10.3)

  • Start:

    • minimum of 30 days after NEB approval

    • first day of a month

  • End:

    • December 31, 2002

  • Tariff Changes in Schedule “B”


Ft service enhancements benefits of it credit process
FT Service Enhancements - Benefits of IT Credit Process 10.3)

  • flexibility and value:

    • use anytime during the month

    • use on any path

  • relatively quick & inexpensive to implement

  • simple to use

  • consistent with FT Make-up process on NOVA

  • no incremental toll


It floor price
IT Floor Price 10.3)

  • IT is Biddable (status quo)

  • Floor Price = Proxy for marginal fuel cost

    + Contribution to fixed costs

    + FT commodity toll

  • Maximum Floor Price: 120% of FT Toll

  • Minimum Floor Price: 80% of FT Toll


It floor price fuel proxy
IT Floor Price - Fuel Proxy 10.3)

  • Consistent with historical methodology…..

    • Uses long-haul IT to Parkway as basis

    • Difference between marginal fuel % and average fuel %

  • Changes from historical methodology…..

    • Revised monthly to reflect cost of gas at Empress

    • Revised seasonally to reflect changes in fuel ratios


It floor price other
IT Floor Price - other 10.3)

  • contribution to fixed costs = 4% of FT Demand toll currently in effect

  • changes commence:

    • minimum of 30 days after NEB approval

    • 1st day of a month


It floor price schedules
IT Floor Price - Schedules 10.3)

C-1: Tariff Amendments

C-2: Fixed Cost Contribution

C-3: Example of monthly Calculation

C-4: Seasonal redetermination Process

C-5: Format of “List of Tolls”


Future business model
Future Business Model 10.3)

  • TransCanada will develop new regulatory model by the end of August 2001

  • Discussions with Stakeholders

    Start: by September 17, 2001

    Finish: by February 28, 2002

  • File: April 2002

  • Implement: January 1, 2003


Eastern zone toll gj
Eastern Zone Toll ($/GJ) 10.3)

  • 2000 $1.01

  • 2001 Interim $1.13

  • 2001 Settlement $1.103 *

    (* based on current cost of capital under NEB Formula)


Next steps
Next Steps 10.3)

Target Date

Complete MOU April

File MOU April

File Cost of Capital April

NEB Decision - MOU May - Oct. *

FT Enhancements in Effect July - Dec. *

NEB Decision: Cost of Capital Sept/Oct

& Final Tolls

*Range depends on objections by parties



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