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TransCanada Corporation (TSX:TRP) (NYSE:TRP) (TransCanada) announced today that its wholly-owned subsidiary NOVA Gas Transmission Ltd. (NGTL) has reached an agreement with customers and other interested parties on the annual costs, including equity return and depreciation, required to operate the NGTL System for 2016 and 2017.

"The NGTL System is a core asset in TransCanada's portfolio that continues to provide critical transportation services for the majority of natural gas produced in the Western Canada Sedimentary Basin," said Russ Girling, TransCanada's president and chief executive officer. "Significant new commercially-secured investment in NGTL represents a major component of TransCanada's $13 billion of small to medium-sized projects that are expected to enter service by 2018."

NGTL achieved strong stakeholder support for the two-year cost of service agreement that will start in 2016, subject to regulatory approvals.

"This agreement is the product of an open negotiation between NGTL and its stakeholders, and represents an acceptable balance of interests among the parties," added Girling. "We worked diligently with our stakeholders through a collaborative process to reach this consensus that brings greater certainty and stability to our operating costs through the end of 2017."

The agreement covers all elements of the NGTL System operating costs, including return on equity, equity thickness and depreciation, and includes a mechanism that incents NGTL to remain strongly focused on cost control as well as continuous operating efficiencies.

For the term, the agreement:

fixes the equity return at 10.1 per cent on 40 per cent deemed common equity;

establishes depreciation at a forecast composite rate of 3.16 per cent, which reflects continuation of 2015 parameters;

fixes operating, maintenance and administration (OM&A) costs at $222.5 million annually with an incentive mechanism for variances that enables NGTL to capture savings from improved performance; and

provides for flow-through of all other costs, including for example pipeline integrity expenses and emissions costs.

NGTL filed an application on December 1, 2015 with the National Energy Board for approval of the agreement.

TransCanada recently announced an increase of $570 million in overall secured investment on the NGTL system, resulting from 2.7 billion cubic feet per day (Bcf/d) of contracted new, firm natural gas transportation service commencing in 2018. This brings total project investment on the system to $7.4 billion. The agreement establishes earnings for the system and projects entering service through 2017.

Tag(s) : #EPC news
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