TransCanada Reaches a Settlement for 2006 Canadian Mainline Tolls
CALGARY, Alberta – March 9, 2006 – TransCanada Corporation (TSX, NYSE: TRP) (TransCanada) today announced it has reached a settlement with its customers and other interested parties regarding 2006 tolls on its Canadian Mainline natural gas transmission system.
"TransCanada is committed to strengthening the collaborative relationship we have with our customers and achieving a balance of our respective interests," said Hal Kvisle, chief executive officer. "By offering TransCanada the potential for a modest increase in earnings for achieving specific performance measures that benefit customers, this settlement further strengthens our alignment with our customers and continues to lay the groundwork for longer-term incentive programs."
The settlement results in a revenue requirement of approximately $1.8 billion for 2006. Subject to National Energy Board (NEB) approval of the settlement, the annualized benchmark Eastern Zone toll for 2006 is expected to be 94.5 cents/GJ.
The settlement establishes the Canadian Mainline's fixed operating, maintenance and administration (OM&A) costs for 2006 at $174.2 million, which is approximately six per cent higher than the OM&A costs of $164.2 million incurred in 2005. Any variance between actual OM&A costs and those agreed to in the settlement will accrue to TransCanada. All other cost elements of the 2006 revenue requirement will be treated on a flow through basis.
The negotiating parties agreed that the cost of capital for 2006 will consist of the weighted average cost of debt capital, preferred securities and cost of equity reflecting a rate of return on common equity of 8.88 per cent, as determined for 2006 under the NEB's return adjustment formula, on a deemed common equity ratio of 36 per cent.
The settlement also provides TransCanada with an opportunity to realize modest additional earnings through performance-based incentive arrangements. These incentive arrangements are focused on cost management activities and the management of fuel and provide mutual benefits to both TransCanada and its customers.
There is no change in depreciation rates or methodology from 2005 to 2006. Depreciation expense for 2006 is expected to be approximately $402 million.
Interim tolls will continue to be charged for transportation service on the Canadian Mainline until final tolls are approved by the NEB pursuant to this settlement. With NEB approval, the terms of this settlement will be effective January 1, 2006 for one year.
TransCanada will apply to the NEB for approval of this settlement in the near future.
TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure. TransCanada's network of more than 41,000 kilometres (25,600 miles) of pipeline transports the majority of Western Canada's natural gas production to key Canadian and U.S. markets. A growing independent power producer, TransCanada owns, or has interests in, approximately 6,700 megawatts of power generation in Canada and the United States. TransCanada's common shares trade on the Toronto and New York stock exchanges under the symbol TRP.
Note: All financial figures are in Canadian dollars unless noted otherwise.
FORWARD LOOKING INFORMATION
Certain information in this news release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in this information may differ from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include, among other things, the ability of TransCanada to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the availability and price of energy commodities, regulatory decisions, competitive factors in the pipeline and power industry sectors, and the current economic conditions in North America. For additional information on these and other factors, see the reports filed by TransCanada with Canadian securities regulators and with the United States Securities and Exchange Commission. TransCanada disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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