NGTL settlement with customers designed to maintain competitive tolls through 2024

TC Energy's Nova Gas Transmission reached a revenue requirement settlement with customers Friday that keeps the current equity return for the pipeline system for another five years, a move designed to ensure competitive rates amid significant market challenges due to the coronavirus pandemic.

Through 2024, the equity return will be fixed at 10.1% on 40% deemed common equity. Among other things, the agreement also includes a mechanism for certain operating costs where variances from project amounts are shared between NGTL and its customers.

The settlement reflects the impact on supply and demand in the upstream and midstream sector from the stay-at-home orders across the world that have been imposed to stop the spread of the virus. TC Energy wants to keep tolls competitive as it moves forward with $14 billion of pipeline projects to connect more Western Canadian Sedimentary Basin gas supplies to downstream markets.

"This settlement is the result of a collaborative engagement with our customers and is responsive to the needs of both the industry and our business," CEO Russ Girling said in a statement.

The NGTL system is by far the most extensive and expansive in Western Canada, spanning nearly all corners of the province Alberta and serving as the backbone of its natural gas complex. Production receipts onto the system are close to 12 Bcf/d this month to date, consistent with recent historical levels, S&P Global Platts Analytics data show.

The steadiness of production on NGTL, which has come in somewhere between 10.5 Bcf/d and 12.3 Bcf/d since 2015, stands in contrast to steadily increasing deliveries off-system. Demand deliveries within Alberta have grown by nearly 30 percent over the same period, reaching an average 6.1 Bcf/d this year to date compared with 4.7 Bcf/d in 2015.

Exports, however, have slightly fallen amid increasing competition from the US for markets that previously were served primarily by Canadian supplies, Platts Analytics data show.

TC Energy has been working with its shippers across its pipeline systems to maintain competitive rates, and it has been adjusting to reflect market conditions.

In December 2019, it agreed under a settlement with customers to cut tolls starting in 2021 on the western portion of its Canadian Mainline that includes the path from Empress, a major export point, to Emerson, Manitoba.

The year before, NGTL reached a negotiated settlement with shippers that fixed operating, maintenance and administration costs at a total of $455 million for 2018 and 2019, creating certainty over rates while the system was being expanded.

NGTL expects to file an application with the Canada Energy Regulator for approval of the latest five-year negotiated revenue requirement settlement later this quarter, TC Energy said.

In recent years, TC Energy has seen strong demand in Canada and the US for capacity on its natural gas pipelines. It has faced some challenges with projects in Mexico, amid delays tied to regulatory issues and consultations with indigenous groups.