TransCanada's Energy East pipeline clears another hurdle

TransCanada Corp. resolved a major challenge to its $12-billion Energy East project after reaching an agreement with three natural gas distributors who say the deal insulates customers from the additional costs of converting the pipeline.

Under the agreement announced Monday, customers in Ontario and Quebec won't be on the hook for extra construction and development costs and will save $100 million between 2018 and 2050, the natural gas companies said.

"Whoever will be using the system at that time will pay less than they would have otherwise if Energy East had not been going forward," Gaz Metro CEO Sophie Brochu said in an interview.

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Gaz Metro, Union Gas and Enbridge Gas Distribution had been battling for more than a year to challenge TransCanada's proposed conversion of an existing 3,000-kilometre segment of cross-Canada natural gas pipe to oil.

Brochu said the agreement in principle between the Calgary-based company and the three natural gas firms resolves that dispute.

"The reservations that we had regarding the project we don't have any more," she said.

Union Gas president Steve Baker said the savings per customer based on consumption haven't been calculated.

"I don't think they would notice a huge amount in any given year but our objective was always from the start to make sure that consumers were not negatively impacted," he said.

Energy East is a proposed 4,600-kilometre pipeline that would have the capacity to transport 1.1 million barrels of crude oil per day from Alberta to refineries and port terminals in Eastern Canada.

TransCanada (TSX:TRP) said the agreement ensures natural gas consumers in Ontario and Quebec will have sufficient capacity and reduced natural gas transmission costs should the project proceed.

Oct. 30 deadline

The company said the deal also includes a commitment to increase the size of its proposed Eastern Mainline Project pipeline in southern Ontario to fulfil all natural gas contracts, including new ones for 2016 and 2017, and add 50 million cubic feet per day of additional capacity.

"It has always been our intent to ensure our customers in Quebec and Ontario would receive the gas they needed and we have done that through this agreement," said CEO Russ Girling in a news release.

The company has said that converting a portion of the Energy East Pipeline would make the system more efficient and reduce transportation costs to customers. It is expected to amend its application before the National Energy Board by Oct. 30.

Enbridge Gas president Glenn Beaumont said the public consultation process undertaken by the Ontario and Quebec governments helped facilitate the agreement.

The Ontario Energy Board recently said the environmental risks of Energy East outweigh the potential benefits and warned the project would drive up natural gas prices.

The board estimated that on average, over a 20-year period, winter natural gas prices in eastern Ontario will be 11.9 per cent higher than if Energy East did not go ahead.

It said prices would increase because of a reduction in pipeline capacity, higher demand in eastern Ontario and reliance by New England and New York during periods between peaks.

The board said there would be no effect on prices in the summer and only a "modest" impact on gas that passes through a different trading hub for delivery to major markets in Ontario and Eastern Canada.