CANADIAN OILPATCH / PIPELINE NEWS
Not Good For Some Producers
Thursday, November 7, 1996
Westcoast Energy seeks a further rate increase
Westcoast Energy Ltd., already under fire from producers for high pipeline tolls, said yesterday it has applied to the National Energy Board for another 25% hike in rates.
Last month, Westcoast announced that natural gas shippers responsible for 12% of the volume on its lines had given notice they would not renew their transportation service contracts.
That loss, plus a rise in its rate base, mean that Westcoast needs a big hike in its tolls to reach the 11.25% after-tax return on common equity allowed by the NEB. That would push 1997 rates to 89ó per thousand cubic feet from 72ó.
"This obviously won't go over well, I'll have to concede that," said Art Willms, Westcoast's president and chief operating officer. "That's why over the long run (fixed) tolls don't make sense."
Willms said the company is negotiating an incentive toll rate with shippers that would see the company share some of the commodity price risk with gas producers. Westcoast could lower its tolls when gas prices are falling and recoup its losses when prices rise.
"The traditional approach isn't going to work anymore," Willms said. "We are proposing to negotiate longer arrangements with producers with more certainty on volumes and individual [contracts] with producers. Rather than going for a hearing every time we want to be able to negotiate [tolls] and have the arrangement blessed by the NEB."
Westcoast said it expects to file an application proposing the incentive-based system by the end of the year.
The announcement was included in Westcoast third-quarter earnings announcement. For the quarter ended Sept. 30, Westcoast lost $5 million (6ó a share) on revenue of $711 million with operating cash flow of $66 million. A year earlier the company lost $16 million (19ó) on revenue of $725 million. Cash flow in the third quarter of 1995 was $48 million.
The earnings were above analyst's consensus estimates of 14ó a share loss in the quarter. That, plus the proposed toll increase, helped push the stock higher yesterday.
Westcoast shares (w/tse) ended the day up 45ó at $24. |
