National Energy Board Filed Electronically 444 Seventh...

450 - 1st Street, S.W. Calgary, Alberta, Canada T2P 5H1 Tel: (403) 920.2161 Fax: (403) 920.2347 E-mail: [email protected]

June 1, 2012 National Energy Board Filed Electronically 444 Seventh Avenue S.W. Calgary, Alberta T2P 0X8 Attention: Ms. Sheri Young Secretary of the Board Dear Madam: Re: TransCanada PipeLines Limited, NOVA Gas Transmission Ltd., and Foothills

Pipe Lines Ltd. (TransCanada) Application for Approval of the Business and Services Restructuring Proposal

and Mainline Final Tolls for 2012 and 2013 (Application) National Energy Board Hearing Order RH-003-2011 NEB File OF-Tolls-Group1-T211-2011-04 01 TransCanada’s Responses to NEB Round 6 Information Requests

Pursuant to the Board’s direction of May 11, 2012, enclosed for filing are the responses of TransCanada to NEB Information Request No. 6. Also enclosed is the witness panel accountability for these responses, which is provided as a supplement to the information filed with the Board on May 4, 2012 (Exhibit B19). Yours truly, TransCanada PipeLines Limited NOVA Gas Transmission Ltd. Foothills Pipe Lines Ltd. Original Signed by Kristine Delkus Deputy General Counsel Pipelines and Regulatory Affairs cc: Parties to RH-003-2011

TransCanada PipeLines Limited RH-003-2011 Response to NEB

June 1, 2012 Page 1 of 19

NEB 6.1 Topic: Rate Base Reference: i) TransCanada response to NEB IR 3.1(b), page 8 (PDF page 8)

[A2L8Z8]

ii) TransCanada Application, Part F: Filing Manual Requirement (Revised), Attachment 13.1, Tab P.3.2: Financial Statements, Sheets 1 and 2 (PDF pages 206 and 207) [A2G7S5]

iii) Written Evidence of Elizabeth H. Crowe, page 3, (PDF page 4), lines 14-15 [A2Q8R0]

iv) IGUA Written Evidence, Amended Written Evidence of Murray A. Newton, page 25 (PDF page 25), A54 [A2R0G1]

v) “TransCanada seeks switch from gas to oil”, The Globe and Mail (http://www.theglobeandmail.com/globe-investor/transcanada-seeks-switch-from-gas-to-oil/article2415779/), 27 April 2012

vi) Market Area Shippers (MAS) Written Evidence, MAS Alternative Proposal, page 4, (PDF page 4), lines 1-2 [A2Q9G3]

vii) MAS Written Evidence, MAS Alternative Proposal, page 3, (PDF page 3), lines 21-25 [A2Q9G3]

Preamble: In reference i), TransCanada indicates that, if structured properly,

securitization maintains the financial integrity of utilities by permitting the retirement of capital invested in regulated assets. In reference ii), TransCanada provides financial statements for the Mainline. In reference iii), Ms. Crowe indicates that the main element of APPrO’s Alternative Tolling Methodology is to remove 40% of TransCanada’s net pipeline investment cost, or $2.2 billion, from rate base and from the calculation of depreciation expense. Reference iv) presents IGUA’s proposal as it relates to asset write-off. Mr. Inge has developed a proposal that would reduce the size of the regulated company by excluding the under-utilized Prairies and Northern Ontario Line (NOL) net plant from the calculation of tolls ($1.6 billion).

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In reference v), TransCanada’s CEO Russ Girling states, “[w]e’re going to actively pursue it” regarding the topic of converting a portion of the Mainline’s capacity to oil service. In reference vi), the MAS propose to remove from the revenue requirement the equity return associated with the NOL segment in each year from 2012 to 2020. The MAS indicate in reference vii) that there should be no shift in accumulated depreciation from the Prairies and Eastern Triangle segments to the NOL segment and that the economic planning horizon for this segment should be 2020 with the economic planning horizons for the Prairies and Eastern Triangle segments remaining at 2036 and 2050, respectively.

Request: a) Please explain what is meant by the expression “maintains the financial integrity”

of utilities in reference i). In your answer, explain whether there is any distinction between the concept of financial integrity outlined in reference i) and the requirement for financial integrity included in the Fair Return Standard.

b) Assume that TransCanada is required to implement a write-off, for illustrative purposes, of $500 million of the net book value of the Mainline’s rate base in 2012 and that no securitization for this write-off is implemented. For both the Status Quo and the Restructuring Proposal in 2012:

i. Please explain and justify how TransCanada would allocate the write-off among the three segments of the Mainline system (Prairies, NOL and Eastern Triangle).

ii. Please explain, using pro forma financial statements similar to the ones in reference ii), how this write-off would be treated on the Mainline’s balance sheet and income statement.

iii. Please explain, using numerical schedules if necessary, how this write-off would impact the Mainline’s capital structure and whether, and if so, how, TransCanada would readjust its capital structure to targeted levels following this write-off.

iv. Please explain, using numerical schedules if necessary, whether, and if so, the extent to which, the adjustment for the difference between market and embedded debt costs would be affected by this write-off and the potential capital structure adjustment, if any, discussed in answer ii) above.

v. Please explain, using numerical schedules if necessary, how this write-off would impact return to be included in the revenue requirement.

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vi. Please explain, using numerical schedules if necessary, how this write-off

would impact income taxes, including capital cost allowance, to be included in the revenue requirement. In your answer, also present the income tax impact of this write-off (e.g. tax credit), if any, for the Mainline’s shareholders.

vii. Please explain, using numerical schedules if necessary, how this write-off would impact depreciation to be included in the revenue requirement.

viii. Please explain, using numerical schedules if necessary, how this write-off would impact any other revenue requirement items, including discretionary and non-discretionary miscellaneous revenues.

ix. Please present an itemized revenue requirement schedule resulting from this write-off in a similar format as in Schedule 1.3 of Attachment 12.1, Tab1 of the Application, but including line items for discretionary and non-discretionary miscellaneous revenues. Also, present the same type of schedule for write-offs of $1 billion, $1.5 billion and $2 billion. For the $1 billion, $1.5 billion and $2 billion write-offs, explain and justify any assumptions made relating to how the write-off is allocated among the three segments of the Mainline system (Prairies, NOL and Eastern Triangle).

x. Please present the toll impact of this write-off on key long- and short-haul tolls. Please also present the toll impacts on key long- and short-haul tolls of write-offs of $1 billion, $1.5 billion and $2 billion using the same assumption as b)ix) above.

xi. For each of the answers presented above, please explain the impact of the 2012 write-off for 2013 and beyond.

Please outline and justify any assumptions made in deriving the information requested above.

c) Please discuss whether a write-off of a portion of the rate base needs to be tied to any physical asset being removed from service. Please address in your answer both economic and operational aspects.

d) Please discuss how a write-off of some Mainline assets in 2012 could impact the likelihood of a potential conversion of some Mainline assets to oil service as discussed in reference v).

e) Only as it relates to forgoing the equity return on the NOL as proposed by MAS in reference vi) and for both the Status Quo and the Restructuring Proposal, please provide answers to questions b)ii) to b)xi) above replacing “this write-off” by “foregoing the equity return on the NOL until this segment is fully depreciated”. In your answer, provide a present value analysis of how this scenario would impact TransCanada’s shareholders in 2012, explaining and justifying any assumptions made. For both questions b)ix) and b)x), disregard the second part of those questions.

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f) Assume that TransCanada is required to forgo the equity return on the NOL, as proposed in reference vi), and that MAS’s “depreciation proposal” as outlined in reference vii) is implemented. For both the Status Quo and the Restructuring Proposal, please provide answers to questions b)ii) to b)xi) above replacing “this write-off” by “implementing MAS’s depreciation proposal and foregoing the equity return on the NOL until this segment is fully depreciated”. In your answer, provide a present value analysis of how this scenario would impact TransCanada’s shareholders in 2012, explaining and justifying any assumptions made. For both questions b)ix) and b)x), disregard the second part of those questions.

Response: (a) The financial integrity and capital attraction aspects of the Fair Return Standard

are interlinked and therefore often viewed together.1 The fair return is one that is sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and attract capital.2 The ability to access capital in the future depends on the returns available to equity investors and the financial stability and creditworthiness that can be demonstrated by TransCanada to fixed income investors.3

In the context of the Fair Return Standard, financial integrity is often discussed in terms of financial ratios, which indicate that the Mainline has the ability to meet its current and future financial obligations.4 A downgrade in credit rating would impair ability to access capital markets—marginal borrowing costs would increase, the value of outstanding debt would decrease, the amounts made available by lenders would decrease and the debt term to maturity would decrease.5 When the NEB increased the deemed equity ratio of the Mainline from 33% to 36% in the RH-2-2004 Phase II Decision, one of its reasons for so doing was that a reduction in financial risk was warranted to ensure that the Mainline continued to maintain its financial integrity and its ability to attract capital on reasonable terms and conditions.

In the response to NEB 3.1 (b), TransCanada used the term "financial integrity" in a broader sense than the Fair Return Standard, but within the same concept. The statement that securitization “maintains the financial integrity of utilities by permitting the retirement of capital invested in regulated assets” was intended to

1 For example, see RH-2-2004 – Phase II Decision, Chapter 6: Financial Integrity and Capital Attraction, pages 73-78. 2 RH-2-2004 – Phase II Decision, page 15 (citing Hope). 3 RH-2-2004 – Phase II Decision, page 73. 4 RH-2-2004 – Phase II Decision, page 77. 5 RH-2-2004 – Phase II Decision, page 75.

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recognize that the utility investors do not suffer a financial loss. Securitization would allow the utility to recover its investment in the regulated assets, and then TransCanada would have the opportunity to redeploy that capital in other assets to earn a return on such capital. An appropriate securitization should therefore have little or no effect on the financial integrity requirement of the Fair Return Standard. By contrast, a breach of the regulatory compact by requiring shareholders to bear some or all of the costs of underutilized assets would impact the financial integrity requirement of the Fair Return Standard in a very negative way by undermining confidence in the financial stability and creditworthiness of the Mainline.

(b) The request asks TransCanada to assume that it is required (presumably by the Board) to implement a “write-off” of $500 million of the net book value from the Mainline rate base (and subsequently in this request, different amounts). TransCanada understands the terms “write-off” and “write-down” to be accounting terms that relate to the values at which assets are carried on TransCanada’s books and reported for financial purposes. The link between a Board requirement and TransCanada’s accounting and financial reporting practices is unclear. Therefore, for the purposes of responding to this request, TransCanada has assumed that the Board is asking about a rate base disallowance for tolling purposes, rather than a “write-off” for accounting purposes, and TransCanada has therefore used the term “disallowance” throughout the balance of this response with this meaning.

A disallowance from rate base of costs that were previously found to be prudently incurred is neither warranted nor consistent with the regulatory model under which the Mainline operates. This model allows for a reasonable opportunity to recover costs of assets removed from rate base through means such as an extraordinary retirement. The model also allows for adjustments to depreciation expense on a prospective basis to account for changes in depreciation assumptions, such as a change in economic planning horizon.

However, should a disallowance of previously-approved costs in rate base be mandated by the Board, the opportunity to recover the capital should be maintained, as if it were an extraordinary retirement. In the case of an extraordinary retirement, where a portion of the book cost has not been recovered through depreciation expense, the associated losses would be held in an Extraordinary Plant Losses account and amortized over an appropriate period of time, subject to Board approval. Under this traditional regulatory model, the rate base disallowance would be offset by an increase in the Extraordinary Plant Losses account resulting in no change to the rate base. The revenue requirement would only differ if the related depreciation and amortization rates are different. For example, if a $500 million rate base disallowance were amortized over five years the revenue requirement would increase by approximately $95 million

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during the amortization period after which it would decrease by approximately $65 million.6 The regulatory compact would, however, be maintained.

TransCanada believes that the scenarios contemplated in this request do not envision measures that maintain the regulatory compact, but instead amount to a breach of the regulatory compact in that the Board would be requiring TransCanada to absorb a portion of Mainline prudently incurred costs when the Board has viable options of setting just and reasonable tolls on the Mainline in this proceeding without doing so. As explained both in Dr. Kolbe’s Written Evidence and his Reply Evidence, such an action would increase the required rate of return on investments under Board jurisdiction by creating an asymmetric risk that this or a future Board might decide again to breach the regulatory compact when an alternative policy existed. Adequate compensation for such a risk requires an asymmetry risk premium, over and above the cost of capital, in the allowed rate of return on investments under Board jurisdiction. Depending on the nature of the risk, it may also create an increase in the cost of capital itself.

Calculation of a fair asymmetry risk premium is a fact-specific task, and TransCanada cannot say what rate of return would be required going forward with the information available at this time. Such asymmetry risk premia can be very large, multiples of the cost of capital itself. For purposes of this answer, TransCanada simply assumes that the fair after-tax rate of return on total capital following imposition of each of the postulated losses is, for illustrative purposes, 15 percent, adjusted for the difference between after-tax market and embedded debt costs.

In addition, the rate base disallowance as postulated by the Board may compromise TransCanada’s ability to continue to apply rate regulated accounting (RRA) for financial reporting purposes. A conclusion that the Mainline no longer qualifies for RRA would result in a write-off of certain regulatory assets and liabilities and future earnings would be less stable since TransCanada would no longer be able to record deferrals as it currently does using RRA.

In summary, the following responses are prepared based on the following assumptions:

1. A disallowance of previously-approved costs from rate base is mandated by the Board with recovery of these costs in tolls precluded. TransCanada is required to absorb a portion of its prudently incurred investment in the Mainline.

2. The fair after-tax rate of return on total capital following imposition of each of the postulated losses is 15 percent, adjusted for the difference between after-tax market and embedded debt costs.

6 Revenue requirement impact includes amortization of $500 million over 5 years, lower return on a lower rate base, lower depreciation expense, and associated income tax expense.

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3. TransCanada continues to apply RRA in recording Mainline financial

results.

4. No other adjustments to the Revenue Requirement.

As noted in 4) above, TransCanada made no other adjustments to the revenue requirement. Clearly however, certain line items would likely change as a result of disallowance of rate base being imposed on TransCanada. For example, TransCanada would not be prepared to make a voluntary contribution to revenue requirement in a scenario where it is required to absorb prudently incurred costs.

Table 1 below summarizes the resulting revenue requirements, and tolls for two illustrative paths that would be expected to result under the various scenarios for which information is sought in part (b) of this request. The tolls presented do not account for the expected impact to the cost of capital of other regulated entities, including the Alberta System, that would be expected to occur as a result of a breach of the regulatory compact. It is clear from the information requested that there would be significant costs imposed on TransCanada under the various scenarios. In contrast, of significance is the fact that shippers would not experience toll reductions and in all instances would expect toll increases. This information illustrates the public interest benefit of maintaining the regulatory compact, not solely for TransCanada, but for all stakeholders.

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SUMMARY OF RESULTSFOR THE TEST YEAR ENDING DECEMBER 31, 2012($000)

TRANSCANADA $0.5 BILLION $1.0 BILLION $1.5 BILLION $2.0 BILLIONLINE OCTOBER RATE BASE RATE BASE RATE BASE RATE BASENO. PARTICULARS SUPPLEMENT DISALLOWANCE DISALLOWANCE DISALLOWANCE DISALLOWANCE

(a) (b) (c) (d) (e) (f)

STATUS QUO

Revenue Requirement1 Return 505,855 860,813 797,153 734,096 670,210 2 Income Taxes 243,754 370,996 352,170 331,810 312,905 3 Depreciation 401,692 386,692 371,692 351,692 336,692 4 Other 796,527 796,527 796,527 796,527 796,5275 Gross Revenue Requirement 1,947,828 2,415,028 2,317,542 2,214,125 2,116,33

6 Miscellaneous Revenue (639,610) (786,290) (757,458) (726,984) (698,117) 7 Net Revenue Requirement 1,308,218 1,628,738 1,560,084 1,487,141 1,418,217

Tolls ($/GJ)

4

8 NIT to Enbridge CDA 2.74 3.38 3.24 3.09 2.95 9 Parkway to Enbridge CDA 0.10 0.12 0.12 0.11 0.11

RESTRUCTURING PROPOSAL

Revenue Requirement10 Return 475,796 874,971 810,546 746,685 682,699 11 Income Taxes 158,132 302,546 283,454 266,302 249,108 12 Depreciation 287,085 277,085 262,085 252,085 242,085 13 Other 668,636 668,636 668,636 668,636 668,6314 Gross Revenue Requirement 1,589,649 2,123,238 2,024,721 1,933,708 1,842,52

15 Miscellaneous Revenue (450,387) (599,079) (572,943) (549,013) (525,047) 16 Net Revenue Requirement 1,139,262 1,524,159 1,451,778 1,384,695 1,317,481

Tolls ($/GJ)

6 8

17 NIT to Enbridge CDA 1.41 1.89 1.80 1.72 1.64 18 Parkway to Enbridge CDA 0.10 0.12 0.11 0.11 0.11

TABLE 1

i. A disallowance of a portion of the Mainline rate base would need to be tied to specific assets and TransCanada would allocate it in accordance with the determination upon which it would be imposed. Since the request does not specify any specific assets to which a disallowance would be imposed, TransCanada has assumed that the amount disallowed would be applied across all Mainline segments in proportion to the existing rate base for the purpose of this response.

ii A disallowance of rate base may or may not result in a write-off in TransCanada’s audited financial statements. For the purposes of this response TransCanada has illustrated the impact of a write-off in the Mainline 2012 pro forma financial statements. The result of a one-time disallowance of prudently incurred costs from rate base in 2012 on the Mainline balance sheet and income statement is as follows:

reduction to property plant and equipment asset value of $500 million on the balance sheet with a corresponding impairment loss recorded on the income statement;

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impairment loss would be partially offset by non-regulated deferred

income taxes of $129 million;

short-term debt would be reduced;

financial statements would be impacted by related changes to the revenue requirement.

Please refer to Attachment NEB 6.1b(ii)-1 for 2012 Status Quo balance sheet and income statement and Attachment NEB 6.1b(ii)-2 for 2012 Restructuring Proposal balance sheet and income statement.

For the year 2013 and beyond, the financial statements would continue to reflect the higher revenue requirement and a lower property plant and equipment balance than comparable years based on no rate base disallowances.

iii. The disallowance of prudently incurred costs from rate base would impact the capital structure as follows:

equity would be reduced by taking the loss into retained earnings;

short-term debt underpinning the Mainline rate base would be reduced; and

long-term debt would remain on the books until maturity.

Assuming a deemed debt to equity structure of 60/40 for revenue requirement determination, this would result in a pre-funded debt position until sufficient debt matures or the rate base increases. Please also refer to response to part (ii), page 6 of Attachment NEB 6.1b(iii)-1 for Status Quo numerical schedules and page 6 of Attachment NEB 6.1b(iii)-2 for Restructuring Proposal numerical schedules.

iv. The embedded Mainline long-term debt would remain in place until maturity, resulting in a pre-funded debt position based on a 60% deemed debt component. Please refer to page 6 of Attachment NEB 6.1b(iii)-1 for Status Quo numerical schedules and page 6 of Attachment NEB 6.1b(iii)-2 for Restructuring Proposal numerical schedules which reflect an adjustment to recover the embedded debt costs in tolls.

For the year 2013 and beyond, the return component associated with the adjustment for embedded debt cost cannot be determined. It would trend lower due to a lower rate base; however, financing costs would likely be higher as a result of the increase in risk.

v. A disallowance of prudently incurred costs from rate base would have two impacts on return. First, it would have a reduction commensurate with the reduction in rate base. Second, as noted in the introduction to part (b), it would result in a substantial increase in the fair return required as a result of a breach in the regulatory compact that would require an asymmetry risk

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premium, and as a result of a dramatic increase in business and regulatory risk resulting from the change in the method of regulation.

For the purpose of this response, TransCanada has assumed that such a scenario would be associated with a fair after-tax rate of return of 15% adjusted for the difference between after-tax market and embedded debt costs. This scenario would also result in higher financing costs that have not been reflected in the attached illustrations. As noted in the response to part (iv), the embedded Mainline debt would remain, resulting in a pre-funded debt position. Please refer to Attachment NEB 6.1b(iii)-1 for Status Quo numerical schedules and Attachment NEB 6.1b(iii)-2 for Restructuring Proposal numerical schedules.

For the year 2013 and beyond, the return would continue to remain higher than the comparable years based on no rate base disallowances and assuming a fair after-tax rate of return of 15%. This increase in fair return more than offsets the reduction as a result of a lower rate base.

vi. A disallowance of prudently incurred costs from rate base would impact income tax in the following ways:

the undepreciated capital cost (UCC) used to determine the revenue requirement would be reduced by the disallowed amount. UCC represents tax deductions that correspond to capital investment in the Mainline. To the extent that TransCanada would not recover the disallowed amounts in tolls, an equivalent UCC balance would be removed, and the related tax deductions for capital cost allowance (CCA) would be reduced. This would increase the income tax component to be recovered in the revenue requirement;

income tax would increase due to the higher after-tax rate of return required by investors;

income tax would decrease to the extent that the depreciation expense decreases; and

The UCC balance equivalent to the disallowed amount would be removed from regulated operations. Instead these UCC deductions would be used to reduce the $500 million loss incurred by TransCanada shareholders by an amount of approximately $129 million (based on a 25.867% tax rate).

Please refer to Pages 3 and 4 of Attachment NEB 6.1b(iii)-1 for Status Quo numerical schedules and Pages 3 and 4 of Attachment NEB 6.1b(iii)-2 for Restructuring Proposal numerical schedules.

For the year 2013 and beyond, the income tax would continue to remain higher than the comparable years based on no rate base disallowances and

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assuming a fair after-tax rate of return of 15% adjusted for the difference between after-tax market and embedded debt costs.

vii. Based on the approach described in response to part (ii) on this request, the disallowance from rate base would reduce the property, plant and equipment net book value and the corresponding depreciation to include in the revenue requirement over the remaining service life of the assets. In the illustrative example of a $500 million disallowance, depreciation expense would be reduced by approximately $15 million under the Status Quo assumptions and $10 million under the Restructuring Proposal assumptions.

For the year 2013 and beyond, the depreciation expense would continue to remain lower than the comparable years based on no rate base disallowances and assuming no changes to depreciation parameters.

viii. It is unclear how it could be appropriate for TransCanada to continue providing regulated discretionary services under the existing terms of the Mainline tariff under a scenario where it is forced to absorb a disallowance of prudently incurred costs from rate base. Under such a scenario, TransCanada expects that it would be able to provide Mainline discretionary services pursuant to a light-handed regulation model such as described in the response to NEB 6.4 regarding the non-core services. Nonetheless, for illustrative purposes, TransCanada has prepared a response assuming a continuation of the existing suite of Mainline services pursuant to the existing regulatory model.

Please refer to Attachment NEB 6.1 (b) (viii) for a detailed comparison of 2012 discretionary and non-discretionary miscellaneous revenue impacts from the various disallowances from rate base scenarios. Assuming flows would not change, and all existing facilities remain in service, the level of discretionary miscellaneous revenue (DMR) and certain components of the non-discretionary miscellaneous revenue (Non-DMR) would be impacted by the change in toll level. The particular components of Non-DMR that would be impacted due to toll change are the FT-SN premium and STS revenues. There would be no impact to the Non-DMR for the Union Dawn Receipt Point Surcharge or sales meter station charges. Delivery pressure revenues would be impacted because the underlying annual cost of delivery pressure facilities would change in conjunction with the overall system cost changes for depreciation, return and income taxes as detailed in responses (b) (v), (b) (vi), and (b) (vii).

There would be no other material change that would impact the Mainline revenue requirement.

Assuming no change to the long term flow forecast and all existing facilities remain in service, the impacts to DMR and Non-DMR from the various disallowances from rate base scenarios for 2013 and beyond would also be

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impacted by the change in toll levels for each particular year. The same individual components of miscellaneous revenues are impacted for the same reasons as 2012.

ix. Please refer to part (ii) for assumptions on how the disallowance of prudently incurred costs from rate base would be allocated among the three segments. Please refer to Attachment NEB 6.1b(ix) for a summary of revenue requirements based on rate base disallowances of $0.5 billion, $1.0 billion, $1.5 billion, and $2.0 billion.

For the year 2013 and beyond, the revenue requirement would continue to remain higher than the comparable years based on no rate base disallowances.

x. A summary of the resulting tolls for two illustrative paths under the various scenarios is provided in Table 1, in the introduction to the response to part (b). Please also refer to Attachment NEB 6.1 (b) (x) for a list of 2012 tolls for both the Restructuring Proposal and Status Quo under the various disallowance scenarios. These tolls were derived assuming the same flow forecast for 2012 under the Restructuring Proposal and the Status Quo and are based on the revenue requirement forecast provided in response to (b) (ix).

Assuming the same long term flow forecast under the Restructuring Proposal and the Status Quo, the impacts to tolls from the various disallowances from rate base scenarios for 2013 and beyond occur based on the long term revenue requirement changes as discussed in response to (b) (ix).

xi. Please refer to the responses to parts (ii) through (x) above for an explanation, where applicable, of the impact for 2013 and beyond of a one-time disallowance of prudently incurred costs from rate base in 2012.

(c) A disallowance of a portion of the Mainline rate base would need to be tied to specific assets, and be predicated on a valid regulatory principle for such a disallowance (e.g., the costs were not prudently incurred), in order for it to be within the existing regulatory compact. While a disallowance of an asset from rate base would not dictate that it be removed from service, TransCanada would have no incentive to maintain such an asset for regulated service, nor presumably any obligation to do so. The operational need for the assets would not be affected by the disallowance. TransCanada also expects that any disallowed asset from rate base could be used by TransCanada as it see fit, without commercial or regulatory constraints.

(d) A disallowance of specific Mainline assets from TransCanada’s rate base would not be expected to materially affect the likelihood of a potential conversion of those assets to oil service. However, as discussed in the response to part c), it would be no more than a coincidence if the assets that were subject to disallowance were the same ones that were attractive candidates for conversion to oil service. As to the effect of a disallowance on the likelihood of asset

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conversion more broadly, because of this potential mismatch, a disallowance of rate base could negatively impact the likelihood of a potential conversion of some Mainline assets to oil service if it led to the wrong assets being taken out of service.

(e) Similar to the scenarios contemplated in part (b) of this request, a scenario where TransCanada would forego the equity return on the NOL would be inconsistent with the regulatory compact under which a reasonable opportunity to recover prudently incurred costs, including a fair return on capital, is provided. The Board would require TransCanada to absorb a portion of the Mainline prudently incurred costs when the Board has viable options of setting just and reasonable tolls on the Mainline in this proceeding without doing so. As explained both in Dr. Kolbe’s Written Evidence and his Reply Evidence, such an action would increase the required rate of return on investments under Board jurisdiction by creating an asymmetric risk that this or a future Board might decide again to breach the regulatory compact when an alternative policy existed. Adequate compensation for such a risk requires an asymmetry risk premium, over and above the cost of capital, in the allowed rate of return on investments under Board jurisdiction. Depending on the nature of the risk, it may also create an increase in the cost of capital itself.

Notwithstanding that the contemplated scenario would be expected to have a significant impact on the appropriate fair return for the Mainline, TransCanada has prepared the various responses to part (e) of this request assuming the same returns as those estimated for the Restructuring Proposal and the Status Quo. Accordingly, the results presented in part (e) only account for the direct effect that would be associated with a foregone equity return on the NOL, and overall revenue requirement in these scenarios are understated.

ii Please refer to Attachment NEB 6.1e(ii)-1 for the 2012 Status Quo balance sheet and income statement and Attachment NEB 6.1e(ii)-2 for the 2012 Restructuring Proposal balance sheet and income statement. TransCanada would not recover approximately $106 million and $41 million of forgone equity return on the NOL assets in 2012 under the Status Quo and Restructuring Proposal, respectively.

For the year 2013 and beyond, the amount of forgone NOL equity return reflected in the financial statements would decrease as the NOL assets are depreciated.

iii. The loss of the equity return on the NOL would impact the actual capital structure as follows:

The equity component of the balance sheet would be reduced by realizing the loss of equity return in retained earnings.

The rate base would not be impacted by the loss of the equity return on the NOL and therefore would have no direct effect on the Mainline deemed

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capital structure assumed for revenue requirement determination under either the Status Quo or Restructuring Proposal.

For the year 2013 and beyond, the amount of lost NOL equity return reflected in the financial statements would decrease as the NOL assets are depreciated with a corresponding impact to the Mainline equity component of the capital structure.

iv. Under the assumptions described in the introduction to part (e), foregoing the equity return on the NOL would have no direct effect on the difference between the market and embedded cost of debt under either the Status Quo or Restructuring Proposal.

v. Under the assumptions described in the introduction to part (e) of this response, the return would be reduced by the equity return on the NOL. Please refer to pages 1 and 2 of Attachment NEB 6.1e(iii)-1 for 2012 Status Quo and pages 1 and 2 of Attachment NEB 6.1e(iii)-2 for 2012 Restructuring Proposal.

For the year 2013 and beyond, the amount of lost equity return on the NOL would decrease as the NOL assets are depreciated.

vi. Income taxes would be reduced as a result of the reduced equity return on the NOL. TransCanada shareholders would realize the loss of the reduced after-tax equity return on the NOL in net income. Please refer to page 3 of Attachment NEB 6.1e(iii)-1 for 2012 Status Quo and page 3 of Attachment NEB 6.1e(iii)-2 for 2012 Restructuring Proposal.

For the year 2013 and beyond, the reduction in income taxes and the lost equity return on the NOL would decrease as the NOL assets are depreciated.

vii. Under the assumptions described in the introduction to part (e), foregoing the equity return on the NOL would have no direct effect on the depreciation included in the revenue requirement under either the Status Quo or Restructuring Proposal.

viii.It is unclear how it could be appropriate for TransCanada to continue providing regulated discretionary services under the existing terms of the Mainline tariff under a scenario where it is forced to forego the equity return on the NOL. Under such a scenario, TransCanada expects that it would be able to provide Mainline discretionary services pursuant to a light-handed regulation model such as described in the response to NEB 6.4 regarding the non-core services.. Nonetheless, for illustrative purposes, TransCanada has prepared a response assuming a continuation of the existing suite of Mainline services pursuant to the existing regulatory model.

Please refer to Attachment NEB 6.1 (e) (viii) and (f) (viii) for a detailed comparison of 2012 discretionary and non-discretionary miscellaneous revenue impacts due to the foregone equity return on the NOL. Assuming

of 19 NEB 6.1

flows would not change and all existing facilities remain in service, the level of discretionary miscellaneous revenue (DMR) and certain components of the non-discretionary miscellaneous revenue (Non-DMR) would be impacted by the change in toll level. The particular components of Non-DMR that would be impacted due to toll change are the FT-SN premium and STS revenues. There would be no impact to the Non-DMR for delivery pressure, the Union Dawn Receipt Point Surcharge or sales meter station charges as a result of foregone NOL equity return.


Assuming no change to the long term flow forecast and all existing facilities remain in service, the impacts to DMR and Non-DMR due to the foregone equity return on the NOL for 2013 and beyond would also be impacted by the change in toll level for each particular year. The same individual components of miscellaneous revenues would be impacted for the same reasons as 2012.

ix. Please refer to page 1 of Attachment NEB 6.1e(iii)-1 for 2012 Status Quo and Page 1 of Attachment NEB 6.1e(iii)-2 for 2012 Restructuring Proposal.

Under the assumptions described in the introduction to part (e), foregoing the equity return on the NOL, for the year 2013 and beyond, the revenue requirement would continue to be lower as a result of the lost equity return on the NOL; however, the difference would decrease as the NOL assets are depreciated.x. Please refer to Attachment NEB 6.1 (e) (x) and (f) (x) for a list 2012 tolls for both the Restructuring Proposal and Status Quo assuming foregone equity return on the NOL. These tolls were derived assuming the same flow forecast for 2012 under Restructuring Proposal and Status Quo and are based on the revenue requirement forecast provided in response o (e) (ix).

Assuming the same long term flow forecast under Restructuring Proposal and Status Quo, the impacts to tolls from foregone equity return on the NOL for 2013 and beyond occur based on the long term revenue requirement changes as reported in response to (e) (ix).

xi. Please refer to the responses to parts (ii) through (x) above for an explanation, where applicable, of the impact for 2013 and beyond of a foregoing of the NOL equity return until it is fully depreciated.

Attachment NEB 6.1e(xi) shows a profile of NOL equity earnings for the Status Quo and Restructuring Proposal. The size of the lost NOL equity return diminishes as the NOL assets are depreciated. Under the Status Quo, the NOL would be fully depreciated in 2020, resulting in a present value equity return loss of $415 million. Under the Restructuring Proposal, the NOL would be fully depreciated in 2023, resulting in a present value equity return loss of $206 million.

of 19 NEB 6.1

(f) Please refer to the introduction to the response to part (e) as it pertains to the

inconsistency of the contemplated scenarios with the regulatory compact and associated increase in fair return that would be expected to result from such a breach.

Notwithstanding that the contemplated scenario would be expected to have a significant impact on the appropriate fair return for the Mainline, TransCanada has prepared the various responses to part (f) of this request assuming the same returns as those estimated for the Restructuring Proposal and the Status Quo. Accordingly, the results presented in part (f) only account for the direct effect that would be associated with a foregone equity return on the NOL and the illustrated return, income tax, and overall revenue requirement in these scenarios are understated.

Also, please note that given that the MAS depreciation proposal mirrors the depreciation assumptions in the Status Quo, which has already been provided in part (e) above, this response is only provided for the Restructuring Proposal with the MAS depreciation assumptions.

ii Please refer to Attachment NEB 6.1f(ii) for the requested 2012 balance sheet and income statement. TransCanada would not recover approximately $97 million of equity return in 2012 under this scenario as a result of the loss of the equity return on the NOL assets and a lower rate base associated with the MAS depreciation assumptions.

For the year 2013 and beyond, the lower equity return related to the loss of the equity return on the NOL assets and a lower rate base reflected on the financial statements would decrease as the NOL assets are depreciated.

iii. The loss of the equity return on the NOL and higher MAS depreciation expense would impact the capital structure as follows:

The equity component of the balance sheet would be reduced by realizing the loss of equity return in retained earnings.

The higher depreciation expense would result in lower property, plant and equipment net book value, and lower short-term debt.

The rate base would not be impacted by the loss of the equity return on the NOL, but would decrease as a result of the higher depreciation expense. The decrease in rate base would not change the deemed capital structure assumed for revenue requirement determination, but could lead to a prefunded debt position.

iv. Under the assumptions described in the introduction to part (f), foregoing the equity return on the NOL would have no direct effect on the difference between the market and embedded cost of debt. However, the higher level of depreciation in this scenario would reduce the rate base compared to the Restructuring Proposal and therefore, reduce the level of unfunded debt

of 19 NEB 6.1

required to finance the Mainline rate base in 2012. Please refer to page 4 of Attachment NEB 6.1f(iii).

For the year 2013 and beyond, the higher depreciation would continue to reduce the rate base and further reduce the amount of unfunded debt included in the adjustment between market and embedded debt.

v. Under the assumptions described in the introduction to part (f) of this response, there would be two impacts on return. First, it would have a reduction associated with the reduction in rate base due to the higher depreciation compared to the Restructuring Proposal. Second, the return would be reduced by the loss of the equity return on the NOL. Please refer to pages 1 and 2 of Attachment NEB 6.1f(iii).

For the year 2013 and beyond, the amount of lost equity return on the NOL would decrease as the NOL assets are depreciated, and the rate base would continue to decline as a result of higher depreciation expense.

vi. Income taxes would increase as a result of the higher depreciation expense under the MAS depreciation assumptions, partially offset by lower equity return. TransCanada shareholders would realize the loss of the reduced after-tax equity return on the NOL in net income. Please refer to page 3 of Attachment NEB 6.1f(iii).

For the year 2013 and beyond, the increase in income taxes would continue as depreciation expense under the MAS depreciation assumptions is higher than the lost equity return.

vii. Under this scenario, TransCanada used the Status Quo depreciation expense, which is $402 million. Please refer to Attachment 9.3 of the Application.

For the year 2013 and beyond, the depreciation expense in the revenue requirement would continue to be higher as the MAS depreciation assumptions would be comparatively higher than those in the Restructuring Proposal.

viii. It is unclear how it could be appropriate for TransCanada to continue providing regulated discretionary services under the existing terms of the Mainline tariff under a scenario where it is forced to forego the equity return on the NOL. Under such a scenario, TransCanada expects that it would be able to provide Mainline discretionary services pursuant to a light-handed regulation model such as described in the response to NEB 6.4 regarding the non-core services.. Nonetheless, for illustrative purposes, TransCanada has prepared a response assuming a continuation of the existing suite of Mainline services pursuant to the existing regulatory model.

Please refer to Attachment NEB 6.1 (e) (viii) and (f) (viii) for a detailed comparison of 2012 discretionary and non-discretionary miscellaneous revenue impacts due to the implementation of the MAS depreciation proposal

of 19 NEB 6.1

and the foregone equity return on the NOL. Assuming flows would not change, and all existing facilities remain in service, the level of discretionary miscellaneous revenue (DMR) and certain components of the non-discretionary miscellaneous revenue (Non-DMR) would be impacted by the change in toll level. The particular components of Non-DMR that are impacted due to toll change would be the FT-SN premium and STS revenues. There would be no impact to the Non-DMR for the Union Dawn Receipt Point Surcharge or sales meter station charges. Delivery pressure revenues would be impacted because the underlying annual cost of delivery pressure facilities change in conjunction with the overall system cost changes for depreciation, return and income taxes as detailed in responses (f) (v), (f) (vi), and (f) (vii).


Assuming no change to the long-term flow forecast and all existing facilities remain in service, the impacts to DMR and Non-DMR due to the foregone equity return on the NOL and MAS depreciation assumptions for 2013 and beyond would also be impacted by the change in toll level for each particular year. The same individual components of miscellaneous revenues would be impacted for the same reasons as 2012.

ix. Please refer to Page 1 of Attachment NEB 6.1f(iii).

For the year 2013 and beyond, the revenue requirement would continue to be higher as the MAS depreciation assumptions are comparatively higher than those in the Restructuring Proposal and this impact is greater than the reduction to revenue requirement from foregoing the equity return on the NOL.

x. Please refer to Attachment NEB 6.1 (e) (x) and (f) (x) for a list 2012 tolls for both the Restructuring Proposal and Status Quo assuming the implementation of MAS depreciation proposal and the foregone equity return on the NOL. These tolls were derived assuming the same flow forecast for 2012 under Restructuring Proposal and Status Quo and are based on the revenue requirement forecast provided in response to (f) (ix).

Assuming the same long-term flow forecast under Restructuring Proposal and Status Quo, the impacts to tolls from foregone equity return on the NOL and MAS depreciation assumptions for 2013 and beyond occur based on the long term revenue requirement changes as discussed in response to (f) (ix).

xi. Please refer to the responses to parts (ii) through (x) above for an explanation, where applicable, of the impact for 2013 and beyond of a foregoing of the NOL equity return until it is fully depreciated.

Attachment NEB 6.1f(xi) shows a profile of equity earnings under this scenario. The size of the lost NOL equity return diminishes as the NOL assets

of 19 NEB 6.1

are depreciated. Under this scenario the NOL would be fully depreciated in 2020 resulting in a present value equity return loss of $367 million. There would also be lower equity return on the Mainline as a whole compared to the Restructuring Proposal as the higher depreciation under this scenario would lower the overall rate base moving forward. This overall lower rate base would result in a present value equity return loss of $156 million looking out to 2020.

Business and Services Restructuring andMainline 2012-2013 Tolls Application

Attachment NEB 6.1b(ii)-1Page 1 of 2

STATUS QUO - $500 MILLION RATE BASE DISALLOWANCEPRO FORMA INCOME STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)

LINE NEB Write -off GRR Adjusted

NO. PARTICULARS ACCOUNT Forecast adjustment adjustment Forecast(a) (b) (c) (d) (e) (f)

1 Revenues 300 1,771 - 467 2,238

2 Other costs and expenses 301/302/305 619 6193 Depreciation 303-304 402 (15) 387

4 Operating Expenses 1,021 - (15) 1,006

5 Operating Income 750 - 482 1,232

6 Financial charges 320-321 267 (4) 2637 Allowance for funds used during construction 324 (9) 0 (9)8 Interest and other income 319, 329 09 Loss on asset write-off 500 50010 Other Expenses 258 500 (4) 754

11 Income before Income Taxes 492 (500) 486 478 12 Income Taxes 306 176 (129) 128 175

13 Net Income 316 (371) 358 303



STATUS QUO - $500 MILLION RATE BASE DISALLOWANCEPRO FORMA BALANCE SHEETAS AT DECEMBER 31, 2012($ Million)



1 ASSETS

2 Current Assets3 Accounts receivable 140-147 162 162 4 Inventories 150-152 38 38 5 Other 160 2 2

6 Total Current Assets 202 - - 202 7 Plant, Property and Equipment 100-115,153 5,483 (500) 15 4,998 8 Non-Regulated Deferred Income Tax - 129 129 9 Other Assets 170-179 919 919

10 Total Assets 6,604 (371) 15 6,248

11 LIABILITIES AND SHAREHOLDERS' EQUITY

12 Current Liabilities13 Short-Term Debt 250 337 (300) 37 14 Accounts payable 251 216 300 (343) 173 15 Accrued interest 257 54 54 16 Long-term debt due within one year 258 -

17 Total Current Liabilities 607 - (343) 264 18 Long-Term Debt 220 3,098 3,098 19 Deferred Income Tax 276 609 609

19 Total Liabilities 4,314 - (343) 3,971 20 Shareholders' Equity 200-212 2,290 (371) 358 2,277

21 Total Liabilities and Shareholders' Equity 6,604 (371) 15 6,248

NOTE: The following assumption has been made in providing the pro forma financial statements:TransCanada's corporate policy is to centrally manage cash and, as a result, any net cash position as at the financialstatement date is reflected through intercompany receivable and payable accounts.



RESTRUCTURING PROPOSAL - $500 MILLION RATE BASE DISALLOWANCEPRO FORMA INCOME STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)



1 Revenues 300 1,514 - 533 2,047

2 Other costs and expenses 301/302/305 618 6183 Depreciation 303-304 287 (10) 277

4 Operating Expenses 905 - (10) 895

5 Operating Income 609 - 543 1,152

6 Financial charges 320-321 268 (4) 2647 Allowance for funds used during construction 324 (8) 0 (8)8 Interest and other income 319, 329 (1) (1)9 Loss on asset write-off 500 50010 Other Expenses 259 500 (4) 755

11 Income before Income Taxes 350 (500) 547 397 12 Income Taxes 306 84 (129) 145 100

13 Net Income 266 (371) 402 297



RESTRUCTURING PROPOSAL - $500 MILLION RATE BASE DISALLOWANCEPRO FORMA BALANCE SHEETAS AT DECEMBER 31, 2012($ Million)



1 ASSETS


6 Total Current Assets 202 - - 202 7 Plant, Property and Equipment 100-115,153 5,598 (500) 10 5,108 8 Non-Regulated Deferred Income Tax - 129 129 9 Other Assets 170-179 919 919

10 Total Assets 6,719 (371) 10 6,358


12 Current Liabilities13 Short-Term Debt 250 466 (300) 166 14 Accounts payable 251 116 300 (392) 24 15 Accrued interest 257 54 54 16 Long-term debt due within one year 258 -

17 Total Current Liabilities 636 - (392) 244 18 Long-Term Debt 220 3,098 3,098 19 Deferred Income Tax 276 609 609

19 Total Liabilities 4,343 - (392) 3,951 20 Shareholders' Equity 200-212 2,376 (371) 402 2,407

21 Total Liabilities and Shareholders' Equity 6,719 (371) 10 6,358



Attachment NEB 6.1b (iii) - 1Schedule 1.3

Page 1 of 6

STATUS QUO - $500 MILLION RATE BASE DISALLOWANCEREVENUE REQUIREMENTFOR THE TEST YEAR ENDING DECEMBER 31, 2012($000)

STATUS QUO NEB ScenarioLINE 2012 2012 SCHEDULENO. PARTICULARS TEST YEAR TEST YEAR VARIANCE REFERENCE

(a) (b) (c) (d) (e)

1 Transportation By Others 170,660 170,660 -

2 Storage Operating Costs 15,742 15,742 -

3 Pipeline Integrity and Insurance Deductible Costs 94,601 94,601 -

4 NEB Cost Recovery 8,398 8,398 -

5 Return 505,855 860,813 354,958 5.3

6 Income Taxes 243,754 370,996 127,242 6.3

7 Depreciation 401,692 386,692 (15,000)

8 Regulatory Proceeding Costs and Collaborative (TTF) Costs 1,810 1,810 -

9 Electric Costs and Tax on Fuel 29,116 29,116 -

10 Municipal and Provincial Capital Taxes 124,582 124,582 -

11 Regulatory Amortizations 174,405 174,405 -

12 Operations, Maintenance and Administrative 174,501 174,501 -

13 Long Term Adjustment Account 2,712 2,712 -

14 TransCanada Contribution 0 0 -

15 Gross Revenue Requirement 1,947,828 2,415,028 467,200

Miscellaneous Revenue

16 Non Discretionary Miscellaneous Revenue (99,202) (127,655) (28,453)

17 Discretionary Miscellaneous Revenue (540,408) (658,635) (118,227)

18 Miscellaneous Revenue (639,610) (786,290) (146,680)

19 Net Revenue Requirement 1,308,218 1,628,738 320,520

Business and Services Restructuring and

Mainline 2012-2013 Tolls Application

Attachment NEB 6.1b (iii) - 1

Schedule 5.3

Page 2 of 6

STATUS QUO - $500 MILLION RATE BASE DISALLOWANCE

AVERAGE RATE BASE

FOR THE TEST YEAR ENDING DECEMBER 31, 2012

($000)

LINE

NO. PARTICULARS AMOUNT

(a) (b)

Utility Investment

1 Gross Plant 12,584,633

2 Accumulated Depreciation (7,090,288)

3 Proposed write-down (500,000)

4 Net Plant 4,994,345

5 Contributions in Aid of Construction (33,805)

6 Total Plant 4,960,540

Working Capital

7 Cash 21,864

8 Goods & Services Tax / Harmonized Sales Tax, Net (12,204)

9 Materials and Supplies 22,816

10 Linepack 41,061

11 Storage Gas 15,473

12 Prepayments and Deposits 1,012

13 Total Working Capital 90,022

Miscellaneous Deferred Items

14 Debt, Discount, and Expense 21,998

15 Operating and Debt Service Deferrals (18,261)

16 Long Term Adjustment Account 81,000

17 Non-Funded Pension Expense/Post Employment Benefits 88,078

18 Total Deferred Costs 172,815

19 Total Rate Base 5,223,377

20 Return @ 16.48% 860,813




Schedule 6.3

Page 3 of 6


SCHEDULE OF FLOW-THROUGH INCOME TAXES


($000)

LINE


(a) (b)

1 Return On Rate Base 860,813

Add:

2 Depreciation 386,692

3 Non-allowed Amortization of Debt Discount & Expense 2,265


5 Other Expenses 77

6 Sub-total 391,746

Deduct:

7 Capital Cost Allowance 169,764

8 Site Remediation Costs 0

9 Benefits Capitalized 679

10 Eligible Capital Expenses 415

11 Interest AFUDC 3,309

12 Issue Costs 740

13 Compressor Overhaul Capitalized 14,405

14 Sub-total 189,312

15 Total Taxable Amount 1,063,247

16 Tax Requirement thereon at 0.25867 / 0.74133 370,996




Page 4 of 6


SCHEDULE OF CAPITAL COST ALLOWANCE


($000)

UNDEPRECIATED BALANCE

LINE CAPITAL COST WRITEDOWN ADDITIONS BEFORE MAXIMUM CLOSING

NO. CLASS OPENING BALANCE (NET) CLAIM CLAIM BALANCE

(a) (b) (c) (d) (e) (f) (g)

1 Class 1 - Full (4%) 2,914,855 (412,450) 0 2,502,405 100,096 2,402,309

2 - Half Year 0 0 0 0

3 Class 2 - Full (6%) 267,649 (37,850) 0 229,799 13,788 216,011

4 Class 3 - Full (5%) 17,122 0 0 17,122 856 16,266

5 Class 7 - Full (15%) 36,223 0 0 36,223 5,434 30,789

6 - Half Year 31,281 31,281 2,346 28,935

7 Class 8 - Full (20%) 115,418 (16,350) 0 99,068 19,814 79,254

8 - Half Year 1,827 1,827 183 1,644

9 Class 9 - Full (25%) 999 0 0 999 250 749

10 - Half Year 0 0 0 0

11 Class 10 - Full (30%) 5,212 0 0 5,212 1,564 3,648

12 - Half Year 2,848 2,848 427 2,421

13 Class 10a - Full (45%) 194 0 0 194 87 107

14 - Half Year 0 0 0 0

15 Class 10b - Full (55%) 1,820 0 0 1,820 1,001 819

16 - Half Year 1,602 1,602 441 1,161

17 Class 12 - Full (100%) 913 0 0 913 913 0

18 - Half Year 1,864 1,864 932 932

19 Class 13 - Full (S/L) 1,431 0 0 1,431 0 1,431

20 - Half Year 2,773 2,773 139 2,634

21 Class 49 - Full (8%) 235,571 (33,350) 0 202,221 16,178 186,043

22 - Half Year 132,869 132,869 5,315 127,554

23 Total 3,597,407 (500,000) 175,064 3,272,471 169,764 3,102,707




Page 5 of 6


DEEMED AVERAGE CAPITALIZATION AND

REQUESTED OVERALL RATE OF RETURN


COST

LINE COMPONENT

NO. PARTICULARS %

(a) (b)

1 After-tax Weighted Average Cost of Capital (ATWACC) 15.00

2 Adjustment to ATWACC 1.43

3 Adjustment for Prefunded Debt 0.05

4 ATWACC Adjusted for Embedded Debt Cost 16.48




Page 6 of 6



REQUESTED ADJUSTMENT FOR EMBEDDED DEBT COST


COST COST TAX

LINE AMOUNT RATIO RATE COMPONENT RATE ATWACC

NO. PARTICULARS ($000) % % % % %

(a) (b) (c) (d) (e) (f) (g)

1 Debt - Funded 3,190,641 60.04 8.21 4.93 25.867 3.65

2 - Prefunded (45,376) (0.86) 8.21 (0.07) 25.867 (0.05)

3 - Unfunded 43,449 0.82 1.65 0.01 25.867 0.01

4 3,188,714 60.00 4.87 3.61

5 Market Cost of Debt 60.00 4.90 2.94 25.867 2.18

6 Adjustment to ATWACC for Embedded Debt (Line 4 - Line 5) 1.43

7 Rate Base 5,223,377

8 GPUC 91,146

9 Total Capitalization 5,314,523

Adjustment to ATWACC for Prefunded Debt

10 - Prefunded 45,376 0.86 8.21 0.07 25.87 0.05


Attachment NEB 6.1 (b) (iii) - 2Schedule 1.3

Page 1 of 6

RESTRUCTURING PROPOSAL - $500 MILLION RATE BASE DISALLOWANCEREVENUE REQUIREMENTFOR THE TEST YEAR ENDING DECEMBER 31, 2012($000) Restructuring NEB

Proposal ScenarioLINE 2012 2012 SCHEDULENO. PARTICULARS TEST YEAR TEST YEAR VARIANCE REFERENCE

(a) (b) (c) (d) (e)





5 Return 475,796 874,971 399,175 5.3

6 Income Taxes 158,132 302,546 144,414 6.3

7 Depreciation 287,085 277,085 (10,000)






13 Long Term Adjustment Account (98,062) (98,062) -

14 TransCanada Contribution (25,000) (25,000) -



16 Non Discretionary Miscellaneous Revenue (18,027) (28,217) (10,190)






Attachment NEB 6.1 (b) (iii) - 2

Schedule 5.3

Page 2 of 6

RESTRUCTURING PROPOSAL - $500 MILLION RATE BASE DISALLOWANCE

AVERAGE RATE BASE


($000)

LINE


(a) (b)

Utility Investment



3 Proposed write-down (500,000)

4 Net Plant 5,049,192



Working Capital

7 Cash 21,864



10 Linepack 41,061






15 Prefunded / (Unfunded) Pension and Post Employment Benefits Liability 88,078





20 Return (ATWACC) @ 16.42% 874,971




Schedule 6.3

Page 3 of 6




($000)

LINE


(a) (b)


Add:



4 Long Term Adjustment Account (98,062)

5 Other Expenses 77

6 Sub-total 181,365

Deduct:






12 Issue Costs 740



15 Total Taxable Amount 867,076





Page 4 of 6


SCHEDULE OF CAPITAL COST ALLOWANCE


($000)

UNDEPRECIATED BALANCE

LINE CAPITAL COST WRITEDOWN ADDITIONS BEFORE MAXIMUM CLOSING

NO. CLASS OPENING BALANCE (NET) CLAIM CLAIM BALANCE

(a) (b) (c) (d) (e) (f) (g)

1 Class 1 - Full (4%) 2,914,855 (412,450) 0 2,502,405 100,096 2,402,309

2 - Half Year 0 0 0 0

3 Class 2 - Full (6%) 267,649 (37,850) 0 229,799 13,788 216,011

4 Class 3 - Full (5%) 17,122 0 0 17,122 856 16,266

5 Class 7 - Full (15%) 36,223 0 0 36,223 5,434 30,789

6 - Half Year 31,281 31,281 2,346 28,935

7 Class 8 - Full (20%) 115,418 (16,350) 0 99,068 19,814 79,254

8 - Half Year 1,827 1,827 183 1,644

9 Class 9 - Full (25%) 999 0 0 999 250 749

10 - Half Year 0 0 0 0

11 Class 10 - Full (30%) 5,212 0 0 5,212 1,564 3,648

12 - Half Year 2,848 2,848 427 2,421

13 Class 10a - Full (45%) 194 0 0 194 87 107

14 - Half Year 0 0 0 0

15 Class 10b - Full (55%) 1,820 0 0 1,820 1,001 819

16 - Half Year 1,602 1,602 441 1,161

17 Class 12 - Full (100%) 913 0 0 913 913 0

18 - Half Year 1,864 1,864 932 932

19 Class 13 - Full (S/L) 1,431 0 0 1,431 0 1,431

20 - Half Year 2,773 2,773 139 2,634

21 Class 49 - Full (8%) 235,571 (33,350) 0 202,221 16,178 186,043

22 - Half Year 132,869 132,869 5,315 127,554

23 Total 3,597,407 (500,000) 175,064 3,272,471 169,764 3,102,707




Page 5 of 6





COST

LINE COMPONENT

NO. PARTICULARS %

(a) (b)


2 Adjustment for Embedded Cost of Debt 1.38

3 Adjustment for Prefunded Debt 0.04

4 ATWACC Adjusted for Embedded Cost of Debt 16.42




Page 6 of 6



REQUESTED ADJUSTMENT FOR EMBEDDED DEBT COST


COST COST TAX



(a) (b) (c) (d) (e) (f) (g)

1 Debt - Funded 3,190,641 58.87 8.21 4.83 25.867 3.58

2 Prefunded (37,277) (0.69) 8.21 (0.06) 25.867 (0.04)

3 Unfunded 98,393 1.82 1.65 0.03 25.867 0.02

4 Total Debt 3,251,757 60.00 4.80 3.56



7 Rate Base 5,328,693

8 GPUC 90,904


Adjustment to ATWACC for Prefunded Debt

10 Prefunded 37,277 0.69 8.21 0.06 25.867 0.04

Business and Services Restructuring and Mainline 2012-2013 Tolls Application

Attachment NEB 6.1 (b) (viii)Page 1 of 1Disallowance of Rate Base Impact on Discretionary and Non-Discretionary Miscellaneous Revenues

2012 $0.5 Billion $1.0 Billion $1.5 Billion $2.0 BillionBase Case (1) Disallowance Disallowance Disallowance Disallowance

Line of Rate Base of Rate Base of Rate Base of Rate BaseNo. ($ millions) ($ millions) ($ millions) ($ millions) ($ millions)

(a) (b) (c) (d) (e)1 2012 Restructuring Proposal2 Discretionary Revenue 432.4 570.9 544.8 520.7 496.5

3 Non Discretionary Revenue Delivery Pressure 15.6 25.6 25.5 25.7 26.1STS Revenue (2) N/A N/A N/A N/A N/A

4 FT-SN Premium 1.4 1.6 1.6 1.6 1.55 Dawn Receipt Surcharge 0.9 0.9 0.9 0.9 0.96 Sales Meter Station Charges 0.1 0.1 0.1 0.1 0.1

7 Total 450.4 599.1 572.9 549.0 525.0

8 2012 Status Quo9 Discretionary Revenue 540.4 658.6 633.8 607.4 582.2

10 Non Discretionary Revenue Delivery Pressure 16.1 25.6 25.7 25.9 26.211 STS Revenue (2) 80.7 99.4 95.5 91.3 87.312 FT-SN Premium 1.4 1.6 1.6 1.5 1.513 Dawn Receipt Surcharge 0.9 0.9 0.9 0.9 0.914 Sales Meter Station Charges 0.1 0.1 0.1 0.1 0.1

15 Total 639.6 786.3 757.5 727.0 698.1

(1) 2012 Restructuring Proposal as filed October 31, 2011 in Attachment 12.3, Tab 2, Schedule 4. 2012 Status Quo as provided in TransCanada's response to EGD 2-1.1 (g) Schedule 4.1

(2) Under Status Quo, STS revenues are part of Non-Discretionary Miscellaneous Revenues, but are proposed to be included with firm service allocation units in Restructuring Proposal.Please refer to the Application, Section 7.0, Toll Design Proposals, Attachment 7.2, page 14 for further information.


Attachment NEB 6.1b (ix)Schedule 1.3

Page 1 of 2

STATUS QUO REVENUE REQUIREMENTFOR THE TEST YEAR ENDING DECEMBER 31, 2012($000)


(a) (b) (c) (d) (e) (f)

1 Transportation By Others 170,660 170,660 170,660 170,660 170,660

2 Storage Operating Costs 15,742 15,742 15,742 15,742 15,742

3 Pipeline Integrity and Insurance Deductible Costs 94,601 94,601 94,601 94,601 94,601

4 NEB Cost Recovery 8,398 8,398 8,398 8,398 8,398

5 Return 505,855 860,813 797,153 734,096 670,210

6 Income Taxes 243,754 370,996 352,170 331,810 312,905

7 Depreciation 401,692 386,692 371,692 351,692 336,692

8 Regulatory Proceeding Costs and Collaborative (TTF) Costs 1,810 1,810 1,810 1,810 1,810

9 Electric Costs and Tax on Fuel 29,116 29,116 29,116 29,116 29,116

10 Municipal and Provincial Capital Taxes 124,582 124,582 124,582 124,582 124,582

11 Regulatory Amortizations 174,405 174,405 174,405 174,405 174,405

12 Operations, Maintenance and Administrative 174,501 174,501 174,501 174,501 174,501

13 Long Term Adjustment Account 2,712 2,712 2,712 2,712 2,712

14 TransCanada Contribution 0 0 0 0 0

15 Gross Revenue Requirement 1,947,828 2,415,028 2,317,542 2,214,125 2,116,334


16 Non Discretionary Miscellaneous Revenue (99,202) (127,655) (123,674) (119,631) (115,935)

17 Discretionary Miscellaneous Revenue (540,408) (658,635) (633,784) (607,353) (582,182)

18 Miscellaneous Revenue (639,610) (786,290) (757,458) (726,984) (698,117)

19 Net Revenue Requirement 1,308,218 1,628,738 1,560,084 1,487,141 1,418,217


Attachment NEB 6.1b (ix)Schedule 1.3

Page 2 of 2

RESTRUCTURING PROPOSALREVENUE REQUIREMENTFOR THE TEST YEAR ENDING DECEMBER 31, 2012($000)


(a) (b) (c) (d) (e) (f)

1 Transportation By Others 169,153 169,153 169,153 169,153 169,153

2 Storage Operating Costs 15,742 15,742 15,742 15,742 15,742

3 Pipeline Integrity and Insurance Deductible Costs 94,601 94,601 94,601 94,601 94,601

4 NEB Cost Recovery 8,398 8,398 8,398 8,398 8,398

5 Return 475,796 874,971 810,546 746,685 682,699

6 Income Taxes 158,132 302,546 283,454 266,302 249,108

7 Depreciation 287,085 277,085 262,085 252,085 242,085

8 Regulatory Proceeding Costs and Collaborative (TTF) Costs 1,810 1,810 1,810 1,810 1,810

9 Electric Costs and Tax on Fuel 28,506 28,506 28,506 28,506 28,506

10 Municipal and Provincial Capital Taxes 124,582 124,582 124,582 124,582 124,582

11 Regulatory Amortizations 174,405 174,405 174,405 174,405 174,405

12 Operations, Maintenance and Administrative 174,501 174,501 174,501 174,501 174,501

13 Long Term Adjustment Account (98,062) (98,062) (98,062) (98,062) (98,062)

14 TransCanada Contribution (25,000) (25,000) (25,000) (25,000) (25,000)

15 Gross Revenue Requirement 1,589,649 2,123,238 2,024,721 1,933,708 1,842,528


16 Non Discretionary Miscellaneous Revenue (18,027) (28,217) (28,121) (28,290) (28,588)

17 Discretionary Miscellaneous Revenue (432,360) (570,862) (544,822) (520,723) (496,459)

18 Miscellaneous Revenue (450,387) (599,079) (572,943) (549,013) (525,047)

19 Net Revenue Requirement 1,139,262 1,524,159 1,451,778 1,384,695 1,317,481


Attachment NEB 6.1 (b) (x)Page 1 of 1

2012 Tolls from Disallowance of Rate Base Scenarios(All tolls in $/GJ)

2012 $0.5 Billion $1.0 Billion $1.5 Billion $2.0 Billion 2012 $0.5 Billion $1.0 Billion $1.5 Billion $2.0 BillionLine Base Case Disallowance Disallowance Disallowance Disallowance Base Case Disallowance Disallowance Disallowance DisallowanceNo. Path of Rate Base of Rate Base of Rate Base of Rate Base of Rate Base of Rate Base of Rate Base of Rate Base

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

1 NIT to Union SWDA 1.29 1.71 1.63 1.56 1.49 2.35 2.89 2.77 2.65 2.532 NIT to EGD CDA 1.41 1.89 1.80 1.72 1.64 2.74 3.38 3.24 3.09 2.953 NIT to Union CDA 1.39 1.86 1.77 1.69 1.61 2.74 3.38 3.24 3.09 2.954 NIT to Union NCDA 1.35 1.80 1.71 1.64 1.56 2.74 3.38 3.24 3.09 2.955 NIT to Gmi EDA 1.53 2.06 1.96 1.87 1.78 2.74 3.38 3.24 3.09 2.956 NIT to Gmi TQM EDA 1.85 2.36 2.26 2.17 2.08 N/A N/A N/A N/A N/A7 NIT to Union EDA 1.49 2.00 1.90 1.82 1.73 2.74 3.38 3.24 3.09 2.958 NIT to EGD EDA 1.46 1.96 1.86 1.78 1.69 2.74 3.38 3.24 3.09 2.959 NIT to Kingston EDA 1.52 2.04 1.94 1.85 1.76 2.74 3.38 3.24 3.09 2.9510 NIT to Centra MDA 0.48 0.56 0.54 0.53 0.52 0.92 1.11 1.07 1.03 0.9911 NIT to Union WDA 0.77 0.97 0.94 0.90 0.87 1.43 1.75 1.68 1.61 1.5412 NIT to Union SSMDA 1.08 1.41 1.35 1.29 1.23 2.17 2.67 2.57 2.45 2.3413 NIT to Union NDA 1.18 1.56 1.49 1.42 1.36 2.17 2.67 2.57 2.45 2.3414 NIT to GMi NDA 1.22 1.61 1.54 1.47 1.40 2.17 2.67 2.57 2.45 2.3415 NIT to Emerson 2 0.56 0.67 0.65 0.63 0.62 1.04 1.26 1.22 1.17 1.1216 NIT to Iroquois 1.48 1.98 1.89 1.80 1.71 2.70 3.34 3.21 3.06 2.9317 NIT to Niagara 1.43 1.92 1.83 1.74 1.66 2.79 3.47 3.33 3.19 3.0518 NIT to Chippawa 1.43 1.92 1.83 1.74 1.66 2.79 3.45 3.31 3.17 3.0319 NIT to Cornwall 1.48 1.99 1.89 1.81 1.72 2.80 3.45 3.31 3.16 3.0220 NIT to Napierville 1.55 2.09 1.99 1.90 1.80 2.93 3.62 3.47 3.31 3.1621 NIT to Philipsburg 1.56 2.10 2.00 1.91 1.81 2.94 3.63 3.48 3.33 3.1822 NIT to East Hereford 1.86 2.37 2.28 2.19 2.10 3.20 3.98 3.82 3.65 3.49

23 Dawn to EGD CDA 0.20 0.26 0.25 0.24 0.23 0.29 0.35 0.34 0.32 0.3124 Dawn to Union CDA 0.17 0.22 0.21 0.20 0.20 0.24 0.29 0.28 0.26 0.2525 Dawn to Gmi EDA 0.44 0.60 0.57 0.54 0.51 0.76 0.94 0.90 0.86 0.8226 Dawn to Gmi TQM EDA 0.75 0.90 0.87 0.84 0.82 N/A N/A N/A N/A N/A27 Dawn to EGD EDA 0.39 0.52 0.50 0.47 0.45 0.61 0.75 0.72 0.69 0.6628 Dawn to Union EDA 0.32 0.43 0.41 0.39 0.37 0.50 0.61 0.59 0.56 0.5429 Dawn to Iroquois 0.38 0.51 0.49 0.47 0.44 0.60 0.76 0.73 0.70 0.6730 Dawn to East Hereford 0.76 0.91 0.88 0.86 0.83 1.02 1.29 1.24 1.18 1.13

31 Parkway to EGD CDA 0.10 0.12 0.11 0.11 0.11 0.10 0.12 0.12 0.11 0.1132 Parkway to Union CDA 0.08 0.09 0.09 0.09 0.09 0.07 0.08 0.07 0.07 0.0733 Parkway to Gmi EDA 0.33 0.45 0.42 0.40 0.38 0.57 0.70 0.67 0.64 0.6134 Parkway to Gmi TQM EDA 0.64 0.74 0.73 0.71 0.69 N/A N/A N/A N/A N/A35 Parkway to EGD EDA 0.28 0.37 0.35 0.34 0.32 0.42 0.52 0.50 0.47 0.4536 Parkway to Union EDA 0.22 0.28 0.27 0.26 0.25 0.31 0.38 0.36 0.35 0.3337 Parkway to Iroquois 0.27 0.36 0.35 0.33 0.32 0.41 0.52 0.50 0.48 0.46

38 Niagara to EGD CDA 0.14 0.18 0.17 0.17 0.16 0.18 0.22 0.21 0.21 0.2039 Niagara to Union CDA 0.11 0.13 0.13 0.12 0.12 0.13 0.15 0.15 0.14 0.1440 Niagara to Gmi EDA 0.39 0.53 0.51 0.48 0.46 0.68 0.84 0.80 0.77 0.7341 Niagara to Gmi TQM EDA 0.71 0.83 0.81 0.79 0.76 N/A N/A N/A N/A N/A42 Niagara to Kirkwall 0.12 0.14 0.13 0.13 0.13 0.13 0.16 0.15 0.15 0.1443 Niagara to Dawn (Union SWDA) 0.22 0.29 0.27 0.26 0.25 0.30 0.37 0.35 0.34 0.3244 Niagara to Iroquois 0.33 0.45 0.43 0.41 0.39 0.52 0.66 0.63 0.61 0.58

45 St. Clair to Union SWDA 0.08 0.09 0.09 0.09 0.09 0.06 0.07 0.07 0.07 0.07

46 FT-SN Parkway to Goreway CDA 0.09 0.09 0.09 0.09 0.09 0.07 0.08 0.08 0.08 0.0747 FT-SN Parkway to Vic Sq #2 CDA 0.10 0.12 0.12 0.11 0.11 0.10 0.12 0.12 0.11 0.1148 FT-SN Kirkwall to Thorold CDA 0.12 0.14 0.14 0.13 0.13 0.13 0.16 0.15 0.15 0.1449 FT-SN Parkway to Schomberg #2 CDA 0.10 0.12 0.11 0.11 0.11 0.10 0.12 0.11 0.11 0.11

50 STS Centram MDA 0.14 0.17 0.16 0.16 0.15 0.16 0.19 0.18 0.18 0.1751 STS Union WDA 0.75 1.04 0.98 0.93 0.88 1.27 1.58 1.51 1.44 1.3752 STS Union NDA 0.32 0.43 0.41 0.39 0.37 0.48 0.59 0.57 0.54 0.5253 STS Union EDA 0.22 0.28 0.27 0.26 0.25 0.30 0.37 0.35 0.34 0.3254 STS KPUC EDA 0.20 0.27 0.25 0.24 0.23 0.29 0.36 0.34 0.33 0.3155 STS GMi EDA 0.33 0.45 0.42 0.40 0.38 0.56 0.70 0.67 0.64 0.6156 STS Gmi TQM EDA 0.64 0.74 0.73 0.71 0.69 N/A N/A N/A N/A N/A57 STS Enbridge CDA 0.10 0.12 0.11 0.11 0.11 0.05 0.05 0.05 0.05 0.0558 STS Enbridge EDA 0.28 0.37 0.35 0.34 0.32 0.17 0.21 0.20 0.19 0.1959 STS Cornwall 0.28 0.37 0.36 0.34 0.32 0.42 0.52 0.50 0.48 0.4660 STS Philipsburg 0.36 0.49 0.46 0.44 0.42 0.57 0.70 0.67 0.64 0.61

Notes: - For paths originating at NIT, the toll impacts are based on transportation tolls via Empress for the Status Quo and via SMB for the Restructuring Proposal- 2012 Base Case for Restructuring Proposal is as filed October 31, 2011 in Application, Section 12: 2012-2013 Revenue Requirement, Attachment 12.3, Tab 2, Schedule 5.2. - 2012 Base Case for Status Quo is as provided in TransCanada's response to EGD 2-1.1 (g) Schedule 5.2- tolls include the applicable delivery pressure charge and/or Dawn receipt surcharge

RESTRUCTURING PROPOSAL STATUS QUO


Attachment NEB 6.1e(ii) - 1Page 1 of 2

STATUS QUO - NO NOL EQUITY RETURNPRO FORMA INCOME STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)

LINE NEB GRR Adjusted

NO. PARTICULARS ACCOUNT Forecast adjustment Forecast(a) (b) (c) (d) (e)

1 Revenues 300 1,771 (143) 1,628

2 Other costs and expenses 301/302/305 619 6193 Depreciation 303-304 402 402

4 Operating Expenses 1,021 - 1,021

5 Operating Income 750 (143) 607

6 Financial charges 320-321 267 2677 Allowance for funds used during construction 324 (9) (9)8 Interest and other income 319, 329 09 Other Expenses 258 - 258

10 Income before Income Taxes 492 (143) 349 11 Income Taxes 306 176 (37) 139

12 Net Income 316 (106) 210



STATUS QUO - NO NOL EQUITY RETURNPRO FORMA BALANCE SHEETFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)



1 ASSETS


6 Total Current Assets 202 - 202 7 Plant, Property and Equipment 100-115,153 5,483 5,483 8 Other Assets 170-179 919 919

9 Total Assets 6,604 - 6,604


11 Current Liabilities12 Short-Term Debt 250 337 337 13 Accounts payable 251 216 106 322 14 Accrued interest 257 54 54 15 Long-term debt due within one year 258 -

16 Total Current Liabilities 607 106 713 17 Long-Term Debt 220 3,098 3,098 18 Deferred Income Tax 276 609 609

18 Total Liabilities 4,314 106 4,420 19 Shareholders' Equity 200-212 2,290 (106) 2,184

20 Total Liabilities and Shareholders' Equity 6,604 - 6,604




RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURNPROFORMA INCOME STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)



1 Revenues 300 1,514 (55) 1,459

2 Other costs and expenses 301/302/305 618 6183 Depreciation 303-304 287 287

4 Operating Expenses 905 - 905


6 Financial charges 320-321 268 2687 Allowance for funds used during construction 324 (8) (8)8 Interest and other income 319, 329 (1) (1)9 Other Expenses 259 - 259

10 Income before Income Taxes 350 (55) 295 11 Income Taxes 306 84 (14) 70

12 Net Income 266 (41) 225



RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURNPROFORMA BALANCE SHEETFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)



1 ASSETS


6 Total Current Assets 202 - 202 7 Plant, Property and Equipment 100-115,153 5,598 5,598 8 Other Assets 170-179 919 919

9 Total Assets 6,719 - 6,719


11 Current Liabilities12 Short-Term Debt 250 466 466 13 Accounts payable 251 116 41 157 14 Accrued interest 257 54 54 15 Long-term debt due within one year 258 -

16 Total Current Liabilities 636 41 677 17 Long-Term Debt 220 3,098 3,098 18 Deferred Income Tax 276 609 609

18 Total Liabilities 4,343 41 4,384 19 Shareholders' Equity 200-212 2,376 (41) 2,335

20 Total Liabilities and Shareholders' Equity 6,719 - 6,719




Attachment NEB 6.1e (iii) - 1

Schedule 1.3

Page 1 of 4

STATUS QUO - NO NOL EQUITY RETURN

REVENUE REQUIREMENT


($000)

STATUS QUO NEB Scenario

LINE 2012 2012 SCHEDULE

NO. PARTICULARS TEST YEAR TEST YEAR VARIANCE REFERENCE

(a) (b) (c) (d) (e)





5 Return 505,855 399,757 (106,098) 5.3

6 Income Taxes 243,754 206,734 (37,020) 6.3

7 Depreciation 401,692 401,692 -






13 Long Term Adjustment Account 2,712 2,712 -

14 TransCanada Contribution 0 0 -

15 Gross Revenue Requirement 1,947,828 1,804,710 (143,118)


16 Non Discretionary Miscellaneous Revenue (99,202) (93,286) 5,916

17 Discretionary Miscellaneous Revenue (540,408) (503,526) 36,882

18 Miscellaneous Revenue (639,610) (596,812) 42,798

19 Net Revenue Requirement 1,308,218 1,207,898 (100,320)




Schedule 5.3

Page 2 of 4


AVERAGE RATE BASE


($000)

LINE


(a) (b)

Utility Investment



3 Net Plant 5,486,845



Working Capital

6 Cash 21,864



9 Linepack 41,061











19 Return @ 8.85% 505,855

NOL Gross Plant 5,296,828

NOL Accum. Dep. 3,350,782

NOL Net Plant 1,946,046

ROE 13.63 %

Equity Ratio 40.00 %

Equity Return on NOL Segment (106,098)

Return net of Equity Return on NOL 399,757




Schedule 6.3

STATUS QUO - NO NOL EQUITY RETURN Page 3 of 4



($000)

LINE


(a) (b)


Add:




5 Other Expenses 77

6 Sub-total 406,746

Deduct:






12 Issue Costs 740








Rate of Return

Page 4 of 4





AFTER-TAX

COST COST WEIGHTED AVERAGE

LINE AMOUNT RATIO RATE COMPONENT COST OF CAPITAL

NO. PARTICULARS ($000) % % % %

(a) (b) (c) (d) (e) (f)

1 Debt - Funded 3,190,641 54.94 8.21 4.51 3.34

2 - Prefunded 0 0.00 8.21 0.00 0.00

3 - Unfunded 293,572 5.06 1.65 0.08 0.06

4 3,484,213 60.00 4.59 3.40

5 Common Equity 2,322,810 40.00 13.63 5.45 5.45

6 Total Capitalization 5,807,023 100.00 10.04 8.85

7 Rate Base 5,715,877

8 GPUC 91,146




Part E: Mainline 2012-2013 Revenue Requirement


Schedule 1.3

Page 1 of 4

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN

REVENUE REQUIREMENT


($000)

Restructuring NEB

Proposal Scenario



(a) (b) (c) (d) (e)





5 Return 475,796 435,203 (40,593) 5.3

6 Income Taxes 158,132 143,968 (14,164) 6.3

7 Depreciation 287,085 287,085 -








15 Gross Revenue Requirement 1,589,649 1,534,892 (54,757)


16 Non Discretionary Miscellaneous Revenue (18,027) (18,007) 20

17 Discretionary Miscellaneous Revenue (432,360) (417,863) 14,497

18 Miscellaneous Revenue (450,387) (435,870) 14,517

19 Net Revenue Requirement 1,139,262 1,099,022 (40,240)





Schedule 5.3

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN Page 2 of 4

AVERAGE RATE BASE


($000)

LINE


(a) (b)

Utility Investment



3 Net Plant 5,544,192



Working Capital

6 Cash 21,864



9 Linepack 41,061






14 Prefunded / (Unfunded) Pension and Post Employment Benefits Liability 88,078





19 Return (ATWACC) @ 8.17% 475,796



NOL Net Plant 842,174

ROE 12.05 %








Schedule 6.3

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN Page 3 of 4



($000)

LINE


(a) (b)

1 Return On Rate Base (ATWACC) 435,203

Add:


3 Non-allowed Amortization of Debt, Discount, and Expense 2,265


5 Other Expenses 77

6 Sub-total 191,365

Deduct:






12 Issue Costs 740









Rate of Return

Page 4 of 4

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN




AFTER-TAX




(a) (b) (c) (d) (e) (f)

1 Debt - Funded 3,190,641 53.95 8.21 4.43 3.28

2 - Prefunded 0 0.00 8.21 0.00 0.00

3 - Unfunded 358,117 6.05 1.65 0.10 0.07

4 3,548,758 60.00 4.53 3.35

5 Common Equity 2,365,839 40.00 12.05 4.82 4.82


7 Rate Base 5,823,693

8 GPUC 90,904



Attachment NEB 6.1 (e)(viii) and (f)(viii)Page 1 of 1

Impact on Discretionary and Non-Discretionary Miscellaneous Revenues of No NOL Equity Return & MAS Depreciation

MAS Depreciation;2012 No NOL No NOL

Line Base Case (1) Equity Return Equity ReturnNo. ($ millions) ($ millions) ($ millions)

(a) (b) (c)1 2012 Restructuring Proposal2 Discretionary Revenue 432.4 417.9 439.2

3 Non Discretionary Revenue Delivery Pressure 15.6 15.6 13.7STS Revenue (2) N/A N/A

4 FT-SN Premium 1.5 1.4 1.55 Dawn Receipt Surcharge 0.9 0.9 0.96 Sales Meter Station Charges 0.1 0.1 0.1

7 Total 450.4 435.9 455.4

8 2012 Status Quo9 Discretionary Revenue 540.4 503.5 503.5

10 Non Discretionary Revenue Delivery Pressure 16.1 16.1 16.111 STS Revenue (2) 80.7 74.9 74.912 FT-SN Premium 1.4 1.3 1.313 Dawn Receipt Surcharge 0.9 0.9 0.914 Sales Meter Station Charges 0.1 0.1 0.1

15 Total 639.6 596.8 596.8

(1) 2012 Restructuring Proposal as filed October 31, 2011 in Application, Section 12: 2012-2013 Rev Req, Attachment 12.3, Tab 2, Schedule 4. 2012 Status Quo as provided in TransCanada's response to EGD 2-1.1 (g) Schedule 4.1

(2) Under Status Quo, STS revenues are part of Non-Discretionary Miscellaneous Revenues, but are proposed to be included with firm service allocation units in Restructuring Proposal.Please refer to the Application, Section 7.0: Toll Design Proposals, Attachment 7.2, page 14 for further information

Business and Services Restructuring andMainline 2012-2013 Tolls ApplicationAttachment NEB 6.1 (e)(x) and (f)(x)

Page 1 of 1

2012 Tolls from MAS Proposal - No NOL Equity Return & MAS Depreciation(All tolls in $/GJ)

MAS Depreciation; MAS Depreciation;Line 2012 No NOL Equity No NOL Equity 2012 No NOL Equity No NOL EquityNo. Path Base Case Return Return Base Case Return Return

(a) (b) (c) (d) (e) (f) (g)

1 NIT to Union SWDA 1.29 1.24 1.31 2.35 2.18 2.182 NIT to EGD CDA 1.41 1.36 1.44 2.74 2.54 2.543 NIT to Union CDA 1.39 1.34 1.41 2.74 2.54 2.544 NIT to Union NCDA 1.35 1.30 1.37 2.74 2.54 2.545 NIT to Gmi EDA 1.53 1.48 1.56 2.74 2.54 2.546 NIT to Gmi TQM EDA 1.85 1.79 1.87 2.74 2.54 2.547 NIT to Union EDA 1.49 1.44 1.52 2.74 2.54 2.548 NIT to EGD EDA 1.46 1.41 1.48 2.74 2.54 2.549 NIT to Kingston EDA 1.52 1.47 1.55 2.74 2.54 2.54

10 NIT to Centra MDA 0.48 0.47 0.48 0.92 0.87 0.8711 NIT to Union WDA 0.77 0.75 0.78 1.43 1.34 1.3412 NIT to Union SSMDA 1.08 1.04 1.10 2.18 2.02 2.0213 NIT to Union NDA 1.18 1.14 1.20 2.18 2.02 2.0214 NIT to GMi NDA 1.22 1.18 1.24 2.18 2.02 2.0215 NIT to Emerson 2 0.56 0.55 0.57 1.04 0.98 0.9816 NIT to Iroquois 1.48 1.42 1.50 2.70 2.51 2.5117 NIT to Niagara 1.43 1.38 1.45 2.79 2.59 2.5918 NIT to Chippawa 1.43 1.38 1.45 2.79 2.59 2.5919 NIT to Cornwall 1.48 1.43 1.51 2.80 2.60 2.6020 NIT to Napierville 1.55 1.50 1.58 2.93 2.71 2.7121 NIT to Philipsburg 1.56 1.51 1.59 2.94 2.73 2.7322 NIT to East Hereford 1.86 1.80 1.88 3.21 2.98 2.98

23 Dawn to EGD CDA 0.20 0.20 0.21 0.29 0.27 0.2724 Dawn to Union CDA 0.17 0.17 0.18 0.23 0.22 0.2225 Dawn to Gmi EDA 0.44 0.42 0.45 0.76 0.70 0.7026 Dawn to Gmi TQM EDA 0.75 0.74 0.76 0.76 0.70 0.7027 Dawn to EGD EDA 0.39 0.37 0.39 0.61 0.56 0.5628 Dawn to Union EDA 0.32 0.31 0.33 0.50 0.46 0.4629 Dawn to Iroquois 0.38 0.36 0.38 0.60 0.56 0.5630 Dawn to East Hereford 0.76 0.75 0.77 1.02 0.95 0.95

31 Parkway to EGD CDA 0.10 0.10 0.10 0.10 0.10 0.1032 Parkway to Union CDA 0.08 0.08 0.08 0.07 0.06 0.0633 Parkway to Gmi EDA 0.33 0.32 0.34 0.57 0.52 0.5234 Parkway to Gmi TQM EDA 0.64 0.63 0.65 0.57 0.52 0.5235 Parkway to EGD EDA 0.28 0.27 0.28 0.42 0.39 0.3936 Parkway to Union EDA 0.22 0.21 0.22 0.31 0.28 0.2837 Parkway to Iroquois 0.27 0.26 0.27 0.41 0.39 0.39

38 Niagara to EGD CDA 0.14 0.14 0.15 0.18 0.17 0.1739 Niagara to Union CDA 0.11 0.11 0.11 0.13 0.12 0.1240 Niagara to Gmi EDA 0.39 0.38 0.40 0.68 0.62 0.6241 Niagara to Gmi TQM EDA 0.71 0.69 0.71 0.68 0.62 0.6242 Niagara to Kirkwall 0.12 0.11 0.12 0.13 0.12 0.1243 Niagara to Dawn (Union SWDA) 0.22 0.21 0.21 0.30 0.27 0.2744 Niagara to Iroquois 0.33 0.32 0.34 0.52 0.49 0.49

45 St. Clair to Union SWDA 0.08 0.08 0.08 0.06 0.06 0.06

46 FT-SN Parkway to Goreway CDA 0.09 0.08 0.09 0.07 0.07 0.0747 FT-SN Parkway to Vic Sq #2 CDA 0.10 0.10 0.10 0.10 0.10 0.1048 FT-SN Kirkwall to Thorold CDA 0.12 0.12 0.12 0.13 0.12 0.1249 FT-SN Parkway to Schomberg #2 CDA 0.10 0.10 0.10 0.10 0.09 0.09

50 STS Centram MDA 0.14 0.13 0.14 0.16 0.15 0.1551 STS Union WDA 0.75 0.71 0.76 1.27 1.17 1.1752 STS Union NDA 0.32 0.31 0.32 0.48 0.44 0.4453 STS Union EDA 0.22 0.21 0.22 0.30 0.28 0.2854 STS KPUC EDA 0.20 0.20 0.21 0.29 0.27 0.2755 STS GMi EDA 0.33 0.32 0.34 0.56 0.52 0.5256 STS Gmi TQM EDA 0.64 0.63 0.65 0.56 0.52 0.5257 STS Enbridge CDA 0.10 0.10 0.10 0.05 0.04 0.0458 STS Enbridge EDA 0.28 0.27 0.28 0.17 0.16 0.1659 STS Cornwall 0.28 0.27 0.29 0.42 0.39 0.3960 STS Philipsburg 0.36 0.35 0.37 0.57 0.53 0.53

Notes: - For paths originating at NIT, the toll impacts are based on tolls via Empress for the Status Quo and via SMB for the Restructuring Proposal- 2012 Base Case for Restructuring Proposal is as filed October 31, 2011 in Application, Section 12: 2012-2013 Rev Req, Attachment 12.3, Tab 2, Schedule 5.2. - 2012 Base Case for Status Quo is as provided in TransCanada's response to EGD 2-1.1 (g) Schedule 5.2- Tolls include the applicable delivery pressure charge and/or Dawn receipt surcharge

RESTRUCTURING PROPOSAL STATUS QUO



Attachment NEB 6.1e (xi)

Page 1 of 1

MAS proposed no Equity Return on the NOL segment under the Status Quo

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Avg. NOL Gross Plant 5,296,828 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234

Avg. NOL Accumulated Depreciation 3,350,782 3,590,522 3,830,078 4,069,634 4,309,190 4,548,746 4,788,302 5,027,858 5,267,414 5,506,970

Avg. NOL Net Plant 1,946,046 1,702,712 1,463,156 1,223,600 984,044 744,488 504,932 265,376 25,820 (213,736)

Equity Ratio 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

ROE 13.63% 13.63% 13.63% 13.63% 13.63% 13.63% 13.63% 13.63% 13.63% 13.63%

Lost NOL Equity Return (106,098) (92,832) (79,771) (66,711) (53,650) (40,589) (27,529) (14,468) (1,408) (483,057)

ATWACC 7.00%

Present Value (106,098) (86,759) (69,675) (54,456) (40,929) (28,940) (18,344) (9,010) (819) - (415,030)

Depreciation 239,784 239,556

4.53% 4.53%

MAS proposed no Equity Return on the NOL segment under the Restructuring Proposal

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Avg. NOL Gross Plant 5,296,828 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234

Avg. NOL Accumulated Depreciation 4,454,654 4,526,335 4,597,799 4,669,263 4,740,727 4,812,191 4,883,655 4,955,119 5,026,583 5,098,047 5,169,511 5,240,975 5,312,439

Avg. NOL Net Plant 842,174 766,899 695,435 623,971 552,507 481,043 409,579 338,115 266,651 195,187 123,723 52,259 (19,205)

Equity Ratio 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

ROE 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05%

Lost NOL Equity Return (40,593) (36,965) (33,520) (30,075) (26,631) (23,186) (19,742) (16,297) (12,853) (9,408) (5,963) (2,519) - (257,752)

ATWACC 7.00%

Present Value (40,593) (34,546) (29,278) (24,550) (20,317) (16,531) (13,155) (10,149) (7,480) (5,117) (3,032) (1,197) - (205,945)


1.35% 1.35%


Attachment NEB 6.1f (ii)Page 1 of 2

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN AND MAS DEPRECIATION ASSUMPTIONSPROFORMA BALANCE SHEETFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)



1 Revenues 300 1,514 24 1,538

2 Other costs and expenses 301/302/305 618 6183 Depreciation 303-304 287 115 402

4 Operating Expenses 905 115 1,020


6 Financial charges 320-321 268 2687 Allowance for funds used during construction 324 (8) (8)8 Interest and other income 319, 329 (1) (1)9 Other Expenses 259 - 259

10 Income before Income Taxes 350 (91) 259 11 Income Taxes 306 84 6 90

12 Net Income 266 (97) 169


Attachment NEB 6.1f (ii)Page 2 of 2

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN AND MAS DEPRECIATION ASSUMPTIONSPRO FORMA BALANCE SHEETFOR THE YEAR ENDED DECEMBER 31, 2012($ Million)



1 ASSETS


6 Total Current Assets 202 - 202 7 Plant, Property and Equipment 100-115,153 5,598 (115) 5,483 8 Other Assets 170-179 919 919

9 Total Assets 6,719 (115) 6,604


11 Current Liabilities12 Short-Term Debt 250 466 466 13 Accounts payable 251 116 (18) 98 14 Accrued interest 257 54 54 15 Long-term debt due within one year 258 -

16 Total Current Liabilities 636 (18) 618 17 Long-Term Debt 220 3,098 3,098 18 Deferred Income Tax 276 609 609

18 Total Liabilities 4,343 (18) 4,325 19 Shareholders' Equity 200-212 2,376 (97) 2,279

20 Total Liabilities and Shareholders' Equity 6,719 (115) 6,604




Attachment NEB 6.1f (iii)

Schedule 1.3

Page 1 of 4

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN AND

MAS DEPRECIATION ASSUMPTIONS

REVENUE REQUIREMENT


($000)

Restructuring NEB

Proposal Scenario



(a) (b) (c) (d) (e)





5 Return 475,796 379,035 (96,761) 5.3

6 Income Taxes 158,132 164,359 6,227 6.3

7 Depreciation 287,085 401,692 114,607










16 Non Discretionary Miscellaneous Revenue (18,027) (16,188) 1,839







Schedule 5.3

Page 2 of 4



AVERAGE RATE BASE


($000)

LINE


(a) (b)

Utility Investment



3 Net Plant 5,486,845



Working Capital

6 Cash 21,864



9 Linepack 41,061











19 Return @ 8.20% 472,834



NOL Net Plant 1,946,046

ROE 12.05 %







Schedule 6.3

RESTRUCTURING PROPOSAL - NO NOL EQUITY RETURN AND Page 3 of 4




($000)

LINE


(a) (b)


Add:




5 Other Expenses 77

6 Sub-total 305,972

Deduct:






12 Issue Costs 740








Rate of Return

Page 4 of 4






AFTER-TAX




(a) (b) (c) (d) (e) (f)

1 Debt - Funded 3,190,641 54.47 8.21 4.47 3.31

2 - Prefunded 0 0.00 8.21 0.00 0.00

3 - Unfunded 323,659 5.53 1.65 0.09 0.07

4 3,514,300 60.00 4.56 3.38

5 Common Equity 2,342,868 40.00 12.05 4.82 4.82


7 Rate Base 5,766,264

8 GPUC 90,904




Attachment NEB 6.1f (xi)

Page 1 of 1

MAS proposed no Equity Return on the NOL segment under the Restructuring Proposal with MAS Depreciation assumptions

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Avg. NOL Gross Plant 5,296,828 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234 5,293,234

Avg. NOL Accumulated Depreciation 3,350,782 3,590,522 3,830,078 4,069,634 4,309,190 4,548,746 4,788,302 5,027,858 5,267,414 5,506,970

Avg. NOL Net Plant 1,946,046 1,702,712 1,463,156 1,223,600 984,044 744,488 504,932 265,376 25,820 (213,736)

Equity Ratio 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

ROE 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05% 12.05%Lost NOL Equity Return (93,799) (82,071) (70,524) (58,978) (47,431) (35,884) (24,338) (12,791) (1,245) - (427,060)

ATWACC 7.00%

Present Value (93,799) (76,702) (61,598) (48,143) (36,185) (25,585) (16,217) (7,966) (724) - (366,920)


4.53% 4.53%

Lost Equity Return under RP because of lower rate base

RP Avg. Rate Base 5,823,692 5,794,856 5,538,369 5,284,966 5,032,203 4,780,308 4,529,011 4,278,326 4,028,010

RP (with SQ depr.) Avg. Rate Base 5,765,876 5,621,890 5,250,390 4,882,187 4,514,841 4,148,576 3,783,124 3,418,497 3,054,370

Lower RP Avg. Rate Base (57,816) (172,966) (287,979) (402,779) (517,362) (631,732) (745,887) (859,829) (973,640)

Lost Equity Return (2,787) (8,337) (13,881) (19,414) (24,937) (30,449) (35,952) (41,444) (46,929)

Present Value (2,787) (7,792) (12,124) (15,848) (19,024) (21,710) (23,956) (25,809) (27,313) - (156,363)



NEB 6.2 Topic: Return on Rate Base Reference: TransCanada response to EGD IR 2-1.1, Attachment EGD 2-1.1a and b

(PDF pages 4 & 5) [A2L9C3] Preamble: The reference shows that the return on rate base under the Status Quo

scenario is 8.85% for 2012 and 8.91% for 2013. Request: Please explain, using numerical schedules if necessary, how these returns on rate base are derived. In your answer, please specifically address how the adjustment for the difference between market and embedded debt costs was calculated and how this calculation differs from the one made under the Restructuring Proposal.

Response The Status Quo ATWACC returns of 8.85% for 2012 and 8.91% for 2013, adjusted for embedded debt cost, were calculated in the same manner in which the returns were calculated under the Restructuring Proposal. The ATWACC under the Status Quo of 7.63% as noted in Dr. Kolbe’s Written Evidence1 and shown in the October Supplement return schedules, were adjusted for the difference between market and embedded cost of debt. The market cost of debt is the same under both the Restructuring Proposal and the Status Quo. Please refer to Attachments NEB 6.2-1 and NEB 6.2-2 for numerical schedules supporting these calculations.

1 Part D: Fair Return, Appendix D3: Written Evidence of A. Lawrence Kolbe, Q&A 46&47.

Business and Services Restructuring Application

and Mainline 2012-2013 Tolls Application

Attachment NEB 6.2-1

Page 1 of 2

OVERALL RATE OF RETURN ON RATE BASE - STATUS QUO


COST

LINE COMPONENT

NO. PARTICULARS %

(a) (e)


2 Adjustment to ATWACC (Schedule 1.3, Sheet 2 of 2, Line 6) 1.22





Page 2 of 2



COST COST TAX



(a) (b) (c) (d) (e) (f) (g)

1 Debt - Funded (Schedule 2.3) 3,190,641 54.94 8.21 4.51 25.867 3.34

2 - Prefunded (Schedule 3.3) 0 0.00 8.21 0.00 25.867 0.00

3 - Unfunded (Schedule 3.3) 293,572 5.06 1.65 0.08 25.867 0.06

4 3,484,213 60.00 4.59 3.40



7 Rate Base (Schedule 5.3) 5,715,877

8 GPUC (Schedule 5.3.1 Sheet 5 of 5) 91,146





Page 1 of 2



COST

LINE COMPONENT

NO. PARTICULARS %

(a) (b)


2 Adjustment to ATWACC (Schedule 1.4, Sheet 2 of 2, Line 6) 1.28





Page 2 of 2



COST COST TAX



(a) (b) (c) (d) (e) (f) (g)

1 Debt - Funded (Schedule 2.4) 3,098,295 55.65 8.22 4.57 25.649 3.40

2 - Prefunded (Schedule 3.4) 0 0.00 8.22 0.00 25.649 0.00

3 - Unfunded (Schedule 3.4) 242,420 4.35 2.20 0.10 25.649 0.07

4 3,340,715 60.00 4.67 3.47



7 Rate Base (Schedule 5.4) 5,523,476

8 GPUC (Schedule 5.4.1 Sheet 13 of 13) 44,384




NEB 6.3 Topic: System-Wide Approach Reference: i) Direct Evidence of John Reed (Revised), page 3 (PDF page 6 of 112),

Lines 6 to 8 [A2G7S1] ii) Direct Evidence of John Reed (Revised), page 4 (PDF page 7 of 112),

Lines 5 to 13 [A2G7S1]

iii) Direct Evidence of John Reed (Revised), Sections V and VI, pages 37- 63 (PDF pages 40-66 of 112) [A2G7S1]

Preamble: In reference i), Mr. Reed defines the TransCanada Mainline, the Foothills

Pipeline and the NOVA Gas Transmission Ltd. Alberta System collectively as the “System”.

In reference ii), Mr. Reed states “…I believe that the System-wide approach that TransCanada is taking in this case to improve its long term economic viability is reasonable and appropriate. … In my opinion, TransCanada’s proposed changes position it to enhance the long-term economic viability of the System by reasonably balancing cost responsibility and market realities.”

In reference iii), Mr. Reed discusses the establishment of sound tolling policy and the Alberta System service extension.

Request: a) Please confirm that Mr. Reed’s evidence is based on the assumption that the three

pipeline systems subject to the application constitute one “System” and a System-wide approach is reasonable and appropriate. If not confirmed, please explain.

b) Please explain how Mr. Reed has concluded that a System-wide approach is reasonable and appropriate, considering, for example, the different histories, reasons for construction, functions, markets, customer bases, owners, etc. of each system.

c) Assume that the TransCanada Mainline, Foothills Pipeline and Alberta System are three separate but connected systems, rather than one integrated system. Would Mr. Reed’s evidence be different based on this assumption? If so, please explain in detail what changes in the evidence, if any, would be required particularly for sections V and VI of Mr. Reed’s evidence. If not, please explain why not.

of 3 NEB 6.3

Response

(a) It is confirmed that the assumption that TransCanada’s Mainline, the Alberta System and the Foothills System constitute one “System”, and that a System-wide approach is reasonable and appropriate for evaluating TransCanada’s proposed Alberta System Extension (ASE), is one factor on which Mr. Reed’s evidence is based.

(b) There are various differences between the Mainline, the Alberta System and the Foothills System, including their respective construction and development histories, prior ownership, and to an extent, their functions and markets. However, while these differences exist, there are also currently inextricable links between these natural gas pipeline systems to one another and to the Western Canadian Sedimentary Basin (WCSB). It is Mr. Reed’s opinion that the approach proposed by TransCanada for purposes of the ASE is reasonable and in the public interest based on the interdependent nature of these three pipelines as a single undertaking1 under common ownership and common regulatory jurisdiction, and the circumstances facing the Mainline in this proceeding. As stated in Mr. Reed’s Direct Evidence:

The System is dependent on supplies from the WCSB, and the WCSB is dependent, to a large extent, on the System for transporting gas to market, thus the interests of the System and the WCSB are fundamentally intertwined. Because of the interdependent nature of the System and the WCSB, the current circumstances dictate that TransCanada look not only at initiatives on the Mainline, but also pursue opportunities that exist with the System as a whole, so long as such approaches are reasonable and equitable, produce sufficient benefits and are consistent with the Canadian public interest.2

For purposes of evaluating the reasonableness of the proposed ASE, Mr. Reed has approached the issue of cost causation and public interest from the perspective of looking at the entirety of the System without regard to how the three pipelines existed prior to becoming part of a single undertaking under common ownership and under the jurisdiction of a single regulator. Although these three pipelines have had different owners and have not all been previously regulated by the Board, the fact that the System is a single undertaking now under common jurisdiction and ownership presents an opportunity in this proceeding to establish a workable tolling solution, of which the ASE is one component of the broader Restructuring Proposal, that optimizes to a greater extent the Canadian public

1 As the Board concluded in GH-5-2008, “[t]he Board is satisfied that the Alberta System, the Mainline

and the Foothills System are a single undertaking of TransCanada to transport natural gas to markets in Canada and the United States.” (GH-5-2008 Decision, p. 9).

2 Application, Appendix C4, page 50, lines 15-22.

of 3 NEB 6.3

interest than if the Mainline had to be evaluated independently from the Alberta System and Foothills due to provincial, corporate, regulatory or other constraints. However, as noted below in the response to part (c), such constraints are not necessarily binding or prohibitive of implementing a System-wide approach.

Consideration of a System-wide approach for purposes of the ASE does not

require that the Mainline, Alberta System and Foothills have a single tariff or a single toll across all three pipelines. Mr. Reed believes that the approach taken by TransCanada regarding the ASE reasonably balances the interdependence of these three pipelines with one another and with the WCSB, but also recognizes that these three pipelines have traditionally been operated independently from the perspective of separate tariffs and tolls.

(c) Assuming that the Mainline, Alberta System and Foothills Pipeline are three

separate but connected systems, rather than one integrated system, Mr. Reed’s evidence would not necessarily be different, but rather would depend on the specific circumstances and constraints that may exist to consideration of a System-wide approach. If the System were not a single undertaking under common ownership and a common regulator, but rather “three separate but connected systems”, then it could be more difficult to find an optimal solution in the Canadian public interest to the issues faced by the Mainline, e.g., the Board may have to instead settle for “piecemeal optimization” due to regulatory constraints. Clearly, the fact that the System is a single undertaking under common ownership and a common regulator facilitates the ability to optimize the benefits across the System. However, even if the System were not a single undertaking, that would not prohibit TransCanada and the Board from seeking an optimal solution by looking more broadly beyond simply the Mainline, including the consideration of “separate but connected systems” as suggested in the question.



NEB 6.4 Topic: Regulation of Discretionary Services Reference: i) RH-003-2011 List of Issues (PDF page 5 of 7) [A2F9U8 ] ii) TransCanada’s Response to NEB IR 2.31, pages 2-3 of 3 (PDF pages

133-134 of 526) [A2J7Q3] Preamble: Issue 1 on the List of Issues is the appropriateness of setting, or the

obligation to set, Mainline tolls based on the historical regulatory compact, with recovery of a full traditional cost of service, in the current circumstances. In reference ii), TransCanada noted that: TransCanada’s objective in increasing the volumes flowing pursuant to

Firm Transportation (FT) service is to keep its tolls as competitive as possible and thus enhance the long-term viability of the Mainline;

a significant benefit of firm over interruptible volumes is the predictability of the revenue stream that firm volumes create, with resulting benefits to system users in terms of toll stability and predictability;

toll stability and predictability result in greater incentives for customers to contract on the Mainline on a firm basis, and these additional firm volumes further enhance these desirable toll characteristics;

a segment of the market would prefer to use Mainline capacity on a short term and/or intermittent basis; and

some shippers require firm service. These shippers are unfairly disadvantaged by the instability and unpredictability of tolls that can result when substantial throughput is flowing pursuant to discretionary services.

Request: Assume that the Mainline is notionally divided into two portions with two

separate rate bases. Assume one portion of the pipeline is devoted to meeting FT requirements and tolls are set using the traditional cost of service methodology. Assume the second portion of the pipeline consists of the capacity that is not needed to meet FT requirements and TransCanada is “at-risk” for the under-utilization of this second portion’s capacity.

a) Please explain how TransCanada would determine what portion of the Mainline would be dedicated to FT requirements.

of 6 NEB 6.4

b) Estimate the rate base of the portion that would be dedicated to FT requirements,

and provide the underlying assumptions.

c) Assume that on the second portion of the pipeline, TransCanada’s discretion over the services offered and pricing of these services is constrained only by the Board regulating this portion on a complaint basis or by some light-handed approach, and income earned on this portion of the pipeline does not flow into the FT portion of the pipeline. Please discuss the consequences, merits, challenges, alignment with toll principles, and public interest impacts of this scenario.

Response

TransCanada has considered the alternate business models that this information request and the request NEB 6.5 ask it to assume and offers the following response as its initial thoughts on the alternative business models presented in those requests. The request herein speaks only to the use of alternative business models for the Mainline so TransCanada has limited its response to the Mainline. In addition, for purposes of this response, based on the assumption stated in the request, the portion of the Mainline dedicated solely to meeting FT requirements will be referred to as the “core service” portion of the Mainline, while the remainder of the Mainline not dedicated to FT requirements will be referred to as the “non-core service” portion of the Mainline. (a) and (b) TransCanada is of the opinion that all of its Mainline facilities were built to meet long-term firm requirements, except for certain minor facilities that were constructed to provide export delivery pressure service. Therefore, under the principle of cost causation, all or nearly all of the Mainline investment should be apportioned to the core service rate base. However, notwithstanding the fact as to what originally caused these costs to be incurred, TransCanada recognizes that all of its Mainline facilities may not be required to provide the level of currently subscribed FT service, even though all of those facilities remain used and useful in meeting the Mainline service requirements. The issue of cost apportionment between Mainline facilities “required” to meet current FT contract levels and the Mainline facilities providing service to STFT, IT and other services is complex. While certain paths on the Mainline may have unsubscribed firm capacity, other paths are fully contracted. In addition, unsubscribed capacity may exist under normal operating conditions on certain paths, yet there may be no unsubscribed capacity on those same paths when equipment outages occur. While a certain amount of capacity may be required for core service using primary receipt and delivery points, another level may be required when diversions and alternate receipt point paths are nominated. Based on the complexities and uncertainties inherent in such an apportionment, TransCanada has not conducted the detailed analysis that would be required to allocate capacity between the core and non-core services in the framework assumed in the request, and even if such a study was performed, its results would only

of 6 NEB 6.4

represent an appropriate allocation under a single, static set of assumptions regarding the use of the system, and would be of very limited value. (c) In order to discuss the consequences, merits, challenges, alignment with toll

principles, and public interest impacts of this scenario regarding the non-core, it is first important to define the core service offering, which by default then would define what would be considered the non-core service offerings. One of the primary challenges that arises in considering the core/non-core structure as posed in this request is precisely defining the FT service that is offered in the core portion of the business model versus the services that would be provided pursuant to the non-core business model. TransCanada has envisioned a model in which core service would be limited to FT service with a minimum specified term (e.g., two, three or even five years), or alternatively, for a term of one year or more pursuant to term-differentiated tolls. This service would have renewal rights, would be tolled on a cost-of-service basis with a traditional regulated return, and would be subject to certain of the existing short-term deferral accounts (e.g., deferral accounts would still apply, but there would not be revenue crediting for discretionary services). In all respects, core service would be consistent with the Board’s existing tolling principles and service structures. TransCanada does not envision core service carrying any service “enhancements,” such as FT-SN, STS, RAM or multi-year fixed pricing such as under the new MFP service proposed in the Restructuring Proposal, but would instead represent a “no-frills” cost-based default service. Additional issues which may warrant consideration are whether core service should be more “FERC-like,” and include a managed secondary market with full capacity release, flexible receipt and delivery points within the FT path, and capacity segmentation.

Non-core services would essentially be defined by exclusion, i.e., they represent

all services that do not adhere to the terms of the core FT service agreement. These would include non-standard FT service with the following characteristics:

Shorter terms than the minimum term for core service;

Pricing on an alternate basis (e.g., fixed prices, indexed prices, selectively negotiated prices);

“Off credit” FT service, i.e., service to shippers that cannot meet standard creditworthiness terms; and

FT service bundled with other products, e.g., storage, or with non-standard balancing or nomination rights.

Therefore, all services other than basic FT service would be provided by the non-core portion of the business.

of 6 NEB 6.4

As directed by the information request, TransCanada has assumed that it would be fully at risk for the recovery of costs allocated to the non-core, and that traditional tolls proceedings would continue to be used to price core service. Under this assumed structure, two key challenges arise:

1) Will shippers be permitted to freely move between core and non-core services, e.g., can a shipper elect core FT, later move to non-core service, and then move back to core service?

2) If light-handed or complaint-based regulation is used for non-core service, what would constitute a valid basis for such a complaint?

First, if the free movement of shippers between core and non-core service is permitted, this raises several questions regarding the future allocation of costs between core and non-core portions of the business. For example:

• Would costs between the core and non-core segments be reallocated every year to reflect customer migration, and if so, how?

• Is this consistent with the risk/return balance and incentives that the Board would want to establish for core and non-core services?

• Alternatively, should a fixed allocation of costs for non-core services be locked-in for a multi-year term to provide a better balance of these incentives?

• If capacity allocated to the core segment is fully subscribed at a particular point in time, can the pipeline deny a firm core service request and require such shipper to take non-core service, either permanently or until such point at which the shipper could migrate to core service?

TransCanada is of the view that a core/non-core structure should provide the pipeline with traditional cost-of-service protection for core services, as well as a reasonable opportunity to recover the costs allocated to the non-core services. Thus, similar to the existing structure, a core/non-core structure would also be consistent with the regulatory compact. With the creation of balanced incentives and service flexibility, migration between core and non-core services likely could be accommodated without the need for annual tolls proceedings. Second, regarding the assumption of light-handed or complaint-based regulation of non-core services, it is important to understand from the outset that if TransCanada is fully at risk for the recovery of the non-core costs, it should be permitted to price services, establish new services, revise existing services and respond to competitive circumstances without the restrictions imposed on traditional tariff-based services. TransCanada’s expectation would be to be able to offer service innovations, negotiated terms and market-based pricing, which would not necessarily match traditional regulatory standards for cost-based pricing, non-discrimination or pre-determined service offerings. In addition, TransCanada would need to be able to deny non-core service requests that it

of 6 NEB 6.4

considered to be detrimental to its maximization of non-core revenues, such as requests for short-haul firm service that effectively “boxed out” the ability to offer longer-haul firm and non-firm service, and it would need to be able to deny service requests that required the construction of new facilities without the shippers providing adequate assurance of cost recovery. This raises the question as to what types of complaints to the Board would represent a successful challenge to the service offerings of the non-core business unit. Certainly challenges to these services on the grounds that their price was not cost-based, or on the grounds that TransCanada was not offering the same terms to all shippers, should not be entertained by the Board. Rather, it would be TransCanada’s expectation that non-core services should receive essentially the same form of economic regulation as other market-based, at-risk services providers, i.e., it would be subject to antitrust regulation under the Canadian Competition Bureau, but not traditional toll regulation by the Board.

If properly implemented, TransCanada believes that this structure under which TransCanada would be fully at risk for the recovery of the non-core costs, could achieve results which are economically efficient, just and reasonable, and therefore would be in the public interest, and which would be viewed as being consistent with the regulatory compact. The Board would need to be comfortable that the existence of the cost-based core service offering, and the flexibility granted to users of that service to resell, release, repackage and remarket that service to compete against the non-core service offerings of TransCanada along with third-party service offerings, would adequately protect shippers from any potential market power that TransCanada would have in providing non-core services. TransCanada and its shippers would need to evaluate whether the new business model offered balanced risks and rewards and incentives to innovate in order for them to support the model as better than the existing model. Specifically, in terms of tolling, TransCanada and its shippers would want to evaluate whether the allocation of fixed costs to the non-core services was a more effective, fair and efficient approach than the current revenue crediting for discretionary services, with or without any sharing mechanism. Becoming comfortable with this trade-off (i.e., revenue crediting with or without a sharing mechanism versus an allocation of costs to non-core services) could require three to five years of experience under the new model before an allocation of costs to the non-core, without any sharing mechanism, would be viewed as fair and effective.

The merit of this core/non-core model, as compared to the Restructuring Proposal, is difficult to assess and should be expected to change over time. TransCanada has proposed the Restructuring Proposal, rather than this or some other version of a core/non-core model, because a movement at this time fully to a core/non-core model was viewed as being likely to be opposed by most or all of TransCanada’s stakeholders and as being too large of a transformation to be

of 6 NEB 6.4

approved by the Board in a single tolls proceeding. However, several elements of TransCanada’s application, including greater pricing flexibility, service changes and cost allocations for FT that better match cost causation, could be consistent with the eventual adoption of a core/non-core model. As discussed in the response to NEB 6.5, TransCanada’s views are that if a core/non-core model is the Board’s objective (which is only one of several possible end states), then a multi-step progression to that model is the approach that is most likely to achieve a balanced set of risks, returns and incentives.



NEB 6.5 Reference: i) Application, Section 8.0 Mainline Services and Pricing Proposals

(Revised), pages 3-5 (PDF pages 4-6 of 40) [A2G7R8]

ii) MAS Evidence, page 35 (PDF page 39 of 40) [A2Q9G2]

iii) Written Evidence of the Canadian Association of Petroleum Producers, page 43, A27 (PDF page 43 of 47) [A2Q9J6]

iv) ANE Evidence, pages 16-17, A30 (PDF pages 18-19 of 86) [A2Q9E7] Preamble: As summarized in reference i), TransCanada has proposed to increase the

flexibility it has in setting bid floors for discretionary services. As illustrated in references ii) through iv), intervenors have expressed a variety of views on this proposal, including outright opposition, suggesting that the proposal is acceptable if accompanied by an incentive program, and recommending even greater discretion than proposed by TransCanada.

Request: a) Please consider a scenario where the Board regulates the discretionary services on

a complaint basis or some light-handed basis. Please discuss the outcomes, merits, challenges, alignment with toll principles, and public interest impacts of this scenario.

b) Please consider a scenario where the Board decides to give TransCanada more flexibility than it has proposed, in terms of lower minimum bid floors and/or higher maximum bid floors. Please discuss the outcomes, merits, challenges, alignment with toll principles, and public interest impacts of this scenario.

Response

(a) and (b) Both of the scenarios that the Board has developed for the two parts of this information request could represent either a modified version of the Restructuring Proposal structure, or a partial implementations of the core/non-core business segmentation model described in the response to NEB 6.4. As such, the two scenarios posited in this request can be considered to be workable under either the Restructuring Proposal, or as transitional approaches that could be used to move fully to the core/non-core business model. TransCanada views the primary distinction between implementing the described pricing flexibility under the Restructuring Proposal structure, or as a transition to the core/non-

of 3 NEB 6.5

core model, as being whether the current revenue crediting approach is used for discretionary services, or whether some form of revenue sharing or cost allocation is used for non-core services. The scenario postulated in part b) of this information request, in which greater pricing flexibility is provided for discretionary services, could be reasonable. With the benefit of some operating experience under this model, the Board could consider the use of a balanced risk and revenue sharing model for discretionary services, rather than the traditional revenue crediting, in order to provide stronger incentives for revenue maximization and service innovation. The scenario postulated in part a) of this information request, in which light-handed regulation and the use of more market-based pricing is relied on rather than traditional regulation, could also be considered as reasonable once more experience has been gained with the pricing flexibility permitted in the model discussed in part b) of this request, and this could represent the second step towards the full core/non-core business model. Presumably, this step would involve greater use of risk and revenue sharing than the first step in this process, but stop short of an allocation of costs to discretionary services. TransCanada is of the view that while these scenarios postulate alternative forms of price flexibility for discretionary services, related issues of service flexibility, contract-based rather than tariff-based customization of services, and customer-specific pricing would also need to be considered and implemented in order for the incentives for non-core service development to be workable and fair. In addition, the Board’s transition to non-core flexibility may need to be accompanied by parallel transitions for core FT services, which enable customers to make more flexible and economic use of that service (e.g., the “FERC-like” modifications discussed in the response to NEB 6.4). TransCanada is of the view that the models postulated in parts a) and b) of this information request could be consistent with the Board’s tolling principles, the regulatory compact, and the public interest. The most challenging aspect of this would be preserving a balanced, equitable and economically efficient set of risks, rewards and incentives for both core and non-core services if the model is to transition from (i) revenue crediting to (ii) revenue and risk sharing to (iii) cost allocation to the non-core. In order for these models to be consistent with the regulatory compact under which TransCanada and its investors committed the capital to build the current Mainline, TransCanada would need to continue to have a reasonable opportunity to earn a fair return on, and to achieve the return of, prudently-invested capital. This would require that the risk and revenue sharing mechanisms used for non-core services be symmetrical, reasonable and, along with the granting of authority to provide services on more flexible terms and in a more timely manner, provide these opportunities for achieving a fair return on and of capital.

of 3 NEB 6.5

As discussed in the response to NEB 6.4, the merit of these structures would depend heavily on the details of their implementation.

TransCanada can envision structures for greater reliance on market forces, including those specified in parts a) and b) of this request, that could be more effective in responding to the challenges of competition than the current model, while still being equitable to customers and investors. Those structures, and the transition to them, all begin with establishing tolls for FT service that enable it to be as cost-effective as possible, while remaining consistent with the regulatory compact. Such a transition must also include greater levels of pricing flexibility for non-core services, and the ability of the Mainline to respond to competitive challenges on a timely and effective basis. While TransCanada expects that such a transition would need to be accomplished over a period of some years, it is of the opinion that the Restructuring Proposal is consistent with the first steps that would need to be taken in such a process.



NEB 6.6 Topic Toll Impact of Alberta System Extension Reference: Application, Section 9.0 Impacts of Proposal (Revised), Attachment 9.2,

(PDF page 23 of 25) [A2G7R9] Preamble: In Attachment 9.2, TransCanada provides illustrative tolls and the toll

impact of major components of the restructuring proposal. Column (h) shows the Aggregation Effect of the various components of the proposal.

Request: a) Please provide a table, similar to Attachment 9.2, with illustrative tolls assuming

the Board were not to approve the Alberta System Extension, but were to approve all other components of the Restructuring Proposal.

b) Please replicate the table in Attachment 9.2 with illustrative tolls with column (e) broken down into:

i. Cost allocation changes

ii. Other toll design changes

c) Please replicate the table produced to answer part a) with column (e) broken down into:

i. Cost allocation changes

ii. Other toll design changes

d) Please replicate the table in Attachment 9.2 with illustrative tolls assuming the Board were not to approve the changes to cost allocation, but were to approve all other components of the Restructuring Proposal.

Response

TransCanada has provided the toll impacts excluding the proposed Alberta System Extension (Extension) in part a) of this response and excluding the proposed changes to cost allocation in part d). It is important to note that the impact of each component or group of components of the proposal are not mutually exclusive, and there is a diminishing impact that occurs when all, or the majority of, the components are assumed to be implemented. Therefore, the resulting toll impact from the addition or deletion of any particular component of the proposal is dependent on the extent to which other components are assumed to be implemented. Please refer to the Application, Section 9.0, pages 6-12 for further information.

of 2 NEB 6.6

The results also demonstrate that exclusion of one component of the Restructuring Proposal would reduce the overall benefit of the Proposal and result in tolls that are generally higher. It is also clear from these responses that excluding a major aspect of the Restructuring Proposal, such as the Extension or the proposed cost allocation changes would affect the balance achieved among stakeholders by the Restructuring Proposal. (a) Please refer to Attachment NEB 6.6 (a) for a table that provides the toll impacts

for major components of the Restructuring Proposal for 2012 excluding the Extension. Please note that this table as well as the tables for responses (b), (c) and (d) were developed using the same methodology used to derive the referenced Attachment 9.2. For a description of the methodology, please refer to the Application, Section 9.0, pages 6 – 8.

(b) Please refer to Attachment NEB 6.6 (b) for a table that provides the toll impacts for major components of the Restructuring Proposal for 2012, with the toll design impacts further divided into “Cost Allocation Changes” and “Other Toll Design Changes”. The “Cost Allocation Changes” represent the impact of the proposed reallocation of costs between the energy and energy-distance components of the toll, and yields zero cost allocated to the variable component thereby eliminating the commodity toll. The “Other Toll Design Changes” include the impact of the remaining aspects of TransCanada’s toll design proposal including, elimination of zones, TQM TBO cost allocation, delivery pressure tolling changes, use of shortest distances for all transportation paths, use of annual meter quantities for all load center calculations, and modification to STS distances to align with the distances of all services. The “Other Toll Design Changes” (column (e) (ii)) was determined by taking original toll design impacts (column e) and subtracting off the cost allocation impacts (column e (i)).

(c) Please refer to Attachment NEB 6.6 (c) for a table that provides the toll impacts for major components of the Restructuring Proposal for 2012 excluding the Alberta System Extension and also with the toll design impacts further divided into cost allocation changes and other toll design changes. The “Cost Allocation Changes” and the “Other Toll Design Changes” are defined in response (b).

(d) Please refer to Attachment NEB 6.6 (d) for a table that provides the toll impacts for major components of the Restructuring Proposal for 2012 excluding changes to cost allocation.


Attachment NEB 6.6 (a)Impacts of the Restructuring ProposalToll Impact of Major Components of Restructuring Proposal excluding Alberta System Extension (ASE)2012Response to NEB 6.6 a(All tolls in $/GJ) 2012

Restructuring2012 Proposal

Line Status Quo Other Aggregation W/O ASE TollNo. Path Toll Depreciation AB Extension Toll Design Services Cost Impacts Effect Toll (1) Difference

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)

1 NIT to Union SWDA 2.35 -0.18 N/A -0.34 -0.08 -0.25 -0.05 1.46 -0.892 NIT to EGD CDA 2.74 -0.21 N/A -0.54 -0.09 -0.29 -0.02 1.59 -1.153 NIT to Union CDA 2.74 -0.21 N/A -0.58 -0.09 -0.29 0.00 1.56 -1.174 NIT to Union NCDA 2.74 -0.21 N/A -0.64 -0.09 -0.29 0.01 1.52 -1.215 NIT to Gmi EDA 2.74 -0.21 N/A -0.37 -0.09 -0.29 -0.07 1.71 -1.036 NIT to Gmi TQM EDA 2.74 -0.21 N/A -0.08 -0.09 -0.29 -0.04 2.02 -0.727 NIT to Union EDA 2.74 -0.21 N/A -0.43 -0.09 -0.29 -0.05 1.67 -1.078 NIT to EGD EDA 2.74 -0.21 N/A -0.48 -0.09 -0.29 -0.04 1.63 -1.109 NIT to Kingston EDA 2.74 -0.21 N/A -0.39 -0.09 -0.29 -0.06 1.70 -1.04

10 NIT to Centra MDA 0.92 -0.06 N/A -0.09 -0.03 -0.08 -0.02 0.64 -0.2811 NIT to Union WDA 1.43 -0.10 N/A -0.18 -0.05 -0.14 -0.03 0.94 -0.5012 NIT to Union SSMDA 2.18 -0.16 N/A -0.47 -0.07 -0.23 0.01 1.25 -0.9313 NIT to Union NDA 2.18 -0.16 N/A -0.32 -0.07 -0.23 -0.04 1.35 -0.8214 NIT to GMi NDA 2.18 -0.16 N/A -0.26 -0.07 -0.23 -0.06 1.39 -0.7815 NIT to Emerson 2 1.04 -0.07 N/A -0.10 -0.03 -0.10 -0.02 0.72 -0.3216 NIT to Iroquois 2.70 -0.21 N/A -0.42 -0.09 -0.28 -0.05 1.65 -1.0517 NIT to Niagara 2.79 -0.21 N/A -0.58 -0.09 -0.29 -0.02 1.61 -1.1918 NIT to Chippawa 2.79 -0.21 N/A -0.57 -0.09 -0.29 -0.02 1.61 -1.1819 NIT to Cornwall 2.80 -0.22 N/A -0.50 -0.09 -0.30 -0.03 1.66 -1.1420 NIT to Napierville 2.93 -0.23 N/A -0.53 -0.10 -0.31 -0.03 1.73 -1.2021 NIT to Philipsburg 2.94 -0.23 N/A -0.53 -0.10 -0.31 -0.03 1.74 -1.2122 NIT to East Hereford 3.21 -0.24 N/A -0.54 -0.10 -0.33 0.04 2.03 -1.18

23 Dawn to EGD CDA 0.29 -0.02 N/A 0.01 -0.01 -0.03 -0.01 0.23 -0.0624 Dawn to Union CDA 0.23 -0.02 N/A 0.02 -0.01 -0.02 -0.01 0.20 -0.0425 Dawn to Gmi EDA 0.76 -0.06 N/A -0.11 -0.03 -0.08 -0.01 0.46 -0.2926 Dawn to Gmi TQM EDA 0.76 -0.06 N/A 0.17 -0.03 -0.08 0.02 0.78 0.0227 Dawn to EGD EDA 0.61 -0.05 N/A -0.04 -0.02 -0.07 -0.02 0.41 -0.2028 Dawn to Union EDA 0.50 -0.04 N/A -0.02 -0.02 -0.05 -0.02 0.35 -0.1529 Dawn to Iroquois 0.60 -0.04 N/A -0.05 -0.02 -0.06 -0.02 0.40 -0.2030 Dawn to East Hereford 1.02 -0.07 N/A -0.09 -0.03 -0.10 0.05 0.79 -0.23

31 Parkway to EGD CDA 0.10 -0.01 N/A 0.05 0.00 -0.01 -0.01 0.12 0.0232 Parkway to Union CDA 0.07 0.00 N/A 0.06 0.00 0.00 -0.01 0.10 0.0433 Parkway to Gmi EDA 0.57 -0.04 N/A -0.08 -0.02 -0.06 -0.01 0.36 -0.2134 Parkway to Gmi TQM EDA 0.57 -0.04 N/A 0.20 -0.02 -0.06 0.02 0.67 0.1035 Parkway to EGD EDA 0.42 -0.03 N/A -0.01 -0.01 -0.04 -0.02 0.30 -0.1236 Parkway to Union EDA 0.31 -0.02 N/A 0.01 -0.01 -0.03 -0.02 0.24 -0.0737 Parkway to Iroquois 0.41 -0.03 N/A -0.02 -0.01 -0.04 -0.02 0.29 -0.12

38 Niagara to EGD CDA 0.18 -0.01 N/A 0.03 -0.01 -0.02 -0.01 0.17 -0.0239 Niagara to Union CDA 0.13 -0.01 N/A 0.04 0.00 -0.01 -0.01 0.13 0.0040 Niagara to Gmi EDA 0.68 -0.05 N/A -0.10 -0.02 -0.07 -0.01 0.42 -0.2641 Niagara to Gmi TQM EDA 0.68 -0.05 N/A 0.18 -0.02 -0.07 0.02 0.73 0.0542 Niagara to Kirkwall 0.13 -0.01 N/A 0.04 0.00 -0.01 -0.01 0.14 0.0143 Niagara to Dawn (Union SWDA) 0.30 -0.02 N/A 0.02 -0.01 -0.03 -0.02 0.24 -0.0644 Niagara to Iroquois 0.52 -0.04 N/A -0.04 -0.02 -0.05 -0.02 0.36 -0.17

45 St. Clair to Union SWDA 0.06 0.00 N/A 0.05 0.00 0.00 -0.01 0.10 0.04

46 FT-SN Parkway to Goreway CDA 0.07 0.00 N/A 0.06 0.00 0.00 -0.01 0.11 0.0447 FT-SN Parkway to Vic Sq #2 CDA 0.10 0.00 N/A 0.05 0.00 -0.01 -0.01 0.13 0.0248 FT-SN Kirkwall to Thorold CDA 0.13 -0.01 N/A 0.05 0.00 -0.01 -0.01 0.14 0.0149 FT-SN Parkway to Schomberg #2 CDA 0.10 0.00 N/A 0.05 0.00 -0.01 -0.01 0.13 0.03

50 STS Centram MDA 0.16 -0.01 N/A 0.05 -0.01 -0.01 -0.01 0.16 0.0051 STS Union WDA 1.27 -0.10 N/A -0.17 -0.04 -0.14 -0.03 0.78 -0.4952 STS Union NDA 0.48 -0.04 N/A -0.01 -0.02 -0.05 -0.02 0.34 -0.1453 STS Union EDA 0.30 -0.02 N/A 0.02 -0.01 -0.03 -0.02 0.24 -0.0654 STS KPUC EDA 0.29 -0.02 N/A 0.01 -0.01 -0.03 -0.01 0.23 -0.0655 STS GMi EDA 0.56 -0.04 N/A -0.07 -0.02 -0.06 -0.01 0.36 -0.2156 STS Gmi TQM EDA 0.56 -0.04 N/A 0.21 -0.02 -0.06 0.02 0.67 0.1157 STS Enbridge CDA 0.05 0.00 N/A 0.10 0.00 0.00 -0.02 0.12 0.0858 STS Enbridge EDA 0.17 -0.01 N/A 0.24 -0.01 -0.02 -0.07 0.30 0.1359 STS Cornwall 0.42 -0.03 N/A -0.01 -0.01 -0.05 -0.02 0.30 -0.1260 STS Philipsburg 0.57 -0.04 N/A -0.04 -0.02 -0.06 -0.02 0.38 -0.18

Notes: For paths originating at NIT, the toll impacts are based on transportation tolls via Empress in both Status Quo and Restructuring Proposal excluding the ASE. Numbers may not add due to the rounding of final numbers for presentation purposes.

Tolls include Delivery Pressure and Dawn Receipt Surcharge where applicable

(1) Flow changes that would result from a modification to the Restructuring Proposal are not reflected in these toll results.


Attachment NEB 6.6 (b)Impacts of the Restructuring ProposalToll Impact of Major Components of Restructuring Proposal with Toll Design Divided into Cost Allocation and Other Toll Design2012Response to NEB 6.6 b(All tolls in $/GJ)

20122012 Restructuring

Line Status Quo Cost Other Other Aggregation Proposal TollNo. Path Toll Depreciation AB Extension Toll Design Allocation Toll Design Services Cost Impacts Effect Toll Difference

(a) (b) (c) (d) (e) (e)(i) (e)(ii) (f) (g) (h) (i) (j)

1 NIT to Union SWDA 2.35 -0.18 -0.49 -0.34 -0.36 0.02 -0.08 -0.25 0.27 1.29 -1.062 NIT to EGD CDA 2.74 -0.21 -0.53 -0.54 -0.44 -0.10 -0.09 -0.29 0.34 1.41 -1.323 NIT to Union CDA 2.74 -0.21 -0.53 -0.58 -0.44 -0.14 -0.09 -0.29 0.35 1.39 -1.354 NIT to Union NCDA 2.74 -0.21 -0.53 -0.64 -0.44 -0.20 -0.09 -0.29 0.37 1.35 -1.395 NIT to Gmi EDA 2.74 -0.21 -0.53 -0.37 -0.44 0.07 -0.09 -0.29 0.28 1.53 -1.216 NIT to Gmi TQM EDA 2.74 -0.21 -0.53 -0.08 -0.44 0.35 -0.09 -0.29 0.31 1.85 -0.897 NIT to Union EDA 2.74 -0.21 -0.53 -0.43 -0.44 0.01 -0.09 -0.29 0.30 1.49 -1.258 NIT to EGD EDA 2.74 -0.21 -0.53 -0.48 -0.44 -0.04 -0.09 -0.29 0.32 1.46 -1.289 NIT to Kingston EDA 2.74 -0.21 -0.53 -0.39 -0.44 0.05 -0.09 -0.29 0.29 1.52 -1.22

10 NIT to Centra MDA 0.92 -0.06 -0.36 -0.09 -0.06 -0.03 -0.03 -0.08 0.18 0.48 -0.4411 NIT to Union WDA 1.43 -0.10 -0.41 -0.18 -0.17 -0.01 -0.05 -0.14 0.21 0.77 -0.6612 NIT to Union SSMDA 2.18 -0.16 -0.48 -0.47 -0.32 -0.15 -0.07 -0.23 0.31 1.08 -1.1013 NIT to Union NDA 2.18 -0.16 -0.48 -0.32 -0.32 0.00 -0.07 -0.23 0.27 1.18 -0.9914 NIT to GMi NDA 2.18 -0.16 -0.48 -0.26 -0.32 0.06 -0.07 -0.23 0.25 1.22 -0.9615 NIT to Emerson 2 1.04 -0.07 -0.37 -0.10 -0.09 -0.01 -0.03 -0.10 0.19 0.56 -0.4816 NIT to Iroquois 2.70 -0.21 -0.52 -0.42 -0.43 0.01 -0.09 -0.28 0.30 1.48 -1.2317 NIT to Niagara 2.79 -0.21 -0.53 -0.58 -0.44 -0.14 -0.09 -0.29 0.34 1.43 -1.3618 NIT to Chippawa 2.79 -0.21 -0.53 -0.57 -0.44 -0.13 -0.09 -0.29 0.34 1.43 -1.3619 NIT to Cornwall 2.80 -0.22 -0.54 -0.50 -0.45 -0.05 -0.09 -0.30 0.33 1.48 -1.3220 NIT to Napierville 2.93 -0.23 -0.55 -0.53 -0.48 -0.05 -0.10 -0.31 0.34 1.55 -1.3821 NIT to Philipsburg 2.94 -0.23 -0.55 -0.53 -0.48 -0.05 -0.10 -0.31 0.34 1.56 -1.3822 NIT to East Hereford 3.21 -0.24 -0.56 -0.54 -0.51 -0.03 -0.10 -0.33 0.43 1.86 -1.35

23 Dawn to EGD CDA 0.29 -0.02 -0.03 0.01 0.04 -0.02 -0.01 -0.03 0.00 0.20 -0.0824 Dawn to Union CDA 0.23 -0.02 -0.03 0.02 0.05 -0.03 -0.01 -0.02 -0.01 0.17 -0.0625 Dawn to Gmi EDA 0.76 -0.06 -0.08 -0.11 -0.06 -0.05 -0.03 -0.08 0.04 0.44 -0.3226 Dawn to Gmi TQM EDA 0.76 -0.06 -0.08 0.17 -0.06 0.23 -0.03 -0.08 0.07 0.75 0.0027 Dawn to EGD EDA 0.61 -0.05 -0.06 -0.04 -0.03 -0.01 -0.02 -0.07 0.02 0.39 -0.2228 Dawn to Union EDA 0.50 -0.04 -0.05 -0.02 -0.01 -0.02 -0.02 -0.05 0.01 0.32 -0.1729 Dawn to Iroquois 0.60 -0.04 -0.06 -0.05 -0.02 -0.03 -0.02 -0.06 0.02 0.38 -0.2330 Dawn to East Hereford 1.02 -0.07 -0.09 -0.09 -0.09 0.01 -0.03 -0.10 0.12 0.76 -0.26

31 Parkway to EGD CDA 0.10 -0.01 -0.02 0.05 0.07 -0.03 0.00 -0.01 -0.02 0.10 0.0032 Parkway to Union CDA 0.07 0.00 -0.01 0.06 0.08 -0.02 0.00 0.00 -0.02 0.08 0.0233 Parkway to Gmi EDA 0.57 -0.04 -0.06 -0.08 -0.02 -0.06 -0.02 -0.06 0.03 0.33 -0.2434 Parkway to Gmi TQM EDA 0.57 -0.04 -0.06 0.20 -0.02 0.23 -0.02 -0.06 0.06 0.64 0.0835 Parkway to EGD EDA 0.42 -0.03 -0.05 -0.01 0.01 -0.02 -0.01 -0.04 0.00 0.28 -0.1436 Parkway to Union EDA 0.31 -0.02 -0.03 0.01 0.03 -0.02 -0.01 -0.03 0.00 0.22 -0.0937 Parkway to Iroquois 0.41 -0.03 -0.04 -0.02 0.01 -0.04 -0.01 -0.04 0.00 0.27 -0.14

38 Niagara to EGD CDA 0.18 -0.01 -0.02 0.03 0.06 -0.03 -0.01 -0.02 -0.01 0.14 -0.0439 Niagara to Union CDA 0.13 -0.01 -0.02 0.04 0.07 -0.03 0.00 -0.01 -0.01 0.11 -0.0240 Niagara to Gmi EDA 0.68 -0.05 -0.07 -0.10 -0.04 -0.06 -0.02 -0.07 0.03 0.39 -0.2841 Niagara to Gmi TQM EDA 0.68 -0.05 -0.07 0.18 -0.04 0.23 -0.02 -0.07 0.06 0.71 0.0342 Niagara to Kirkwall 0.13 -0.01 -0.02 0.04 0.07 -0.03 0.00 -0.01 -0.02 0.12 -0.0143 Niagara to Dawn (Union SWDA) 0.30 -0.02 -0.03 0.02 0.04 -0.01 -0.01 -0.03 -0.01 0.22 -0.0844 Niagara to Iroquois 0.52 -0.04 -0.05 -0.04 -0.01 -0.03 -0.02 -0.05 0.01 0.33 -0.19

45 St. Clair to Union SWDA 0.06 0.00 -0.01 0.05 0.08 -0.03 0.00 0.00 -0.02 0.08 0.02

46 FT-SN Parkway to Goreway CDA 0.07 0.00 -0.01 0.06 0.09 -0.03 0.00 0.00 -0.02 0.09 0.0247 FT-SN Parkway to Vic Sq #2 CDA 0.10 0.00 -0.02 0.05 0.08 -0.03 0.00 -0.01 -0.02 0.10 0.0048 FT-SN Kirkwall to Thorold CDA 0.13 -0.01 -0.01 0.05 0.08 -0.03 0.00 -0.01 -0.02 0.12 -0.0149 FT-SN Parkway to Schomberg #2 CDA 0.10 0.00 -0.02 0.05 0.08 -0.03 0.00 -0.01 -0.02 0.10 0.00

50 STS Centram MDA 0.16 -0.01 -0.02 0.05 0.06 -0.02 -0.01 -0.01 -0.02 0.14 -0.0251 STS Union WDA 1.27 -0.10 -0.12 -0.17 -0.17 -0.01 -0.04 -0.14 0.06 0.75 -0.5252 STS Union NDA 0.48 -0.04 -0.05 -0.01 0.00 -0.01 -0.02 -0.05 0.01 0.32 -0.1653 STS Union EDA 0.30 -0.02 -0.03 0.02 0.03 -0.02 -0.01 -0.03 -0.01 0.22 -0.0854 STS KPUC EDA 0.29 -0.02 -0.03 0.01 0.04 -0.02 -0.01 -0.03 0.00 0.20 -0.0955 STS GMi EDA 0.56 -0.04 -0.06 -0.07 -0.02 -0.05 -0.02 -0.06 0.03 0.33 -0.2356 STS Gmi TQM EDA 0.56 -0.04 -0.06 0.21 -0.02 0.23 -0.02 -0.06 0.06 0.64 0.0857 STS Enbridge CDA 0.05 0.00 -0.01 0.10 0.09 0.02 0.00 0.00 -0.03 0.10 0.0558 STS Enbridge EDA 0.17 -0.01 -0.02 0.24 0.06 0.18 -0.01 -0.02 -0.08 0.28 0.1059 STS Cornwall 0.42 -0.03 -0.05 -0.01 0.01 -0.02 -0.01 -0.05 0.00 0.28 -0.1460 STS Philipsburg 0.57 -0.04 -0.06 -0.04 -0.02 -0.02 -0.02 -0.06 0.01 0.36 -0.21

Notes: For paths originating at NIT, the toll impacts are based on transportation tolls via Empress for the Status Quo and via SMB for the Restructuring Proposal Numbers may not add due to the rounding of final numbers for presentation purposes. Tolls include Delivery Pressure and Dawn Receipt Surcharge where applicable Column (e)(i) + Column (e)(ii) = Column (e)

Toll Design


Attachment NEB 6.6 (c)Impacts of the Restructuring ProposalToll Impact of Major Components of Restructuring Proposal excluding Alberta System Extension (ASE)2012Response to NEB 6.6 c(All tolls in $/GJ) 2012


Line Status Quo Cost Other Other Aggregation W/O ASE TollNo. Path Toll Depreciation AB Extension Toll Design Allocation Toll Design Services Cost Impacts Effect Toll (1) Difference

(a) (b) (c) (d) (e) (e)(i) (e)(ii) (f) (g) (h) (i) (j)

1 NIT to Union SWDA 2.35 -0.18 N/A -0.34 -0.36 0.02 -0.08 -0.25 -0.05 1.46 -0.892 NIT to EGD CDA 2.74 -0.21 N/A -0.54 -0.44 -0.10 -0.09 -0.29 -0.02 1.59 -1.153 NIT to Union CDA 2.74 -0.21 N/A -0.58 -0.44 -0.14 -0.09 -0.29 0.00 1.56 -1.174 NIT to Union NCDA 2.74 -0.21 N/A -0.64 -0.44 -0.20 -0.09 -0.29 0.01 1.52 -1.215 NIT to Gmi EDA 2.74 -0.21 N/A -0.37 -0.44 0.07 -0.09 -0.29 -0.07 1.71 -1.036 NIT to Gmi TQM EDA 2.74 -0.21 N/A -0.08 -0.44 0.35 -0.09 -0.29 -0.04 2.02 -0.727 NIT to Union EDA 2.74 -0.21 N/A -0.43 -0.44 0.01 -0.09 -0.29 -0.05 1.67 -1.078 NIT to EGD EDA 2.74 -0.21 N/A -0.48 -0.44 -0.04 -0.09 -0.29 -0.04 1.63 -1.109 NIT to Kingston EDA 2.74 -0.21 N/A -0.39 -0.44 0.05 -0.09 -0.29 -0.06 1.70 -1.04

10 NIT to Centra MDA 0.92 -0.06 N/A -0.09 -0.06 -0.03 -0.03 -0.08 -0.02 0.64 -0.2811 NIT to Union WDA 1.43 -0.10 N/A -0.18 -0.17 -0.01 -0.05 -0.14 -0.03 0.94 -0.5012 NIT to Union SSMDA 2.18 -0.16 N/A -0.47 -0.32 -0.15 -0.07 -0.23 0.01 1.25 -0.9313 NIT to Union NDA 2.18 -0.16 N/A -0.32 -0.32 0.00 -0.07 -0.23 -0.04 1.35 -0.8214 NIT to GMi NDA 2.18 -0.16 N/A -0.26 -0.32 0.06 -0.07 -0.23 -0.06 1.39 -0.7815 NIT to Emerson 2 1.04 -0.07 N/A -0.10 -0.09 -0.01 -0.03 -0.10 -0.02 0.72 -0.3216 NIT to Iroquois 2.70 -0.21 N/A -0.42 -0.43 0.01 -0.09 -0.28 -0.05 1.65 -1.0517 NIT to Niagara 2.79 -0.21 N/A -0.58 -0.44 -0.14 -0.09 -0.29 -0.02 1.61 -1.1918 NIT to Chippawa 2.79 -0.21 N/A -0.57 -0.44 -0.13 -0.09 -0.29 -0.02 1.61 -1.1819 NIT to Cornwall 2.80 -0.22 N/A -0.50 -0.45 -0.05 -0.09 -0.30 -0.03 1.66 -1.1420 NIT to Napierville 2.93 -0.23 N/A -0.53 -0.48 -0.05 -0.10 -0.31 -0.03 1.73 -1.2021 NIT to Philipsburg 2.94 -0.23 N/A -0.53 -0.48 -0.05 -0.10 -0.31 -0.03 1.74 -1.2122 NIT to East Hereford 3.21 -0.24 N/A -0.54 -0.51 -0.03 -0.10 -0.33 0.04 2.03 -1.18

23 Dawn to EGD CDA 0.29 -0.02 N/A 0.01 0.04 -0.02 -0.01 -0.03 -0.01 0.23 -0.0624 Dawn to Union CDA 0.23 -0.02 N/A 0.02 0.05 -0.03 -0.01 -0.02 -0.01 0.20 -0.0425 Dawn to Gmi EDA 0.76 -0.06 N/A -0.11 -0.06 -0.05 -0.03 -0.08 -0.01 0.46 -0.2926 Dawn to Gmi TQM EDA 0.76 -0.06 N/A 0.17 -0.06 0.23 -0.03 -0.08 0.02 0.78 0.0227 Dawn to EGD EDA 0.61 -0.05 N/A -0.04 -0.03 -0.01 -0.02 -0.07 -0.02 0.41 -0.2028 Dawn to Union EDA 0.50 -0.04 N/A -0.02 -0.01 -0.02 -0.02 -0.05 -0.02 0.35 -0.1529 Dawn to Iroquois 0.60 -0.04 N/A -0.05 -0.02 -0.03 -0.02 -0.06 -0.02 0.40 -0.2030 Dawn to East Hereford 1.02 -0.07 N/A -0.09 -0.09 0.01 -0.03 -0.10 0.05 0.79 -0.23

31 Parkway to EGD CDA 0.10 -0.01 N/A 0.05 0.07 -0.03 0.00 -0.01 -0.01 0.12 0.0232 Parkway to Union CDA 0.07 0.00 N/A 0.06 0.08 -0.02 0.00 0.00 -0.01 0.10 0.0433 Parkway to Gmi EDA 0.57 -0.04 N/A -0.08 -0.02 -0.06 -0.02 -0.06 -0.01 0.36 -0.2134 Parkway to Gmi TQM EDA 0.57 -0.04 N/A 0.20 -0.02 0.23 -0.02 -0.06 0.02 0.67 0.1035 Parkway to EGD EDA 0.42 -0.03 N/A -0.01 0.01 -0.02 -0.01 -0.04 -0.02 0.30 -0.1236 Parkway to Union EDA 0.31 -0.02 N/A 0.01 0.03 -0.02 -0.01 -0.03 -0.02 0.24 -0.0737 Parkway to Iroquois 0.41 -0.03 N/A -0.02 0.01 -0.04 -0.01 -0.04 -0.02 0.29 -0.12

38 Niagara to EGD CDA 0.18 -0.01 N/A 0.03 0.06 -0.03 -0.01 -0.02 -0.01 0.17 -0.0239 Niagara to Union CDA 0.13 -0.01 N/A 0.04 0.07 -0.03 0.00 -0.01 -0.01 0.13 0.0040 Niagara to Gmi EDA 0.68 -0.05 N/A -0.10 -0.04 -0.06 -0.02 -0.07 -0.01 0.42 -0.2641 Niagara to Gmi TQM EDA 0.68 -0.05 N/A 0.18 -0.04 0.23 -0.02 -0.07 0.02 0.73 0.0542 Niagara to Kirkwall 0.13 -0.01 N/A 0.04 0.07 -0.03 0.00 -0.01 -0.01 0.14 0.0143 Niagara to Dawn (Union SWDA) 0.30 -0.02 N/A 0.02 0.04 -0.01 -0.01 -0.03 -0.02 0.24 -0.0644 Niagara to Iroquois 0.52 -0.04 N/A -0.04 -0.01 -0.03 -0.02 -0.05 -0.02 0.36 -0.17

45 St. Clair to Union SWDA 0.06 0.00 N/A 0.05 0.08 -0.03 0.00 0.00 -0.01 0.10 0.04

46 FT-SN Parkway to Goreway CDA 0.07 0.00 N/A 0.06 0.09 -0.03 0.00 0.00 -0.01 0.11 0.0447 FT-SN Parkway to Vic Sq #2 CDA 0.10 0.00 N/A 0.05 0.08 -0.03 0.00 -0.01 -0.01 0.13 0.0248 FT-SN Kirkwall to Thorold CDA 0.13 -0.01 N/A 0.05 0.08 -0.03 0.00 -0.01 -0.01 0.14 0.0149 FT-SN Parkway to Schomberg #2 CDA 0.10 0.00 N/A 0.05 0.08 -0.03 0.00 -0.01 -0.01 0.13 0.03

50 STS Centram MDA 0.16 -0.01 N/A 0.05 0.06 -0.02 -0.01 -0.01 -0.01 0.16 0.0051 STS Union WDA 1.27 -0.10 N/A -0.17 -0.17 -0.01 -0.04 -0.14 -0.03 0.78 -0.4952 STS Union NDA 0.48 -0.04 N/A -0.01 0.00 -0.01 -0.02 -0.05 -0.02 0.34 -0.1453 STS Union EDA 0.30 -0.02 N/A 0.02 0.03 -0.02 -0.01 -0.03 -0.02 0.24 -0.0654 STS KPUC EDA 0.29 -0.02 N/A 0.01 0.04 -0.02 -0.01 -0.03 -0.01 0.23 -0.0655 STS GMi EDA 0.56 -0.04 N/A -0.07 -0.02 -0.05 -0.02 -0.06 -0.01 0.36 -0.2156 STS Gmi TQM EDA 0.56 -0.04 N/A 0.21 -0.02 0.23 -0.02 -0.06 0.02 0.67 0.1157 STS Enbridge CDA 0.05 0.00 N/A 0.10 0.09 0.02 0.00 0.00 -0.02 0.12 0.0858 STS Enbridge EDA 0.17 -0.01 N/A 0.24 0.06 0.18 -0.01 -0.02 -0.07 0.30 0.1359 STS Cornwall 0.42 -0.03 N/A -0.01 0.01 -0.02 -0.01 -0.05 -0.02 0.30 -0.1260 STS Philipsburg 0.57 -0.04 N/A -0.04 -0.02 -0.02 -0.02 -0.06 -0.02 0.38 -0.18

Notes: For paths originating at NIT, the toll impacts are based on transportation tolls via Empress in both Status Quo and Restructuring Proposal excluding the ASE. Numbers may not add due to the rounding of final numbers for presentation purposes. Tolls include Delivery Pressure and Dawn Receipt surcharge where applicable Column (e)(i) + Column (e)(ii) = Column (e)


Toll Design


Attachment NEB 6.6 (d)Impacts of the Restructuring ProposalToll Impact of Major Components of Restructuring Proposal excluding Cost Allocation Proposal2012Response to NEB 6.6 d(All tolls in $/GJ) 2012


Line Status Quo Cost Other Other Aggregation W/O Cost Alloc TollNo. Path Toll Depreciation AB Extension Allocation Toll Design Services Cost Impacts Effect Toll (1) Difference

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

1 NIT to Union SWDA 2.35 -0.18 -0.49 N/A 0.02 -0.08 -0.25 0.01 1.37 -0.972 NIT to EGD CDA 2.74 -0.21 -0.53 N/A -0.10 -0.09 -0.29 0.01 1.52 -1.223 NIT to Union CDA 2.74 -0.21 -0.53 N/A -0.14 -0.09 -0.29 0.02 1.49 -1.254 NIT to Union NCDA 2.74 -0.21 -0.53 N/A -0.20 -0.09 -0.29 0.03 1.45 -1.295 NIT to Gmi EDA 2.74 -0.21 -0.53 N/A 0.07 -0.09 -0.29 -0.03 1.65 -1.086 NIT to Gmi TQM EDA 2.74 -0.21 -0.53 N/A 0.35 -0.09 -0.29 0.00 1.97 -0.777 NIT to Union EDA 2.74 -0.21 -0.53 N/A 0.01 -0.09 -0.29 -0.02 1.61 -1.138 NIT to EGD EDA 2.74 -0.21 -0.53 N/A -0.04 -0.09 -0.29 -0.01 1.57 -1.179 NIT to Kingston EDA 2.74 -0.21 -0.53 N/A 0.05 -0.09 -0.29 -0.03 1.64 -1.1010 NIT to Centra MDA 0.92 -0.06 -0.36 N/A -0.03 -0.03 -0.08 0.10 0.46 -0.4711 NIT to Union WDA 1.43 -0.10 -0.41 N/A -0.01 -0.05 -0.14 0.06 0.79 -0.6512 NIT to Union SSMDA 2.18 -0.16 -0.48 N/A -0.15 -0.07 -0.23 0.05 1.14 -1.0413 NIT to Union NDA 2.18 -0.16 -0.48 N/A 0.00 -0.07 -0.23 0.02 1.25 -0.9214 NIT to GMi NDA 2.18 -0.16 -0.48 N/A 0.06 -0.07 -0.23 0.00 1.30 -0.8815 NIT to Emerson 2 1.04 -0.07 -0.37 N/A -0.01 -0.03 -0.10 0.09 0.55 -0.5016 NIT to Iroquois 2.70 -0.21 -0.52 N/A 0.01 -0.09 -0.28 -0.02 1.59 -1.1117 NIT to Niagara 2.79 -0.21 -0.53 N/A -0.14 -0.09 -0.29 0.01 1.54 -1.2618 NIT to Chippawa 2.79 -0.21 -0.53 N/A -0.13 -0.09 -0.29 0.01 1.54 -1.2519 NIT to Cornwall 2.80 -0.22 -0.54 N/A -0.05 -0.09 -0.30 -0.01 1.60 -1.2020 NIT to Napierville 2.93 -0.23 -0.55 N/A -0.05 -0.10 -0.31 -0.01 1.68 -1.2521 NIT to Philipsburg 2.94 -0.23 -0.55 N/A -0.05 -0.10 -0.31 -0.02 1.69 -1.2622 NIT to East Hereford 3.21 -0.24 -0.56 N/A -0.03 -0.10 -0.33 0.04 1.97 -1.23

23 Dawn to EGD CDA 0.29 -0.02 -0.03 N/A -0.02 -0.01 -0.03 0.01 0.18 -0.1024 Dawn to Union CDA 0.23 -0.02 -0.03 N/A -0.03 -0.01 -0.02 0.01 0.15 -0.0925 Dawn to Gmi EDA 0.76 -0.06 -0.08 N/A -0.05 -0.03 -0.08 -0.01 0.45 -0.3126 Dawn to Gmi TQM EDA 0.76 -0.06 -0.08 N/A 0.23 -0.03 -0.08 0.02 0.76 0.0027 Dawn to EGD EDA 0.61 -0.05 -0.06 N/A -0.01 -0.02 -0.07 -0.01 0.39 -0.2228 Dawn to Union EDA 0.50 -0.04 -0.05 N/A -0.02 -0.02 -0.05 0.00 0.32 -0.1829 Dawn to Iroquois 0.60 -0.04 -0.06 N/A -0.03 -0.02 -0.06 -0.01 0.38 -0.2330 Dawn to East Hereford 1.02 -0.07 -0.09 N/A 0.01 -0.03 -0.10 0.04 0.77 -0.25

31 Parkway to EGD CDA 0.10 -0.01 -0.02 N/A -0.03 0.00 -0.01 0.02 0.06 -0.0432 Parkway to Union CDA 0.07 0.00 -0.01 N/A -0.02 0.00 0.00 0.02 0.04 -0.0233 Parkway to Gmi EDA 0.57 -0.04 -0.06 N/A -0.06 -0.02 -0.06 0.00 0.33 -0.2434 Parkway to Gmi TQM EDA 0.57 -0.04 -0.06 N/A 0.23 -0.02 -0.06 0.03 0.64 0.0735 Parkway to EGD EDA 0.42 -0.03 -0.05 N/A -0.02 -0.01 -0.04 0.00 0.27 -0.1536 Parkway to Union EDA 0.31 -0.02 -0.03 N/A -0.02 -0.01 -0.03 0.01 0.20 -0.1137 Parkway to Iroquois 0.41 -0.03 -0.04 N/A -0.04 -0.01 -0.04 0.00 0.26 -0.16

38 Niagara to EGD CDA 0.18 -0.01 -0.02 N/A -0.03 -0.01 -0.02 0.02 0.11 -0.0739 Niagara to Union CDA 0.13 -0.01 -0.02 N/A -0.03 0.00 -0.01 0.02 0.07 -0.0540 Niagara to Gmi EDA 0.68 -0.05 -0.07 N/A -0.06 -0.02 -0.07 -0.01 0.40 -0.2841 Niagara to Gmi TQM EDA 0.68 -0.05 -0.07 N/A 0.23 -0.02 -0.07 0.02 0.71 0.0342 Niagara to Kirkwall 0.13 -0.01 -0.02 N/A -0.03 0.00 -0.01 0.02 0.08 -0.0543 Niagara to Dawn (Union SWDA) 0.30 -0.02 -0.03 N/A -0.01 -0.01 -0.03 0.01 0.20 -0.1044 Niagara to Iroquois 0.52 -0.04 -0.05 N/A -0.03 -0.02 -0.05 0.00 0.33 -0.20

45 St. Clair to Union SWDA 0.06 0.00 -0.01 N/A -0.03 0.00 0.00 0.03 0.04 -0.02

46 FT-SN Parkway to Goreway CDA 0.07 0.00 -0.01 N/A -0.03 0.00 0.00 0.03 0.04 -0.0347 FT-SN Parkway to Vic Sq #2 CDA 0.10 0.00 -0.02 N/A -0.03 0.00 -0.01 0.02 0.06 -0.0448 FT-SN Kirkwall to Thorold CDA 0.13 -0.01 -0.01 N/A -0.03 0.00 -0.01 0.02 0.08 -0.0549 FT-SN Parkway to Schomberg #2 CDA 0.10 0.00 -0.02 N/A -0.03 0.00 -0.01 0.02 0.06 -0.04

50 STS Centram MDA 0.16 -0.01 -0.02 N/A -0.02 -0.01 -0.01 0.02 0.11 -0.0551 STS Union WDA 1.27 -0.10 -0.12 N/A -0.01 -0.04 -0.14 -0.05 0.80 -0.4752 STS Union NDA 0.48 -0.04 -0.05 N/A -0.01 -0.02 -0.05 0.00 0.31 -0.1753 STS Union EDA 0.30 -0.02 -0.03 N/A -0.02 -0.01 -0.03 0.01 0.20 -0.1154 STS KPUC EDA 0.29 -0.02 -0.03 N/A -0.02 -0.01 -0.03 0.01 0.18 -0.1155 STS GMi EDA 0.56 -0.04 -0.06 N/A -0.05 -0.02 -0.06 0.00 0.33 -0.2356 STS Gmi TQM EDA 0.56 -0.04 -0.06 N/A 0.23 -0.02 -0.06 0.03 0.64 0.0857 STS Enbridge CDA 0.05 0.00 -0.01 N/A 0.02 0.00 0.00 0.01 0.06 0.0258 STS Enbridge EDA 0.17 -0.01 -0.02 N/A 0.18 -0.01 -0.02 -0.03 0.27 0.0959 STS Cornwall 0.42 -0.03 -0.05 N/A -0.02 -0.01 -0.05 0.00 0.27 -0.1560 STS Philipsburg 0.57 -0.04 -0.06 N/A -0.02 -0.02 -0.06 -0.01 0.36 -0.21

Notes: For paths originating at NIT, the toll impacts are based on transportation tolls via Empress for the Status Quo and via SMB for the Restructuring Proposal. Numbers may not add due to the rounding of final numbers for presentation purposes.

Tolls include Delivery Pressure and Dawn Receipt Surcharge where applicable.




NEB 6.7 Topic Carrying Charges Reference: i) TransCanada Application, Attachment 12.1, Tab 11, Page 6 of 9 (PDF

page 321) [A2G7S5] ii) TransCanada Application, Attachment 12.1, Tab 11, Schedule 11.3.4,

Sheet 1 of 1 (PDF page 345) [A2G7S5] iii) TransCanada Application, Attachment 12.1, Tab 14, Schedule 14.2,

Sheet 1 of 1 (PDF page 268) [A2G7S5] iv) TransCanada Application, Attachment 12.1, Tab 14, Schedule 14.2,

Sheet 1 of 1 (PDF page 437) [A2G7S5] Preamble: Reference i) indicates that in the 2007-2011 Mainline Settlement, carrying

charges on most deferrals were calculated using the approved rate of return on rate base. TransCanada proposes to “continue the approach of applying carrying charges on deferred balances but notes that the calculation would use the approved ATWACC rate of return on rate base”. Reference ii) shows that calculation of the regulatory amortization of the illustrative 2011 Revenue Deficiency uses TransCanada’s 2011 and 2012 estimated short-term borrowing costs for calculating carrying charges. References iii) and iv) show two other instances where TransCanada’s short-term debt rate is used in calculating carrying charges.

Request: a) With respect to the 2007 through 2011 period, please identify all instances where

calculation of the Mainline revenue requirement made use of a carrying charge rate other than the rate of return on rate base (for example, TransCanada’s short-term borrowing rate). For all such instances, please indicate what carrying charge rate was used.

b) For the post-2011 period, please identify all instances where TransCanada proposes to make use of a carrying charge rate other than the rate of return on rate base for the purpose of calculating the Mainline revenue requirement. For all such instances, indicate what carrying charge rate would be used.

c) Please identify and justify for any differences between the way that carrying charges were calculated in the 2007 to 2011 period and the way they are proposed to be calculated post-2011.

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Response

(a) As part of the Mainline 2007-2011 Settlement, carrying charges on the following account balances were calculated using TransCanada’s short-term borrowing rate for the term of the Settlement:

Interest Rate Management Program deferral account.

Interim Revenue Adjustment Variance deferral account – this deferral account is also referred as the Revenue Deficiency/(Surplus) Variance. This account captures the variance between the estimated Interim Revenue Adjustment included in Toll Design and the actual Interim Revenue Adjustment based on actual charges to customers.

JSD Redemption Costs/(Gains) - the gain on the redemption of the 8.25% junior subordinated debentures was amortized over five years (2007-2011).

Tax on Capital Gain resulting from the JSD redemption – the tax on the capital gain associated with the redemption of the JSD was amortized over five years (2007-2011).

Interim Revenue Adjustment included in Toll Design – this is the estimated variance realized from charging interim tolls instead of final tolls during the interim toll period.

All other carrying charges were calculated using the rate of return on rate base.

(b) For the post-2011 period, TransCanada proposes to use the approved rate of return on rate base, whether based on the ATWACC methodology or otherwise, to calculate carrying charges on all deferred balances as noted in the Application, Attachment 12.1, Tab 11, page 6 of 9.

(c) During the 2007 – 2011 period, TransCanada utilized two distinct types of

deferral accounts: accounts for operating costs and revenues; and accounts for special, non-recurring situations. Carrying charges on deferral accounts for operating costs and revenues utilize the rate of return on rate base, where carrying charges on special and non-recurring deferral accounts utilize the short term borrowing rate.

For the post-2011 period, the Interest Rate Management Program, JSD Redemption Costs/(Gains), and Tax on Capital Gains resulting from the JSD redemption are no longer applicable. The remaining two variances related to the Interim Revenue Adjustments would utilize the ATWACC rate of return on rate base to calculate carrying charges instead of the short-term borrowing rate. The reasons for the proposed changes are as follows:

a. The Interim Revenue Adjustment included in Toll Design is recurring (and thus is not special or non-recurring situations) and may result in a revenue surplus or deficiency from year to year. Therefore the carrying charge

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balances will offset and the net balances should not be significant over time. It is common practice to set tolls on an interim basis prior to setting final tolls, and this mechanism to recover interim toll variances is routine for the Mainline. Based on the recurring nature of this adjustment and the likelihood of offsetting carrying charges over time this adjustment is more in line with the regular operating costs and revenue deferral accounts which make use of a carrying charge rate at the rate of return on rate base.

b. TransCanada is also proposing to consolidate the five existing revenue deferral accounts into a single revenue deferral account in an effort to simplify measurement, tracking and reporting of these balances as well as to more closely align the treatment on the Mainline with TransCanada’s other NEB regulated gas pipelines. Under this proposal the Interim Revenue Adjustment Variance deferral account would no longer exist as it would be captured in the single revenue deferral account with carrying charges applied to the entire revenue variance based on the rate of return on rate base.



NEB 6.8 Topic Alternate Supply Scenarios Reference: i) Application: Appendix C1 (revised), lines 9-19, (PDF page 79) and

lines 1-17, (PDF page 80). Figures A-2 and A-3. [A2G7S0] ii) TransCanada Response to NEB I.R 1.5 (c): Page 27 of 526. [A2J7Q3] iii) TransCanada Application: Appendix C1 (revised). lines 1-8, PDF page

36, Figure 3.16. [A2G7S0] Preamble: In reference i), TransCanada outlines the high, low and base case long-

term price forecasts it used in its throughput study. In reference ii), TransCanada notes that implementation of the Restructuring Proposal may not mean that Western Canada Sedimentary Basin (WCSB) gas shipped on the Mainline will compete successfully with Marcellus gas in Pennsylvania or New York, but a more competitive Mainline will better enable WCSB gas to compete with Marcellus gas as Marcellus gas reaches for markets outside those states. In reference iii), TransCanada compares its Base, high and low case WCSB supply scenarios to those from the NEB’s 2009 reference case scenario.

Request: a) Please consider the following scenario:

Shale gas production in the U.S. increases faster than anticipated in the throughput study and natural gas production from liquids rich gas plays in the U.S. increases as drilling activity increases in those plays. The continued over-supply of natural gas results in a natural gas price that remains at or near the current level.

i. Discuss the effects of the scenario on WCSB natural gas supply availability.

ii. Discuss the effects of the scenario on Mainline throughputs.

b) Further to your answer in reference ii) above, please indicate which markets are likely to provide the best option for WCSB gas. In your answer, please also identify current and possible future competing supply sources for those markets.

c) Discuss the impacts on the Restructuring Proposal if TransCanada’s high WCSB supply scenario is realized. In your answer, please identify the impacts on throughput, tolling and shippers.

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d) Discuss the effectiveness of the Restructuring Proposal if the NEB’s low case

WCSB supply scenario in reference iii) is realized.

Response

(a)

i For the purpose of this response, TransCanada has defined the “current” price to reflect the low price environment of 2011 and 2012. The average plant gate price, in these 2 years, is $3.00 Cdn/Mcf and is based on the actual 2011 price of $3.40 Cdn/Mcf and TransCanada’s expected 2012 price of $2.66 Cdn/Mcf. For the purposes of this response TransCanada has defined “current” prices to be in the $3.00 to $3.50 Cdn/Mcf range.

As an introductory comment on the supply impact of lower prices it is important to note that, in addition to the level of natural gas prices, liquids prices are also an important driver of activity in the WCSB. Furthermore, upstream investment decisions are made on the basis of expected prices, not current prices, although in some situations the two may not be materially different.

If the current low price environment of $3.00-$3.50Cdn/Mcf were to persist over the forecast period, TransCanada would expect its WCSB supply forecast to track below its low case primarily due to the expectation of lower conventional supply. However, activity in the conventional regions is already significantly curtailed and most of the current activity and future growth is being focused on higher productivity, lower cost unconventional prospects that generally benefit from having a higher liquids content. While there will be some slow down in activity in these areas as well, economics are still favourable. Activity in the high liquids regions of the Montney and Deep Basin plays will continue to be robust due to high-grading and capital deployment from the less economic regions in the WCSB. As an unconventional play without significant liquids content, the economics of Horn River gas development would be challenged, although on going technological improvements are likely to continue to lower unit costs.

As a sidebar, while TransCanada has not included supply from the Duvernay Shale play in any of its forecasts, there is potential that it could also be economic at the “current” low gas prices.

In addition, in the medium term, the potential for Westcoast LNG exports is expected to result in increased development activity. This activity should be largely independent of the level of NIT prices, since producers would be expecting to market that gas at netbacks substantially above the “current” level of NIT.

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In conclusion, prices sustained at “current” levels can be expected to reduce WCSB supply levels from the TransCanada low case supply path. However, there are several factors (LNG development, the growing importance of liquids-rich plays) that suggest the reduction from the TransCanada’s low case supply may not be substantial.

ii In general, lower levels of WCSB gas production result in reduced Mainline

throughputs, particularly through the prairies and in the Northern Ontario line (NOL). However, absent the addition of new competing infrastructure, eastern market areas (Eastern Ontario Triangle - EOT) throughputs may not be reduced as significantly since throughput on this part of the system is largely driven by demand levels and since it also has access to supply sources other than the WCSB. Relevant for this discussion are the low Mainline throughput cases (Cases 4 and 5) as presented in the Application, Appendix C1: Throughput Study, pages 10 -11 of 79. Both Case 4 (Restructuring Proposal) and Case 5 (Status Quo) are based on TransCanada’s low WCSB supply case. As shown in Figure 2.2 of the Study, Mainline Western Receipts (MWR), the flow into the prairies section of the Mainline, drops 2 to 3 Bcf/d in Cases 4 and 5 relative to Cases 1 and 2 which are based on TransCanada’s WCSB base supply case. Meanwhile, in the EOT, flows (which can be approximated as the total volume of NOL flow and Parkway receipts from Union) are only reduced by about 0.1 to 0.2 Bcf/d from the base to the low WCSB supply cases.1 This illustrates how throughput on the western Canada long haul portion of the Mainline is much more dependent on the performance of WCSB gas supply than is throughput in the EOT.

The WCSB gas supply level described in the response to (a) i above could be somewhat lower than TransCanada’s low supply case for the 2012-2020 forecast period. As such, MWR could also be somewhat lower than in Cases 4 and 5 in the Study. However, given that this supply scenario is similar to the one used in Cases 4 and 5 of the Study, TransCanada expects the Restructuring Proposal to be of benefit here too. For its low WCSB supply scenario, TransCanada’s assessment indicates that the Restructuring Proposal also has a positive impact on MWR which average about 0.2 Bcf/d higher in Case 4 compared to Case 5 (Status Quo). Furthermore, tolls for the Restructuring Proposal Case 4 are also lower than in the Status Quo Case 5 as shown in the response to Tenaska 1.31 (iii) and in the response to (c) below.

While TransCanada has not prepared detailed analysis on the NIT price impact between throughput Cases 4 and 5, the NIT price benefit of the Restructuring Proposal in this low WCSB production environment is expected to be in the 8 – 12 cent range, just below the 13 cent benefit estimated for

1 TransCanada’s response to NEB 2.62(b).

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Cases 1 and 2 (which evaluate the Restructuring Proposal in TransCanada’s base WCSB production scenario).

(b) TransCanada expects that, in low supply throughput cases, most traditional markets will continue to be served to some extent by WCSB gas. WCSB gas will be allocated to the different regional markets on the basis of netback optimization. Each market (except for the US Northeast markets served by exports at Niagara and Chippewa) will likely continue to provide attractive opportunities for volumes on an ongoing basis and/or for larger volumes on a seasonal, monthly or daily basis.

Assuming the question refers to regional markets, the regional markets that TransCanada expects “are likely to provide the best option for WCSB gas” are those where there is the least amount of competition from other sources of supply. As the question makes clear, the issue is not only one of how much supply competition there is today, but how much there may be in the future. Over the past five years several new supply sources have developed and there is no reason to believe that this will not continue to occur. It is, of course, difficult or impossible to predict where the new supply areas will develop.

To the extent that the “best” markets are those with the least competition, TransCanada expects that the best options for WCSB gas will remain the intra-basin market and markets along the Mainline in Manitoba and Northern Ontario.

TransCanada also expects the balance of Ontario and Quebec to remain important and attractive markets for WCSB gas, despite the fact that there is competition from Rockies gas, Marcellus gas, and other US gas supply that can be accessed at Dawn. The extent to which WCSB gas continues to serve these markets will depend, in part, on whether, and to what extent, bypass infrastructure is put in place (some projects may bypass the Mainline but continue to flow WCSB gas).

The extent to which the WCSB continues to serve these markets is partly a function of tolls. The tolls set under the Restructuring Proposal (as opposed to those under the Status Quo ) will lead to higher volumes of WCSB gas in the Ontario and Quebec market and create an economic environment where there is less risk of bypass and displacement of WCSB gas out of these markets. This point also applies to WCSB exports through Iroquois and PNGTS.

The Pacific Northwest and the Midwest are also expected to remain important markets, despite the fact that each—particularly the US Midwest—has competing sources of supply. The competing source of supply in the Pacific Northwest is the Rockies, while in the Midwest, there are several: the Rockies, mid-continent, and gulf coast supply areas.

Northern California is also expected to remain an important market, with the competition in this market coming from Rockies gas.

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The Northeast US market has become more challenging due to the development

of Marcellus gas and with the completion of the REX pipeline. The markets in the Northeast traditionally served by exports at the Niagara and Chippawa export points are expected to be primarily served by US supplies in the foreseeable future. The expected development of the Utica Shale in Ohio will tend to force Marcellus supply North, East and West, making competition in parts of the Northeast more intense.

WCSB gas is expected to continue to find a market in the Northeast through the Waddington export point on the Iroquois Pipeline. The extent to which this market is maintained for WCSB gas is a function of whether or not, new infrastructure is built which would allow Marcellus gas to displace WCSB gas on the Iroquois Pipeline.

Finally, Asian markets should provide an attractive market for WCSB gas beginning near the end of the decade. The attractiveness of the Asian market will be a function of: the differential between the price WCSB gas can command in the Asian market and the price it can be sold for at NIT. This, in turn, will depend on the level of oil prices and pricing dynamics for LNG in the Asian market.

(c) As in the base or low WCSB supply cases, TransCanada expects the Restructuring Proposal to also be of benefit in TransCanada’s high WCSB supply case. As discussed in the response to NEB 2.62, Cases 6 and 7 incorporate TransCanada’s high WCSB supply case for the Restructuring Proposal (Case 6) and the Status Quo (Case 7) tolling structures. As shown in Attachment NEB 2.62(b), TransCanada predicts MWR to be about 0.35 Bcf/d higher in Case 6 relative to Case 7 for the 2012 – 2020 time period. With higher WCSB supply, shippers are expected to have lower tolls in Cases 6 and 7 as compared to tolls in Cases 1 and 2 and in particular, the Restructuring Proposal tolls in Case 6 are also lower than in the Status Quo Case 7. The table in Attachment NEB 6.8c, originally provided in response to Tenaska 1.31 (iii) for Cases 1 - 5, now also includes tolls for Cases 6 and 7. As shown, tolls in Case 6 (Restructuring Proposal) are significantly lower than in Case 7 (Status Quo).

While TransCanada has not prepared detailed analysis on the NIT price impact between throughput Cases 6 and 7, the NIT price benefit of the Restructuring Proposal in this high WCSB production environment is expected to be greater than the 13 cent benefit estimated for Case 1 and 2 (which evaluate the Restructuring Proposal in TransCanada’s base WCSB production case).

(d) The WCSB supply levels in the 2009 NEB low case in reference iii) are lower than those assumed in TransCanada’s Cases 4 and 5. Lower supply levels can be expected to result in lower MWR and at lower levels of MWR TransCanada

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expects (all other things equal) the MWR flow benefit of the Restructuring Proposal would also generally reduced.

TransCanada also notes that the 2011 NEB low case of WCSB supply2 is higher than the 2009 NEB low case in reference iii) and is similar to TransCanada’s low WCSB supply case used in Cases 4 and 5. As such, TransCanada expects that the effectiveness of the Restructuring Proposal in the 2011 NEB low case would be similar to that shown between Cases 4 and 5 which estimated an average 2011-2020 MWR increase of about 0.2 Bcf/d. It is also important to note that Case 5 does not include the market and infrastructure responses which were included in Case 3 and thus the MWR impact between a Status Quo outcome and a Restructuring Proposal outcome is understated when using the Case 4 versus Case 5 result as a basis of comparison.

Please also refer to the response to (a) ii above.

2 National Energy Board, Canada’s Energy Future: Energy Supply and Demand Projections to 2035, November 2011



Attachment NEB 6.08c

Estimated/Assumed Long Term Tolls 2012 2013 2014 2015 2016 2017 2018 2019 2020

$/GJ $/GJ $/GJ $/GJ $/GJ $/GJ $/GJ $/GJ $/GJ

Case 1: Restructuring Proposal

NIT to SMB 0.32 0.32 0.32 0.32 0.32 0.33 0.33 0.33 0.33

SMB to Emerson 0.25 0.22 0.22 0.21 0.20 0.20 0.18 0.18 0.18

SMB to Union SWDA 0.98 0.89 0.87 0.85 0.80 0.78 0.72 0.73 0.71

SMB to Enbridge CDA 1.11 1.01 0.99 0.97 0.91 0.89 0.82 0.83 0.80

NIT to Kingsgate 0.22 0.22 0.22 0.22 0.22 0.22 0.23 0.23 0.23

NIT to Monchy 0.23 0.23 0.23 0.23 0.23 0.23 0.24 0.24 0.24

Case 2: Status Quo - No Response

NIT to Empress 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16

Empress to Emerson 0.88 0.78 0.75 0.73 0.67 0.64 0.62 0.60 0.56

Empress to Union SWDA 2.19 1.93 1.87 1.83 1.67 1.61 1.55 1.49 1.39

Empress to Enbridge CDA 2.59 2.29 2.22 2.17 1.99 1.91 1.84 1.77 1.65

Foothills Zone 9 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Foothills Zone 8 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

Case 3: Status Quo - Response

NIT to Empress 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16




Foothills Zone 9 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Foothills Zone 8 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

Case 4: Restructuring Proposal - Low Supply

NIT to SMB 0.32 0.32 0.32 0.32 0.32 0.33 0.33 0.33 0.33

SMB to Emerson 0.30 0.33 0.37 0.40 0.39 0.39 0.35 0.37 0.36

SMB to Union SWDA 1.20 1.42 1.59 1.71 1.69 1.69 1.47 1.61 1.54


NIT to Kingsgate 0.22 0.22 0.22 0.22 0.22 0.22 0.23 0.23 0.23

NIT to Monchy 0.23 0.23 0.23 0.23 0.23 0.23 0.24 0.24 0.24

Case 5: Status Quo - Low Supply

NIT to Empress 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16




Foothills Zone 9 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Foothills Zone 8 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

Addt'l Cases: For NEB 6.8c

Case 6: Restructuring Proposal - High Supply

NIT to SMB 0.32 0.32 0.32 0.32 0.32 0.33 0.33 0.33 0.33

SMB to Emerson 0.22 0.20 0.18 0.17 0.15 0.14 0.14 0.13 0.12

SMB to Union SWDA 0.86 0.78 0.72 0.65 0.57 0.55 0.52 0.49 0.45


NIT to Kingsgate 0.22 0.22 0.22 0.22 0.22 0.22 0.23 0.23 0.23

NIT to Monchy 0.23 0.23 0.23 0.23 0.23 0.23 0.24 0.24 0.24

Case 7: Status Quo - High Supply

NIT to Empress 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16




Foothills Zone 9 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Foothills Zone 8 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

Notes:

- Transportation Tolls Only (No fuel, delivery pressure, or dawn receipt surcharges included).

- Case 2, 3, 5 and 7 tolls include commodity charge.

- NIT to Empress/SMB rates are all based on 2012 estimated costs. The Restructuring Proposal forecast scenarios reflect differences in the estimated Mainline TBO costs.



NEB 6.9 Topic Alternate Supply Scenarios Reference: i) “TransCanada seeks switch from gas to oil”, The Globe and Mail

(http://www.theglobeandmail.com/globe-investor/transcanada-seeks-switch-from-gas-to-oil/article2415779/), 27 April 2012

ii) TransCanada response to CAPP IR 2-33, pages 1-3 (PDF pages 1-3) [A2L9A3]

iii) TransCanada response to NEB IR 2.64, pages 1-2 (PDF pages 451-452) [A2J7Q3]

iv) TransCanada Application, Section 3.0: Business Environment, page 24-25 (PDF pages 25-26) [A2C6L5]

v) TransCanada Application, Section 4.0: Regulatory Standards, page 17 (PDF page 18) [A2C6L6]

Preamble: In reference i), TransCanada’s CEO Russ Girling states, “[w]e’re going to

actively pursue it” regarding the topic of converting a portion of the Mainline’s capacity to oil service. In reference ii), TransCanada states that the “potential conversion of other Mainline facilities is under consideration, but significant analysis is required before TransCanada would be in a position to determine whether any facilities may be available for transfer, and the sustainability of any such facilities for use in oil service.” In reference iii), TransCanada states that “all of the pipe, compression, coolers, meters, crossovers and other facilities that comprise the Northern Ontario Line (NOL) are designed and operated as an integrated system...”. In reference iv), TransCanada indicates that between 29 and 31 January 2011, the NOL reached capacity of 2.9 Bcf/day as an additional 1.4 Bcf/day of STFT was contracted for that period. In reference v), TransCanada states its position is that all Mainline plant remains used and useful in providing service to the public.

Request: a) Please confirm Mr. Girling’s statement that TransCanada is “going to actively

pursue” the conversion of a portion of the Mainline’s capacity from natural gas to oil service.

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If confirmed in a),

b) Please advise whether TransCanada presently intends to convert any of its gas plant in service to oil service by 2017.

c) Please reconcile how the NOL can be an “integrated system” as stated in reference iii) and be part of a possible conversion of a portion of the Mainline to oil service.

d) Please advise how any gas plant in service can be converted to oil use if all of the gas plant in service is used and useful in providing gas transportation service.

e) If TransCanada proceeds with the conversion of a portion of the Mainline’s capacity to oil service, describe the impacts of this conversion on peak winter flows of the Mainline. In your response, please detail the impacts to shippers, TransCanada, and end users in the Eastern Ontario Triangle (EOT). Also, consider the existing capacity and infrastructure in the EOT.

f) Please explain if the possibility of converting some Mainline assets to oil service could influence the business risk of the Mainline. If so, explain how.

Response

(a) Confirmed.

(b) TransCanada has commenced work to assess the operational and commercial viability of converting portions of Mainline infrastructure to oil service. The work involved is extensive, and will include consideration of the engineering suitability of facilities for oil service, impacts to TransCanada’s ability to meet existing and forecast Mainline service requirements, and the level of commercial interest in an oil pipeline project utilizing these facilities. As part of its assessment, TransCanada is evaluating whether the project could proceed on a schedule that would result in an in-service date by 2017.

TransCanada expects it will not complete its assessment work and be in a position to determine whether conversion of infrastructure is operationally and commercially viable until late 2012. Consequently, TransCanada is not at present in a position to definitively state whether it will seek to convert existing Mainline facilities to oil service by 2017, a different date or at all.

(c) TransCanada considers its characterization of the NOL as an “integrated system” in the response to NEB 2.64 to be consistent with the possibility that some portion of these facilities may be suitable for conversion to oil service or some other better or higher purpose.

Removal of any facilities for conversion has the same impact as removal of the facilities from service for any other purposes, such as integrity concerns or retirement of individual or collective components. TransCanada would in any instance determine the operational capability and characteristics of the aggregate

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facilities available to be operated on an integrated basis to determine optimal operating states. As TransCanada discussed in response to NEB 1.2, it regularly assesses the physical operations of Mainline facilities in light of various factors, including physical characteristics and commercial requirements.

(d) TransCanada believes all existing Mainline facilities remain used and useful. As TransCanada explained in its response to NEB 1.2, it understands the phrase “used and useful” to mean that the facilities are in fact used (employed for a purpose) in the provision of service, and that they are useful (of practical or beneficial use).

Facilities can be used and useful in providing gas transportation service, but not necessary to provide such service. Where better and higher uses for facilities arise, it may be in the public interest to remove the facilities from existing service and redeploy them for other purposes.

In Decision MH-1-2006, in which the Board approved the transfer of Mainline facilities for conversion from gas to oil service, the Board stated:

The Board does not believe it would that be in the public interest to direct TransCanada to keep the Facilities in gas service when the Applicants have demonstrated that they are not necessary and has proposed an alternative use for them which the Board has found to be in the public interest.1

The Board further stated:

The Board is supportive of the oil and gas industry exploring innovative solutions to address issues such as insufficient pipeline capacity. At the same time, the Board is cognizant that the potential adverse effects on the gas shippers need to be examined before determining the benefits of conversion. The Board believes that regulators should not be an impediment to achieving benefits that otherwise would have been reached in the absence of regulation in a well-functioning market. In fact the Board believes that regulation should emulate competition and should encourage actions and decisions that would enhance efficiency, improve competition, respond to market needs but in doing so should also be in keeping with the public interest.2

Please also refer to TransCanada’s response to NEB 1.2(b), in which it explained why it concluded the Mainline assets it converted to oil service as part of the existing Keystone Pipeline system were used and useful prior to the transfer of the facilities to Keystone.

1 NEB Decision MH-1-2006, page 58. 2 Ibid.

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(e) Each of the three segments on the Mainline (Prairies, NOL, and EOT) is

composed of a varying number of pipes with various diameters. As explained in response to b), the assessment of the potential conversion of assets from gas to oil is in the preliminary stages and TransCanada has not yet determined which facilities might best meet those requirements, should conversion prove viable. It therefore is not able to provide any meaningful information about possible impacts on Mainline peak flow capability. However, TransCanada acknowledges that there will be a reduction in peak capacity if facilities are removed. How this reduction impacts TransCanada’s ability to meet contract and peak flow requirements remains to be determined.

(f) The possibility of converting some Mainline assets to oil service would have the effect of directionally reducing the business risk of the Mainline relative to a situation in which such a conversion were not possible or not economic. The degree of reduction in business risk would be a function of the nature of the assets for which such an alternative use may be possible and the probabilities that such conversions would occur.

RH-003-2011 Supplement to the TransCanada Information Request Response Accountability

Witness Panel Information Requests Panel 2 - Alberta Extension NEB 6.3 Panel 5 - Toll Design & Calculation NEB 6.6 Panel 6 - Price & Throughput Impact NEB 6.8 Panel 7 - Cost of Service NEB 6.3

NEB 6.7 NEB 6.9c NEB 6.9d NEB 6.9e

Panel 8 – Intervenor Proposals NEB 6.1 NEB 6.4 NEB 6.5

Panel 9 – Fair Return NEB 6.2 NEB 6.9f

Panel 10 - Overall Justification NEB 6.9a NEB 6.9b

National Energy Board Filed Electronically 444 Seventh...

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