TransCanada reports progress on Canadian gas pipeline, U.S. power plant buy

TransCanada Corp. (TSX:TRP) (NYSE:TRP) reported in its Nov. 3 quarterly earnings statement that it is making progress on needed approvals related to a gas pipeline to serve a liquefied natural gas (LNG) export project in Canada, and also on expanding its presence in the U.S. power generation business.

On June 11, Pacific North West (PNW) LNG announced a positive Final Investment Decision (FID) for its proposed liquefaction and export facility, subject to two conditions. The first condition, approval by the Legislative Assembly of British Columbia of a Project Development Agreement between PNW LNG and the provinc, was satisfied in mid July. The second condition is a positive regulatory decision on PNW LNG’s environmental assessment by the government of Canada.

In the third quarter, the company received the remaining permits from the B.C. Oil and Gas Commission (BC OGC), which completes the 11 permits required to build and operate TransCanada’s Prince Rupert Gas Transmission (PRGT) project. Environmental permits for the project were also received in November 2014 from the B.C. Environmental Assessment Office. The company announced in the third quarter the signing of project agreements with Metlakatla First Nation and Blueberry River First Nations.

“We are continuing our engagement with Aboriginal groups and have now signed project agreements with nine First Nation groups along the pipeline route,” TransCanada said. “We remain ready to begin construction following confirmation of a FID by PNW LNG. The in-service date for PRGT is estimated to be 2020 but will be aligned with PNW LNG’s liquefaction facility timeline. PRGT is a 900 kilometre (km) (559 mile) natural gas pipeline that will deliver gas from the Montney producing region at an expected interconnect on the NGTL System near Fort St. John, B.C. to PNW LNG’s proposed LNG facility near Prince Rupert, B.C.”

In the power sector, on Oct. 8 TransCanada reached an agreement to acquire the Ironwood natural gas-fired, combined cycle plant in Lebanon, Pennsylvania, with a nameplate capacity of 778 MW, from Talen Energy (NYSE: TLN) for US$654 million. The Ironwood plant delivers energy into the PJM Interconnection power market, North America’s largest and most liquid energy region, which includes a three-year forward capacity market. The facility provides TransCanada with a solid platform from which to continue to grow its wholesale, commercial and industrial customer base in this market area.

TransCanada noted about Ironwood: “Strategically located in proximity to the Marcellus shale gas play, the facility is well positioned to access competitively priced natural gas in a market that is in the midst of transitioning away from coal-fired power generation to gas. The acquisition is expected to be immediately accretive to earnings and cash flow and generate approximately US$90-$110 million in EBITDA annually through a combination of capacity payments and energy sales. The acquisition will be financed with a combination of cash on hand and available debt capacity and is expected to close early in first quarter 2016, subject to certain conditions being satisfied.”

Also in the power sector, in August the company executed an agreement with Hydro Quebec to amend Becancour’s electricity supply contract. The amendment allows Hydro Quebec to dispatch up to 570 MW of firm peak winter capacity from the Becancour facility for a term of 20 years commencing in December 2016. Annual payments received for this new service will be incremental to existing capacity payments earned under the new agreement. In October 2015, the Regie de l’energie approved the amended contract.

Becancour is a cogeneration facility located in Bécancour, Quebec. Besides power to Hydro Quebec, it provides steam for two neighboring companies in an industrial park – Norsk Hydro and Pioneer Chemicals.

In late May, the 972-MW Unit 30 at the Ravenswood Generating Station in New York returned to service after a September 2014 unplanned outage which resulted from a problem with the generator associated with the high pressure turbine, TransCanada reported.

In June, the Alberta government announced a renewal and change to the Specified Gas Emitters Regulations (SGER) in Alberta. Since 2007, under the SGER, established industrial facilities with greenhouse gas (GHG) emissions above a certain threshold are required to reduce their emissions by 12% below an average intensity baseline and a carbon levy of C$15 per tonne is placed on emissions above this target. The changed regulations include an increase in the emissions reductions target to 15% in 2016 and 20% in 2017, along with an increase in the carbon levy to C$20 per tonne in 2016 and C$30 per tonne in 2017.

Said TransCanada about the impacts of the Alberta changes: “While our Sundance and Sheerness [power purchase agreements] are subject to this regulation, our significant inventory of carbon offset credits is expected to mitigate the majority of these increased costs. The remaining compliance costs are expected to be recovered through increased market pricing and contract flow through provisions.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.