TransCanada Pipelines Limited

views updated

TransCanada Pipelines Limited

111 5th Avenue Southwest
Calgary, Alberta T2P 3Y6
Canada
(403) 267-6100
Fax: (403) 267-8993

Public Company
Incorporated: 1951
Employees: 1,757
Sales: C$3.03 billion (US$2.62 billion)
Stock Exchanges: Toronto Montreal Vancouver Alberta Winnipeg New York

TransCanada PipeLines Limited (TCPL) is a major North American natural gas transportation and marketing corporation with 35 years’ experience delivering western Canadian natural gas to markets in Canada and the United States. The core of the company is its mainline gas transmission system-more than 11,000 kilometers of pipeline—which runs from the Alberta-Saskatchewan border to the Quebec-Vermont border. A wholly owned subsidiary, Western Gas Marketing Limited, is the leading Canadian gas marketer and has the largest supply pool in North America. TransCanada has investments in five pipelines that link to its mainline system: Foothills Pipe Lines (Sask.) Ltd. (44%) and Trans Quebec & Maritimes Pipeline (50%), in Canada, and Great Lakes Gas Transmission System (50%), Northern Border Pipeline Company (30%) and Iroquois Gas Transmission System (29%) in the United States. Since 1989, the company has undertaken a major expansion of its mainline system to meet the increased demands of markets in eastern Canada and the northeastern United States. Applied-for and approved facilities total C$4 billion to 1993.

The company also has investments in electric power generation projects, including a 40% interest in the 500-megawatt Ocean State Power Plant in Rhode Island and a 100% ownership of the 36-megawatt Nipigon Power Plant, which will use waste heat from TransCanada ’s adjacent compressor station. Another subsidiary, Cancarb Limited, is the leading international manufacturer of high-quality, thermal carbon black.

The company overcame engineering and financial hurdles in its early years. Building a gas pipeline across Canada was a project equal in scale to the building of the cross-country railway and was one of the most contentious chapters in Canada’s economic and political history.

Although a trans-Canadian natural gas pipeline had been proposed as early as 1931, the coming of the pipeline to Canada was linked to events that took place in an atmosphere peculiar to 1950s Canada. For one, the country’s population was booming, especially in the cities. Montreal’s population grew from 1.83 million in 1956 to 2.57 million in 1966. The 1950s also witnessed the greatest economic boom in Canada’s history, and the energy shortage was real. At no period of history was this more apparent than during the World War II years, when Canadians learned that they could not depend on energy from the United States, as the United States put its own energy needs first. The young generation of the 1950s was self-consciously Canadian and deeply suspicious of its U.S. neighbor. While economic prosperity increased, so did U.S. ownership of most of Canada’s wealth: approximately 70% of Canada’s oil industry, 56% of its manufacturing industry, and 52% of Canadian mines were owned by U.S. businesses, and these percentages would grow. Growing national sentiment called for railways and a trans-Canadian pipeline to be built completely within Canada, even if this was not necessarily the best route.

Economic boom times, the looming energy shortage, and the election of a new government in 1957, which brought to the helm Prime Minister John Diefenbaker, renowned for his Canadian nationalism, all set the stage for the adoption of a plan to harvest Alberta’s rich deposits of natural gas. At the same time, the St. Lawrence Seaway, which would enable Canadian agricultural and industrial products to be shipped worldwide, was under construction.

As it turned out, it took an almost epic struggle to build the trans-Canadian pipeline. L.D.M. Baxter, a Canadian financier, was the first to advocate a trans-Canadian pipeline to bring Alberta natural gas to eastern Canada, although even he had doubts about the plan’s feasibility. The obstacle, as he saw it, was the Laurentian Shield of northern Ontario, a vast rocky area that is the chief geographical barrier separating eastern from western Canada. Canadians were not alone, however, in perceiving the value of a pipeline. On the U.S. side, the prospect of natural gas from Canada also tempted some businessmen to invest in such a venture. Clint Murchison, a Texan and head of Canadian Delhi Oil Company, believed the pipeline could be run through the Laurentian Shield. By 1954 both Canadian and U.S. interests had agreed on the usefulness of a pipeline through Canada that also would export gas to the United States. The difficulty, however, was in reaching agreement on the financing of the scheme. Since it was to be an all-Canadian route, the U.S. participants—who had formed a company called TransCanada PipeLines—insisted that financing should be split evenly, while the Canadian interest group, Western Pipe Lines Limited, opposed this 50-50 proposal because the United States had far greater financial resources at its disposal than did Canada. The Canadian group wanted the United States to take on 90% of the cost. In the end the Canadian investors agreed to the 50-50 split and sought to persuade their government to finance the pipeline. The person sponsoring the pipeline bill in Parliament was Minister of Transport C.D. Howe. An engineer by training, he would come to view the pipeline as the crowning achievement of his life.

TransCanada PipeLines was incorporated in 1951 to undertake the pipeline project. The first president of the new company was Nathan Eldon Tanner, who remained at the helm until the pipeline was completed. While other members of the board of directors had greater influence and experience, Tanner was a mediator. The major problem to be negotiated in 1955 was convincing the government of the financial viability of the company. After prolonged negotiations, the Royal Bank of Canada loaned TCPL C$25.5 million, and a Montreal financier successfully negotiated large loans from the Canada Bank of Commerce as well as from the Royal Bank, thus enabling the company to win crucial government backing. The pipeline bill reached the floor of Parliament in 1956, and engendered months of rancorous debate and fears of a tighter U.S. hold, despite the strenuous efforts of Transport Minister Howe to convince doubters of the wholly Canadian nature of the enterprise. By then, Canadian interests lobbying against the pipeline bill regarded it as a sellout to U.S. interests. Opponents felt that the pipeline would only provide the United States with cheap Canadian gas. Even in the United States opposition was beginning to mount. In the coal industry in particular fears were voiced that Canadian natural gas would displace coal and lead to layoffs, while only Canadians would benefit. Howe was not a smooth negotiator, but his expertise and influence ultimately combined to steer the bill successfully through Parliament. The pipeline was finally approved in June 1956.

Building commenced on a monumental scale in 1957. By December 1, the Toronto-Montreal segment had been completed. The entire project was finished in October 1958, as originally scheduled. More than 2,200 miles long, it was the longest pipeline in the world, and was expanded almost continuously.

In 1958 Tanner resigned as chief executive officer and president; his replacement was James Kerr. Kerr was new to the pipeline business. He had worked for Canadian Westinghouse since 1937, becoming a divisional vice president of Westinghouse in 1956; like others on the board of directors of TCPL, Kerr was a Canadian nationalist, who accepted the offer to become head of TCPL out of patriotism. At this time, TCPL’s deficit was the company’s biggest problem, one which it would not overcome until 1961.

In the 1960s the company entered the computer age, developing a highly sophisticated computer system that could measure and control the flow of gas precisely, the first such system devised for pipelines. In the 1960s the company diversified into the chemical industry, establishing the first of numerous gas-extraction plants in Empress, Alberta. In 1967 TCPL was permitted to extend its pipeline along the Great Lakes in the United States, an extension that was completed in 1967. One year later, TCPL celebrated the tenth anniversary of its pipeline operations. Between 1958 and 1968, operating revenue had shot up from C$30 million to C$200 million, and net income had risen from a deficit of C$8.5 million to a surplus of C$17.5 million, while the proportion of Canadian shareholders had grown to 94%.

By the 1970s TCPL already was a world leader in pipeline technology. Vast subterranean natural gas pockets lay untouched in northern and western Canada, and exploiting this natural wealth was the goal of the company in the 1970s. Since the mid-1980s, expansion rather than diversification was TCPL’s motto, as natural gas became Canada’s most important fuel and energy source. Altogether, TCPL’s capital investments in 1990 alone totaled C$682 million, with 69% of this amount invested in the TCPL mainline system.

In the beginning of the 1990s regulatory decisions were extremely beneficial to TCPL’s long-range prospects. The most favorable decision, made by the U.S. Federal Energy Regulatory Commission (FERC), allowed TCPL to deliver western Canadian gas to the northeastern United States; other FERC and Canadian National Energy Board rulings gave TCPL permission to expand its Great Lakes gas transmission system and mainline systems respectively, which allowed Canadian natural gas to be carried through TCPL’s mainline system to Iroquois, Ontario, across the St. Lawrence River to the U.S. states of New York, Connecticut, and New Jersey; it meant an important breakthrough for TCPL into the competitive U.S. natural gas market. In 1990 the company also obtained a contract to sell to the California market and received a license to export natural gas to Michigan. The company appears to have been unaffected by the recession of the early 1990s, with the president and chief executive officer, Gerald Maier, expecting an annual earnings growth rate of from 10% to 15% in the 1990s. To raise money to carry on its expansion, TCPL has been issuing new stock and selling debentures, while the cost of the Iroquois pipeline to the northeastern United States will be borne by all shareholders, a decision vigorously contested by major Canadian gas users in Ontario, Quebec, and Manitoba, but approved by the Canadian National Energy Board.

Despite the enormous cost, the company not only projects a handsome return but has been running profitably despite recessionary trends. Net income for the company in 1990 was up 14.9% from 1989, while the company pursues streamlining, divesting itself of unprofitable businesses, such as its interests in Les Mines Selbaie and the Montreal Pipeline Ltd. in Quebec province.