Gas prices vancouver island

VICTORIA, BC--(BUSINESS WIRE)--Dec. 15, 1995--WESTCOAST ENERGY INC. (TSE,ME,VSE:W)(NYSE:WE) A new financial agreement on the Vancouver Island natural gas pipeline was announced today by Anne Edwards, Minister of Energy, Mines and Petroleum Resources and Art Willms, President and Chief Operating Officer for Westcoast Energy Inc.

The new deal puts the Vancouver Island gas utilities on a more viable commercial footing and ends the province's open-ended subsidy of the pipeline. It involves the B.C. Government, Pacific Coast Energy Corporation, Centra Gas British Columbia Inc., Westcoast Energy Inc., seven pulp mills and the federal government.

"This agreement will save taxpayers millions of dollars, while continuing to protect their existing investment," said Edwards. "The growing financial exposure under the original deal was unacceptable. We have negotiated hard to get the best deal for taxpayers by virtually eliminating the financial risk to the province."

Under the new agreement the province's financial support is restructured as a one time $120 million payment and ongoing payments until 2011 of provincial royalties valued at $80 million net present value (NPV) made to the utilities to lower costs that need to be recovered through rates.

Since the original agreement in 1989, the economics of the project have changed considerably, based largely on factors such as oil and gas prices and interest and exchange rates. Recent estimates indicate the province's commitment to fund unlimited project losses through a rate stabilization facility under the original 1989 agreements could have gone as high as $449 million NPV, up from the initial estimate of $42 million NPV.

Edwards said the new agreement has been reviewed by an independent third party, KPMG Peat Marwick Thorne, which concluded it is a major improvement over the original agreement. Their report says the new deal "significantly reduces government's financial risk and makes government's obligations more certain."

"This resolves the last of the lurking financial vulnerabilities noted in the province's 1992 Independent Financial Review," said Edwards.

"Centra Gas B.C. and Pacific Coast Energy are to undergo a reorganization which will combine their principal utility assets," said Willms. "The reorganization will place the company on a solid commercial basis going forward within a utility framework. Furthermore, Westcoast will provide up to $120 million in future financial support to the project."

Centra will make a $48 million payment to the province relating to the company's shortfall in meeting agreed performance standards which arose under the original agreement. Pacific Coast will accept a lower return which will result in a reduction of $15 million NPV in tolls to customers over the next 16 years of the new agreement.

The new agreement also removes a provincially-subsidized discount for future new Vancouver Island Customers.

The agreement moves the utilities to market-based natural gas pricing over time, and allows natural gas customers to continue to enjoy the environmental benefits of natural gas at competitive prices. Natural gas is currently a lower-priced source of energy than oil and substantially lower priced than electricity.

"Contractual commitments to existing customers will be honoured," said Edwards. "Existing customers will not be affected by the new market pricing system until 2002. Rates for new customers will be set in the market place, subject to a price cap during the transition period, rather than being tied to the price of oil. There will be no impact on consumers in the rest of the province."

"The utilities will move from a formula-based pricing system to a normal regulatory process under the BC Utilities Commission which will ensure that new prices are fairly regulated," said Mark Jaccard, BCUC Chair and Chief Executive Officer.

"Natural gas continues to be an attractive choice for consumers. The new deal does not change provincial grants to residential and commercial customers under the provincial government's Clean Choice Program," said Edwards.

"With regulatory stability for the companies, we can concentrate on providing the best possible services and rates to all our customers," said Willms. "This agreement allows us to resolve the major financial and regulatory concerns we have had with the project. It gives the companies more flexibility to operate and encourages more efficient natural gas market development."

NOTE: Background information attached.

CONTACT: Laura Stringer

Communications and Public Affairs

Energy, Mines and Petroleum Resources

604/952-0152 (Victoria)

or

Patricia Bowles

Corporate Communications

Westcoast Energy Inc.

604/488-8093 (Vancouver)