The deal announced Friday would give distributors Union Gas, Gaz Metro and Enbridge access to supplies from Union's Dawn market hub near Sarnia, Ont., which sources gas from across North America.
In turn, TransCanada said the agreement will allow it to recoup the costs of providing that flexibility through the tolls it charges to customers using its mainline infrastructure.
"I am very pleased that we were able to reach a mutually agreeable solution that allows for the expansion of the eastern portion of our system to meet the changing needs of Ontario and Quebec," TransCanada president and CEO Russ Girling said in a statement.
"It takes significant time and effort to work out these agreements and I would like to thank the parties involved for the commitment to finding a workable solution."
In a statement on behalf of the three gas distributors, Gaz Metro CEO Sophie Brochu said the deal will allow access to "diverse and affordable" gas supplies from Dawn while ensuring "long-term certainty on transportation tolls."
"Access to affordable energy helps businesses be competitive, supports local economic growth and keeps costs low for families and businesses in Ontario and Quebec."
Friday's deal puts to rest a legal dispute between TransCanada and Enbridge, Canada's two largest pipeline companies.
To respond to growing natural gas demand in eastern markets, TransCanada and Enbridge had been looking to build new pipeline infrastructure in the Greater Toronto Area.
The two had been collaborating on a 27-kilometre stretch of pipe in the region, called Segment A.
But the relationship soured in July when Enbridge's backed out of a memorandum of understanding. Enbridge said it was because TransCanada was doling out space on the pipeline in a manner that went against an Ontario law that's meant to ensure capacity is offered in an "open and non-discriminatory manner."
TransCanada responded by filing a lawsuit in the Ontario Superior Court of Justice to force Enbridge to either stick to the MOU or pay damages of $4.5 billion. In a statement of claim — which has since been withdrawn — TransCanada accused Enbridge of cancelling the MOU "for its own convenience."
Shortly thereafter, Enbridge filed revised plans to the Ontario Energy Board. In a regulatory filing, TransCanada argued the rejigged proposal would hurt not only its revenues, but consumers too.
In its filing, TransCanada questioned the savings of sourcing gas from Union's Dawn hub in Ontario versus the Empress hub on the Alberta-Saskatchewan border, saying the cost predictions are "optimistic and inherently unreliable."
While Dawn is closer to central Canada, making transportation costs lower, the price of the commodity itself is lower in Alberta, TransCanada noted.
The dispute resolved Friday is separate from one involving TransCanada's Energy East proposal, which would see part of its mainline between Alberta and Quebec converted to oil service. Discussions on Energy East's impact on eastern gas distributors are ongoing.
— by Lauren Krugel in Calgary