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TransCanada CEO Russ Girling speaks to reporters following the company's annual meeting in Calgary, Friday, May 2, 2014.Jeff McIntosh/The Canadian Press

TransCanada Corp. says the cost of its Keystone XL oil sands pipeline has increased "materially" because of regulatory delays in the United States, and it may resort to legal action, including a challenge under the North American free-trade agreement, if delays continue or the project is rejected.

Russ Girling, TransCanada's chief executive, told reporters Friday that consumers will be the ones hurt by the bigger bill if the company turns to the legal system to recoup costs.

"The delays have materially impacted the capital costs of this project over five and a half years," he said after the company's annual general meeting. "A good chunk of that bill will get passed on to consumers at the end of the day."

He declined to say how much the price tag has climbed, noting TransCanada's current publicly available estimate is $5.4-billion (U.S.). "When I say materially higher than that number, it will be materially higher than that number," Mr. Girling said.

TransCanada is keeping its revised estimate under wraps because it does not want "confusion with our customers and others" as numbers continually change, he said. TransCanada will wait until it has a definitive price tag before releasing the new estimated cost of the pipeline, he said. Keystone XL is designed to carry crude, largely from the oil sands, to refineries on the U.S. Gulf Coast.

Mr. Girling said TransCanada is holding off on heading to court for now, but the possibility is on the table.

"Certainly those aren't things we're taking about today. We're just thinking about trying to get this pipeline built and into service," he said. "But down the road, obviously, this has been very expensive for our company to live through this."

Mr. Girling added: "This has been very costly for our company and, obviously, it will have to be something we'll think about down the road."

He said the company has put 2,000 days into the process, rather than what he says usually takes between 500 and 600 days.

TransCanada's latest setback came April 18, when the U.S. State Department, which must approve Keystone XL, said it was reserving judgement because it needs to assess the effect of a court battle in Nebraska that could change the pipeline's route. State Department officials said it had to extend the deadline for government agencies to comment the environmental impact of TransCanada's plan because there is no certainty as to what the actual route will be and what local ecosystems might be affected.

Mr. Girling said these types of delays are "extremely expensive" because it has already sunk about $2-billion into the project, making carrying costs expensive; it must maintain equipment stored in warehouses; it must apply coating to the pipe it has sitting in pipeline yards to protect them from ultra-violet rays; and it must keep some staff in place in anticipation of the project's approval.

The executive, who wore a pin with both the Canadian and American flags to TransCanada's annual meeting, also raised the threat of launching a challenge under NAFTA if Keystone XL is denied or delayed.

"Those are issues that are sort of well beyond what we're contemplating at the current time, and not something we've spent a whole bunch of time analyzing," he told reporters. "Obviously, down the road that's something that hopefully we don't have to take a look at, but obviously something we would have to take a look at if we end up in a situation where the pipeline is delayed indefinitely or denied.

"Our view is that this pipeline looks no different than other pipelines that have been approved [and] continue to be approved in the United States," Mr. Girling said. "We can't think of a legitimate reason why we can't move forward with this pipeline."

Lawrence Herman, a trade counsel and principal at Herman & Associates, said that under NAFTA, the United States must accord Canadian investments and investors in the United States – Keystone XL and TransCanada qualify, he said – with fair and equitable treatment.

"As the file becomes politicized, the question is raised whether the United States is according fair and equitable treatment, providing full transparency, due process, non-discriminatory treatment, to TransCanada's investment – i.e. the investment in Keystone XL," Mr. Herman said.

"Under the NAFTA there is an argument that could be made that at this point the United States is not giving TransCanada the treatment that NAFTA requires," the lawyer said. "But I'm not suggesting the case is open and shut. I'm just saying that there are legal obligations that should be looked at."

Mr. Herman believes this scenario is a long way off.

Ottawa is holding off on launching a NAFTA challenge, according to a federal cabinet minister.

"We're hopeful that in the shorter term rather than medium or longer term, that a decision will be taken by the United States to move forward with the Keystone pipeline," Natural Resources Minister Greg Rickford told reporters Friday.

But asked whether Ottawa is considering a NAFTA challenge, Mr. Rickford said: "No."

TransCanada, which also has power assets, said it made $412-million or 58 cents per share in the first quarter, down from $446-million or 63 cents per share in the same quarter last year. The company's net cash from operations hit $979-million compared to $706-million in the same frame in 2013.

With files from Shawn McCarthy in Ottawa