TC PipeLines, LP Announces 2007 First Quarter Results

Related Links:
First Quarter 2007 Quarterly Report [.pdf]

CALGARY, Alberta – April 26, 2007 – (Nasdaq: TCLP) – TC PipeLines, LP (the Partnership) today reported first quarter 2007 net income of $20.0 million or $0.73 per common unit (all amounts in U.S. dollars) compared to $12.4 million or $0.67 per common unit for the same period last year. The increase in net income is primarily due to the positive impact of the Partnership’s acquisitions which included a 46.45 per cent interest in Great Lakes Gas Transmission Limited Partnership (Great Lakes) on February 22, 2007, a 20 per cent general partner interest in Northern Border Pipeline Company (Northern Border) acquired in April 2006, and a 49 per cent interest in Tuscarora Gas Transmission Company (Tuscarora) acquired in December 2006.  Partially offsetting these positive contributions to earnings were increased financial charges on higher outstanding debt balances.

“Net income per unit increased nine per cent in the first quarter of 2007 compared to the same period last year as a result of our recently acquired ownership interest in Great Lakes and increased ownership interests in Northern Border and Tuscarora,” said Russ Girling, CEO and chairman of TC PipeLines GP, Inc. “We are pleased with the growth of the Partnership and expect strong cash flow contributions from these investments.”

In first quarter  2007, the Partnership received cash distributions from Northern Border of $22.2 million, of which $8.9 million relates to the additional interest in Northern Border.  The total cash distributions received of $22.2 million in first quarter 2007 represent a $6.5 million increase compared to the same quarter last year.

Financial Highlights
(unaudited)
(millions of U.S. dollars, except per unit amounts)

Recent Developments

On February 22, 2007, the Partnership acquired a 46.45 per cent interest in Great Lakes from El Paso Corporation for $733.3 million. The transaction also included the indirect assumption of approximately $209 million of Great Lakes debt for a total purchase price of approximately $942 million. The acquisition was partially financed through a private placement of 17,356,086 common units at $34.57 per common unit for gross proceeds of $600 million.  TransCanada Corporation (TransCanada), through a wholly owned subsidiary,  purchased 8,678,045 of the 17,356,086 common units issued for gross proceeds of $300 million.  The Partnership funded the balance of the total consideration with a draw on its senior credit facility, which was amended and restated in connection with this transaction.  In addition, TC PipeLines GP, Inc. maintained its two per cent general partner interest in the Partnership by contributing $12.6 million to the Partnership in connection with the equity private placement.

TransCanada, which previously held a 50 per cent interest in Great Lakes, acquired the remaining 3.55 per cent interest simultaneously with the Partnership’s acquisition of its interest.  A wholly owned subsidiary of TransCanada also became the operator of Great Lakes on February 22, 2007.

A wholly owned subsidiary of TransCanada also became the operator of Northern Border on April 1, 2007.

Net Income

The Partnership reported first quarter 2007 net income of $20.0 million or $0.73 per unit, an  increase of $7.6 million or $0.06 per unit compared to $12.4 million or $0.67 per unit for the same quarter last year.

Equity income from Northern Border was $17.8 million in first quarter 2007, an increase of $6.6 million, compared to $11.2 million for the same period last year. The increase in equity income was primarily due to the additional 20 per cent general partner interest which provided an incremental $7.0 million in equity income for the first quarter; however, Northern Border’s net income for first quarter 2007 was $1.3 million lower (approximately $0.4 million reduction to the Partnership’s net income) when compared to the same period last year.  The reduction in Northern Border’s net income for the first quarter is primarily due to increased operating expenses.

Net income in  first quarter 2007 includes equity income from Great Lakes of $7.0 million.

With the acquisition of an additional 49 per cent general partner interest in Tuscarora on December 19, 2006, the Partnership now consolidates its interest in Tuscarora. 

The Partnership reported transmission revenues of $6.9 million and depreciation expense of $1.6 million for first quarter 2007 related to its consolidation of the Tuscarora operations.

The Partnership’s operations, maintenance and administrative expenses of $2.0 million in first quarter 2007 increased $1.4 million compared to $0.6 million for the same period in 2006.  The first quarter 2007 includes $1.2 million related to the consolidation of Tuscarora operations.  Excluding the $1.2 million of expenses related to Tuscarora, the Partnership’s general and administrative expenses increased $0.2 million from $0.6 million in first quarter of 2006 to $0.8 million in first quarter 2007.  The increase was primarily due to increased finance, tax and accounting costs.

Financial charges were $8.1 million in first quarter  2007, an increase of $7.9 million, compared to $0.2 million for the same period last year due to higher average debt outstanding and the consolidation of Tuscarora operations which included $1.2 million of financial charges.  The higher average debt outstanding was the result of additional financing in 2006 and 2007 for acquisitions.

Cash Flow

^(a) Reconciliation of  a non-GAAP financial measure:  Total cash distributions received is a non-GAAP financial measure which is the sum of equity income from investment in Northern Border, equity income from investment in Tuscarora, return of capital from Northern Border and return of capital from Tuscarora.  It is provided as a supplement to results reported in accordance with GAAP.  Management believes that this is an important measure to assist the Partnership's investors in evaluating the Partnership's business performance.

^(b) 2006 acquisitions include a 20% general partner interest in Northern Border on April 6 and a 49% general partner interest in Tuscarora on December 19.

In first quarter 2007, the Partnership received cash distributions from investments of $22.2 million, an increase of $6.5 million compared to $15.7 million for the same period last year.  The Partnership incurred financing and other costs of $7.7 million in first quarter 2007 compared to $0.8 million in the same period last year.  The total cash distributions, after deducting Partnership costs, decreased $0.4 million to $14.5 million in first quarter 2007 from $14.9 million in first quarter 2006 primarily due to increased financing charges on higher outstanding debt balances to finance the acquisitions.

The acquisition of the additional 20 per cent general partner interest in Northern Border contributed $8.9 million to cash distributions received. Excluding the increase in the Partnership’s ownership in Northern Border, distributions from Northern Border decreased $0.2 million from $13.5 million in first quarter  2006 to $13.3 million in first quarter 2007. This decrease is due to increased operations and maintenance expenses partially offset by lower maintenance capital expenditures.  Cash balances of Tuscarora are consolidated by the Partnership effective December 19, 2006 and as a result, the Partnership ceased reporting distributions from Tuscarora after that date.  Tuscarora made capital expenditures of $0.6 million in first quarter 2007 related to compressor station expansion project in Likely, California.

Cash distributions from Great Lakes are anticipated to commence in second quarter 2007.

The Partnership’s cash distributions received in the quarter are based on the financial results of Northern Border from the previous quarter.

The Partnership paid $11.3 million of cash distributions to unitholders and its general partner in first quarter 2007, an increase of $0.6 million compared to $10.7 million for the same period in 2006. This cash distribution represents a payment of $0.60 per common unit.

The Partnership paid $733.3 million in the three months ended March 31, 2007 for its acquisition of a 46.45 per cent interest in Great Lakes which closed on Februrary 22, 2007. As described under the Recent Developments section of this report, the Partnership issued 17,356,086 common units for gross proceeds of $600 million and incurred $5.3 million of costs related to the issuance of the common units, which are recorded as a charge to Partners’ Equity. The Partnership also received a $12.6 million  capital contribution from its general partner. The Partnership borrowed $126 million under a term credit facility and borrowed $7 million under its revolving credit facility.  In addition, the Partnership repaid $9 million of the outstanding balance on its revolving credit facility.

Conference Call

Analysts, members of the public, the media and other interested parties are invited to participate in a teleconference and audio webcast on Thursday, April 26, 2007 at 12 p.m. (Eastern).  Management will discuss first quarter 2007 financial results and general developments and issues concerning the Partnership followed by a question and answer session for the investment community and media. To participate, please call (866) 898-9626.  A replay of the conference call will also be available two hours after the conclusion of the call and until midnight, Thursday, May 3, 2007, by dialing (800) 408-3053, then entering pass code 3220050#. 

A live webcast of the conference call will also be available through the Partnership’s website at www.tcpipelineslp.com.  An audio replay of the call will be available on the website.

TC PipeLines, LP is a publicly traded limited partnership. TC PipeLines, LP has interests in more than 3,600 miles of federally regulated U.S. interstate natural gas pipelines, including Great Lakes Gas Transmission Limited Partnership (46.45 per cent ownership), Northern Border Pipeline Company (50 per cent ownership) and Tuscarora Gas Transmission Company (99 per cent owns or controls).  Great Lakes is a 2,115-mile pipeline serving markets in Minnesota, Wisconsin, Michigan and eastern Canada. The 1,249-mile Northern Border Pipeline transports natural gas from the Montana-Saskatchewan border to markets in the midwestern United States. Tuscarora owns a 240-mile pipeline system that transports natural gas from Oregon where it interconnects to TransCanada’s Gas Transmission Northwest System. TC PipeLines, LP is managed by its general partner, TC PipeLines GP, Inc., an indirect wholly owned subsidiary of TransCanada Corporation. TC PipeLines GP, Inc., also holds common units of TC PipeLines, LP. Common units of TC PipeLines, LP are quoted on the NASDAQ Stock Market and trade under the symbol “TCLP.” For more information about TC PipeLines, LP, visit the partnership’s website at www.tcpipelineslp.com.

Cautionary Statement Regarding Forward-Looking Information
This news release may include forward-looking statements regarding future events and the future financial performance of TC PipeLines, LP. Words such as “believes,” “expects,” “intends,” “forecasts,” “projects,” and similar expressions identify forward-looking statements. All forward-looking statements are based on the Partnership’s current beliefs as well as assumptions made by and information currently available to the Partnership. These statements reflect the Partnership’s current views with respect to future events. The Partnership assumes no obligation to update any such forward-looking statement to reflect events or circumstances occurring after the date hereof. Important factors that could cause actual results to materially differ from the Partnership's current expectations include regulatory decisions, particularly those of the Federal Energy Regulatory Commission and the Securities and Exchange Commission, the ability of Northern Border Pipeline to recontract its available capacity at maximum rates, operational decisions of Northern Border Pipeline’s and Great Lakes operator, the failure of a shipper on any one of the Partnership’s pipelines to perform its contractual obligations, supply of natural gas in the Western Canada sedimetary basin and in competing basins, such as the Rocky Mountains,  future demand for natural gas, overcapacity in the industry, and other risks inherent in the transportation of natural gas as discussed in the Partnership’s filings with the Securities and Exchange Commission, including the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2006 and subsequent quarterly reports on Form 10-Q.

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For further information, please contact:

Media Inquiries:

TransCanada
Shela Shapiro
(403) 920-7859 or (800) 608-7859

Unitholder and Analyst Inquiries:

Myles Dougan
Toll-free (877) 290-2772
investor_relations@tcpipelineslp.com