tclpform10qnovember32008.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the quarterly period ended September 30, 2008
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
Transition period from _________ to _________
Commission
File Number: 000-26091
TC
PipeLines, LP
(Exact
name of registrant as specified in its charter)
Delaware
|
|
52-2135448
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification Number)
|
|
|
|
13710
FNB Parkway
|
|
|
Omaha, Nebraska
|
|
68154-5200
|
(Address
of principal executive offices)
|
|
(Zip
code)
|
|
877-290-2772
|
|
|
(Registrant's
telephone number, including area code) |
|
Indicate
by check mark if the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
[X] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[X] Accelerated filer
[ ]
Non-accelerated filer
[ ] (Do not check if a smaller reporting
company) Smaller reporting
company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
[ ] No
[X]
As of
November 3, 2008, there were 34,856,086 of the registrant’s common
units outstanding.
TC
PIPELINES, LP
|
|
Page
No.
|
TABLE
OF CONTENTS
|
|
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
Glossary
|
3
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Statement of Income – Three and nine months ended September 30,
2008 and 2007
|
4
|
|
Consolidated
Statement of Comprehensive Income – Three and nine months ended
September 30, 2008
and 2007
|
4
|
|
Consolidated
Balance Sheet – September 30, 2008 and December 31,
2007
|
5
|
|
Consolidated
Statement of Cash Flows – Nine months ended September 30,
2008 and 2007
|
6
|
|
Consolidated
Statement of Changes in Partners’ Equity – Nine months ended
September 30, 2008
|
7
|
|
Notes
to Consolidated Financial Statements
|
8
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
|
|
|
Results
of Operations of TC PipeLines
|
21
|
|
Liquidity
and Capital Resources of TC PipeLines
|
25
|
|
Liquidity
and Capital Resources of our Pipeline Systems
|
27
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
29
|
|
|
|
Item
4.
|
Controls
and Procedures
|
30
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
31
|
|
|
|
Item
6.
|
Exhibits
|
33
|
All
amounts are stated in United States dollars unless otherwise
indicated.
Glossary
The
abbreviations, acronyms, and industry terminology used in this quarterly report
are defined as follows:
ANR ……………………………...... |
ANR
Pipeline Company |
Bcf/d……………………………......
|
Billion
cubic feet per day
|
Bison
Project…………………...... |
Bison
Pipeline Project |
Chicago
IV......................................... |
Northern
Border's proposed expansion project |
Collar
Agreement............................. |
Northern
Border's zero cost interest rate collar agreement |
DCF……………………………........
|
Discounted
cash flow
|
Dth/d……………………………......
|
Dekatherms
per day
|
FASB…………………………..........
|
Financial
Accounting Standards Board
|
FERC…………………………..........
|
Federal
Energy Regulatory Commission
|
GAAP…………………………........
|
U.S.
generally accepted accounting principles
|
GLGT.............…………………........
|
Great
Lakes Gas Transmission Limited Partnership
|
Great
Lakes...................................... |
Great
Lakes Gas Transmission Limited Partnership
|
INGAA…………………………........
|
Interstate
Natural Gas Association of America
|
LIBOR…………………………........
|
London
Interbank Offered Rate
|
MLP……………………………........
|
Master
Limited Partnership
|
MMcf/d……………………….........
|
Million
cubic feet per day
|
NBPC……………………….............
|
Northern
Border Pipeline Company
|
Northern
Border……………….......
|
Northern
Border Pipeline Company
|
Our
pipeline systems………….......
|
Great
Lakes, Northern Border and Tuscarora
|
Partnership…………………............ |
TC
PipeLines, LP and its subsidiaries |
Pathfinder
Project............................. |
Pathfinder
Pipeline Project |
REX
East…………………………... |
Eastern
segment of the Rockies Express Pipeline |
REX
West………………………….. |
Western
segment of the Rockies Express Pipeline |
ROE……………………………........
|
Return
on equity
|
ROFR................................................... |
Right
of first refusal |
SEC…………………………….........
|
Securities
and Exchange Commission
|
SFAS…………………………..........
|
Statement
of Financial Accounting Standards
|
TC
Pipelines……………………….. |
TC
PipeLines, LP and its subsidiaries |
TCNB………………………….........
|
TransCanada
Northern Border Inc.
|
TGTC.................................................. |
Tuscarora
Gas Transmission Company |
TransCanada…………………........
|
TransCanada
Corporation and its subsidiaries
|
TSA..................................................... |
Transportation
Security Administration |
Tuscarora………………………......
|
Tuscarora
Gas Transmission Company
|
U.S……………………………..........
|
United
States of America
|
WCSB…………………………........
|
Western
Canada Sedimentary Basin
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial
Statements
TC
PipeLines, LP
Consolidated
Statement of
Income
(unaudited)
|
|
Three
months ended
September
30,
|
|
Nine
months ended
September
30,
|
|
(millions
of dollars except per common unit amounts)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
income from investment in Great Lakes (Note 2)
|
|
|
12.0 |
|
|
|
14.2 |
|
|
|
44.4 |
|
|
|
34.3 |
|
Equity
income from investment in Northern Border (Note 3)
|
|
|
19.9 |
|
|
|
16.2 |
|
|
|
48.1 |
|
|
|
44.3 |
|
Transmission
revenues
|
|
|
8.2 |
|
|
|
6.7 |
|
|
|
23.3 |
|
|
|
20.3 |
|
Operating
expenses
|
|
|
(2.3 |
) |
|
|
(2.2 |
) |
|
|
(6.8 |
) |
|
|
(6.4 |
) |
Depreciation
|
|
|
(1.8 |
) |
|
|
(1.6 |
) |
|
|
(5.1 |
) |
|
|
(4.7 |
) |
Financial
charges, net and other
|
|
|
(7.7 |
) |
|
|
(8.7 |
) |
|
|
(22.8 |
) |
|
|
(25.5 |
) |
Net
income
|
|
|
28.3 |
|
|
|
24.6 |
|
|
|
81.1 |
|
|
|
62.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
units
|
|
|
25.1 |
|
|
|
22.4 |
|
|
|
72.5 |
|
|
|
57.0 |
|
General
partner
|
|
|
3.2 |
|
|
|
2.2 |
|
|
|
8.6 |
|
|
|
5.3 |
|
|
|
|
28.3 |
|
|
|
24.6 |
|
|
|
81.1 |
|
|
|
62.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common unit (Note 6)
|
|
$ |
0.72 |
|
|
$ |
0.64 |
|
|
$ |
2.08 |
|
|
$ |
1.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units
outstanding (millions)
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
31.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units outstanding, end
of the period (millions)
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
34.9 |
|
Consolidated
Statement of Comprehensive Income
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
28.3 |
|
|
|
24.6 |
|
|
|
81.1 |
|
|
|
62.3 |
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
associated with hedging transactions (Note 9)
|
|
|
(1.3 |
) |
|
|
(7.0 |
) |
|
|
(1.7 |
) |
|
|
(2.3 |
) |
Change
associated with hedging transactions of investees
|
|
|
- |
|
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(0.9 |
) |
|
|
|
(1.3 |
) |
|
|
(7.5 |
) |
|
|
(2.4 |
) |
|
|
(3.2 |
) |
Total
comprehensive income
|
|
|
27.0 |
|
|
|
17.1 |
|
|
|
78.7 |
|
|
|
59.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TC
PipeLines, LP
Consolidated
Balance Sheet
(unaudited)
|
|
|
|
|
|
|
(millions
of dollars)
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
11.0 |
|
|
|
7.5 |
|
Accounts
receivable and other
|
|
|
3.7 |
|
|
|
4.2 |
|
|
|
|
14.7 |
|
|
|
11.7 |
|
Investment
in Great Lakes (Note 2)
|
|
|
710.5 |
|
|
|
721.1 |
|
Investment
in Northern Border (Note 3)
|
|
|
517.2 |
|
|
|
541.9 |
|
Plant,
property and equipment (net of $66.8 accumulated depreciation, 2007 -
$61.7)
|
|
|
135.6 |
|
|
|
134.1 |
|
Goodwill
|
|
|
81.7 |
|
|
|
81.7 |
|
Other
assets
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
|
1,461.3 |
|
|
|
1,492.6 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND PARTNERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Bank
indebtedness
|
|
|
- |
|
|
|
1.4 |
|
Accounts
payable
|
|
|
2.2 |
|
|
|
4.8 |
|
Accrued
interest
|
|
|
3.5 |
|
|
|
3.0 |
|
Current
portion of long-term debt (Note 5)
|
|
|
4.5 |
|
|
|
4.6 |
|
Other
current liabilities
|
|
|
0.5 |
|
|
|
- |
|
|
|
|
10.7 |
|
|
|
13.8 |
|
Other
long-term liabilities
|
|
|
11.0 |
|
|
|
9.9 |
|
Long-term
debt (Note 5)
|
|
|
541.6 |
|
|
|
568.8 |
|
|
|
|
563.3 |
|
|
|
592.5 |
|
Partners'
Equity
|
|
|
|
|
|
|
|
|
Common
units
|
|
|
892.6 |
|
|
|
892.3 |
|
General
partner
|
|
|
19.1 |
|
|
|
19.1 |
|
Accumulated
other comprehensive loss
|
|
|
(13.7 |
) |
|
|
(11.3 |
) |
|
|
|
898.0 |
|
|
|
900.1 |
|
|
|
|
1,461.3 |
|
|
|
1,492.6 |
|
|
|
|
|
Subsequent
events (Note 12)
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated financial
statements.
|
|
|
TC
PipeLines, LP
Consolidated
Statement of Cash Flows
(unaudited)
|
|
Nine
months ended September 30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
CASH
GENERATED FROM OPERATIONS
|
|
|
|
|
|
|
Net
income
|
|
|
81.1 |
|
|
|
62.3 |
|
Depreciation
|
|
|
5.1 |
|
|
|
4.7 |
|
Amortization
of other assets
|
|
|
0.4 |
|
|
|
0.3 |
|
Non-controlling
interests
|
|
|
- |
|
|
|
0.2 |
|
Increase
in long-term liabilities
|
|
|
0.1 |
|
|
|
- |
|
Equity
allowance for funds used during construction
|
|
|
(0.2 |
) |
|
|
- |
|
Increase
in operating working capital (Note 10)
|
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
|
|
86.3 |
|
|
|
66.8 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Return
of capital from Great Lakes (Note 2)
|
|
|
10.6 |
|
|
|
6.7 |
|
Return
of capital from Northern Border (Note 3)
|
|
|
23.9 |
|
|
|
18.2 |
|
Investment
in Great Lakes (Note 2)
|
|
|
- |
|
|
|
(733.0 |
) |
Investment
in Northern Border (Note 3)
|
|
|
- |
|
|
|
(7.5 |
) |
Capital
expenditures
|
|
|
(6.4 |
) |
|
|
(4.4 |
) |
Other
assets
|
|
|
- |
|
|
|
(1.1 |
) |
(Increase)/decrease
in investing working capital (Note 10)
|
|
|
(2.8 |
) |
|
|
1.2 |
|
|
|
|
25.3 |
|
|
|
(719.9 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Distributions
paid
|
|
|
(80.8 |
) |
|
|
(61.3 |
) |
Equity
issuances, net
|
|
|
- |
|
|
|
607.0 |
|
Long-term
debt issued
|
|
|
4.0 |
|
|
|
152.5 |
|
Long-term
debt repaid (Note 5)
|
|
|
(31.3 |
) |
|
|
(34.9 |
) |
|
|
|
(108.1 |
) |
|
|
663.3 |
|
|
|
|
|
|
|
|
|
|
Increase
in cash and short-term investments
|
|
|
3.5 |
|
|
|
10.2 |
|
Cash
and short-term investments, beginning of period
|
|
|
7.5 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments, end of period
|
|
|
11.0 |
|
|
|
14.8 |
|
|
|
|
|
|
|
|
|
|
Interest
payments made
|
|
|
17.9 |
|
|
|
23.9 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated
financial statements.
|
|
|
|
|
|
|
|
|
TC
PipeLines, LP
Consolidated
Statement of Changes in Partners’ Equity
(unaudited)
|
|
Common
Units
|
|
|
General
Partner
|
|
|
Accumulated
Other Comprehensive Loss (1)
|
|
Partners'
Equity
|
|
|
|
(millions
|
|
(millions
|
|
|
(millions
|
|
|
(millions
|
|
|
(millions
|
|
(millions
|
|
|
|
of
units)
|
|
of
dollars)
|
|
|
of
dollars)
|
|
|
of
dollars)
|
|
|
of
units)
|
|
of
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners'
equity at December 31, 2007
|
|
|
34.9 |
|
|
|
892.3 |
|
|
|
19.1 |
|
|
|
(11.3 |
) |
|
|
34.9 |
|
|
|
900.1 |
|
Net
income
|
|
|
- |
|
|
|
72.5 |
|
|
|
8.6 |
|
|
|
- |
|
|
|
- |
|
|
|
81.1 |
|
Distributions
paid
|
|
|
- |
|
|
|
(72.2 |
) |
|
|
(8.6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(80.8 |
) |
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2.4 |
) |
|
|
- |
|
|
|
(2.4 |
) |
Partners'
equity at September 30, 2008
|
|
|
34.9 |
|
|
|
892.6 |
|
|
|
19.1 |
|
|
|
(13.7 |
) |
|
|
34.9 |
|
|
|
898.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
TC PipeLines, LP
uses derivatives to assist in managing its exposure to interest rate risk.
Based on interest rates at September 30, 2008, the amount of losses
related to cash flow hedges reported in accumulated other comprehensive
income that will be reclassified to net income in the next 12 months is
$3.8 million, which will be offset by a reduction to interest expense of a
similar amount. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TC
PipeLines, LP
Notes
to Consolidated Financial Statements
Note 1 |
Organization and Significant
Accounting Policies |
TC
PipeLines, LP and its subsidiaries are collectively referred to herein as “TC
PipeLines” or “the Partnership”. In this report, references to “we”, “us” or
“our” refer to TC PipeLines or the Partnership.
The
preparation of financial statements in conformity with United States of America
(U.S.) generally accepted accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Although management believes these estimates are
reasonable, actual results could differ from these estimates. In the opinion of
management, these consolidated financial statements have been properly prepared
within reasonable limits of materiality and include all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the financial
results for the interim periods presented.
The
results of operations for the three and nine months ended September 30, 2008 and
2007 are not necessarily indicative of the results that may be expected for a
full fiscal year. The unaudited interim financial statements should be read in
conjunction with the financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2007. Our significant
accounting policies are consistent with those disclosed in Note 2 of the
financial statements in our annual report on Form 10-K for the year ended
December 31, 2007. Certain comparative figures have been reclassified to conform
to the current period’s presentation.
Note 2 |
Investment in Great
Lakes |
On
February 22, 2007, we acquired a 46.45 per cent partner interest in Great Lakes
Gas Transmission Limited Partnership (Great Lakes). On the same day, a
wholly-owned subsidiary of TransCanada Corporation (TransCanada) acquired 100
per cent ownership of the operator of Great Lakes. Great Lakes is regulated by
the Federal Energy Regulatory Commission (FERC).
We use
the equity method of accounting for our interest in Great Lakes. Great Lakes had
no undistributed earnings for either the nine months ended September 30, 2008 or
the period February 23, 2007 to September 30, 2007.
The
following tables contain summarized financial information for Great
Lakes:
Summarized
Consolidated Great Lakes Income Statement
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
For
the period
February 23
to September
30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Transmission
revenues
|
|
|
66.7 |
|
|
|
65.6 |
|
|
|
213.9 |
|
|
|
162.2 |
|
Operating
expenses
|
|
|
(17.1 |
) |
|
|
(12.6 |
) |
|
|
(45.9 |
) |
|
|
(34.0 |
) |
Depreciation
|
|
|
(14.7 |
) |
|
|
(14.5 |
) |
|
|
(43.9 |
) |
|
|
(34.9 |
) |
Financial
charges, net and other
|
|
|
(8.0 |
) |
|
|
(8.1 |
) |
|
|
(24.4 |
) |
|
|
(19.5 |
) |
Michigan
business tax
|
|
|
(1.2 |
) |
|
|
- |
|
|
|
(4.2 |
) |
|
|
- |
|
Net
income
|
|
|
25.7 |
|
|
|
30.4 |
|
|
|
95.5 |
|
|
|
73.8 |
|
Summarized
Consolidated Great Lakes Balance Sheet
|
|
|
|
|
|
|
(unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
1.1 |
|
|
|
32.0 |
|
Other
current assets
|
|
|
100.6 |
|
|
|
55.5 |
|
Plant,
property and equipment, net
|
|
|
931.9 |
|
|
|
969.2 |
|
|
|
|
1,033.6 |
|
|
|
1,056.7 |
|
Liabilities
and Partners' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
49.0 |
|
|
|
50.7 |
|
Deferred
credits
|
|
|
1.7 |
|
|
|
0.4 |
|
Long-term
debt, including current maturities
|
|
|
440.0 |
|
|
|
440.0 |
|
Partners'
capital
|
|
|
542.9 |
|
|
|
565.6 |
|
|
|
|
1,033.6 |
|
|
|
1,056.7 |
|
Note 3 |
Investment in Northern
Border |
We own a
50 per cent general partner interest in Northern Border Pipeline Company
(Northern Border). Effective April 1, 2007, TransCanada Northern Border Inc.
(TCNB), a wholly-owned subsidiary of TransCanada, became the operator of
Northern Border. Northern Border is regulated by the FERC.
We use
the equity method of accounting for our interest in Northern Border. Northern
Border had no undistributed earnings for the nine months ended September 30,
2008 and 2007.
The
following tables contain summarized financial information for Northern
Border:
Summarized
Northern Border Income Statement
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(millions of dollars)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Transmission
revenues
|
|
|
67.7 |
|
|
|
79.6 |
|
|
|
212.8 |
|
|
|
228.0 |
|
Operating
expenses
|
|
|
(19.3 |
) |
|
|
(21.6 |
) |
|
|
(57.5 |
) |
|
|
(61.7 |
) |
Depreciation
|
|
|
(15.3 |
) |
|
|
(15.1 |
) |
|
|
(45.8 |
) |
|
|
(45.6 |
) |
Financial
charges, net and other
|
|
|
7.1 |
|
|
|
(10.2 |
) |
|
|
(12.1 |
) |
|
|
(30.9 |
) |
Net
income
|
|
|
40.2 |
|
|
|
32.7 |
|
|
|
97.4 |
|
|
|
89.8 |
|
Summarized
Northern Border Balance Sheet
|
|
|
|
|
|
|
(unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
18.6 |
|
|
|
22.9 |
|
Other
current assets
|
|
|
31.1 |
|
|
|
39.8 |
|
Plant,
property and equipment, net
|
|
|
1,398.3 |
|
|
|
1,428.3 |
|
Other
assets
|
|
|
25.5 |
|
|
|
23.9 |
|
|
|
|
1,473.5 |
|
|
|
1,514.9 |
|
Liabilities
and Partners' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
53.0 |
|
|
|
53.4 |
|
Deferred
credits and other
|
|
|
9.2 |
|
|
|
8.1 |
|
Long-term
debt, including current maturities
|
|
|
621.4 |
|
|
|
615.3 |
|
Partners'
equity
|
|
|
|
|
|
|
|
|
Partners'
capital
|
|
|
793.8 |
|
|
|
840.5 |
|
Accumulated
other comprehensive loss
|
|
|
(3.9 |
) |
|
|
(2.4 |
) |
|
|
|
1,473.5 |
|
|
|
1,514.9 |
|
Note 4 |
Investment in
Tuscarora |
As of
December 31, 2007, we acquired the remaining two per cent general partner
interest in Tuscarora Gas Transmission Company (Tuscarora), thereby making it a
wholly-owned subsidiary. Tuscarora is operated by TCNB and is regulated by the
FERC.
We use
the consolidation method of accounting for our ownership of
Tuscarora.
The
following tables contain summarized financial information for
Tuscarora:
Summarized
Tuscarora Income Statement
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Transmission
revenues
|
|
|
8.2 |
|
|
|
6.7 |
|
|
|
23.3 |
|
|
|
20.3 |
|
Operating
expenses
|
|
|
(1.4 |
) |
|
|
(1.2 |
) |
|
|
(3.7 |
) |
|
|
(3.7 |
) |
Depreciation
|
|
|
(1.8 |
) |
|
|
(1.6 |
) |
|
|
(5.1 |
) |
|
|
(4.7 |
) |
Financial
charges, net and other
|
|
|
(1.1 |
) |
|
|
(1.0 |
) |
|
|
(3.1 |
) |
|
|
(3.4 |
) |
Net
income
|
|
|
3.9 |
|
|
|
2.9 |
|
|
|
11.4 |
|
|
|
8.5 |
|
Summarized
Tuscarora Balance Sheet
(unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
- |
|
|
|
6.1 |
|
Other
current assets
|
|
|
13.6 |
|
|
|
2.6 |
|
Plant,
property and equipment, net
|
|
|
135.6 |
|
|
|
134.1 |
|
Other
assets
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
|
149.5 |
|
|
|
143.4 |
|
Liabilities
and Partners' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
3.1 |
|
|
|
6.1 |
|
Long-term
debt, including current maturities
|
|
|
64.1 |
|
|
|
66.4 |
|
Partners'
capital
|
|
|
82.3 |
|
|
|
70.9 |
|
|
|
|
149.5 |
|
|
|
143.4 |
|
Summarized
Tuscarora Cash Flow Statement
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Cash
flows provided by operating activities
|
|
|
7.2 |
|
|
|
4.6 |
|
|
|
17.3 |
|
|
|
13.5 |
|
Cash
flows (used in)/provided by investing activities
|
|
|
(1.3 |
) |
|
|
0.6 |
|
|
|
(9.2 |
) |
|
|
(3.1 |
) |
Cash
flows used in financing activities
|
|
|
(5.8 |
) |
|
|
- |
|
|
|
(14.2 |
) |
|
|
(2.4 |
) |
Increase/(decrease)
in cash and short-term investments
|
|
|
- |
|
|
|
5.2 |
|
|
|
(6.1 |
) |
|
|
8.0 |
|
Cash
and short-term investments, beginning of period
|
|
|
- |
|
|
|
5.7 |
|
|
|
6.1 |
|
|
|
2.9 |
|
Cash
and short-term investments, end of period
|
|
|
- |
|
|
|
10.9 |
|
|
|
- |
|
|
|
10.9 |
|
Note 5 |
Credit Facility and Long-Term
Debt |
(unaudited)
|
|
September
30,
|
|
|
December
31,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Senior
Credit Facility
|
|
|
482.0 |
|
|
|
507.0 |
|
7.13%
Series A Senior Notes due 2010
|
|
|
52.9 |
|
|
|
54.5 |
|
7.99%
Series B Senior Notes due 2010
|
|
|
5.3 |
|
|
|
5.5 |
|
6.89%
Series C Senior Notes due 2012
|
|
|
5.9 |
|
|
|
6.4 |
|
|
|
|
546.1 |
|
|
|
573.4 |
|
The
Senior Credit Facility consists of a $475.0 million senior term loan and a
$250.0 million senior revolving credit facility. At September 30, 2008, $7.0
million was outstanding under our senior revolving credit facility, leaving
$243.0 million available for future borrowings. The interest rate on the Senior
Credit Facility averaged 3.31 per cent for the three months ended September 30,
2008 (2007 – 5.97 per cent), while for the nine months ended September 30, 2008
the interest rate on the Senior Credit Facility averaged 3.93 per cent (2007 –
6.02 per cent). After hedging activity, the interest rate incurred on the Senior
Credit Facility averaged 5.23 per cent for the three months ended September 30,
2008 (2007 – 5.70 per cent) and 5.18 per cent for the nine months ended
September 30, 2008 (2007 – 5.52 per cent). Prior to hedging activities, the
interest rate was 3.36 per cent at September 30, 2008 (December 31, 2007 – 5.62
per cent). At September 30, 2008, we were in compliance with our financial
covenants.
Annual
maturities are as follows: 2008 - $2.3 million; 2009 - $4.4 million; 2010 -
$53.5 million; 2011 - $482.8 million; and, thereafter - $3.1
million.
Note 6 |
Net Income per Common
Unit |
Net
income per common unit is computed by dividing net income, after deduction of
the general partner’s allocation, by the weighted average number of common units
outstanding. The general partner’s allocation is equal to an amount based upon
the general partner’s two per cent interest, plus an amount equal to incentive
distributions. Incentive distributions are received by the general partner if
quarterly cash distributions on the common units exceed levels specified in the
partnership agreement. Net income per common unit was determined as
follows:
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(millions
of dollars except per unit) |
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
|
28.3 |
|
|
|
24.6 |
|
|
|
81.1 |
|
|
|
62.3 |
|
Net
income allocated to general partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
partner interest
|
|
|
(0.6 |
) |
|
|
(0.4 |
) |
|
|
(1.6 |
) |
|
|
(1.2 |
) |
Incentive
distribution income allocation
|
|
|
(2.6 |
) |
|
|
(1.8 |
) |
|
|
(7.0 |
) |
|
|
(4.1 |
) |
|
|
|
(3.2 |
) |
|
|
(2.2 |
) |
|
|
(8.6 |
) |
|
|
(5.3 |
) |
Net
income allocable to common units
|
|
|
25.1 |
|
|
|
22.4 |
|
|
|
72.5 |
|
|
|
57.0 |
|
Weighted
average common units outstanding (millions)
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
31.5 |
|
Net
income per common unit
|
|
$ |
0.72 |
|
|
$ |
0.64 |
|
|
$ |
2.08 |
|
|
$ |
1.81 |
|
Note 7 |
Cash
Distributions |
For the
three and nine months ended September 30, 2008, we distributed $0.705 and $2.07
per common unit (2007 – $0.655 and $1.905 per common unit). The distributions
for the three and nine months ended September 30, 2008 included incentive
distributions to the general partner of $2.6 million and $7.0 million (2007 -
$1.8 million and $4.1 million).
Note 8 |
Related Party
Transactions |
The
Partnership does not have any employees. The management and operating functions
are provided by the general partner. The general partner does not receive a
management fee in connection with its management of the Partnership. The
Partnership reimburses the general partner for all costs of services provided,
including the costs of employee, officer and director compensation and benefits,
and all other expenses necessary or appropriate to the conduct of the business
of, and allocable to, the Partnership. Such costs include (i) overhead costs
(such as office space and equipment) and (ii) out-of-pocket expenses related to
the provision of such services. The Partnership Agreement provides that the
general partner will determine the costs that are allocable to the Partnership
in any reasonable manner determined by the general partner in its sole
discretion. Total costs charged to the Partnership by the general partner were
$0.5 million and $1.6 million for the three and nine months ended September 30,
2008 (2007 - $0.5 million and $1.4 million).
TCNB
became the operator of Northern Border effective April 1, 2007. The operator of
Great Lakes became a wholly-owned subsidiary of TransCanada through
TransCanada’s acquisition of Great Lakes Gas Transmission Company on February
22, 2007. TCNB also became the operator of Tuscarora, as part of the December
19, 2006 acquisition of an additional 49 per cent general partner interest in
Tuscarora. TransCanada and its affiliates provide capital and operating services
to Great Lakes, Northern Border and Tuscarora (together, “our pipeline
systems”). TransCanada and its affiliates incur costs on behalf of our pipeline
systems, including, but not limited to, employee salary and benefit costs,
property and liability insurance costs, and transition costs. Total costs
charged to our pipeline systems during the three and nine months ended September
30, 2008 and 2007 by TransCanada and its affiliates and amounts owed to
TransCanada and its affiliates at September 30, 2008 and December 31, 2007 are
summarized in the following tables:
(unaudited)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
charged by TransCanada and its affiliates:
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes
|
|
|
8.2 |
|
|
|
5.2 |
|
|
|
23.4 |
|
|
|
22.2 |
|
Northern
Border
|
|
|
7.5 |
|
|
|
7.4 |
|
|
|
23.5 |
|
|
|
14.9 |
|
Tuscarora
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
2.9 |
|
|
|
1.7 |
|
Impact
on the Partnership's net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes
|
|
|
3.6 |
|
|
|
2.4 |
|
|
|
10.1 |
|
|
|
10.3 |
|
Northern
Border
|
|
|
3.2 |
|
|
|
3.7 |
|
|
|
9.6 |
|
|
|
7.5 |
|
Tuscarora
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
2.0 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The amounts disclosed for Great Lakes are for the period February 23 to
September 30, 2007. The amounts disclosed for Northern Border are for
the period April 1 to September 30, 2007.
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
September
30,
|
|
|
December
31,
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Amount
owed to TransCanada and its affiliates:
|
|
|
|
|
Great
Lakes
|
|
|
8.1 |
|
|
|
1.9 |
Northern
Border
|
|
|
5.1 |
|
|
|
3.0 |
Tuscarora
|
|
|
0.5 |
|
|
|
3.5 |
Great
Lakes earns transportation revenues from TransCanada and its affiliates under
fixed price contracts with remaining terms ranging from one to ten years. Great
Lakes earned $40.5 million of transportation revenues under these contracts for
the three months ended September 30, 2008 (2007 - $32.4 million). This amount
represents 61 per cent of total revenues earned by Great Lakes for the three
months ended September 30, 2008 (2007 - 50 per cent). $18.8 million of this
transportation revenue is included in our equity income from Great Lakes for the
three months ended September 30, 2008 (2007 - $15.1 million).
Great
Lakes earned $108.7 million of transportation revenues from TransCanada and its
affiliates for the nine months ended September 30, 2008 (February 23, 2007 to
September 30, 2007 - $81.5 million). This amount represents 51 per cent of total
revenues earned by Great Lakes for the nine months ended September 30, 2008
(February 23, 2007 to September 30, 2007 - 50 per cent). $50.5 million of this
transportation revenue is included in our equity income from Great Lakes for the
nine months ended September 30, 2008 (February 23, 2007 to September 30, 2007 -
$37.9 million). At September 30, 2008, $13.4 million is included in Great Lakes’
receivables in regards to the transportation contracts with TransCanada and its
affiliates (December 31, 2007 - $10.0 million).
In August
2008, Northern Border sold its wholly-owned subsidiary, Bison Pipeline LLC, to
TransCanada for $20.0 million. In connection with this transaction, Northern
Border recorded a gain on sale of $16.1 million, of which the Partnership’s
share is $8.1 million. The proposed 297-mile, 24-inch diameter Bison pipeline
system would extend from natural gas gathering facilities located in the Powder
River Basin in Wyoming to a point of interconnection with the Northern Border
pipeline system in Morton County, North Dakota.
Northern
Border’s Des Plaines Project consists of the construction, ownership and
operation of interconnect facilities, including a 1,600 horsepower compressor
facility near Joliet, Illinois. In June 2008, in connection with the Des Plaines
Project, Northern Border and ANR Pipeline Company (ANR), a wholly-owned
subsidiary of TransCanada, have entered into an Interconnect Agreement, which
provides that Northern Border will reimburse ANR for the cost of the
interconnect facilities to be owned by ANR. In June, Northern Border paid ANR
$0.5 million and it is estimated that additional costs to complete the
interconnect will be $0.1 million. Northern Border will be responsible for the
final costs to construct the interconnect and any difference between the final
actual costs and the estimated amounts paid will be remitted by or refunded to
Northern Border.
Note 9 |
Derivative Financial
Instruments |
The
interest rate swaps and options are structured such that the cash flows match
those of the Senior Credit Facility. The notional amount hedged was $475.0
million at September 30, 2008 (December 31, 2007 - $400.0 million). At September
30, 2008, the fair value of the interest rate swaps and options accounted for as
hedges was negative $11.5 million (December 31, 2007 – negative $9.8 million).
Effective January 1, 2008, we adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS
157). Under SFAS 157, these financial assets and liabilities that are
recorded at fair value on a recurring basis are categorized into one of three
categories based upon a fair value hierarchy. We have classified all of our
derivative financial instruments as level II where the fair value is determined
by using valuation techniques that refer to observable market data or estimated
market prices. During the
three and nine months ended September 30, 2008, we recorded interest expense of
$2.4 million and $4.7 million, respectively, in regards to the interest rate
swaps and options. We recorded interest income of $0.4 million and $0.8 million
for the three and nine months ended September 30, 2007, respectively, in regards
to the interest rate swaps and options.
Note 10 |
Changes in Working
Capital |
(unaudited)
|
|
Nine
months ended September 30,
|
|
(millions
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Decrease/(increase)
in accounts receivable and other
|
|
|
0.5 |
|
|
|
(2.4 |
) |
Decrease
in bank indebtedness
|
|
|
(1.4 |
) |
|
|
- |
|
Decrease
in accounts payable
|
|
|
(2.6 |
) |
|
|
(0.3 |
) |
Increase
in accrued interest
|
|
|
0.5 |
|
|
|
3.2 |
|
|
|
|
(3.0 |
) |
|
|
0.5 |
|
Note 11 |
Accounting
Pronouncements |
In May
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 162) which codifies the sources of
accounting principles and the related framework to be utilized in preparing
financial statements in conformity with GAAP. The requirements of this standard
are not expected to have a material impact on our results of operations or
financial position.
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS No. 161) as an amendment to SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No.
161 requires that objectives for using derivative instruments be disclosed in
terms of underlying risk and accounting designation. SFAS No. 161 is effective
for our fiscal year beginning January 1, 2009, and we are currently evaluating
its applicability to our results of operations and financial
position.
Note 12 |
Subsequent
Events |
On
October 17, 2008, the Board of Directors of the general partner declared the
Partnership’s third quarter 2008 cash distribution in the amount of $0.705 per
common unit, payable on November 14, 2008, to unitholders of record on October
31, 2008. The cash distribution represents an annual cash distribution of $2.82
per common unit.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discusses the results of operations and liquidity and capital
resources of TC PipeLines, LP, along with those of Great Lakes Gas Transmission
Limited Partnership (Great Lakes), Northern Border Pipeline Company (Northern
Border) and Tuscarora Gas Transmission Company (Tuscarora), (together “our
pipeline systems”), as a result of the Partnership’s ownership
interests.
FORWARD-LOOKING
STATEMENTS
The
statements in this report that are not historical information, including
statements concerning plans and objectives of management for future operations,
economic performance or related assumptions, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act. Forward-looking statements may include
words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” “forecast” and other words and terms of similar meaning. The absence
of these words, however, does not mean that the statements are not
forward-looking.
These
statements reflect our current views with respect to future events, based on
what we believe are reasonable assumptions. Certain factors that could cause
actual results to differ materially from those contemplated in the
forward-looking statements include:
·
|
the
ability of Great Lakes and Northern Border to continue to make
distributions at their current
levels;
|
·
|
the
impact of unsold capacity on Great Lakes and Northern Border being greater
or less than expected;
|
·
|
competitive
conditions in our industry and the ability of our pipeline systems to
market pipeline capacity on favorable terms, which is affected
by:
|
o
|
future
demand for and prices of natural
gas;
|
o
|
competitive
conditions in the overall natural gas and electricity
markets;
|
o
|
availability
of supplies of Canadian and United States (U.S.) natural
gas;
|
o
|
the
oversupply of natural gas in the Mid-continent
market;
|
o
|
availability
of additional storage capacity and current storage
levels;
|
o
|
competitive
developments by Canadian and U.S. natural gas transmission companies,
including the construction of the Eastern segment of the Rockies Express
Pipeline (REX East) to Clarington, Ohio;
and
|
o
|
development
of newly discovered natural gas plays such as the Horn River and Montney
shale gas plays in Western Canada, the Louisiana Haynesville shale gas
play, and the Marcellus shale gas play in West Virginia, Pennsylvania, and
New York.
|
·
|
the
Alberta (Canada) government’s decision to implement a new royalty regime
effective January 2009 may affect the amount of exploration and
drilling in the Western Canada Sedimentary Basin
(WCSB);
|
·
|
the
decision by TransCanada to advance the Pathfinder Pipeline Project or the
Bison Pipeline Project and the regulatory, financing and construction
risks related to construction of interstate natural gas
pipelines;
|
·
|
the
successful completion, timing, cost, scope and future financial
performance of our pipeline systems’ expansion projects could differ
materially from our expectations due to availability of contractors or
equipment, weather, difficulties or delays in obtaining regulatory
approvals or denied applications, land owner opposition, the lack of
adequate materials, labor difficulties or shortages, expansion costs that
are higher than anticipated and numerous other factors beyond our
control;
|
·
|
performance
of contractual obligations by customers of our pipeline
systems;
|
·
|
the
imposition of state income taxes on
partnerships;
|
·
|
operating
hazards, natural disasters, weather-related delays, casualty losses and
other matters beyond our control;
|
·
|
the
impact of current and future laws, rulings and governmental regulations,
particularly Federal Energy Regulatory Commission (FERC) regulations, on
us and our pipeline systems;
|
·
|
our
ability to control operating costs;
and
|
·
|
prevailing
economic conditions, including the current uncertainty in the global
economic markets, that impact the capital and equity markets and our
ability to access these markets.
|
Other
factors described elsewhere in this document, or factors that are unknown or
unpredictable, could also have material adverse effects on future results.
Please also read Item 1A. “Risk Factors” in our annual report on Form 10-K for
the year ended December 31, 2007 and Item 1A. “Risk Factors” of this report. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these factors. The forward-looking
statements and information is made only as of the date of the filing of this
report, and except as required by applicable law, we undertake no obligation to
update these forward-looking statements and information to reflect new
information, subsequent events or otherwise.
The
following discussion and analysis should be read in conjunction with our 2007
Annual Report on Form 10-K and the unaudited financial statements and notes
thereto included in Item 1. “Financial Statements” of this Quarterly Report on
Form 10-Q. All amounts are stated in U.S. dollars.
PARTNERSHIP
OVERVIEW
TC
PipeLines, LP was formed in 1998 as a Delaware limited partnership by
TransCanada PipeLines Limited, a wholly-owned subsidiary of TransCanada
Corporation (collectively referred to herein as TransCanada), to acquire, own
and participate in the management of energy infrastructure assets in North
America. Our strategic focus is on delivering stable, sustainable cash
distributions to our unitholders and finding opportunities to increase cash
distributions while maintaining a low risk profile.
TC
PipeLines, LP and its subsidiaries are collectively referred to herein as “TC
PipeLines” or “the Partnership.” In this report, references to “we”, “us” or
“our” collectively refer to TC PipeLines or the Partnership. The general partner
of the Partnership is TC PipeLines GP, Inc., a wholly-owned subsidiary of
TransCanada.
We own a
46.45 per cent partner interest in Great Lakes, which we acquired on February
22, 2007 from El Paso Corporation. The other 53.55 per cent general partner
interest in Great Lakes is held by TransCanada.
We own a
50 per cent general partner interest in Northern Border, while the other 50 per
cent interest is held by ONEOK Partners, L.P., a publicly traded limited
partnership that is controlled by ONEOK, Inc.
As of
December 31, 2007, we acquired the remaining two per cent general partner
interest in Tuscarora, thereby making it a wholly-owned subsidiary.
Our
partner interests in Great Lakes, Northern Border and Tuscarora represent our
only material assets at September 30, 2008. As a result, we are dependent upon
our pipeline systems for all of our available cash. Our pipeline systems derive
their operating revenue from transportation of natural gas.
Great
Lakes Overview
Great
Lakes is a Delaware limited partnership formed in 1990. Great Lakes was
originally constructed as an operational loop of the TransCanada Mainline
Northern Ontario system. Great Lakes receives natural gas from TransCanada at
the Canadian border near Emerson, Manitoba and extends across Minnesota,
Northern Wisconsin and Michigan, and redelivers gas to TransCanada at the
Canadian border at Sault Ste. Marie, Michigan and St. Clair,
Michigan.
Northern
Border Overview
Northern
Border is a Texas general partnership formed in 1978. Northern Border transports
natural gas from the Canadian border near Port of Morgan, Montana to a terminus
near North Hayden, Indiana. Additionally, Northern Border transports natural gas
produced in the Williston Basin of Montana and North Dakota and the Powder River
Basin of Wyoming and Montana and synthetic gas produced at the Dakota
Gasification plant in North Dakota.
Tuscarora
Overview
Tuscarora
is a Nevada general partnership formed in 1993. Tuscarora originates at an
interconnection point with existing facilities of Gas Transmission Northwest
Corporation, a wholly-owned subsidiary of TransCanada, near Malin, Oregon and
runs southeast through Northeastern California and Northwestern Nevada.
Tuscarora’s pipeline system terminates near Wadsworth, Nevada. Along its route,
deliveries are made in Oregon, Northern California and Northwestern
Nevada.
FACTORS
THAT IMPACT THE BUSINESS OF OUR PIPELINE SYSTEMS
Key
factors that impact the business of our pipeline systems are the supply of and
demand for natural gas in the markets in which our pipeline systems operate; the
customers of our pipeline systems and the mix of services they require;
competition; and government regulation of natural gas pipelines.
Supply
and Demand of Natural Gas
Our
pipeline systems depend upon the WCSB for the majority of the natural gas that
they transport. Overall flows out of the WCSB were lower for the nine months
ended September 30, 2008 as compared to the same period last year, due mainly to
a decrease in production, and an increase in Canadian demand. WCSB exports are
expected to be lower for the remainder of the year. Factors which may mitigate
declines related to WCSB production in the future include strengthening gas
prices, decreases in oil prices as they affect demand from Alberta oil sands
operations, continued clarification of the Alberta Royalty Regime to take effect
January 1, 2009 as it affects natural gas production, and announcements
regarding potential natural gas supply discoveries in the Horn River and Montney
shale gas plays in Western Canada. Reduced supplies available for Canadian
export affects all U.S. pipelines that import natural gas from Canada, but the
impact on our pipeline systems will depend upon competitive factors and
prevailing market conditions in each of the markets that our pipeline systems
serve. Flows on Great Lakes’ pipeline system in the third quarter of 2008 were
consistent with flows in the third quarter of 2007 due to annual contracts and
reduced storage inventories which resulted in strong demand for transportation
to Michigan and Ontario storage locations. As expected, flows on Northern
Border’s pipeline system in the third quarter of 2008 were lower than the third
quarter of 2007.
The
Rockies Express Pipeline is a proposed 1,679-mile natural gas pipeline system
from Rio Blanco County, Colorado, to Monroe County, Ohio. The Western segment of
the Rockies Express Pipeline (REX West) from Weld County, Colorado to Audrain
County, Missouri went into full service in May 2008. REX West has had a minimal
impact on Great Lakes; however, it has caused excess natural gas supply from the
Rockies Basin to flow into the Mid-Continent market, which is the market served
by Northern Border. Consequently, there is less demand for WCSB supply in the
Mid-Continent market which has had a negative impact on Northern Border’s flows
and sales of available capacity in the second and third quarters of 2008. It is
anticipated that increased winter demand will dampen the impact of REX West
deliveries into the Mid-Continent that has increased supply in Northern Border’s
market region.
REX East
is planned to extend from Audrain County, Missouri to Clarington, located in
Monroe County, Ohio. Once in-service, REX East should improve the competitive
position of Canadian supply with gas sourced from other supply basins, including
the Rockies Basin, into the Mid-Continent, which may potentially mitigate some of the excess supply in the Mid-Continent market. REX East
will compete with Great Lakes in some markets, but will also potentially create
demand for Great Lakes’ transportation of natural gas from REX East seeking
access to and from storage locations in Michigan. It is now anticipated that the
partial in-service and full in-service of REX East will occur in the second and
fourth quarters of 2009, respectively. Although there can be no assurance on the
timing or impact of REX East, we believe that any positive impact on the market
Northern Border serves will not occur until 2010.
There are
many proposed natural gas pipeline projects that, if built, would impact the
markets served by our pipeline systems. Two proposed projects, the Pathfinder
Pipeline Project (Pathfinder Project) and the Bison Pipeline Project (Bison
Project), if built, would diversify Northern Border’s natural gas supply sources
and provide another transportation source for shippers to export natural gas
supply from the Rockies Basin. Please see the Recent Developments disclosure in
this section for information on the Bison Project and the Pathfinder
Project.
Reduced
storage inventories in Eastern Canada and the U.S. supported demand for Great
Lakes’ transportation, as customers utilized Great Lakes’ transportation to
access and fill storage locations adjacent to its pipeline in the last
quarter.
Great
Lakes’ future transportation values have continued to increase throughout this
year, partially due to the increase in TransCanada Mainline tolls, and partially
because of strong spread values between Alberta and Dawn, Ontario. As a result,
Great Lakes sold new and renewed long and short haul contracts at maximum tariff
rates for the next two years. However, now that Michigan and Ontario storage
fill is approaching capacity, as expected for this time of year, daily and short
term transportation values are decreasing.
Discoveries
of new gas fields, such as the Horn River Basin and Montney gas plays in Western
Canada may increase the amount of Canadian natural gas available for export.
Recently, TransCanada gauged interest for new natural gas transportation service
connecting the Horn River and Montney areas to its Alberta System. TransCanada
received requests for gas transmission service exceeding one billion cubic feet
per day (Bcf/d) for each area by 2012. Following this, TransCanada launched two
binding open seasons seeking requests for firm transportation service from
customers for the Groundbirch Project (a pipeline project designed to connect
the Montney area of North East British Columbia to TransCanada’s Alberta System)
and the Horn River Project (a pipeline project designed to connect the Horn
River area of North East British Columbia to TransCanada’s Alberta system). The
Groundbirch Project has an estimated in-service date of late 2010, while the
Horn River Project has an estimate in-service date of early 2011. These gas
plays, as well as the development of the Louisiana Haynesville shale gas play
and the discovery of the Marcellus shale gas play in West Virginia,
Pennsylvania, and New York in the U.S. will affect competitive factors and
market conditions in the natural gas industry.
Contracting
Great
Lakes – Great Lakes’ average contracted capacity for the quarter ended September
30, 2008 was 98 per cent of its design capacity (2007 – 98 per cent). For the
nine months ended September 30, 2008, Great Lakes’ average contracted capacity
was 104 per cent of its design capacity (period of March 1, 2007 to September
30, 2007 - 100 per cent). At September 30, 2008, 103 per cent of capacity was
contracted on a firm basis for the remainder of the year and the weighted
average remaining life of firm transportation contracts was 2.1
years.
In the
third quarter of 2008, Great Lakes sold all of its available long haul capacity
beginning November 1, 2008 for one year at maximum rates, sold available annual
short haul capacity in Michigan at maximum rates for one to two year terms, and
sold its available winter seasonal long haul capacity at maximum
rates.
Northern
Border – Northern Border’s average contracted capacity for the quarter ended
September 30, 2008 was 79 per cent of its design capacity (2007 - 102 per cent).
For the nine months ended September 30, 2008, Northern Border’s average
contracted capacity was 86 per cent of its design capacity (2007 - 96 per cent).
At September 30, 2008, approximately 78 per cent of Northern Border’s design
capacity was contracted on a firm basis for the remainder of the year and the
weighted average remaining contract life of firm transportation contracts was
2.0 years.
At
January 1, 2009, Northern Border’s total amount of available transportation
capacity is expected to be approximately 800 million cubic feet per day
(MMcf/d). Northern Border’s capacity to Chicago remains attractive and continues
to be fully contracted and legacy contracts set to expire in the near term have
been renewed. Additionally, related to a proposed expansion project, Northern
Border renewed approximately 350 MMcf/d at maximum and discounted rates, for
terms ranging from five to twelve years for various transportation paths to
Chicago. See additional information below in Recent Developments –
Chicago IV Project for more information.
Prevailing
market conditions and increasing competitive factors in North America, including
REX West, have caused Northern Border to experience a reduction in its revenues
due to lower capacity sales and greater discounting of its rates. These factors,
as well as expirations of certain long term contracts, will continue to impact
Northern Border’s ability to market its available capacity into 2009. Northern
Border expects to continue to discount transportation capacity as needed to
optimize revenue.
Northern
Border has executed long-term contracts of approximately 400 MMcf/d sold at a
discounted rate from Port of Morgan, Montana to Ventura, Iowa contingent upon
either the Bison Project or Pathfinder Project going forward. These
contracts would be effective at the successful project’s in-service date
projected for late 2010.
Tuscarora
- - Tuscarora’s average contracted capacity for the quarter ended September 30,
2008 was 98 per cent of its design capacity (2007 – 95 per cent). For the
nine months ended September 30, 2008, Tuscarora’s average contracted capacity
was 98 per cent of its design capacity (2007 – 96 per cent). At September
30, 2008, approximately 99 per cent of
Tuscarora’s design capacity was contracted on a firm basis for the remainder of
the year and the weighted average remaining contract life of firm transportation
contracts was 12.0 years.
RECENT
DEVELOPMENTS
Northern
Border
Bison
Project – On September
3, 2008, Northern Border announced the sale of its wholly-owned subsidiary,
Bison Pipeline LLC, to TransCanada Pipeline USA Ltd., a wholly-owned subsidiary
of TransCanada for $20.0 million. Distributions paid by Northern Border to its
partners in the third quarter included a special distribution in the amount of
$16.4 million, of which the Partnership’s share was $8.2 million. As a part of
the transaction, TransCanada has assumed the obligations of Northern Border
related to the Bison Project, and is continuing to solicit commercial support
for the Bison Project.
The
assets and obligations of Bison Pipeline LLC included executed precedent
agreements subject to certain shipper contingencies, as well as regulatory,
environmental and engineering activities completed to date on the Bison Project.
Shippers on the Bison Project have executed contracts for capacity on the
Northern Border system from Port of Morgan, Montana, to Ventura, Iowa, subject
to the in-service date of the Bison Project. Project subscription that is
subject to the upstream capacity condition is approximately 400
MMcf/d.
The
proposed 297-mile, 24-inch diameter Bison pipeline system would extend from
natural gas gathering facilities located in the Powder River Basin in Wyoming to
a point of interconnection with the Northern Border pipeline system in Morton
County, North Dakota. The initial capacity of the Bison Project is anticipated
to be approximately 400 MMcf/d. The projected in-service date is late
2010.
The
proposed Pathfinder Project is an approximately 673-mile, 36-inch diameter
interstate pipeline that would transport natural gas northeast from Meeker,
Colorado, through Montana to the Northern Border pipeline system in North Dakota
for delivery into the Ventura and Chicago-area markets. The capacity is between
1.2 to 1.6 Bcf/d. In September 2008, Enterprise Product Partners L.P. terminated
their previously-announced commitment to become a 50 per cent partner in
Pathfinder with a 500 MMcf/d shipping commitment. TransCanada is continuing to
work with prospective Pathfinder shippers to advance this project.
The
success of either the Bison or Pathfinder Projects is dependent upon many
factors, and there is no certainty that either of these projects will be
constructed. For further information regarding the risks related to the
construction projects, please refer to the Risk Factors sections in our 2007
Annual Report on Form 10-K and in this report.
Proposed
Expansion Project (Chicago IV) – Northern Border conducted a binding open season
seeking interest in an expansion project from Harper, Iowa to Manhattan,
Illinois and received binding shipper commitments. The proposed expansion
capacity was subject to a one-time adjustment right to reduce the Chicago IV
commitments resulting from the right of first refusal (ROFR) process in current
shipper contracts. During a ROFR process, its bidders are able to obtain
existing capacity with similar terms. If the Chicago IV bidders reduce their
commitments, it could eliminate the need for an expansion project. Northern
Border renewed approximately 350 MMcf/d at maximum and discount rates, for terms
ranging from 5 to 12 years for various transportation paths to
Chicago.
Des
Plaines Project – In February 2008, Northern Border filed with the FERC to
construct, own and operate interconnect facilities, including a 1,600 horsepower
compressor facility near Joliet, Illinois. It is estimated that the Des Plaines
Project will cost approximately $18 million and will be financed by a
combination of debt and equity. In June 2008, the FERC issued its environmental
assessment report for the Des Plaines Project and no comments were filed during
the comment period. A certificate order by FERC authorizing construction of the
Des Plaines Project was received on July 25, 2008. Northern Border commenced
construction on the Des Plaines Project on September 8, 2008, and it is now
expected the facilities will be placed into service by early 2009.
Tuscarora
Compressor
Station Expansion Project – Tuscarora’s compressor station expansion project to
support Sierra Pacific Power Company’s Tracy Combined Cycle Power Plant went
into service on April 1, 2008, with a final cost within the original cost
estimate. The new contract for 40,000 Dth/d for a term of 22-1/2 years will
generate approximately $5.8 million of annual revenue.
REGULATORY
DEVELOPMENTS
Composition of Proxy Groups for
Rates of Return Determinations – On July 19, 2007, the FERC issued a
policy statement proposing to update its standards regarding the composition of
proxy groups for determining the appropriate returns on equity (ROE) for natural
gas and oil pipelines, which is used by pipelines to establish rates for
services. On April 17, 2008, the FERC issued a policy statement (2008 Policy
Statement) that allows master limited partnerships (MLPs) to be included in a
proxy group used to determine a pipeline’s ROE. The 2008 Policy Statement is
effective immediately and provides that there should be no cap on the level of
distributions included in the current Discounted Cash Flow (DCF) methodology for
MLPs, but there should be an adjustment to the long-term growth rate used to
calculate DCF for an MLP (halving the long-term GDP factor which has a one-third
weighting in the total growth rate computation in the DCF
methodology).
The
impact of applying this new policy to our pipeline systems will not be known
until one of our pipeline systems files a rate case.
Promotion of a More Efficient
Capacity Release Market Docket No. RM08-1 – On June 19, 2008, the FERC
issued a Final Rule to modify capacity release regulations (Capacity Release
Final Rule). The Capacity Release Final Rule, in addition to other items, allows
market-based pricing for short-term capacity releases by shippers through a
permanent lifting of the maximum rate cap on short-term capacity releases (of
one year or less terms). The Capacity Release Final Rule was effective July 30,
2008.
While
implementation of the Capacity Release Final Rule is not expected to have a
significant impact on our pipeline systems, the Interstate Natural Gas
Association of America (INGAA), of which our pipeline systems are members, filed
on July 21, 2008 a request for rehearing of the Capacity Release Final Rule,
contending that as the FERC removed the rate cap for short-term released
capacity, it should also remove the rate cap for short-term pipeline capacity.
INGAA notes that short-term released capacity and short-term pipeline capacity
compete in the same market, and argues that removing the rate cap for short-term
released capacity and maintaining the cap for short-term pipeline capacity
results in a bifurcated and distorted short-term capacity market. On August 15,
2008, the FERC agreed to further consider the issues raised in the rehearing
request. A FERC Order is pending on this matter.
Homeland Security – The
Department of Homeland Security Appropriations Act of 2007 required the
Transportation Security Administration (TSA) to issue regulations establishing
risk-based performance standards for the security of chemical and industrial
facilities, including oil and gas facilities that were deemed to present high
levels of security risk. The TSA will conduct a critical facility identification
process, which will include our pipeline systems, anticipated in 2009 or 2010.
The TSA has also released a draft of the Pipeline Security Guidelines, which is
likely to become regulation in 2009 or 2010. These guidelines distinguish
between baseline security requirements for all pipeline facilities and enhanced
measures for identified critical facilities. Based on the draft
guidelines it is not anticipated that if our pipeline systems are deemed to be
critical facilities that there would be a significant additional costs related
to compliance.
RESULTS
OF OPERATIONS OF TC PIPELINES
Critical
Accounting Policies and Estimates
The
preparation of financial statements in accordance with Generally Accepted
Accounting Principles (GAAP) requires us to make estimates and assumptions with
respect to values or conditions which cannot be known with certainty, that
affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements. Such
estimates and assumptions also affect the reported amounts of revenue and
expenses during the reporting period. Although we believe these estimates and
assumptions are reasonable, actual results could differ. There were no
significant changes to our critical accounting policies and estimates during the
nine months ended September 30, 2008.
Information
about our critical accounting estimates is included under Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” in
our Annual Report on Form 10-K for the year ended December 31,
2007.
Recent
Accounting Pronouncements
In May
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 162) which codifies the sources of
accounting principles and the related framework to be utilized in preparing
financial statements in conformity with GAAP. The requirements of this standard
are not expected to have a material impact on our results of operations or
financial position.
In
March 2008, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS No. 161) as an amendment to SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 161 requires that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation. SFAS No. 161 is effective for our fiscal year
beginning January 1, 2009, and we are currently evaluating its applicability to
our results of operations and financial position.
Net
Income
To
supplement our financial statements, we have presented a comparison of the
earnings contribution components from each of our investments. We have presented
net income in this format in order to enhance investors’ understanding of the
way management analyzes our financial performance. We believe this summary
provides a more meaningful comparison of our net income to prior periods, as we
account for our partially owned pipeline systems using the equity method. The
presentation of this additional information is not meant to be considered in
isolation or as a substitute for results prepared in accordance with
GAAP.
The
shaded areas in the tables below disclose the results from Great Lakes and
Northern Border, representing 100 per cent of each entity's operations for
the given period.
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(unaudited)
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For
the three months ended September 30, 2008
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For
the nine months ended September 30, 2008
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(millions
of dollars)
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PipeLP
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TGTC(1)
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Other
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GLGT(2)
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NBPC(3)
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PipeLP
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TGTC(1)
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Other
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GLGT(2)
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NBPC(3)
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Transmission
revenues
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8.2 |
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8.2 |
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- |
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66.7 |
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67.7 |
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23.3 |
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23.3 |
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- |
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213.9 |
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212.8 |
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Operating
expenses
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(2.3 |
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(1.4 |
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(0.9 |
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(17.1 |
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(19.3 |
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(6.8 |
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(3.7 |
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(3.1 |
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(45.9 |
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(57.5 |
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5.9 |
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6.8 |
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(0.9 |
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49.6 |
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48.4 |
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16.5 |
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19.6 |
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(3.1 |
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168.0 |
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155.3 |
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Depreciation
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(1.8 |
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(1.8 |
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- |
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(14.7 |
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(15.3 |
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(5.1 |
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(5.1 |
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- |
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(43.9 |
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(45.8 |
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Financial
charges, net and other
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(7.7 |
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(1.1 |
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(6.6 |
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(8.0 |
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7.1 |
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(22.8 |
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(3.1 |
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(19.7 |
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(24.4 |
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(12.1 |
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Michigan
business tax
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- |
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- |
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- |
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(1.2 |
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- |
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- |
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- |
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- |
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(4.2 |
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- |
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25.7 |
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40.2 |
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95.5 |
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97.4 |
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Equity
income
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31.9 |
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- |
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- |
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12.0 |
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19.9 |
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92.5 |
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- |
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- |
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44.4 |
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48.1 |
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Net
income
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28.3 |
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3.9 |
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(7.5 |
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12.0 |
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19.9 |
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81.1 |
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11.4 |
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(22.8 |
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44.4 |
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48.1 |
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(unaudited)
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For
the three months ended September 30, 2007
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For
the nine months ended September 30, 2007
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(millions
of dollars)
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PipeLP
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TGTC(1)
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Other
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GLGT(2)
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NBPC(3)
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PipeLP
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TGTC(1)
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Other
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GLGT(2)
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NBPC(3)
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Transmission
revenues
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6.7 |
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6.7 |
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- |
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65.6 |
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79.6 |
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20.3 |
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20.3 |
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- |
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162.2 |
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228.0 |
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Operating
expenses
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(2.2 |
) |
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(1.2 |
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(1.0 |
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(12.6 |
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(21.6 |
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(6.4 |
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(3.7 |
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(2.7 |
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(34.0 |
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(61.7 |
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4.5 |
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5.5 |
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(1.0 |
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53.0 |
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58.0 |
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13.9 |
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16.6 |
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(2.7 |
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128.2 |
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166.3 |
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Depreciation
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(1.6 |
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(1.6 |
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- |
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(14.5 |
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(15.1 |
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(4.7 |
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(4.7 |
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- |
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(34.9 |
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(45.6 |
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Financial
charges, net and other
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(8.7 |
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(1.0 |
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(7.7 |
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(8.1 |
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(10.2 |
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(25.5 |
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(3.4 |
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(22.1 |
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(19.5 |
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(30.9 |
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30.4 |
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32.7 |
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73.8 |
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89.8 |
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Equity
income
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30.4 |
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- |
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- |
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14.2 |
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16.2 |
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78.6 |
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- |
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- |
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34.3 |
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44.3 |
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Net
income
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24.6 |
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2.9 |
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(8.7 |
) |
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14.2 |
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16.2 |
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62.3 |
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8.5 |
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(24.8 |
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34.3 |
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44.3 |
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(1) The
Partnership owns a 100 per cent general partner interest in Tuscarora Gas
Transmission Company (Tuscarora or TGTC) following the acquisition of an
additional two per cent interest on December 31, 2007.
(2) The
Partnership acquired a 46.45 per cent partner interest in Great Lakes Gas
Transmission Limited Partnership (Great Lakes or GLGT) on February 22,
2007.
(3) The
Partnership owns a 50 per cent general partner interest in Northern Border
Pipeline Company (Northern Border or NBPC). Equity income from Northern Border
includes amortization of a $10.0 million transaction fee paid to the operator of
Northern Border at the time of the additional 20 per cent acquisition in April
2006.
Third
Quarter 2008 compared with Third Quarter 2007
Net
income increased $3.7 million, or 15 per cent, to $28.3 million in the third
quarter of 2008, compared to $24.6 million in the third quarter of 2007. This
increase was primarily due to higher equity income from Northern Border,
increased Tuscarora transmission revenues and lower financial charges, net and
other, partially offset by decreased equity income from Great
Lakes.
Equity
income from Great Lakes was $12.0 million in the third quarter of 2008, a
decrease of $2.2 million or 15 per cent, compared to $14.2 million for the same
period last year. The decrease in equity income was primarily due to increased
operating expenses and Michigan business tax (a partnership level tax that was
instituted in 2008), partially offset by increased transmission revenues. At
Great Lakes’ level, operating expenses increased $4.5 million for the three
months ended September 30, 2008 compared to the same period last year primarily
due to higher taxes other than income, costs related to system integration
expenditures and increased pipeline maintenance costs. Michigan business tax of
$1.2 million was recorded for the three months ended September 30, 2008. Great
Lakes’ transmission revenues increased $1.1 million for the three months ended
September 30, 2008 compared to the same period last year due primarily to higher
short-term revenues from increased sales of daily transport
capacity.
Equity
income from Northern Border was $19.9 million in the third quarter of 2008, an
increase of $3.7 million or 23 per cent, compared to $16.2 million in the same
period last year. This is primarily due to a $16.1 million gain on sale of Bison
Pipeline LLC and decreased operating expenses, partially offset by lower
transmission revenues. At Northern Border’s level, operating expenses decreased
$2.3 million for the three months ended September 30, 2008 compared to the same
period last year primarily due to decreased maintenance costs, decreased
electric compressor charges related to lower capacity utilization and decreased
taxes other than income. Northern Border’s transmission revenues decreased $11.9
million, or 15 per cent, for the three months ended September 30, 2008 compared
to the same period last year due primarily to a decrease in system utilization
mainly related to natural gas supply from the Rockies Basin into the
Mid-Continent market from the in-service of REX West.
Tuscarora’s
net income was $3.9 million in the third quarter of 2008, an increase of $1.0
million or 34 per cent, compared to $2.9 million in the same period last year.
The increase in net income is primarily due to increased transmission revenues
resulting from a new firm transportation service contract which supported the
Likely compressor station expansion project that went into service on April 1,
2008.
Financial
charges, net and other were $7.7 million in the third quarter of 2008, a
decrease of $1.0 million or 11 per cent, compared to $8.7 million in the same
period last year. This decrease relates primarily to lower interest rates and
lower average debt outstanding, partially offset by losses on interest rate
derivatives over the same period in 2007.
Nine
Months Ended September 30, 2008 compared with Nine Months Ended September 30,
2007
Net
income increased $18.8 million, or 30 per cent, to $81.1 million for the nine
months ended September 30, 2008, compared to $62.3 million in the same period of
2007. The increase in net income was primarily due to increased equity income
from Great Lakes and Northern Border, higher Tuscarora transmission revenues and
lower financial charges, net and other.
Equity
income from Great Lakes was $44.4 million for the nine months ended September
30, 2008, an increase of $10.1 million or 29 per cent, compared to $34.3 million
for the period February 23 to September 30, 2007. The increase in equity income
was primarily due to a full first quarter of income contribution in 2008 as
compared to 37 days in the first quarter of 2007. In addition, Great Lakes’
transmission revenues increased primarily due to increased sales of short term
transport capacity, partially offset by costs related to system integration
expenditures and increased pipe integrity costs. In the nine months ended
September 30, 2008, Great Lakes recorded Michigan business tax of $4.2 million,
which is a new partnership level tax that was instituted in 2008.
Equity
income from Northern Border was $48.1 million for the nine months ended
September 30, 2008, an increase of $3.8 million or 9 per cent, compared to $44.3
million in the same period of 2007. The increase in equity income is primarily
due to a $16.1 million gain on sale of Bison Pipeline LLC, and decreased
operating expenses, partially offset by lower transmission revenues. At Northern
Border’s level, operating expenses decreased by $4.2 million in the nine months
ended September 30, 2008 compared to the same period last year. This decrease in
operating expenses is primarily due to decreased taxes other than income and a
$2.3 million transition related charge in 2007 related to the reimbursement for
shared equipment and furnishings, partially offset by increased general and
administrative expenses and electric compressor charges. Northern Border’s
transmission revenues decreased by $15.2 million in the nine months ended
September 30, 2008 compared to the same period in 2007. This decrease was
primarily due to a decrease in contracted capacity mainly related to natural gas
supply from the Rockies Basin into the Mid-Continent market from the in-service
of REX West.
Tuscarora’s
net income was $11.4 million for the nine months ended September 30, 2008, an
increase of $2.9 million or 34 per cent, compared to $8.5 million in the same
period of 2007. The increase in net income is primarily due to increased
Tuscarora transmission revenues resulting from a new firm transportation service
contract which supported the Likely compressor station expansion that went into
service on April 1, 2008.
Financial
charges, net and other were $22.8 million for the nine months ended September
30, 2008, a decrease of $2.7 million, or 11 per cent, compared to $25.5 million
for the same period of 2007. This decrease relates primarily to lower interest
rates and lower average debt outstanding, partially offset by losses on interest
rate derivatives over the same period in 2007.
Partnership
Cash Flows
The
Partnership uses the non-GAAP financial measures ‘Partnership cash flows’ and
‘Partnership cash flows allocated to common units’ as financial performance
measures. As the Partnership’s financial performance underpins the
availability of cash flows to fund the cash distributions that the Partnership
pays to its unitholders, the Partnership believes these are key measures of the
available cash flows to its unitholders. The following Partnership cash
flows information is presented to enhance investors’ understanding of the way
that management analyzes the Partnership’s financial
performance. Partnership cash flows and Partnership cash flows allocated to
common units are provided as a supplement to financial results and are not meant
to be considered in isolation or as substitutes for financial results prepared
in accordance with GAAP.
(unaudited)
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Three
months ended
September
30,
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Nine
months ended
September
30,
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(millions
of dollars except per common unit amounts)
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2008
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2007
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2008
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2007
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Net
Income
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28.3 |
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24.6 |
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81.1 |
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62.3 |
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Add:
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Cash
flows provided by Tuscarora's operating activities
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7.2 |
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4.6 |
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17.3 |
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|
13.5 |
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Cash
distributions from Great Lakes
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19.3 |
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17.4 |
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55.0 |
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41.0 |
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Cash
distributions from Northern Border
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22.6 |
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14.8 |
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72.0 |
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62.5 |
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49.1 |
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36.8 |
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144.3 |
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|
117.0 |
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Less:
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Tuscarora's
net income
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(3.9 |
) |
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(2.9 |
) |
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(11.4 |
) |
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(8.5 |
) |
Equity
income from investment in Great Lakes
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(12.0 |
) |
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(14.2 |
) |
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(44.4 |
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|
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(34.3 |
) |
Equity
income from investment in Northern Border
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(19.9 |
) |
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(16.2 |
) |
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(48.1 |
) |
|
|
(44.3 |
) |
|
|
|
(35.8 |
) |
|
|
(33.3 |
) |
|
|
(103.9 |
) |
|
|
(87.1 |
) |
Partnership
cash flows
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|
41.6 |
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|
28.1 |
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|
121.5 |
|
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|
92.2 |
|
Partnership
cash flows allocated to general partner (1)
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(3.2 |
) |
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(2.3 |
) |
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|
(8.6 |
) |
|
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(5.3 |
) |
Partnership
cash flows allocated to common units
|
|
|
38.4 |
|
|
|
25.8 |
|
|
|
112.9 |
|
|
|
86.9 |
|
Cash
distributions declared
|
|
|
(27.8 |
) |
|
|
(25.4 |
) |
|
|
(83.0 |
) |
|
|
(75.4 |
) |
Cash
distributions declared per common unit (2)
|
|
$ |
0.705 |
|
|
$ |
0.660 |
|
|
$ |
2.110 |
|
|
$ |
1.965 |
|
Cash
distributions paid
|
|
|
(27.8 |
) |
|
|
(25.1 |
) |
|
|
(80.8 |
) |
|
|
(61.3 |
) |
Cash
distributions paid per common unit (2)
|
|
$ |
0.705 |
|
|
$ |
0.655 |
|
|
$ |
2.070 |
|
|
$ |
1.905 |
|
Weighted
average common units outstanding (millions)
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
34.9 |
|
|
|
31.5 |
|
|
|
|
|
|
|
|
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|
|
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(1)
Partnership cash flows allocated to general partner represents the cash
distributions paid to the general partner with respect to its two per cent
interest plus an amount equal to incentive distributions.
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(2)
Cash distributions declared per common unit and cash distributions paid
per common unit are computed by dividing cash distributions, after the
deduction of the general partner's allocation, by the number of common
units outstanding. The general partner's allocation is computed based upon
the general partner's two per cent interest plus an amount equal to
incentive distributions.
|
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|
|
Third
Quarter 2008 compared with Third Quarter 2007
Partnership
cash flows increased $13.5 million, or 48 per cent, to $41.6 million for the
third quarter of 2008, compared to $28.1 million for the same period last year.
This increase was primarily due to higher cash distributions received from Great
Lakes and Northern Border, increased cash flows provided by Tuscarora’s
operating activities and lower costs at the Partnership level. Cash
distributions from Great Lakes and Northern Border increased by $9.7 million in
total for the three months ended September 30, 2008 compared with the same
period last year. This increase in cash distributions was primarily due to the
special distribution of $8.2 million received from Northern Border in relation
to the gain on sale of Bison Pipeline LLC. Cash flows provided by Tuscarora’s
operating activities increased by $2.6 million for the quarter ended September
30, 2008 compared with the same period last year primarily due to higher
transmission revenues resulting from the Likely compressor station expansion
project that went into service on April 1, 2008.
Costs at the Partnership level decreased by $1.2 million for the quarter
ended September 30, 2008 compared with the same period last year primarily due
to lower interest rates and lower average debt outstanding, partially offset by
losses on interest rate derivatives over the same period in 2007.
During
the three months ended September 30, 2008, Tuscarora made capital expenditures
of $1.0 million related to the compressor station expansion project in Likely,
California compared to $0.9 million for the same period last year. In the third
quarter of 2007, a net $1.8 million was received related to the Great Lakes
acquisition closing adjustments.
The
Partnership paid distributions of $27.8 million in the third quarter of 2008, an
increase of $2.7 million, or 11 per cent, compared to $25.1 million for the same
period in the prior year due to increases in quarterly per common unit
distribution amounts. We repaid a net $3.0 million of the outstanding balance on
our debt during the third quarter of 2008 compared to a net issuance of debt of
$1.0 million during the same period last year.
Nine
Months Ended September 30, 2008 compared with Nine Months Ended September 30,
2007
Partnership
cash flows increased $29.3 million, or 32 per cent, to $121.5 million for the
nine months ended September 30, 2008, compared to $92.2 million for the same
period last year. This increase was primarily a result of increased cash
distributions from Great Lakes and Northern Border, increased cash flows
provided by Tuscarora’s operating activities and decreased costs at the
Partnership level.
Cash
distributions from Great Lakes were $55.0 million for the nine months ended
September 30, 2008, an increase of $14.0 million compared to $41.0 million for
the same period last year. The increase in cash distributions from Great Lakes
is due primarily to a full nine months of ownership in 2008 compared to the
period of February 23 to September 30 for 2007. Cash distributions from Northern
Border increased $9.5 million for the nine months ended September 30, 2008
compared to the same period in the prior year due primarily to the special
distribution of $8.2 million received from Northern Border in relation to the
gain on sale of Bison Pipeline LLC. Cash flows provided by Tuscarora’s operating
activities increased $3.8 million for the nine months ended September 30, 2008
compared to the same period in the prior year primarily due to the financial
results from the Likely compressor station expansion project that went into
service on April 1, 2008. Costs at the Partnership level decreased by $2.0
million for the nine months ended September 30, 2008 compared with the same
period last year primarily due to lower average debt outstanding and lower
interest rates, partially offset by losses on interest rate derivatives and
increased general and administrative costs.
During
the nine months ended September 30, 2008, Tuscarora made capital expenditures of
$6.4 million related to the compressor station expansion project in Likely,
California compared to $4.4 million for the same period last year. In February
2007, the Partnership acquired a 46.45 per cent interest in Great Lakes from El
Paso Corporation for $733.0 million in cash. In April 2007, the Partnership made
a contribution of $7.5 million to Northern Border, representing the
Partnership’s 50 per cent share of a $15.0 million cash call issued by Northern
Border.
The
Partnership paid distributions of $80.8 million for the nine months ended
September 30, 2008, an increase of $19.5 million, or 32 per cent, compared to
$61.3 million for the same period in the prior year due to the increase in the
number of common units outstanding, in addition to increases in quarterly per
common unit distribution amounts. We repaid a net $27.3 million of the
outstanding balance on our debt during the nine months ended September 30, 2008.
In 2007, net equity issuances provided $607.0 million, including the general
partner’s contribution to maintain its two per cent interest, to acquire Great
Lakes. The Partnership funded the balance of the acquisition cost with a draw on
its senior credit facility.
LIQUIDITY
AND CAPITAL RESOURCES OF TC PIPELINES
Overview
Our
principal sources of liquidity include distributions received from our
investments in Great Lakes and Northern Border, operating cash flows from
Tuscarora and our bank credit facility. The Partnership funds its operating
expenses, debt service and cash distributions primarily with operating cash
flow. Long-term capital needs may be met through the issuance of long-term debt
and/or equity.
The
Partnership’s Debt and Credit Facility
The
following table summarizes our debt and credit facility outstanding as of
September 30, 2008:
|
|
Payments
Due by Period
|
|
(unaudited)
(millions
of dollars)
|
|
Total
|
|
|
Less
Than 1 Year
|
|
|
Long-term
Portion
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Credit Facility
|
|
|
482.0 |
|
|
|
- |
|
|
|
482.0 |
|
7.13%
Series A Senior Notes due 2010
|
|
|
52.9 |
|
|
|
3.2 |
|
|
|
49.7 |
|
7.99%
Series B Senior Notes due 2010
|
|
|
5.3 |
|
|
|
0.5 |
|
|
|
4.8 |
|
6.89%
Series C Senior Notes due 2012
|
|
|
5.9 |
|
|
|
0.8 |
|
|
|
5.1 |
|
Total
|
|
|
546.1 |
|
|
|
4.5 |
|
|
|
541.6 |
|
The
Senior Credit Facility consists of a $475.0 million senior term loan and a
$250.0 million senior revolving credit facility. The interest rate on the Senior
Credit Facility averaged 3.31 per cent for the three months ended September 30,
2008 (2007 – 5.97 per cent), while for the nine months ended September 30, 2008
the interest rate on the Senior Credit Facility averaged 3.93 per cent (2007 –
6.02 per cent). After hedging activity, the interest rate incurred on the Senior
Credit Facility averaged 5.23 per cent for the three months ended September 30,
2008 (2007 – 5.70 per cent) and 5.18 per cent for the nine months ended
September 30, 2008 (2007 – 5.52 per cent). Prior to hedging activities, the
interest rate was 3.36 per cent at September 30, 2008 (December 31, 2007 – 5.62
per cent). At September 30, 2008, we were in compliance with our financial
covenants.
In spite
of the current volatility in the capital markets, neither the Partnership nor
its pipeline systems have experienced significant impacts to liquidity or access
to the credit markets, although continued volatility in the capital markets may
increase costs associated with borrowing.
The
Partnership views its core banking group as high quality and has a
well-established relationship with these institutions. As of November 3,
2008, the Partnership had no outstanding borrowings under the $250.0 million
revolving portion of the Senior Credit Facility. The Partnership has an existing
$250.0 million debt and equity shelf expiring December 1, 2008 which it expects
to renew in the fourth quarter 2008. This will supplement the $250.0
million of capacity available under the Partnership’s existing revolving credit
and term loan facility which expires on December 12, 2011.
Interest
Rate Swaps and Options
We use
derivatives to assist in managing our exposure to interest rate risk. The
interest rate swaps and options are structured such that the cash flows match
those of the Senior Credit Facility. The notional amount hedged was $475.0
million at September 30, 2008 (December 31, 2007 - $400.0 million). At September
30, 2008, the fair value of the interest rate swaps and options accounted for as
hedges was negative $11.5 million (December 31, 2007 – negative $9.8 million).
Effective January 1, 2008, we adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS
157). Under SFAS 157, these financial assets and liabilities that are
recorded at fair value on a recurring basis are categorized into one of three
categories based upon a fair value hierarchy. We have classified all our
derivative financial instruments as level II where the fair value is determined
by using valuation techniques that refer to observable market data or estimated
market prices. During the
three and nine months ended September 30, 2008, we recorded interest expense of
$2.4 million and $4.7 million, respectively, in regards to the interest rate
swaps and options. We recorded interest income of $0.4 million and
$0.8 million for the three and nine months ended September 30, 2007,
respectively, in regards to the interest rate swaps and options.
2008
Third Quarter Cash Distribution
On
October 17, 2008, the Board of Directors of the general partner declared the
Partnership’s 2008 third quarter cash distribution. The third quarter cash
distribution will be paid on November 14, 2008 to unitholders of record as of
October 31, 2008, totaling $27.8 million and will be paid in the following
manner: $24.6 million to common unitholders (including $1.4 million to the
general partner as holder of 2,035,106 common units and $6.1 million to TransCan
Northern Ltd. as holder of 8,678,045 common units), $2.6 million to the general
partner as holder of the incentive distribution rights, and $0.6 million to the
general partner in respect of its two per cent general partner
interest.
2009
Capital Requirements
Northern
Border’s distribution policy adopted in 2006 defines minimum equity to total
capitalization to be used by the Management Committee to establish the timing
and amount of required equity contributions. In accordance with this policy and
in anticipation of the equity financing of Northern Border's Des Plaines
Project, Northern Border currently estimates an equity contribution of
approximately $85 million in the upcoming year, of which the Partnership's share
would be approximately $43 million. The Partnership expects to finance
this equity contribution with a combination of debt and operating cash
flows.
LIQUIDITY
AND CAPITAL RESOURCES OF OUR PIPELINE SYSTEMS
Overview
Our
pipeline systems’ principal source of liquidity is cash generated from operating
activities and bank credit facilities. Our pipeline systems fund their operating
expenses, debt service and cash distributions to partners primarily with
operating cash flow.
Capital
expenditures are funded by a variety of sources, including cash generated from
operating activities, borrowings under bank credit facilities, issuance of
senior notes or equity contributions from our pipeline systems’ partners. The
ability of our pipeline systems to access capital markets for debt under
reasonable terms depends on their financial condition, credit ratings and market
conditions.
Our
pipeline systems believe that their ability to obtain financing at reasonable
rates and their history of consistent cash flow from operating activities
provide a solid foundation to meet their future liquidity and capital resource
requirements. The Partnership’s pipeline systems monitor the creditworthiness of
their customers and have credit provisions included in their tariffs, which
allow them to request credit support as circumstances
dictate. Additionally, Northern Border has established relationships
with high-quality banks, which are involved in its revolving credit facility and
provide liquidity for Northern Border’s operating needs.
Debt
of Great Lakes
The
following table summarizes Great Lakes’ debt outstanding as of September 30,
2008:
|
|
Payments
Due by Period
|
|
(unaudited)
(millions
of dollars)
|
|
Total
|
|
|
Less
than 1 year
|
|
|
Long-term
Portion
|
|
|
|
|
|
|
|
|
|
|
|
8.74%
series Senior Notes due 2008 to 2011
|
|
|
40.0 |
|
|
|
10.0 |
|
|
|
30.0 |
|
6.73%
series Senior Notes due 2009 to 2018
|
|
|
90.0 |
|
|
|
9.0 |
|
|
|
81.0 |
|
9.09%
series Senior Notes due 2012 to 2021
|
|
|
100.0 |
|
|
|
- |
|
|
|
100.0 |
|
6.95%
series Senior Notes due 2019 to 2028
|
|
|
110.0 |
|
|
|
- |
|
|
|
110.0 |
|
8.08%
series Senior Notes due 2021 to 2030
|
|
|
100.0 |
|
|
|
- |
|
|
|
100.0 |
|
Total
|
|
|
440.0 |
|
|
|
19.0 |
|
|
|
421.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes is required to comply with certain financial, operational and legal
covenants. Under the most restrictive covenants in the Senior Note
Agreements, approximately $237.0 million of Great Lakes’ partners’ capital was
restricted as to distributions as of September 30, 2008. At September 30, 2008,
Great Lakes was in compliance with all of its financial covenants.
Debt,
Credit Facility and Contractual Obligations of Northern Border
The
following table summarizes Northern Border’s debt and credit facility
outstanding as of September 30, 2008:
|
|
Payments
Due by Period
|
|
(unaudited)
(millions
of dollars)
|
|
Total
|
|
|
Less
than 1 year
|
|
|
Long-term
Portion
|
|
|
|
|
|
|
|
|
|
|
|
7.75%
senior notes due 2009
|
|
|
200.0 |
|
|
|
200.0 |
|
|
|
- |
|
7.50%
senior notes due 2021
|
|
|
250.0 |
|
|
|
- |
|
|
|
250.0 |
|
$250
million credit agreement due 2012(a)
|
|
|
172.0 |
|
|
|
- |
|
|
|
172.0 |
|
Total
|
|
|
622.0 |
|
|
|
200.0 |
|
|
|
422.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Northern Border is required to pay a facility fee of 0.05% on the
principal commitment amount of its credit agreement.
|
|
Revolving
Credit Agreement
As of
September 30, 2008, Northern Border had outstanding borrowings of $172.0 million
under its $250 million revolving credit agreement and was in compliance with the
covenants of the agreement. The weighted average interest rate related to the
borrowings on the credit agreement was 2.99 per cent at September 30,
2008.
Senior
Notes due 2009
On
September 1, 2009, the $200.0 million 7.75 per cent senior notes will mature. As
market conditions dictate, Northern Border will finance the repayment by use of
fixed-rate debt, variable-rate debt or a combination of fixed-rate and
variable-rate debt.
Interest Rate
Collar Agreement
At
September 30, 2008, Northern Border’s balance sheet reflected an unrealized loss
of approximately $2.2 million with a corresponding increase to accumulated other
comprehensive loss related to the changes in fair value of its zero cost
interest rate collar agreement (the “Collar Agreement”) since inception. During
the three and nine months ended September 30, 2008, Northern Border recorded
interest expense of $0.5 million and $1.3 million, respectively, under the
Collar Agreement. Hedge ineffectiveness had no impact on income for the three
and nine months ended September 30, 2008.
Contractual
Obligations
Northern
Border has commitments totaling approximately $2.2 million in relation to the
Des Plaines Project at September 30, 2008, with total expected costs to be
approximately $18 million. Half of the project costs will be financed under
Northern Border’s credit facility and the other half by equity contributions
from its partners. See section entitled “Recent Developments” in Item 2.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for further discussion of this project.
RELATED
PARTY TRANSACTIONS
Great
Lakes earns transportation revenues from TransCanada and its affiliates under
fixed price contracts with remaining terms ranging from one to ten years. Great
Lakes earned $40.5 million of transportation revenues under these contracts for
the three months ended September 30, 2008 (2007 - $32.4 million). This amount
represents 61 per cent of total revenues earned by Great Lakes for the three
months ended September 30, 2008 (2007 - 50 per cent). $18.8 million of this
transportation revenue is included in our equity income from Great Lakes for the
three months ended September 30, 2008 (2007 - $15.1 million).
Great
Lakes earned $108.7 million of transportation revenues from TransCanada and its
affiliates for the nine months ended September 30, 2008 (February 23, 2007 to
September 30, 2007 - $81.5 million). This amount represents 51 per cent of total
revenues earned by Great Lakes for the nine months ended September 30, 2008
(February 23, 2007 to September 30, 2007 - 50 per cent). $50.5 million of this
transportation revenue is included in our equity income from Great Lakes for the
nine months ended September 30, 2008 (February 23, 2007 to September 30, 2007 -
$37.9 million). At September 30, 2008, $13.4 million is included in Great Lakes’
receivables in regards to the transportation contracts with TransCanada and its
affiliates (December 31, 2007 - $10.0 million).
Please
read Note 8 within Item 1. “Financial Statements” for additional information
regarding related party transactions.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
OVERVIEW
Our
exposure to market risk discussed below includes forward-looking statements and
represents an estimate of possible changes in future earnings that would occur
assuming hypothetical future movements in interest rates. Our views on market
risk are not necessarily indicative of actual results that may occur and do not
represent the maximum possible gains and losses that may occur, since actual
gains and losses will differ from those estimated, based on actual fluctuations
in interest rates and the timing of transactions.
We are
exposed to market risk due to interest rate fluctuations. Market risk is the
risk of loss arising from adverse changes in market rates. We utilize financial
instruments to manage the risks of certain identifiable or anticipated
transactions to achieve a more predictable cash flow. Our risk management
function follows established policies and procedures to monitor interest rates
to ensure our hedging activities mitigate market risks. We do not use financial
instruments for trading purposes.
In
accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities we record financial instruments on the
balance sheet as assets and liabilities based on fair value. We estimate the
fair value of financial instruments using available market information and
appropriate valuation techniques. Changes in financial instruments’ fair value
are recognized in earnings unless the instrument qualifies as a hedge under SFAS
No. 133 and meets specific hedge accounting criteria. Qualifying financial
instruments’ gains and losses may offset the hedged items’ related results in
earnings for a fair value hedge or be deferred in accumulated other
comprehensive income for a cash flow hedge.
INTEREST
RATE RISK
Our
interest rate exposure results from our Senior Credit Facility, which is subject
to variability in London Interbank Offered Rate (LIBOR) interest rates. We
regularly assess the impact of interest rate fluctuations on future cash flows
and evaluate hedging opportunities to mitigate our interest rate risk. The
notional amount hedged at September 30, 2008 was $475.0 million. The interest
rate swaps and options are structured such that the cash flows match those of
the Senior Credit Facility. The fair value of interest rate derivatives has been
calculated using period-end market rates. At September 30, 2008, the fair value
of our interest rate swaps and options accounted for as hedges was negative
$11.5 million.
At
September 30, 2008, we had $482.0 million outstanding on our Senior Credit
Facility. Utilizing the conditions of the interest rate swaps and options, if
LIBOR interest rates hypothetically increased by one per cent (100 basis points)
compared to the rates in effect as of September 30, 2008, our annual interest
expense would have increased and our net income would have decreased by $0.1
million; and if LIBOR interest rates hypothetically decreased by one per cent
(100 basis points) compared to the rates in effect as of September 30, 2008, our
annual interest expense would have decreased and our net income would have
increased by $0.1 million. This amount has been determined by considering the
impact of the hypothetical interest rates on variable rate borrowings
outstanding as of September 30, 2008.
Northern
Border utilizes both fixed-rate and variable-rate debt and is exposed to market
risk due to the floating interest rates on its credit facility. Northern Border
regularly assesses the impact of interest rate fluctuations on future cash flows
and evaluates hedging opportunities to mitigate its interest rate risk. As of
September 30, 2008, 72 per cent of Northern Border’s outstanding debt was at
fixed rates. Northern Border utilizes its Collar Agreement to limit the
variability of the interest rate on $140.0 million of variable-rate
borrowings.
Utilizing
the conditions of the Collar Agreement, if interest rates hypothetically
increased one per cent (100 basis points) compared with rates in effect as of
September 30, 2008, Northern Border’s annual interest expense would increase and
its net income would decrease by approximately $0.3 million; and if interest
rates hypothetically decreased one per cent (100 basis points) compared with
rates in effect as of September 30, 2008, Northern Border’s annual interest
expense would decrease and its net income would increase by approximately $0.3
million.
Great
Lakes and Tuscarora utilize fixed-rate debt; therefore, they are not exposed to
market risk due to floating interest rates.
OTHER
RISKS
The
Partnership is influenced by the same factors that influence our pipeline
systems. None of our pipeline systems own any of the natural gas they transport;
therefore, they do not assume any of the related natural gas commodity price
risk.
The state
of Minnesota currently requires Great Lakes to pay use tax on the value of the
shipper provided compressor fuel burned in its Minnesota compressor
engines. Great Lakes is subject to primarily commodity price volatility and
some volume volatility in determining the amount of use tax owed. If
natural gas prices changed by $1 per million British thermal units, Great Lakes’
annual use tax expense would change by approximately $0.7 million.
The
Partnership does not have any material foreign currency exchange
risks.
Item
4. Controls
and Procedures
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Based on
their evaluation of the Partnership’s disclosure controls and procedures as of
the end of the period covered by this quarterly report, the principal executive
officer and principal financial officer of the general partner of the
Partnership have concluded that the Partnership’s disclosure controls and
procedures were effective in ensuring that the information required to be
disclosed by the Partnership in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
(SEC’s) rules and forms and that information required to be disclosed by the
Partnership in the reports that the Partnership files or submits under the
Exchange Act is accumulated and communicated to the management of the general
partner of the Partnership, including the principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes
in Internal Control over Financial Reporting
During
the quarter ended September 30, 2008, there has been no change in the
Partnership’s internal control over financial reporting that has materially
affected or is reasonably likely to materially affect our internal control over
financial reporting.
PART
II – OTHER INFORMATION
Item
1A. Risk
Factors
Our
business is subject to the risks described below and the risk factors disclosed
in Part I, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the
year ended December 31, 2007.
The
following new risk factor should be read in conjunction with the risk factors
disclosed in Part I, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K
for the year ended December 31, 2007:
The
current capital and credit market conditions may adversely affect the
Partnership or our pipeline systems’ access to capital and cost of
capital.
Access to
capital markets is important to the Partnership to enable it to execute its
business strategies, which include seeking opportunities to undertake accretive
acquisitions and organic growth projects, and maximize the value of our existing
portfolio of pipeline systems. Access to capital markets is important to
our pipeline systems’ ability to operate and Northern Border expects to
refinance $200 million of Senior Notes in 2009. In October 2008, the general
economic and capital market conditions in the United States and other parts of
the world have deteriorated significantly and have adversely affected access to
capital and increased the cost of capital. If these conditions continue or
become worse, the Partnership’s and our pipeline systems’ future cost of debt
and equity capital, and future access to capital markets could be adversely
affected.
The
following updated risk factors should be read in conjunction with the risk
factors disclosed in Part I, Item 1A. “Risk Factors,” in our Annual Report on
Form 10-K for the year ended December 31, 2007:
The
long-term financial conditions of our pipeline systems are dependent on the
continued availability of Western Canadian natural gas for import into the U.S.
and the market demand for these volumes. Competition from pipelines that deliver
natural gas from other supply sources to our pipeline systems’ market areas
could cause our pipeline systems to discount their rates or otherwise experience
a reduction in their revenues.
The
development of additional natural gas reserves requires significant capital
expenditures by others for exploration and development drilling and the
installation of production, gathering, storage, transportation and other
facilities that permit natural gas to be produced and delivered to pipelines
that interconnect with our pipeline systems. High exploration and production
costs, low prices for natural gas, regulatory limitations such as royalty
frameworks, or the lack of available capital for these projects could adversely
affect the development of additional reserves in Western Canada and the
production in the WCSB.
Volumes
available for export out of the WCSB depend in part on the internal demand for
Canadian natural gas which may increase as a result of increased demand for
electricity generation and other industrial requirements, including the
development of oil sands projects, which may require substantial amounts of
natural gas. This higher internal demand may reduce the amount of gas available
for import into the U.S. In the longer term, a portion of the Alberta hub gas
supply may come from proposed gas pipelines from the North Slope of Alaska and
the Mackenzie Delta of Canada and from the continued growth of coal bed methane
projects. Cancellation or delays in the construction of such pipelines or such
projects could adversely affect the volumes available for export in the long
term.
If the
availability of Alberta hub natural gas was to decline, existing shippers on our
pipeline systems may be unlikely to extend their contracts and our pipeline
systems may be unable to find replacement shippers for lost capacity.
Furthermore, additional natural gas reserves may not be developed in commercial
quantities and in sufficient amounts to fill the capacities of each of our
pipeline systems.
In
addition, existing customers may not extend their contracts if the cost of
delivered natural gas from other producing regions into the markets served by
our pipeline systems is lower than the cost of natural gas delivered by our
pipeline systems. Our pipeline systems face increased competition from other
pipelines that provide access for our shippers to capacity from the U.S. Rocky
Mountain Region. The Rockies Express Pipeline owned by Rockies Express Pipeline
LLC is being constructed in two phases and the planned terminus is in
Clarington, Ohio. REX West is completed and is currently delivering gas to
interconnects in the Midwestern region. The full in-service of REX West in May
2008 has resulted in significant downward pressure on natural gas prices in the
Mid-continent Region, and is having a negative impact on demand for Northern
Border’s transport and may have an impact on Great Lakes in the
future.
REX East
is planned to extend from Audrain County, Missouri to Clarington in Monroe
County, Ohio. Once in-service, REX East should improve the competitive position
of Canadian supply with Mid-Continent sourced gas, potentially mitigating some
of the excess supply in the Mid-Continent market. REX East will compete in some
of Great Lakes’ markets, but will also potentially create demand for Great
Lakes’ transportation of natural gas from REX East seeking access to and from
storage locations in Michigan. It is now anticipated that the partial in-service
and full in-service of REX East will occur in the second and fourth quarters of
2009, respectively. Although
there can be no assurance on the timing or impact of REX East, we believe that
any positive impact on the market Northern Border serves will not occur
until 2010.
An
increase in competition in the key markets served by our pipeline systems could
arise from new ventures or expanded operations from existing competitors. Our
financial performance depends to a large extent on the capacity contracted on
our pipeline systems. Decreases in the volumes transported by our pipeline
systems, whether caused by supply or demand factors in the markets these
pipeline systems serve, competition or otherwise, can directly and adversely
affect our revenues and results of operations.
Our
pipeline systems may undertake expansion and build projects which involve
significant risks that could adversely affect our business. Additionally, the
Bison Project and the Pathfinder Project have inherently similar risks that may
impact their success and therefore the potential volumes to be delivered to
Northern Border.
Our
pipeline systems have expansion and new build projects planned or underway,
including Northern Border’s $18 million Des Plaines Project. Additionally,
expansion and new build projects, such as the Bison and/or Pathfinder Projects
that would potentially deliver gas to Northern Border, are subject to a variety
of factors outside their control, such as weather, natural disasters, delays in
obtaining key materials and difficulties in obtaining permits and rights-of-way
or other regulatory approvals, as well as the performance by third party
contractors may result in increased costs or delays in construction. Cost
overruns or delays in completing a project could result in reduced
transportation rates and liquidated damages to customers, as well as lost
revenue opportunities. In addition, we cannot be certain that, if completed,
these projects will perform in accordance with our expectations. Each of these
risks could have a material adverse effect on our results of operations and cash
flows.
If
our pipeline systems were to become subject to a material amount of entity level
taxation for state tax purposes, then our pipeline systems’ operating cash flow
and cash available for distribution to us and for other business needs would be
reduced.
Our
pipeline systems are partnerships or tax flow through entities, and as such they
generally have not been subject to income tax at the entity level. Several
states have either adopted or are evaluating a variety of ways to subject
partnerships to entity level taxation. For example, in the nine months ended
September 30, 2008, Great Lakes recorded a Michigan business tax of $4.2 million
relating to a new partnership level tax, of which the Partnership’s share of the
tax was $2.0 million. Imposition of such taxes on our pipeline systems will
reduce the cash available for distribution to us and for other business needs by
our pipeline systems.
Unitholders
will likely be subject to state and local taxes as a result of an investment in
units.
In
addition to federal income taxes, unitholders will likely be subject to other
taxes, including state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property. We may be required to
withhold income taxes with respect to income allocable or distributions made to
our unitholders. In addition, unitholders may be required to file state and
local income tax returns and pay state and local income taxes in some or all of
the jurisdictions in which we do business or own property and may be subject to
penalties for failure to comply with those requirements. It is the unitholders’
responsibility to file all required United States federal, state and local tax
returns. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in us.
Item
6. Exhibits
No. Description
10.1
|
Membership
Interest Purchase Agreement as of August 28, 2008, by and between Northern
Border Pipeline Company and TransCanada Pipeline USA
Ltd.
|
10.2
|
First
Amendment to Amended and Restated Revolving Credit Agreement dated as of
July 31, 2008 between Northern Border Pipeline Company and the lenders
named therein.
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
of 2002.
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
TC
PipeLines, LP
|
|
(a
Delaware Limited Partnership)
|
|
By:
|
TC
PipeLines GP, Inc., its general partner
|
Date:
|
November
3, 2008
|
By:
|
/s/ Russell
K. Girling
Russell
K. Girling
Chairman,
Chief Executive Officer and Director
TC
PipeLines GP, Inc. (Principal Executive Officer)
|
Date:
|
November
3, 2008
|
By:
|
/s/ Amy W.
Leong
Amy
W. Leong
Controller
TC
PipeLines GP, Inc. (Principal Financial
Officer)
|
november32008exhibit101.htm
Execution
Copy
______________________________________________________________________________
MEMBERSHIP
INTEREST PURCHASE AGREEMENT
by
and between
NORTHERN
BORDER PIPELINE COMPANY
and
TRANSCANADA
PIPELINE USA LTD.
Dated
as of August 28, 2008
______________________________________________________________________________
TABLE
OF CONTENTS
Page
ARTICLE II AGREEMENT TO SELL AND PURCHASE |
4
|
|
2.3
|
Effective
Date; Development Costs
|
5
|
|
2.4
|
Conditions
to Obligations of Purchaser
|
5
|
|
2.5
|
Conditions
to Obligations of Seller
|
6
|
|
2.6
|
Purchase
Price Allocation for Tax Purposes
|
6
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
SELLER |
6
|
|
3.2
|
Organization
and Qualification of Bison
|
6
|
|
3.5
|
No
Conflicts or Violations; Consents
|
7
|
|
3.6
|
Certain
Proceedings
|
8
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PURCHASER |
8
|
|
4.3
|
No
Conflicts or Violations; Consents
|
8
|
|
4.4
|
Certain
Proceedings
|
9
|
|
4.6
|
Investment
Intent; Access
|
9
|
ARTICLE V COVENANTS OF THE PARTIES |
9
|
|
5.2
|
Pathfinder
Project
|
10
|
|
5.3
|
Northern
Border Pipeline Company Capacity
|
10
|
|
5.4
|
Discussions
with Shippers
|
10
|
|
5.5
|
Further
Assurances
|
10
|
ARTICLE VI INDEMNIFICATION; REMEDIES |
12
|
|
6.1
|
Survival
of Representations, Warranties and Covenants
|
12
|
|
6.2
|
Indemnification
and Payment of Damages by Seller
|
13
|
|
6.3
|
Indemnification
and Payment of Damages by Purchaser
|
13
|
|
6.4
|
Limitations
on Indemnification
|
13
|
|
6.5
|
No
Security Holder Liability
|
13
|
ARTICLE VII GENERAL PROVISIONS |
14
|
|
7.1
|
Public
Announcements
|
14
|
|
7.5
|
Entire
Agreement and Modification
|
15
|
|
7.6
|
Assignments;
Successors; No Third-Party Rights
|
15
|
|
7.8
|
Article
and Section Headings; Construction
|
16
|
|
7.13
|
No
Other Representations; Disclaimers
|
17
|
|
7.14
|
Waiver
of Certain Damages
|
17
|
MEMBERSHIP
INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE
AGREEMENT (this “Agreement”) is made
and entered into as of August 28, 2008, by and between Northern Border Pipeline
Company, a Texas general partnership (“Seller”), and TransCanada PipeLine USA Ltd.,
a Nevada corporation (“Purchaser”).
RECITALS
WHEREAS, Seller is the sole
member of Bison Pipeline LLC, a Delaware limited liability company (“Bison”), and desires
to sell its 100% membership interest in Bison (the “Interest”) to
Purchaser on the terms and conditions set forth herein; and
WHEREAS, Purchaser desires to
purchase the Interest from Seller on the terms and conditions set forth herein;
and
NOW, THEREFORE, in
consideration of the foregoing recitals and the mutual promises,
representations, warranties, and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
AGREEMENT
ARTICLE
I
DEFINITIONS
For
purposes of this Agreement, the following terms have the meanings specified or
referred to in this Article
I.
“Affiliate” means,
with respect to any Person, (a) each Person controlled by such Person, (b) each
Person that controls such Person and (c) each Person that is under common
control with such Person.
“Alternate Agreements”
has the meaning given to such term in Section
2.1.
“Anadarko” means
Anadarko Energy Services Company, a Delaware corporation.
“Approval Date” has
the meaning given to such term in Section
5.2.
“Bison” has the
meaning given to such term in the recitals.
“Bison Agreement” has
the meaning given to such term in Section
3.2.
“Bison Open Season”
means the terms and conditions defining the service to be provided on the Bison
Project and posted on the Seller’s website.
“Bison Project” means
the pipeline project being developed by Bison to transport natural gas from the
Powder River Basin to the Seller’s pipeline system and having FERC Docket No.
PF08-23-000.
“Closing” has the
meaning given to such term in Section
2.2.
“Closing Date” has the
meaning given to such term in Section
2.2.
“Code” means the
Internal Revenue Code of 1986, as amended.
“Consent” means any
approval, consent, permit, ratification, waiver, order or other
authorization.
“Contemplated
Transactions” means the purchase and sale of the Interest and the
performance by Seller and Purchaser of their other obligations under this
Agreement.
“Damages” means all
damages, penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses and fees (including court costs and
costs of investigation, defense and reasonable attorneys’ fees and expenses)
actually incurred, but specifically excluding special, incidental, consequential
and punitive damages, as reduced by any insurance recoveries received in respect
thereof.
“Dollars” means United
States Dollars.
“FERC’ means the
Federal Energy Regulatory Commission.
“Governmental Body”
means any:
|
(a) |
nation,
state, county, city, town, district or other jurisdiction of any
nature; |
|
|
|
|
(b) |
federal,
state, local, municipal, foreign or other government; |
|
|
|
|
(c)
|
governmental
or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official or entity and any court or other
tribunal); or
|
|
(d)
|
body
exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power of
any nature.
|
“Indemnity Period” has
the meaning given to such term in Section
6.1.
“Initial Payment” has
the meaning given to such term in Section
2.1.
“Interest” has the
meaning given to such term in the recitals.
“Knowledge” means,
with respect an individual’s knowledge of a particular fact or other matter,
that such individual is actually aware of such fact or other matter, and with
respect to the knowledge of a Person other than an individual of a particular
fact or other matter, that any individual who is serving as a director, manager
or executive officer of such Person is actually aware of such fact or other
matter.
“Legal Requirement”
means any federal, state, local, municipal, foreign, international or other
administrative order, constitution, law, ordinance, regulation, statute or
treaty applicable to a Person.
“Liability” means any
liability (whether absolute or contingent, liquidated or unliquidated, or due or
to become due, or otherwise), including any liability for Taxes.
“Lien” has the meaning
given to such term in Section
3.4.
“MERC” means Minnesota
Energy Resources Corporation, a Delaware corporation.
“MMBtu” means one
million British thermal units.
“MMcf” means one
million cubic feet of natural gas.
“Pathfinder Project”
means the pipeline construction and development project proposed by Purchaser
that upon completion will transport natural gas from Meeker, Colorado and/or
Wamsutter, Wyoming to the Seller’s pipeline system, terminating at a point near
the Seller’s compression station in Morton County, North Dakota and that has
FERC Docket No. PF08-22-000.
“Person” means any
individual, corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint stock company, joint
venture, estate, trust, association, organization, other entity or Governmental
Body.
“Post-Closing Payment”
has the meaning given to such term in Section
2.1.
“Post-Effective Date
Development Costs” has the meaning given to such term in Section
2.3.
“Pre-Effective Date
Development Costs” has the meaning given to such term in Section
2.3.
“Proceeding” means any
action, arbitration, audit, hearing, investigation, litigation or suit (whether
civil, criminal, or administrative) commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or
arbitrator.
“Purchase Price” has
the meaning given to such term in Section
2.1.
“Purchaser” has the
meaning given to such term in the preamble.
“Representative”
means, with respect to a particular Person, any director, officer, manager,
employee, agent, consultant, advisor or other representative of such Person,
including legal counsel, accountants and financial advisors.
“Securities Act” has
the meaning given to such term in Section
4.6.
“Seller” has the
meaning given to such term in the preamble.
“Tax” means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
“Tax Return” means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes filed or required to be filed with any taxing
authority, including any schedule or attachment thereto, and including any
amendment thereof.
“Threatened” means
that a demand or statement has been made in writing, or any notice has been
given in writing, asserting that a claim, Proceeding, dispute, action or other
matter may be commenced or taken in the future.
“Transfer Taxes” has
the meaning given to such term in Section
5.6(b).
“Williams” means
Williams Gas Marketing, Inc., a Delaware corporation
ARTICLE
II
AGREEMENT
TO SELL AND PURCHASE
2.1 Sale and
Purchase.
Subject
to the terms and conditions hereof, at the Closing Seller hereby agrees to sell
the Interest to Purchaser, and Purchaser agrees to purchase the Interest from
Seller, for a total purchase price of Twenty Million Dollars (US$20,000,000)
(the “Purchase
Price”). Purchaser agrees that it will pay the Purchase Price
as follows: (a) Thirteen Million Five Hundred
Thousand Dollars (US$13,500,000) (the “Initial Payment”)
shall be paid by Purchaser to Seller at the Closing by wire transfer of
immediately available funds to an account designated in writing to Purchaser by
Seller and (b) Six Million Five Hundred
Thousand Dollars (US$6,500,000) (the “Post-Closing
Payment”) shall be paid by Purchaser to Seller, by wire transfer of
immediately available funds to an account designated in writing to Purchaser by
Seller, within ten (10) days of the earlier to occur of (i) the satisfaction,
expiration, termination or waiver by MERC, by August 29, 2008, of the
contingency set forth in MERC’s Anchor Shipper Offer Sheet, which is attached to
Exhibit B to the Precedent Agreement for Firm Natural Gas Transportation Service
dated May 22, 2008 by and between MERC and Bison or (ii) the execution, on or
before the Approval Date, of one or more third-party firm transportation
precedent agreements with an aggregate maximum delivery quantity of at least 50
MMcf per day from the Powder River Basin on terms and conditions no less
favorable than those offered to shippers in the Bison Open Season and having no
material conditions outstanding or not otherwise satisfied, other than
conditions that are within the control of Purchaser (the “Alternate
Agreements”); provided that such Alternate
Agreements may include a firm transportation precedent agreement by MERC to
transport at least 50 MMcf per day on either the Bison Project or the Pathfinder
Project that is a substitute arrangement for that described in clause (i) of
this sentence if such agreement by MERC contains terms and conditions no less
favorable than those offered to shippers in the Bison Open Season and has no
material conditions outstanding or not otherwise satisfied, other than
conditions that are within the control of Purchaser. For the
avoidance of doubt, it is acknowledged and agreed that Purchaser will only be
required to pay the
Post-Closing Payment upon satisfaction of the conditions set forth in either of
clauses (b)(i) or (ii) of this Section 2.1, and that
if the conditions set forth in neither of such clauses are satisfied, the
Purchase Price will consist only of the Initial Payment.
2.2 Closing.
The
closing of the sale and purchase of the Interest under this Agreement (the
“Closing”)
shall take place at 10:00 a.m. Omaha, Nebraska time on August 29, 2008, at the
offices of Seller, 13710 FNB Parkway, Omaha, Nebraska 68154, or at such other
time or place as Seller and Purchaser may mutually agree (such date is
hereinafter referred to as the “Closing
Date”). At the Closing, subject to the terms and conditions
hereof, Seller and Purchaser will deliver an executed Bill of Sale and
Assignment and Assumption Agreement substantially in the form of Exhibit A hereto with
respect to the Interest to be purchased at the Closing by Purchaser, upon
payment of the Initial Payment by wire transfer of immediately available funds
to an account designated in writing to Purchaser by Seller.
2.3 Effective Date; Development
Costs.
Regardless
of the Closing Date, the Contemplated Transactions shall have an effective date
of July 31, 2008. Seller shall assume and pay all development costs
and expenses relating to the Bison Project that are incurred by Bison or by
Seller on behalf of Bison at any time prior to 12:00 a.m. CDT on August 1, 2008
(“Pre-Effective Date
Development Costs”). Purchaser shall assume and pay all
reasonable and documented development costs and expenses relating to the Bison
Project that are incurred by Bison or by Seller on behalf of Bison at any time
commencing after 12:00 a.m. CDT on August 1, 2008 (“Post-Effective Date
Development Costs”), provided that the Closing occurs. On or
before the date that is ninety (90) days after the Closing Date, Seller shall
provide to Purchaser a written accounting of all Pre-Effective Date Development
Costs and Post-Effective Date Development Costs, and shall identify those
Post-Effective Date Development Costs already paid by Bison or by Seller on
behalf of Bison. Purchaser shall reimburse Seller, by wire transfer
of immediately available funds to an account designated in writing to Purchaser
by Seller, for all Post-Effective Date Development Costs paid by Bison or by
Seller on behalf of Bison within ten (10) days of Seller’s receipt of such
written accounting.
2.4 Conditions to Obligations of
Purchaser.
Purchaser’s
obligation to purchase the Interest at the Closing is subject to the
satisfaction or waiver, at or prior to the Closing Date, of the following
conditions:
(a) Approval by
Purchaser. The Board of Directors of Purchaser shall have
authorized and approved (a) the execution, delivery and performance by Purchaser
of this Agreement and the Contemplated Transactions and (b) the Bison
Project. Purchaser acknowledges that this condition has been
satisfied.
(b) Certain
Proceedings. No Proceeding shall have been commenced against
Seller or Bison that challenges, or may have the effect of preventing, delaying,
making illegal or otherwise interfering with, any of the Contemplated
Transactions.
(c) ONEOK
Letter. Seller shall have delivered to Purchaser a letter from
ONEOK Partners Intermediate Limited Partnership in the form of Exhibit B attached
hereto.
(d) Closing
Documents. Seller shall have delivered to Purchaser, at the
Closing, (i) an Assistant Secretary’s Certificate, reasonably satisfactory to
Purchaser, certifying the approvals described in Section 2.5(a), (ii)
an Officers’ Certificate, signed by two duly authorized officers of the operator
of Seller, stating that the representations and warranties of Seller contained
herein are true and correct as of the Closing Date as if made on the Closing
Date and that Seller has performed all of its covenants and obligations set
forth herein that are to be performed by it at or before the Closing, and (iii)
pursuant to Section 1445 of the Code, a tax certificate that (1) states that
Seller is not a foreign corporation, foreign partnership, foreign trust or
foreign estate and (2) provides Seller’s employer identification number and
address.
2.5 Conditions to Obligations of
Seller.
Seller’s
obligation to sell the Interest at the Closing is subject to the satisfaction or
waiver, on or prior to the Closing Date, of the following
conditions:
(a) Approval by
Seller. The Management Committee of Seller shall have
authorized and approved the execution, delivery and performance by Seller of
this Agreement and the Contemplated Transactions.
(b) Certain
Proceedings. No Proceeding shall have been commenced against
Purchaser that challenges, or may have the effect of preventing, delaying,
making illegal or otherwise interfering with, any of the Contemplated
Transactions.
(c) Closing
Documents. Purchaser shall have delivered to Seller, at the
Closing, (i) a Certificate, reasonably satisfactory to Seller, certifying the
approvals described in Section 2.4(a) and
(ii) an Officers’ Certificate, signed by two duly authorized officers of
Purchaser, stating that the representations and warranties of Purchaser
contained herein are true and correct as of the Closing Date as if made on the
Closing Date and that Purchaser has performed all of its covenants and
obligations set forth herein that are to be performed by it at or before the
Closing.
2.6 Purchase Price Allocation
for Tax Purposes.
Within
one hundred eighty (180) days after the Closing Date, Purchaser shall provide to
Seller a copy of Internal Revenue Service Form 8594 and any required exhibits
thereto with Purchaser’s prepared allocation of the Purchase
Price. Purchaser and Seller agree to make all reasonable efforts to
file all Tax Returns of both Purchaser and Seller consistently with this
allocation.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF SELLER
Seller
represents and warrants to Purchaser that:
3.1 Organization.
Seller is
a general partnership duly formed, validly existing and in good standing under
the laws of the State of Texas.
3.2 Organization and
Qualification of Bison.
Bison is
a limited liability company duly formed, validly existing and in good standing
under the laws of the State of Delaware and is duly authorized to conduct
business, duly registered or qualified and in good standing under the
laws of
each jurisdiction where the nature of its assets or business requires it to be
so authorized, registered or qualified, except where the failure to be so
authorized, registered or qualified would not reasonably be expected to impair
Seller’s ability to consummate the Contemplated Transactions. Bison
has the full limited liability company power and authority to own or hold its
properties and assets and to carry on its business as currently
conducted. Seller has delivered to Purchaser correct and complete
copies of the Certificate of Formation of Bison, the Limited Liability Company
Agreement, dated March 27, 2008, of Bison (the “Bison Agreement”),
and any other organizational documents of Bison.
3.3 Authority.
Seller
has the full partnership power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and
performance of this Agreement by Seller have been duly and validly authorized by
all necessary partnership action. Assuming the due and valid
authorization, execution and delivery of this Agreement by Purchaser, this
Agreement constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (b) laws relating to the
availability of equitable remedies.
3.4 Ownership.
Seller is
the sole member of Bison and the legal and beneficial owner of the Interest,
which has been duly and validly authorized and issued in accordance with the
Bison Agreement; Seller owns such membership interest free and clear of all
liens, encumbrances, security interests, equities, charges or claims
(collectively, “Liens”); and at the
Closing, upon payment of the Purchase Price, Seller will deliver to Purchaser
good, valid and marketable title to the Interest, free and clear of any
Liens. Except (a) as provided in the Bison Agreement, (b) as provided
in Anadarko’s Precedent Agreement for Firm Natural Gas Transportation Service,
dated May 23, 2008, with Bison and (c) for the Contemplated Transactions, there
are no outstanding or authorized options, warrants, purchase rights, conversion
rights, preemptive rights, exchange rights or other contracts or commitments to
sell, subscribe for or purchase any equity interest in Bison, and there are no
restrictions upon the transfer of the Interest.
3.5 No Conflicts or Violations;
Consents.
Neither
the execution and delivery of this Agreement by Seller nor the performance by
Seller of its obligations hereunder (a) conflicts or will conflict with, or
constitutes or will constitute a violation of, the general partnership agreement
of Seller, certificate of formation of Seller or Bison, limited liability
company agreement of Bison or other organizational document of Seller or Bison,
(b) conflicts or will conflict with, constitutes or will constitute a breach of
or default under (or an event that, with notice or lapse of time or both, would
constitute such a breach of or default under), or provides or will provide any
party the right to accelerate, terminate, modify or cancel, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which Seller or Bison is a party, by which either of them is bound or to
which any of their properties or assets is subject, (c) violates or will violate
any statute, law, ordinance, regulation, order, judgment, decree or injunction
of any court or Governmental Body to which Seller, Bison or any of their
properties or assets may be subject or (d) will result in the creation or
imposition of any Lien upon the Interest or any of the property or assets of
Seller or Bison. Neither Seller nor Bison is required to provide any
notice to or obtain any Consent from any Person in connection with the
consummation
of the Contemplated Transactions, except for such notices or Consents where the
failure to provide such notice or obtain such Consent would not reasonably be
expected to impair its ability to consummate the Contemplated
Transactions.
3.6 Certain
Proceedings.
There is
no pending Proceeding that has been commenced against Seller or Bison that
challenges, or may have the effect of preventing, delaying, making illegal or
otherwise interfering with, any of the Contemplated Transactions. To
the Knowledge of Seller, no such Proceeding has been Threatened.
3.7 Brokers or
Finders.
Seller
and its officers and agents have incurred no obligation or liability, contingent
or otherwise, for brokerage or finders’ fees or agents’ commissions or other
similar payment in connection with this Agreement.
3.8 Taxes.
Except as
would not reasonably be expected to have a material adverse effect, (a) Seller
has filed, or caused to be filed, all Tax Returns required to be filed by Bison
or with respect to its assets or operations on a timely basis (taking into
account all extensions of due dates), (b) all such Tax Returns were complete and
correct, (c) all Taxes owed by Bison which are or have become due have been
timely paid in full, (d) there are no Liens on the Interest or any of Bison’s
assets that arose in connection with any failure (or alleged failure) to pay any
Tax on any such assets or with respect to the Interest, other than Liens for
Taxes not yet due and payable, (e) there is no pending action, proceeding or, to
the Knowledge of Seller, investigation for assessment or collection of Taxes and
no Tax assessment, deficiency or adjustment has been asserted or proposed with
respect to Bison or its assets, (f) Bison, since its inception, has been
disregarded as an entity separate from Seller for federal income tax purposes
under Treasury Regulations 3017701-2 and -3 and any comparable provisions of
state and local jurisdictions that permit such treatment and (g) there is no tax
allocation agreement or tax sharing agreement to which Bison is a
party.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
represents and warrants to Seller as follows:
4.1 Organization.
Purchaser
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Nevada.
4.2 Authority.
Purchaser
has the full corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and
performance of this Agreement by Purchaser have been duly and validly authorized
by all necessary corporate action. Assuming the due and valid
authorization, execution and delivery of this Agreement by Seller, this
Agreement constitutes the legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (b) laws relating to the
availability of equitable remedies.
4.3 No Conflicts or Violations;
Consents.
Neither
the execution and delivery of this Agreement by Purchaser nor the performance by
Purchaser of its obligations hereunder (a)conflicts
or will conflict with, or constitutes or will constitute a violation of, the
certificate or articles of incorporation, bylaws or other organizational
document of Purchaser, (b) conflicts or will conflict with, constitutes or will
constitute a breach of or default under (or an event that, with notice or lapse
of time or both, would constitute such a breach of or default under), or
provides or will provide any party the right to accelerate, terminate, modify or
cancel, any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which Purchaser is a party, by which Purchaser is
bound or to which any of its properties or assets is subject, (c) violates or
will violate any statute, law, ordinance, regulation, order, judgment, decree or
injunction of any court or Governmental Body to which Purchaser or any of its
properties or assets may be subject or (d) will result in the creation or
imposition of any Lien upon any of the property or assets of
Purchaser. Purchaser is not required to provide any notice to or
obtain any Consent from any Person in connection with the consummation of the
Contemplated Transactions, except for such notices or Consents where the failure
to provide such notice or obtain such Consent would not reasonably be expected
to impair its ability to consummate the Contemplated Transactions.
4.4 Certain
Proceedings.
There is
no pending Proceeding that has been commenced against Purchaser that challenges,
or may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the Contemplated Transactions. To the
Knowledge of Purchaser, no such Proceeding has been Threatened.
4.5 Brokers or
Finders.
Purchaser
and its officers and agents have incurred no obligation or liability, contingent
or otherwise, for brokerage or finders’ fees or agents’ commissions or other
similar payment in connection with this Agreement.
4.6 Investment Intent;
Access.
Purchaser
acknowledges that (a) the Interest has not been registered under the Securities
Act of 1933, as amended (the “Securities Act”), or
any state securities laws, and (b) Seller has disclosed to Purchaser that the
Interest may not be resold absent such registration or unless an exemption from
registration is available. Purchaser is acquiring the Interest for
its own account, for investment purposes only and not with a view to its
distribution within the meaning of the Securities Act. Purchaser has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the Contemplated
Transactions. Seller has made available to Purchaser and its
Representatives the opportunity to ask questions of the officers and
Representatives of Seller, to engage in diligence and to acquire such additional
information about the business, assets and financial condition of Seller as
Purchaser has requested, and all such requested information has been received by
Purchaser.
ARTICLE
V
COVENANTS
OF THE PARTIES
5.1 Expenses.
Except as
contemplated by Section 2.3, each
party shall bear its own expenses incurred in connection with the preparation,
execution and performance of this Agreement and the Contemplated Transactions,
including all fees and expenses of agents, counsel, accountants and other
Representatives.
5.2 Pathfinder
Project.
Provided
that (a) Bison has entered into firm transportation precedent agreements with
respect to the Bison Project with an aggregate maximum delivery quantity of at
least 405 MMcf per day and that have no material conditions outstanding or not
otherwise satisfied by August 31, 2008 (unless otherwise extended by Purchaser),
other than conditions that are within the control of Purchaser, and (b)
Purchaser has not, by September 30, 2008 (or such other later date agreed to by
the Bison and Pathfinder shippers) (the “Approval Date”),
received management approval to proceed with the Pathfinder Project, Purchaser
will, subject to the rights and obligations of Bison set forth in the Precedent
Agreements for Firm Natural Gas Transportation Service executed with the Bison
shippers, use commercially reasonable efforts to complete the Bison Project and
place it in-service during the fourth quarter of 2010.
5.3 Northern Border Pipeline
Company Capacity.
Subject
to Seller’s tariff and applicable law, Seller shall use commercially reasonable
efforts to assist Purchaser after the Closing by marketing existing capacity on
Seller’s pipeline system and the potential expansion of its pipeline system to
shippers, including, but not limited to, shippers on the Bison Project and/or
the Pathfinder Project. Commercially reasonable efforts shall consist
of (a) the continuation at least until September 30, 2008 of the offer to all
shippers of a discounted reservation rate on Seller’s pipeline system of US$0.23
per MMBtu for transportation from Port of Morgan to Ventura for a ten (10) year
commitment, (b) initiating the applicable right of first refusal process for
capacity on Seller’s pipeline system to Chicago during the month of September
2008 and (c) Seller offering the market, including, but not limited to, shippers
on the Bison Project and/or the Pathfinder Project, an open season having a bid
period during the month of August 2008 proposing the expansion of Seller’s
pipeline system for transportation on Seller’s pipeline system to Chicago for a
ten (10) year commitment with a targeted in-service date of the fourth quarter
of 2010, or as soon as practicable thereafter. Such capacity shall be
offered at a rate that the Seller reasonably believes to be marketable; provided that Seller’s
obligation under this Agreement to undertake any such expansion shall be subject
to a fair and reasonable return analysis by Seller relating to the expected
economics of any such expansion and the approval of its Management
Committee.
5.4 Discussions with
Shippers.
Seller
shall assist Purchaser in discussions with the existing shippers on the Bison
Project in order to assist with the satisfaction of the outstanding conditions
precedent under such shippers’ firm transportation precedent agreements and
encourage their participation in the Pathfinder Project; provided that Seller’s
obligations pursuant to this Section 5.4 shall be
expressly limited to participating in conversations and shall not include any
obligation to undertake or incur any liabilities or expenses or to make
concessions of any kind to shippers.
5.5 Further
Assurances.
Each
party agrees (a) to furnish upon request to the other party such further
information, (b) to execute and deliver to the other party such other documents
and (c) to do such other acts and things, in each case as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Contemplated Transactions.
5.6 Tax
Matters.
The
following provisions shall govern the allocation of responsibility between
Seller and Purchaser for certain Tax matters following the Closing
Date:
(a) Tax
Returns.
(i) Seller
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for Bison for periods ending on or before the Closing Date that are
required to be filed after the Closing Date, and shall be responsible for the
timely payment (and entitled to any refund) of Taxes due with respect to the
period covered by such Tax Returns.
(ii) Seller
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of Bison for periods which begin before the Closing Date and end after
the Closing Date, shall furnish a copy of such Tax Return to
Purchaser. Seller shall be responsible for the timely payment of
Taxes due with respect to the period covered by such Tax Return allocable to the
period prior to and including the Closing Date, and Purchaser shall be
responsible for the timely payment of Taxes due with respect to the period after
the Closing Date.
(iii) To
the extent permitted by law or administrative practice, the taxable year of
Bison shall end on and include the Closing Date. Whenever it is
necessary to determine the liability for Taxes of Bison for a portion of a
taxable year or period that begins before and ends after the Closing Date, the
determination of the Taxes for the portion of the year or period ending on, and
the portion of the year or period beginning after, the Closing Date shall be
determined by assuming that the taxable year or period ended on and included the
Closing Date, except that exemptions, allowances or deductions that are
calculated on an annual basis and annual property taxes shall be prorated on the
basis of the number of days in the annual period elapsed through the Closing
Date as compared to the number of days in the annual period elapsing after the
Closing Date.
(iv) Any
Tax Return to be prepared pursuant to the provisions of this Section 5.6 shall be
prepared in a manner consistent with practices followed in prior years with
respect to similar Tax Returns, except for changes required by changes in law or
fact. Purchaser shall not file an amended Tax Return for any period
ending on or prior to the Closing Date without the consent of Seller, which
consent shall not be unreasonably withheld or delayed.
(b) Transfer
Taxes. Purchaser shall be responsible for the payment of all
excise, sales, use, transfer (including real property transfer or gains), stamp,
documentary, filing, recordation and other similar taxes, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties, resulting directly from the Contemplated
Transactions (collectively, “Transfer
Taxes”).
(c) Access to
Information. After the Closing Date, Seller shall grant to
Purchaser (or its designees) access at all reasonable times to all of the
information, books, and records relating to Bison within the possession of
Seller (including work papers and correspondence with taxing authorities), and
shall afford Purchaser (or its designees) the right (at Purchaser's expense) to
take
extracts
therefrom and to make copies thereof, to the extent reasonably necessary to
permit Purchaser (or its designees) to prepare Tax Returns and to conduct
negotiations with taxing authorities. After the Closing Date,
Purchaser shall grant or cause Bison to grant to Seller (or its designees)
access at all reasonable times to all of the information, books and records
relating to Bison within the possession of Purchaser or Bison (including work
papers and correspondence with taxing authorities), and shall afford Seller (or
its designees) the right (at Seller’s expense) to take extracts therefrom and to
make copies thereof, to the extent reasonably necessary to permit Seller (or its
designees) to prepare Tax Returns and to conduct negotiations with taxing
authorities.
(d) Survival. Anything
to the contrary in this Agreement notwithstanding, the representations,
warranties, covenants, agreements, rights and obligations of the parties with
respect to any Tax matter covered by this Agreement shall survive the Closing
and shall not terminate until ninety (90) days after the expiration of the
applicable statutes of limitations (including all periods of extension and
tolling) applicable to such Tax matter.
(e) Conflict. In
the event of a conflict between the provisions of this Section 5.6 and any
other provisions of this Agreement, the provisions of this Section 5.6 shall
control.
(f) Tax
Indemnity.
(i) Seller
shall be liable for, and shall indemnify and hold Bison and Purchaser and its
Affiliates harmless from, any Taxes (other than Transfer Taxes) (1) imposed on
or incurred by or with respect to Bison or its assets with respect to the period
prior to and including the Closing Date, (2) attributable to a breach by Seller
of any covenant with respect to Taxes in this Agreement or (3) attributable to a
breach of Seller’s representations and warranties in Section
3.8.
(ii) Purchaser
shall be liable for, and shall indemnify and hold Seller and its Affiliates
harmless from, any Taxes (including Transfer Taxes) attributable to a breach by
Purchaser of any covenant with respect to Taxes in this Agreement.
(iii) If
Purchaser or its Affiliates receive a refund of any Taxes that Seller is
responsible for hereunder, or if Seller or its Affiliates receive a refund of
any Taxes that Purchaser is responsible for hereunder, the party receiving such
refund shall, within ninety (90) days after receipt of such refund, remit it to
the party who has responsibility for such Taxes hereunder. The
parties shall cooperate in order to take all necessary steps to claim any such
refund.
ARTICLE
VI
INDEMNIFICATION;
REMEDIES
6.1 Survival of Representations,
Warranties and Covenants.
The
representations, warranties and covenants set forth in this Agreement shall
survive until the expiration of the period (the “Indemnity Period”)
that commences on the Closing Date and terminates on the date that is
one hundred eighty (180) days after the Closing Date, at which time they will
expire; provided,
however, that the Indemnity Period with respect to the covenant set forth
in Section 5.2
shall extend until January 15, 2011; and provided, further, that the
Indemnity Period with respect to the representations and warranties set forth in
Section 3.8 and
the covenants set forth in Section 5.6 shall
extend until ninety (90) days after the expiration of the applicable statute of
limitations. Neither party shall have any liability (for
indemnification or otherwise) with respect to any representation or warranty, or
any covenant or obligation to be performed or complied with by it hereunder,
unless on or before the expiration or termination of the Indemnity Period, the
other party notifies such party of a claim, specifying the factual basis of that
claim in reasonable detail to the extent then known by it.
6.2 Indemnification and Payment
of Damages by Seller.
Subject
to the limitations set forth in this Article VI, Seller
shall indemnify Purchaser and its Representatives and Affiliates for, shall hold
Purchaser and its Representatives and Affiliates harmless from, and shall pay to
Purchaser and its Representatives and Affiliates the amount of, any Damages
arising from or in connection with (a) any inaccuracy in or breach of any
representation or warranty made by Seller in this Agreement or (b) any breach of
any covenant or agreement of Seller in this Agreement.
6.3 Indemnification and Payment
of Damages by Purchaser.
Subject
to the limitations set forth in this Article VI, Purchaser
shall indemnify Seller and its Representatives and Affiliates for, shall hold
Seller and its Representatives and Affiliates harmless from, and shall pay to
Seller and its Representatives and Affiliates the amount of, any Damages arising
from or in connection with (a) any inaccuracy in or breach of any representation
or warranty made by Purchaser in this Agreement or (b) any breach of any
covenant or agreement of Purchaser in this Agreement.
6.4 Limitations on
Indemnification.
Neither
party shall have any liability (for indemnification or otherwise) with respect
to any representation, warranty, covenant or agreement made in this Agreement
until the total of all Damages asserted by the other party with respect to all
such matters exceeds $500,000 in the aggregate, and then the liable party shall
be liable for such Damages only to the extent they exceed such
amount. The limitations set forth in the preceding sentence shall not
apply to a breach of the representations and warranties set forth in Section 3.8 or the
covenants set forth in Section 5.6, any
fraudulent representations and warranties made in this Agreement or any willful
breach of any covenant or agreement made in this Agreement, and the liable party
shall be liable for all Damages with respect thereto. In no event
shall the aggregate liability of either party for breach of its representations,
warranties, covenants and agreements exceed fifteen percent (15%) the Purchase
Price, except in the case of fraud or a breach of representations and warranties
set forth in Section
3.8 or the covenants set forth in Section
5.6.
6.5 No Security Holder
Liability.
The
parties acknowledge that the stockholders, members, and other security holders
of Purchaser and Seller are not parties to this Agreement and that the
representations, warranties, covenants and agreements made in this Agreement are
provided only by Seller or Purchaser, as the case may be, to the
other. The parties agree that neither party shall have recourse
(including for indemnification or otherwise) against any officer, director,
stockholder, member, manager or security holder of the other party under or in
connection with this Agreement.
ARTICLE
VII
GENERAL
PROVISIONS
7.1 Public
Announcements.
The
initial press release or releases to be issued in connection with the
Contemplated Transactions shall be agreed upon by the parties prior to the
issuance thereof. Otherwise, prior to the Closing, neither party
shall, without the other party’s prior written consent (which shall not be
unreasonably withheld or delayed) or unless permitted by the Confidentiality
Agreement, dated July 18, 2008, between the parties or any amendments thereto or
waivers therefrom, make any disclosure concerning this Agreement or the
Contemplated Transactions to any Person other than (a) their respective members,
managers, officers, directors or employees who have a need to know in connection
with this Agreement or (b) their respective counsel, public accountants and
financial advisors.
7.2 Confidentiality.
. Each
party hereto shall hold, and shall cause its Representatives to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other Legal Requirements, and not use for
its own advantage, any information about the other provided in or pursuant to
this Agreement, except to the extent that such information can be shown to have
been generally available to the public other than as a result of a disclosure by
such party or its Representatives.
7.3 Notices.
All
notices, consents, waivers and other communications under this Agreement must be
in writing and shall be deemed to have been duly given when (a) delivered by
hand (with written confirmation of receipt), (b) sent by facsimile transmission
(with written confirmation of receipt), provided that a copy is also mailed or
(c) received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other party):
Seller:
Northern
Border Pipeline Company
P.O. Box
542500
Omaha, NE
68154-8500
Attention: Eva
Neufeld
Facsimile
No.: (402) 492-7480
with a
copy (which shall not constitute notice) to:
Andrews
Kurth LLP
600
Travis, Suite 4200
Houston,
Texas 77002
Attention: Mike
O’Leary
Facsimile
No.: (713) 238-7130
and
ONEOK
Partners, L.P.
100 West
5th
Street
Tulsa,
Oklahoma 74103-4298
Attention: General
Counsel
Facsimile
No.: (918) 588-7971
Purchaser:
TransCanada
PipeLine USA Ltd.
717 Texas
Avenue, Suite 2400
Houston,
Texas 77252-2446
Attention:
Kelly Jameson
Facsimile
No.: (713) 420-6548
with a
copy (which shall not constitute notice) to:
TransCanada
PipeLines Limited
450
1st
Street SW
Calgary,
Alberta
Canada
Attention: Ron
Anderson
Facsimile
No.: (403) 920-2363
7.4 Waiver.
Neither
the failure to exercise, nor any delay in exercising, any right, power or
privilege by either party under this Agreement shall operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power or privilege shall preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, except
as otherwise expressly provided herein, (a) no claim or right arising out of
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
party, (b) no waiver that may be given by a party shall be applicable except in
the specific instance for which it is given and (c) no notice to or demand on
one party shall be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement.
7.5 Entire Agreement and
Modification.
This
Agreement supersedes all prior agreements between the parties with respect to
its subject matter and constitutes a complete and exclusive statement of the
terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written
agreement executed by each of the parties.
7.6 Assignments; Successors; No
Third-Party Rights.
Neither
party may assign any of its rights under this Agreement without the prior
consent of the other party; provided that Purchaser may
assign its rights to any Affiliate of Purchaser without Seller’s consent so long
as Purchaser
remains obligated to Seller pursuant to the terms and conditions of this
Agreement and such Affiliate expressly assumes the obligations of Purchaser
hereunder. Any attempted assignment of this Agreement or any of the
rights hereunder in violation of the foregoing shall be voidable by the
non-assigning party. Subject to the preceding sentences, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy or claim under or with respect to this Agreement or
any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and permitted assigns.
7.7 Severability.
If any
provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement shall remain in
full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree shall remain in full force and effect to
the extent not held invalid or unenforceable.
7.8 Article and Section
Headings; Construction.
The
headings of Articles and Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All
references to “Article” or “Section” refer to the corresponding Article or
Section of this Agreement. All words used in this Agreement will be
construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word “including”
does not limit the preceding words or terms. The terms and provisions
of this Agreement represent the results of negotiations between the parties,
each of which has been represented by counsel of its own choosing, and none of
which has acted under duress or compulsion, whether legal, economic or
otherwise. Accordingly, the terms and provisions of this Agreement
shall be interpreted and construed in accordance with their usual and customary
meanings, and the parties hereby waive the application, in connection with the
interpretation and construction of this Agreement, of any rule of law to the
effect that ambiguous or conflicting terms or provisions contained in this
Agreement shall be interpreted or construed against the party whose attorney
prepared the executed draft or any earlier draft of this Agreement.
7.9 Time of
Essence.
With
regard to all dates and time periods set forth or referred to in this Agreement,
time is of the essence.
7.10 Enforcement.
Each
party agrees that it will not bring any action against the other party hereto
relating to this Agreement in any court other than the United States District
Court for the District of Delaware or a Delaware state court located in
Wilmington, Delaware. Each party (a) submits unconditionally to the
exclusive jurisdiction of the state and federal courts located in Wilmington,
Delaware, (b) waives and agrees not to assert any objection to the venue of any
proceeding in any such court and agrees not to assert that any such court
provides an inconvenient forum and (c) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this
Agreement.
7.11 Governing
Law.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware without regard to conflicts of laws principles
that would apply any other law.
7.12 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original copy of this Agreement and all of which, when taken
together, shall be deemed to constitute one and the same agreement.
7.13 No Other Representations;
Disclaimers.
NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT AND AGREEMENT OF
EACH PARTY HERETO THAT SELLER IS MAKING NO REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
REPRESENTATION OR WARRANTY AS TO CONDITION, MERCHANTABILITY, USAGE, SUITABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE, WITH RESPECT TO THE INTEREST, BISON, ITS
ASSETS, OR ANY PART THEREOF, EXCEPT THOSE REPRESENTATIONS AND WARRANTIES OF
SELLER CONTAINED IN ARTICLE
III
HEREOF. IN PARTICULAR, SELLER MAKES NO REPRESENTATION OR WARRANTY TO
PURCHASER WITH RESPECT TO ANY FINANCIAL PROJECTION, FORECAST OR FORWARD-LOOKING
STATEMENT.
7.14 Waiver of Certain
Damages.
IN NO EVENT WILL EITHER PARTY OR ITS
SECURITY HOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, MEMBERS, MANAGERS, AGENTS OR
REPRESENTATIVES BE LIABLE TO THE OTHER PARTY OR ITS SECURITY HOLDERS, DIRECTORS,
OFFICERS, EMPLOYEES, MEMBERS, MANAGERS, AGENTS OR REPRESENTATIVES UNDER THIS
AGREEMENT AT ANY TIME FOR PUNITIVE, CONSEQUENTIAL, SPECIAL, OR INDIRECT LOSSES
OR DAMAGES, INCLUDING LOSS OF PROFIT, LOSS OF REVENUE OR ANY OTHER SPECIAL OR
INCIDENTAL DAMAGES, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY OR OTHERWISE.
[Signature page
follows]
IN WITNESS WHEREOF, the
parties hereto have executed this Membership Interest Purchase Agreement as of
the date first set forth above.
|
SELLER: |
|
|
|
Northern Border Pipeline
Company |
|
|
|
By: |
TransCanada Northern Border
Inc.,
|
|
|
its
Operator
|
|
|
|
By: |
/s/
Paul
F.
Miller |
|
Name: |
Paul
F. Miller |
|
Title: |
Vice
President and General Manager |
|
|
|
|
By: |
/s/
Patricia M. Wiederholt |
|
Name: |
Patricia
M. Wiederholt |
|
Title: |
Principal
Financial Officer and
Controller
|
|
PURCHASER: |
|
|
|
TransCanada
PipeLine USA Ltd. |
|
|
|
By: |
/s/
Donald R. Marchand |
|
Name: |
Donald
R. Marchand |
|
Title: |
Treasurer |
|
|
|
|
By: |
/s/
Donald J.DeGrandis |
|
|
Assistant Secretary |
|
|
|
november32008exhibit102.htm
Exhibit
10.2
FIRST AMENDMENT TO AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT (this “Amendment”),
is made and entered into as of July 31, 2008, by and among NORTHERN BORDER
PIPELINE COMPANY, a Texas general partnership (the “Borrower”),
the several banks and other financial institutions from time to time party
hereto (collectively, the “Lenders”),
SUNTRUST BANK, in its capacity as Administrative Agent for the Lenders (the
“Administrative
Agent”), as issuing bank (the “Issuing
Bank”) and as swingline lender (the “Swingline
Lender”), WACHOVIA BANK, NATIONAL ASSOCIATION, as syndication agent (the
“Syndication
Agent”) and BMO CAPITAL MARKETS, CITIBANK, N.A., and MIZUHO CORPORATE
BANK, LTD., as
Co-Documentation Agents.
W I T N E S S E T H:
WHEREAS,
the Borrower, the Lenders, the Swingline Lender, the Issuing Bank, the
Administrative Agent and the other agents party thereto are parties to a certain
Amended and Restated Revolving Credit Agreement, dated as of April 27, 2007 (as
amended, restated, supplemented or otherwise modified from time to time, the
“Credit
Agreement”; capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the Credit Agreement), pursuant to
which the Lenders and the Issuing Bank have made certain financial
accommodations available to the Borrower;
WHEREAS,
the Borrower has requested that the Lenders, the Swingline Lender, the Issuing
Bank and the Administrative Agent amend certain provisions of the Credit
Agreement, and subject to the terms and conditions hereof, the Lenders are
willing to do so;
NOW,
THEREFORE, for good and valuable consideration, the sufficiency and receipt of
all of which are acknowledged, the Borrower, the Lenders, the Swingline Lender,
the Issuing Bank and the Administrative Agent agree as follows:
1. Amendments.
(a) Section 1.1of the Credit
Agreement is hereby amended by adding the following definition of Bison Pipeline
Acquisition Agreement in the appropriate alphabetical order:
“Bison Pipeline Acquisition
Agreement” shall mean that certain acquisition agreement between the
Borrower and TransCanada Pipeline USA Ltd. or its wholly owned subsidiary in
form and substance satisfactory to the Administrative Agent and on terms
substantially similar to those set out in the indication of interest letter
dated as of July 28, 2008 between the Borrower and TransCanada Pipeline USA
Ltd., pursuant to which the Borrower sells all of the membership interests it
owns in Bison Pipeline LLC to TransCanada
Pipeline USA Ltd. or its wholly owned subsidiary.
(b) Section 7.3(b) of the
Credit Agreement is hereby amended by replacing subsection B of such Section in
its entirety with the following:
(b) The
Borrower shall not lease, sell or otherwise dispose of its assets to any other
Person except: (i) sales of inventory and other assets in the ordinary
course of business, (ii) leases, sales or other dispositions of its assets
that, together with all other assets of Borrower previously leased, sold or
disposed of (other than disposed of pursuant to this Section 7.3(b))
during the twelve-month period ending with the month in which any such lease,
sale or other disposition occurs, do not constitute a substantial portion of the
assets of Borrower, (iii) sales of assets which are concurrently leased
back, (iv) dispositions of assets which are obsolete or no longer used or
useful in the business of Borrower, (v) as permitted pursuant to Section 14 or
Section 15 (to the extent it applies to a merger pursuant to Section 14) of
the Borrower Partnership Agreement, and (vi) the sale of membership interests in
Bison Pipeline LLC pursuant to the Bison Pipeline Acquisition
Agreement.
(c) Section 7.5 of the
Credit Agreement is hereby amended by replacing such Section in its
entirety with the following:
Section
7.5 Restricted
Payments. The Borrower will not, and will not permit its
Subsidiaries to, declare or make, or agree to pay or make, directly or
indirectly, any dividend on any class of its stock, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, retirement, defeasance or other acquisition of, any shares
of common stock or Indebtedness subordinated to the Obligations of the Borrower
or any Guarantee thereof or any options, warrants, or other rights to purchase
such common stock or such Indebtedness, whether now or hereafter outstanding
(each, a “Restricted
Payment”), except for (i) dividends payable by the Borrower solely in
shares of any class of its common stock, (ii) Restricted Payments made by
any Subsidiary to the Borrower or to another Subsidiary, on at least a pro rata
basis with any other shareholders if such Subsidiary is not wholly owned by the
Borrower and other wholly owned Subsidiaries, (iii) if no Event of Default has
occurred or would result therefrom, distributions on the partnership interests
in accordance with the Borrower Partnership Agreement and (iv) if no Event of
Default has occurred or would result therefrom, distributions of proceeds from
the Bison Pipeline Acquisition Agreement.
(d) Section 7.7 of the
Credit Agreement is hereby amended by replacing such Section in its
entirety with the following:
Section
7.7 Transactions
with Affiliates. Except as set forth in Schedule 7.7, the
Borrower will not, and will not permit any of its Subsidiaries to, sell, lease
or otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary course of
business at prices and on terms and conditions not less favorable to the
Borrower or such Subsidiary than could be obtained on an arm’s-length basis from
unrelated third parties, (b) any Restricted Payment permitted by Section 7.5 and
(c) pursuant to the Bison Pipeline Acquisition Agreement.
2. Conditions
to Effectiveness of this Amendment. Notwithstanding any other
provision of this Amendment and without affecting in any manner the rights of
the Lenders hereunder, it is understood and agreed that this Amendment shall not
become effective, and the Borrower shall have no rights under this Amendment,
until the Administrative Agent shall have received each of the following
documents:
(a) executed
counterparts to this Amendment from the Borrower, each of the Guarantors and the
Lenders; and
(b) the
indication of interest letter dated as of July 28, 2008 between the Borrower and
TransCanada Pipeline USA Ltd. substantially setting out the terms of the Bison
Pipeline Acquisition Agreement.
3. Representations
and Warranties. To induce the
Lenders and the Administrative Agent to enter into this Amendment, the Borrower
hereby represents and warrants to the Lenders and the Administrative
Agent:
(a) The
Borrower, each of its Subsidiaries and the Operator (i) is duly organized,
validly existing and in good standing as a corporation, partnership or limited
liability company under the laws of the jurisdiction of its organization, (ii)
has all requisite power and authority to carry on its business as now
conducted, and (iii) is duly qualified to do business, and is in good
standing, in each jurisdiction where such qualification is required, except
where a failure to be so qualified could not reasonably be expected to result in
a Material Adverse Effect.
(b) The execution, delivery and
performance by the Borrower of the Loan Documents are within such Person’s
organizational powers and have been duly authorized by all necessary
organizational, and if required, shareholder, partner or member,
action;
(c) The
execution, delivery and performance by the Borrower of this Agreement and the
other Loan Documents (i) do not require any consent or approval of, registration
or filing with, or any action by, any Governmental Authority, except those as
have been obtained or made and are in full force and effect, (ii) will not
violate any Requirements of Law applicable to the Borrower and any of its
Subsidiaries, or any judgment, order or ruling of any Governmental Authority,
(iii) will not violate or result in a default under any indenture, agreement or
other instrument binding on the Borrower or any of its Subsidiaries or any of
its assets or give rise to a right thereunder to require any payment to be made
by the Borrower or any of its Subsidiaries, in each case other than violations,
defaults or rights which could not reasonably be expected to result in a
Material Adverse Effect, and (iv) will not result in the creation or imposition
of any Lien on any asset of the Borrower or any of its Subsidiaries, except
Liens (if any) created under the Loan Documents;
(d) This
Amendment has been duly executed and delivered by the Borrower, and constitutes valid and
binding obligations of the Borrower, enforceable against it in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity;
and
(e) After
giving effect to this Amendment, the representations and warranties contained in
the Credit Agreement and the other Loan Documents are true and correct in all
material respects, and no Default or Event of Default has occurred and is
continuing as of the date hereof.
4. Effect of
Amendment. Except as
set forth expressly herein, all terms of the Credit Agreement, as amended
hereby, and the other Loan Documents shall be and remain in full force and
effect and shall constitute the legal, valid, binding and enforceable
obligations of the Borrower to the Lenders and the Administrative
Agent. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Lenders under the Credit Agreement, nor constitute
a waiver of any provision of the Credit Agreement. This Amendment
shall constitute a Loan Document for all purposes of the Credit
Agreement.
5. Governing
Law.
This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of New York and all applicable
federal laws of the United States of America.
6. No
Novation. This Amendment is
not intended by the parties to be, and shall not be construed to be, a novation
of the Credit Agreement or an accord and satisfaction in regard
thereto.
7. Costs and
Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Administrative Agent in connection with the preparation,
execution and delivery of this Amendment, including, without limitation, the
reasonable fees and out-of-pocket expenses of outside counsel for the
Administrative Agent with respect thereto.
9. Binding
Nature. This Amendment
shall be binding upon and inure to the benefit of the parties hereto, their
respective successors, successors-in-titles, and assigns.
10.
Entire
Understanding. This Amendment
sets forth the entire understanding of the parties with respect to the matters
set forth herein, and shall supersede any prior negotiations or agreements,
whether written or oral, with respect thereto.
[Signature Pages To
Follow]
IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be duly executed, under seal in the case of the
Borrower and the Guarantors, by their respective authorized officers as of the
day and year first above written.
|
BORROWER:
NORTHERN
BORDER PIPELINE COMPANY
|
|
By:
|
TransCanada
Northern Border Inc., its Operator
|
|
By
|
/s/ Paul F.
Miller
|
|
|
Name:
Paul F. Miller
|
|
|
Title:
Principal Executive Officer,Vice
President and General Manager
|
|
|
|
|
|
|
|
By
|
/s/ Patricia M.
Wiederholt
Name:
Patricia M. Wiederholt
|
|
|
Title:
Principal Financial Officer and
Controller
|
[SIGNATURE
PAGE TO FIRST AMENDMENT]
|
LENDERS:
SUNTRUST
BANK
as
Administrative Agent, as Issuing Bank, as Swingline Lender and as a
Lender
|
|
By
|
/s/ Joe McCreery
|
|
|
Name:
Joe McCreery
|
|
|
Title:
Director
|
|
|
|
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WACHOVIA
BANK, NATIONAL ASSOCIATION
as
Syndication Agent and as a Lender
|
|
By
|
/s/ Lawrence P.
Sullivan
|
|
|
Name:
Lawrence P. Sullivan
|
|
|
Title:
Managing Director
|
|
|
|
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BMO CAPITAL MARKETS,
as Co-Documentation Agent
|
|
By
|
/s/ Ian M.
Plester
|
|
|
Name:
Ian M. Plester
|
|
|
Title:
Director
|
|
|
|
|
BMO
CAPITAL MARKETS FINANCING, INC., as a
Lender
|
|
By
|
/s/ Ian M.
Plester
|
|
|
Name:
Ian M. Plester
|
|
|
Title:
Director
|
|
|
|
[SIGNATURE
PAGE TO FIRST AMENDMENT]
|
CITIBANK, N.A.,
as Co-Documentation Agent and as a Lender
|
|
By
|
/s/ Andrew L.
Kreeger
|
|
|
Name:
Andrew L. Kreeger
|
|
|
Title:
Vice President
|
|
|
|
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MIZUHO
CORPORATE BANK, LTD., as
Co-Documentation Agent and as a Lender
|
|
By
|
/s/ Leon
Mo
|
|
|
Name:
Leon Mo
|
|
|
Title:
Senior Vice President
|
|
|
|
|
JPMORGAN CHASE BANK,
N.A., as Managing Agent and as a Lender
|
|
By
|
/s/ Kenneth J.
Fatur
|
|
|
Name:
Kenneth J. Fatur
|
|
|
Title:
Managing Director
|
|
|
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EXPORT DEVELOPMENT
CANADA, as Managing Agent and as a Lender
|
|
By
|
/s/ Janine
Dopson
|
|
|
Name:
Janine Dopson
|
|
|
Title:
Loan Asset Manager
|
|
|
|
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By
|
/s/ H.
Clysdale
|
|
|
Name:
Howard Clysdale
|
|
|
Title:
Portfolio Manager
|
|
WELLS
FARGO BANK N.A., as
a Lender
|
|
By
|
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
BANK
OF AMERICA, N.A., as
a Lender
|
|
By
|
/s/ Jay Salitza
|
|
|
Name:
Jay Salitza
|
|
|
Title:
Vice President
|
|
|
|
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ROYAL
BANK OF CANADA, as
a Lender
|
|
By
|
|
|
|
Name:
|
|
|
Title:
|
|
|
|
november32008exhibit311.htm
Exhibit
31.1
CERTIFICATION
I,
Russell K. Girling, certify that:
1.
|
I
have reviewed this quarterly report on Form 10-Q for the quarter ended
September 30, 2008 of TC PipeLines,
LP;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluations;
and
|
d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation, of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Dated: November
3,
2008 /s/ Russell K.
Girling
Russell K. Girling
Chairman,
Chief Executive Officer and Director
TC
PipeLines GP, Inc., as general partner of
TC
PipeLines, LP (Principal Executive Officer)
november32008exhibit312.htm
Exhibit
31.2
CERTIFICATION
I, Amy W.
Leong, certify that:
1.
|
I
have reviewed this quarterly report on Form 10-Q for the quarter ended
September 30, 2008 of TC PipeLines,
LP;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluations;
and
|
d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation, of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Dated: November
3,
2008 /s/ Amy W.
Leong
Amy W. Leong
Controller
TC
PipeLines GP, Inc., as general partner of
TC PipeLines, LP (Principal Financial Officer)
november32008exhibit321.htm
Exhibit
32.1
CERTIFICATION
I,
Russell K. Girling, Chief Executive Officer of TC PipeLines GP, Inc., the
general partner of TC PipeLines, LP (the Partnership), in compliance with 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 hereby certify, to the best of my
knowledge, in connection
with the Partnership’s Quarterly Report on Form 10-Q for the period ended
September 30, 2008 as filed with the Securities and Exchange Commission (the
Report) on the date hereof, that:
·
|
the
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Partnership.
|
Dated: November
3,
2008 /s/ Russell K.
Girling
Russell K. Girling
Chairman,
Chief Executive Officer and Director
TC
PipeLines GP, Inc., as general partner of
TC PipeLines, LP (Principal Executive Officer)
november32008exhibit322.htm
Exhibit
32.2
CERTIFICATION
I, Amy W. Leong, Principal Financial
Officer of TC PipeLines GP, Inc., the general partner of TC PipeLines, LP (the
Partnership), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 hereby certify, to the best of my
knowledge, in connection
with the Partnership’s Quarterly Report on Form 10-Q for the period ended
September 30, 2008 as filed with the Securities and Exchange Commission (the
Report) on the date hereof, that:
·
|
the
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Partnership.
|
Dated: November
3,
2008 /s/ Amy W.
Leong
Amy W. Leong
Controller
TC
PipeLines GP, Inc., as general partner of
TC
PipeLines, LP (Principal Financial Officer)