UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended MARCH 31, 2001
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 (I.R.S. Employer Identification Number)
incorporation or organization)
110 TURNPIKE ROAD, SUITE 203
WESTBOROUGH, MASSACHUSETTS 01581
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
508-871-7046
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether 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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 4, 2001 there were 14,690,694 of the registrant's common units
outstanding.
TC PIPELINES, LP
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statement of Income - Three months ended March 31, 2001 and 2000 3
Balance Sheet - March 31, 2001 and December 31, 2000 3
Statement of Cash Flows - Three months ended March 31, 2001 and 2000 4
Notes to Condensed Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations of TC PipeLines, LP 10
Liquidity and Capital Resources of TC PipeLines, LP 12
Results of Operations of Northern Border Pipeline Company 13
Liquidity and Capital Resources of Northern Border Pipeline Company 15
Results of Operations of Tuscarora Gas Transmission Company 16
Liquidity and Capital Resources of Tuscarora Gas Transmission Company 18
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 21
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TC PIPELINES, LP
STATEMENT OF INCOME
Three months ended March 31 (unaudited)
(thousands of dollars, except per unit amounts) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
EQUITY INCOME FROM INVESTMENT IN NORTHERN BORDER PIPELINE COMPANY 10,767 8,623
EQUITY INCOME FROM INVESTMENT IN TUSCARORA GAS TRANSMISSION COMPANY 911 -
GENERAL AND ADMINISTRATIVE EXPENSES (357) (279)
FINANCIAL CHARGES AND OTHER (358) -
---------------------------------
NET INCOME 10,963 8,344
=================================
NET INCOME ALLOCATION
Common units 8,947 6,864
Subordinated units 1,711 1,313
General partner 305 167
---------------------------------
10,963 8,344
=================================
NET INCOME PER UNIT $0.61 $0.47
=================================
UNITS OUTSTANDING (THOUSANDS) 17,500 17,500
=================================
BALANCE SHEET
MARCH 31, 2001 December 31,
(thousands of dollars) (unaudited) 2000
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash 1,387 1,566
Investment in Northern Border Pipeline Company 253,281 248,098
Investment in Tuscarora Gas Transmission Company 28,793 27,881
Deferred Amounts 45 -
----------------------------------
283,506 277,545
==================================
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable 231 499
Accrued interest 121 141
----------------------------------
352 640
----------------------------------
Long-Term Debt 21,500 21,500
Partners' Capital
Common units 214,222 212,253
Subordinated units 38,328 37,951
General partner 5,268 5,201
Accumulated other comprehensive income 3,836 -
----------------------------------
261,654 255,405
----------------------------------
283,506 277,545
==================================
See accompanying Notes to Condensed Financial Statements.
3
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TC PIPELINES, LP
STATEMENT OF CASH FLOWS
Three months ended March 31 (unaudited)
(thousands of dollars) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
CASH GENERATED FROM OPERATIONS
Net income 10,963 8,344
Add/(Deduct):
Equity income (in excess of)/less than distributions received (2,259) 638
Increase in operating working capital (288) (87)
-----------------------------------
8,416 8,895
-----------------------------------
INVESTING ACTIVITIES
Deferred amounts (45) -
-----------------------------------
FINANCING ACTIVITIES
Distributions paid (8,550) (8,036)
-----------------------------------
(DECREASE)/INCREASE IN CASH (179) 859
CASH, BEGINNING OF PERIOD 1,566 795
-----------------------------------
CASH, END OF PERIOD 1,387 1,654
===================================
See accompanying Notes to Condensed Financial Statements.
4
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TC PIPELINES, LP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 BASIS OF PRESENTATION
TC PipeLines, LP, and its subsidiary limited partnerships, TC PipeLines
Intermediate Limited Partnership, and TC Tuscarora Intermediate Limited
Partnership, all Delaware limited partnerships, are collectively referred to
herein as TC PipeLines or the Partnership. The Partnership commenced operations
on May 28, 1999.
The financial statements have been prepared by management in accordance
with United States generally accepted accounting principles. Amounts are stated
in United States dollars.
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of these financial statements
requires the use of estimates and assumptions which have been made using careful
judgment. In the opinion of management, these financial statements have been
properly prepared within reasonable limits of materiality and include all
adjustments (consisting primarily of normal recurring accruals) necessary to
present fairly the results of operations and cash flows for the three months
ended March 31, 2001 and 2000 and the financial position as at March 31, 2001
and December 31, 2000.
The results of operations for the three months ended March 31, 2001 and
2000 are not necessarily indicative of the results that may be expected for a
full fiscal year. The interim financial statements should be read in conjunction
with the Partnership's financial statements and notes included in TC PipeLines'
Annual Report on Form 10-K for the year ended December 31, 2000.
NOTE 2 INVESTMENT IN NORTHERN BORDER PIPELINE COMPANY
The Partnership owns a 30% general partner interest in Northern Border Pipeline
Company (Northern Border Pipeline), a partnership which owns a 1,214-mile
interstate natural gas pipeline system extending from the Montana-Saskatchewan
border near Port of Morgan, Montana, to a terminus near Manhattan, Illinois.
Northern Border Pipeline is subject to regulation by the Federal Energy
Regulatory Commission (FERC).
TC PipeLines uses the equity method of accounting for its investment in
Northern Border Pipeline. TC PipeLines' equity income for the each of three
months ended March 31, 2001 and 2000 represents 30% of the net income of
Northern Border Pipeline for the same periods. The following sets out summarized
financial information for Northern Border Pipeline for the three months ended
March 31, 2001 and 2000 and as at March 31, 2001 and December 31, 2000.
Three months ended March 31 (millions of dollars) 2001 2000
- ----------------------------------------------------------------------------------------------
NORTHERN BORDER PIPELINE INCOME STATEMENT
Revenues 77.0 76.2
Costs and expenses (12.2) (16.8)
Depreciation (14.5) (14.8)
Financial charges and other (14.4) (15.9)
-----------------------------------------
Net income 35.9 28.7
=========================================
5
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TC PIPELINES, LP
December 31, 2000
(millions of dollars) MARCH 31, 2001 (audited)
- ----------------------------------------------------------------------------------------------
NORTHERN BORDER PIPELINE BALANCE SHEET
ASSETS
Cash and cash equivalents 15.5 29.0
Other current assets 33.8 38.1
Plant, property and equipment, net 1,677.5 1,687.0
Other assets 16.9 14.4
-----------------------------------------
1,743.7 1,768.5
=========================================
LIABILITIES AND PARTNERS' EQUITY
Current liabilities 76.3 114.3
Reserves and deferred credits 4.9 4.9
Long-term debt 818.2 822.3
Partners' Equity
Partners' capital 831.5 827.0
Accumulated other comprehensive income 12.8 -
-----------------------------------------
1,743.7 1,768.5
=========================================
6
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TC PIPELINES, LP
NOTE 3 INVESTMENT IN TUSCARORA GAS TRANSMISSION COMPANY
On September 1, 2000, TC PipeLines acquired a 49% general partner interest in
Tuscarora Gas Transmission Company (Tuscarora). Tuscarora owns a 229-mile
interstate natural gas pipeline system extending from Oregon, where it
interconnects with facilities of PG&E National Energy Group, Gas Transmission
Northwest, to northern Nevada. Tuscarora is regulated by the FERC.
The Partnership uses the equity method of accounting for its investment in
Tuscarora. TC PipeLines' equity income for the three months ended March 31, 2001
represents 49% of the net income of Tuscarora for the same period. The following
sets out summarized financial information for Tuscarora for the three months
ended March 31, 2001 and as at March 31, 2001 and December 31, 2000.
Three months ended March 31 (millions of dollars) 2001
- -------------------------------------------------------------------------
TUSCARORA INCOME STATEMENT
Revenues 5.2
Costs and expenses (0.6)
Depreciation (1.1)
Financial charges and other (1.4)
--------------------
Net income 2.1
=====================
December 31, 2000
(millions of dollars) MARCH 31, 2001 (audited)
- ----------------------------------------------------------------------------------------------
TUSCARORA BALANCE SHEET
ASSETS
Cash and cash equivalents 6.5 7.1
Other current assets 3.9 3.2
Plant, property and equipment, net 117.2 115.7
Other assets 3.0 2.5
-----------------------------------------
130.6 128.5
=========================================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities 8.2 8.9
Reserves and deferred credits 13.5 12.0
Long-term debt 84.2 84.2
Partners' capital 24.7 23.4
-----------------------------------------
130.6 128.5
=========================================
NOTE 4 CREDIT FACILITIES AND LONG-TERM DEBT
On August 22, 2000, the Partnership entered into an unsecured three-year credit
facility (Revolving Credit Facility) with Bank One, NA, as agent, under which
the Partnership may borrow up to an aggregate principal amount of $30 million.
Loans under the Revolving Credit Facility bear interest at a floating rate. The
Revolving Credit Facility matures on August 31, 2003. Amounts borrowed may be
repaid in part or in full prior to that time without penalty. The Revolving
Credit Facility may be used to finance capital expenditures and for other
general purposes. On September 1, 2000, the Partnership borrowed $24.5 million
under the Revolving Credit Facility to fund a portion of the purchase price of
the 49% general partner interest in Tuscarora. At March 31, 2001, the
Partnership had borrowings of $21.5 million outstanding under the Revolving
Credit Facility at an interest rate of 6.155%. The fair value of the Revolving
Credit Facility approximates its carrying value.
On May 28, 1999, the Partnership entered into a $40 million unsecured
two-year revolving credit facility (TransCanada Credit Facility), with
7
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TC PIPELINES, LP
TransCanada PipeLine USA Ltd., an affiliate of the general partner. The
TransCanada Credit Facility bears interest at the London Interbank Offered Rate
plus 1.25%. The purpose of the TransCanada Credit Facility is to provide
borrowings to fund capital expenditures, to fund capital contributions to
Northern Border Pipeline and for working capital and other general business
purposes, including funding cash distributions to partners, if necessary. At
March 31, 2001, the Partnership had no amounts outstanding under the TransCanada
Credit Facility.
8
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONCLUDED)
TC PIPELINES, LP
NOTE 5 NET INCOME PER UNIT
Net income per unit is computed by dividing net income, after deduction of the
general partner's allocation, by the weighted average number of common and
subordinated units outstanding. The general partner's allocation is equal to an
amount based upon the general partner's 2% interest, adjusted to reflect an
amount equal to incentive distributions. Net income per unit was determined as
follows:
Three months ended March 31
(thousands of dollars, except per unit amounts) 2001 2000
- -------------------------------------------------------------------------------------------
Net income 10,963 8,344
-----------------------------
Net income allocated to general partner (219) (167)
Adjustment to reflect incentive distribution income
allocation (86) -
-----------------------------
(305) (167)
-----------------------------
Net income allocable to units 10,658 8,177
Weighted average units outstanding (thousands) 17,500 17,500
-----------------------------
Net income per unit $0.61 $0.47
=============================
NOTE 6 DISTRIBUTIONS
On April 18, 2001, the Partnership declared a cash distribution of $0.475 per
unit for the quarter ended March 31, 2001. The distribution is payable on May
15, 2001 to unitholders of record at April 30, 2001.
9
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TC PIPELINES, LP
RESULTS OF OPERATIONS OF TC PIPELINES, LP
TC PipeLines, LP (TC PipeLines or the Partnership) was formed by TransCanada
PipeLines Limited (TransCanada) to acquire, own and participate in the
management of United States based pipeline assets. On May 28, 1999, the
Partnership acquired a 30% general partner interest in Northern Border Pipeline
Company (Northern Border Pipeline), previously held by affiliates of the general
partner, TC PipeLines GP, Inc. Northern Border Pipeline owns a 1,214-mile
interstate pipeline system that transports natural gas from the
Montana-Saskatchewan border to markets in the midwestern United States.
On September 1, 2000, TC PipeLines, through its wholly owned subsidiary, TC
Tuscarora Intermediate Limited Partnership, acquired a 49% general partner
interest in Tuscarora Gas Transmission Company (Tuscarora) for a cash purchase
price of $28 million. The purchase price was funded with debt (see Liquidity and
Capital Resources of TC PipeLines, LP - General) and cash on hand. Tuscarora
owns a 229-mile interstate pipeline system that transports natural gas from
Oregon, where it interconnects with facilities of PG&E National Energy Group,
Gas Transmission Northwest, to northern Nevada.
TC PipeLines accounts for its interests in Northern Border Pipeline and
Tuscarora using the equity method of accounting.
TUSCARORA - HUNGRY VALLEY LATERAL
In January 2001, Tuscarora completed the Hungry Valley lateral, a 16-mile,
16-inch pipeline extension that is Tuscarora's second connection into Reno,
Nevada. Sierra Pacific Power Company (Sierra Pacific Power), a subsidiary of
Sierra Pacific Resources Company, which holds a 50% general partner interest
in Tuscarora, holds capacity on the lateral for approximately 10 million
cubic feet per day under a 15-year firm transportation contract. The capital
cost of the Hungry Valley lateral was approximately $10.7 million.
PROPOSED TUSCARORA EXPANSION
On April 12, 2001, the Partnership announced that Tuscarora filed an application
with the Federal Energy Regulatory Commission (FERC) to expand its pipeline
system to meet new service requests. If approved, the expansion would begin
commercial operations in late 2002. The proposed expansion consists of three
compressor stations and a 14-mile pipeline extension from the current terminus
of the Tuscarora pipeline system near Reno, Nevada to Wadsworth, Nevada. The
capital cost of the project is approximately $60 million. The Tuscarora
expansion is expected to increase capacity on the Tuscarora pipeline system from
approximately 124 million cubic feet per day to approximately 220 million cubic
feet per day and is supported by long-term firm transportation contracts ranging
from ten to fifteen years. Sierra Pacific Power has contracted for approximately
11 million cubic feet per day of the increased capacity.
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000
Equity income from the Partnership's investment in Northern Border Pipeline
increased $2.2 million or 25%, to $10.8 million for the first quarter of 2001,
compared to equity income of $8.6 million for the same period in 2000. This
increase is primarily attributable to adjustments made by Northern Border
Pipeline to previous estimates of ad valorem taxes. In addition,
10
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
Northern Border Pipeline incurred lower interest costs due to lower debt
balances in the first quarter of 2001.
For the first quarter of 2001, the Partnership recorded equity income of $0.9
million from its investment in Tuscarora.
The Partnership reported general and administrative expenses of $0.4 million for
the first quarter of 2001 compared to $0.3 million for the same period in 2000.
The Partnership reported financial charges and other of $0.4 million for the
first quarter of 2001, which is comprised primarily of interest expense under
the Partnership's Revolving Credit Facility (see Liquidity and Capital Resources
of TC PipeLines, LP - General).
11
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
LIQUIDITY AND CAPITAL RESOURCES OF TC PIPELINES, LP
CASH DISTRIBUTION POLICY OF TC PIPELINES, LP
During the subordination period, which generally cannot end before June 30,
2004, the Partnership will make distributions of available cash as defined in
the partnership agreement in the following manner:
o First, 98% to the common units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding common
unit an amount equal to the minimum quarterly distribution for that
quarter;
o Second, 98% to the common units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding common
unit an amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units for that quarter and for
any prior quarters during the subordination period;
o Third, 98% to the subordinated units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter; and
o Thereafter, in a manner whereby the general partner has rights
(referred to as incentive distribution rights) to receive increasing
percentages of excess quarterly distributions over specified
distribution thresholds.
GENERAL
On April 18, 2001, the board of directors of the general partner declared the
Partnership's 2001 first quarter cash distribution, which will be paid on May
15, 2001 to unitholders of record as of April 30, 2001. The cash distribution
totaling $8.6 million will be paid in the following manner: $7.0 million to
common unitholders, $1.3 million to the general partner as holder of the
subordinated units, and $0.3 million to the general partner, as holder of
incentive distribution rights and in respect of its 2% general partner interest.
On August 22, 2000, the Partnership entered into an unsecured three-year credit
facility (Revolving Credit Facility) with Bank One, NA, as agent, under which
the Partnership may borrow up to an aggregate principal amount of $30 million.
Loans under the Revolving Credit Facility may bear interest, at the option of
the Partnership, at a one-, two-, three-, or six-month London Interbank Offered
Rate (LIBOR) rate plus 0.875%, or at a floating rate based on the higher of the
federal funds effective rate plus 0.50% or the prime rate. The Revolving Credit
Facility matures on August 31, 2003. Amounts borrowed may be repaid in part or
in full prior to that time without penalty. The Revolving Credit Facility may be
used to finance capital expenditures and for other general purposes. On
September 1, 2000, the Partnership borrowed $24.5 million under the Revolving
Credit Facility to fund a portion of the purchase price of the 49% general
partner interest in Tuscarora. At March 31, 2001, the Partnership had borrowings
of $21.5 million outstanding under the Revolving Credit Facility.
On May 28, 1999, the Partnership entered into a $40 million unsecured two-year
revolving credit facility (TransCanada Credit Facility) with TransCanada
12
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
PipeLine USA Ltd., an affiliate of the general partner. The TransCanada Credit
Facility bears interest at LIBOR plus 1.25%. The purpose of the TransCanada
Credit Facility is to provide borrowings to fund capital expenditures, to fund
capital contributions to Northern Border Pipeline and for working capital and
other general business purposes, including funding cash distributions to
partners, if necessary. At March 31, 2001, the Partnership had no amount
outstanding under the TransCanada Credit Facility.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities decreased to $8.4 million for the
three months ended March 31, 2001 from $8.9 million for the same period last
year. For the three months ended March 31, 2001 and 2000, the Partnership
received cash distributions in aggregate of $9.4 million and $9.3 million,
respectively, from its equity investment in Northern Border Pipeline.
CASH FLOWS FROM FINANCING ACTIVITIES
In the three months ended March 31, 2001, the Partnership has paid $8.6 million
in distributions: $7.0 million to common unitholders, $1.3 million to the
general partner as holder of the subordinated units, and $0.3 million to the
general partner, as holder of incentive distribution rights and in respect of
its 2% general partner interest. This compares to cash distributions of $8.0
million which were paid by the Partnership in the three months ended March 31,
2000.
CAPITAL REQUIREMENTS
To the extent TC PipeLines has any capital requirements with respect to its
investments in Northern Border Pipeline and Tuscarora or makes acquisitions in
2001, TC PipeLines expects to finance these requirements with debt and/or
equity.
Since the interests in Northern Border Pipeline and Tuscarora are currently
the Partnership's only significant sources of income, the Partnership's
results of operations are influenced by and reflect the same factors that
influence the financial results of Northern Border Pipeline and Tuscarora.
RESULTS OF OPERATIONS OF NORTHERN BORDER PIPELINE COMPANY(1)
The following sets out summarized financial information for Northern Border
Pipeline for the three months ended March, 2001 and 2000 and as at March 31,
2001 and December 31, 2000.
Three months ended March 31
(unaudited)
(millions of dollars) 2001 2000
- -------------------------------------------------------------------------------------------
NORTHERN BORDER PIPELINE INCOME STATEMENT
Revenues 77.0 76.2
Costs and expenses (12.2) (16.8)
Depreciation (14.5) (14.8)
Financial charges and other (14.4) (15.9)
--------------------------------------
Net income 35.9 28.7
======================================
- ----------------------
(1) Amounts discussed represent 100% of the operations of Northern Border
Pipeline, in which the Partnership has held a 30% interest since
May 28, 1999.
13
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
MARCH 31, 2001 December 31, 2000
(millions of dollars) (unaudited)
- -------------------------------------------------------------------------------------------
NORTHERN BORDER PIPELINE BALANCE SHEET
ASSETS
Cash and cash equivalents 15.5 29.0
Other current assets 33.8 38.1
Plant, property and equipment, net 1,677.5 1,687.0
Other assets 16.9 14.4
--------------------------------------
1,743.7 1,768.5
======================================
LIABILITIES AND PARTNERS' EQUITY
Current liabilities 76.3 114.3
Reserves and deferred credits 4.9 4.9
Long-term debt 818.2 822.3
Partners' Equity
Partners' capital 831.5 827.0
Accumulated other comprehensive income 12.8 -
--------------------------------------
1,743.7 1,768.5
======================================
Northern Border Pipeline's revenue is derived from agreements with various
shippers for the transportation of natural gas. It transports gas under a FERC
regulated tariff. Northern Border Pipeline had used a cost of service form of
tariff since its inception but agreed to convert to a stated rate form of tariff
as part of the settlement of its current rate case discussed below.
Under the cost of service tariff, Northern Border Pipeline was provided an
opportunity to recover all of the operations and maintenance costs of the
pipeline, taxes other than income taxes, interest, depreciation and
amortization, an allowance for income taxes and a regulated return on equity.
Northern Border Pipeline was generally allowed to collect from its shippers a
return on regulated rate base as well as recover that rate base through
depreciation and amortization. Billings for the firm transportation agreements
were based on contracted volumes to determine the allocable share of the cost of
service and were not dependent upon the percentage of available capacity
actually used.
Northern Border Pipeline filed a rate proceeding with the FERC in May 1999 for,
among other things, a redetermination of its allowed equity rate of return. In
September 2000, Northern Border Pipeline filed a stipulation and agreement with
the FERC that documented the proposed settlement of its pending rate case. The
settlement was approved by the FERC in December 2000. Under the approved
settlement, effective December 1, 1999, shippers will pay stated transportation
rates based on a straight fixed variable rate design. Under the straight fixed
variable rate design, approximately 98% of the agreed upon revenue level is
attributed to demand charges, based upon contracted firm capacity, and the
remaining 2% is attributed to commodity charges, based on the volumes of gas
actually transported on the system.
As of December 31, 2000, the termination dates of the shippers' contracts
ranges from October 31, 2003 to December 21, 2013 and the weighted average
contract life was approximately six years with just under 99% of capacity
contracted through mid-September 2003. Contracts for approximately 44% of the
capacity will expire between mid-September 2003 and the end of 2005.
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000
Revenues increased $0.8 million for the first quarter of 2001, as compared to
the same period in 2000. Northern Border Pipeline's revenues for 2001
14
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
reflect the rate case settlement discussed above. Revenues for 2000 were
determined under Northern Border Pipeline's cost of service tariff.
Costs and expenses consists of operations and maintenance and taxes other than
income.
Taxes other than income decreased $4.0 million (52%) for the first quarter of
2001, as compared to the same period in 2000, due primarily to adjustments to
previous estimates of ad valorem taxes.
Financial charges and other consists of interest expense and other income.
Interest expense decreased $1.2 million (8%) for the first quarter of 2001, as
compared to the same period in 2000, due primarily to a decrease in average debt
outstanding.
LIQUIDITY AND CAPITAL RESOURCES OF NORTHERN BORDER PIPELINE COMPANY
GENERAL
Northern Border Pipeline had previously entered into a 1997 credit agreement
(Pipeline Credit Agreement) with certain financial institutions, which is
comprised of a $200 million five-year revolving credit facility and a $414
million term loan, both maturing in June 2002. At March 31, 2001, $62 million
was outstanding under the five-year revolving credit facility.
At March 31, 2001, Northern Border Pipeline also had outstanding $184 million of
senior notes issued in a $250 million private placement under a July 1992 note
purchase agreement. The note purchase agreement provides for four series of
notes, Series A through D, maturing between August 2000 and August 2003. The
Series A Notes with a principal amount of $66 million were repaid in August
2000. The Series B Notes with a principal amount of $41 million mature in August
2001. Northern Border Pipeline anticipates borrowing on the Pipeline Credit
Agreement to repay the Series B Notes.
In March 2001, Northern Border Pipeline entered into forward starting interest
rate swaps with notional amounts totaling $200 million related to a planned
issuance of 10-year and 30-year senior notes. The swap instruments may be
settled any time prior to their expiration date on October 1, 2001. The proceeds
from the issuance of the senior notes will be used to repay outstanding
indebtedness.
Short-term liquidity needs will be met by internal sources and through the
revolving credit facility discussed above. Long-term capital needs may be met
through the ability to issue long-term indebtedness.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities decreased $0.5 million to $37.9
million for the first quarter of 2001, as compared to the same period in 2000.
During 2001, Northern Border Pipeline realized net cash outflows of
approximately $4.7 million related to its rate case. During the first quarter of
2001, Northern Border Pipeline made refunds to its shippers totaling $6.8
million, which included $2.1 million collected in the first quarter of 2001 with
the remainder collected previously.
15
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures of $4.6 million for the first quarter of 2001 included $3.8
million for Project 2000 and $0.8 million primarily related to renewals and
replacements of existing facilities. For the comparable period in 2000, capital
expenditures were $0.4 million primarily related to Project 2000.
Total capital expenditures for 2001 are estimated to be $78 million, including
$62 million for Project 2000. The remaining capital expenditures planned for
2001 are for renewals and replacements of existing facilities. Northern Border
Pipeline currently anticipates funding its 2001 capital expenditures primarily
by debt borrowings and using internal sources.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows used in financing activities increased $30.9 million to $46.8 million
for the first quarter of 2001 as compared to same period in 2000. For the first
quarter of 2001, Northern Border Pipeline recognized a decrease in bank
overdraft of $22.4 million. At December 31, 2000, Northern Border Pipeline
reflected the bank overdraft primarily due to refund checks outstanding. During
the first quarter of 2001, Northern Border Pipeline repaid $10.0 million on its
term loan.
RESULTS OF OPERATIONS OF TUSCARORA GAS TRANSMISSION COMPANY(2)
The following sets out summarized financial information for Tuscarora for the
three months ended March, 2001 and as at March 31, 2001 and December 31, 2000.
Three months ended March 31 (unaudited)
(millions of dollars) 2001
- ------------------------------------------------------------------------
TUSCARORA INCOME STATEMENT
Revenues 5.2
Costs and expenses (0.6)
Depreciation (1.1)
Financial charges and other (1.4)
-------------------
Net income 2.1
===================
- ----------------------
(2) Amounts discussed represent 100% of the operations of Tuscarora, in which
the Partnership has held a 49% interest since September 1, 2000.
16
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
MARCH 31, 2001 December 31, 2000
(millions of dollars) (unaudited)
- -------------------------------------------------------------------------------------------
TUSCARORA BALANCE SHEET
ASSETS
Cash and cash equivalents 6.5 7.1
Other current assets 3.9 3.2
Plant, property and equipment, net 117.2 115.7
Other assets 3.0 2.5
--------------------------------------
130.6 128.5
======================================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities 8.2 8.9
Reserves and deferred credits 13.5 12.0
Long-term debt 84.2 84.2
Partners' capital 24.7 23.4
--------------------------------------
130.6 128.5
======================================
17
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TC PIPELINES, LP
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000
Revenues generated by Tuscarora were $5.2 million for the first quarter of 2001
compared to $4.8 million for the first quarter of 2000. The $0.4 million
increase is due to additional contracted capacity on the Hungry Valley lateral.
Costs and expenses, depreciation and financial charges and other incurred by
Tuscarora in the first quarter of 2001 were consistent with the same period last
year.
LIQUIDITY AND CAPITAL RESOURCES OF TUSCARORA GAS TRANSMISSION COMPANY
GENERAL
In September 2000, Tuscarora adopted a cash distribution policy that became
effective January 1, 2001. Under the terms of the cash distribution policy,
Tuscarora makes quarterly cash distributions to its general partners in
accordance with their respective general partner interests. Cash
distributions are generally computed as the sum of Tuscarora's net income
before income taxes and depreciation and amortization, less amounts required
for debt repayments, net of refinancings, maintenance capital expenditures,
certain non-cash items, and any cash reserves deemed necessary by the
management committee of Tuscarora. Cash distributions will be computed at the
end of each calendar quarter and the distribution will be made on or before
the last day of the month following the quarter end.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities decreased to $1.8 million for the
first quarter of 2001 compared to $4.7 million for the same period in 2000 due
to changes in working capital.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities increased to $2.6 million for the first
quarter of 2001 compared to an insignificant amount for the same period last
year. This increase is due to construction of the Hungry Valley lateral that
went into service in January 2001.
CASH FLOWS FROM FINANCING ACTIVITIES
For the first quarter of 2001, Tuscarora recorded cash flow from financing
activities of $0.1 million compared to cash flow used in financing activities of
$2.2 million for the same period in 2000. Tuscarora paid a cash distribution of
$2.2 million in the first quarter of 2000.
NEW ACCOUNTING PRONOUNCEMENT
TC PipeLines has implemented Statement of Financial Accounting Standards
(SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities"
on January 1, 2001. TC PipeLines does not hold any derivative instruments and
does not participate in hedging activities. Therefore, SFAS No. 133 does not
have a material impact on TC PipeLines' financial position or results of
operations.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes forward-looking statements regarding future
events and the future financial performance of TC PipeLines, LP. All
forward-
18
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED)
TC PIPELINES, LP
looking statements are based on the Partnership's beliefs as well as assumptions
made by and information currently available to the Partnership. When used
herein, words such as "believes," "expects," "intends," "forecasts," "projects,"
and similar expressions, identify forward-looking statements within the meaning
of the Securities Litigation Reform Act. These statements reflect the
Partnership's current views with respect to future events and are subject to
various risks, uncertainties and assumptions including regulatory decisions,
particularly those of the Federal Energy Regulatory Commission, cost of
acquisitions, future demand for natural gas, overcapacity in the industry, and
prevailing economic conditions, particularly conditions of the capital and
equity markets, and other risks discussed in detail in the Partnership's filings
with the Securities and Exchange Commission, including the Partnership's Annual
Report on Form 10-K for the year ended December 31, 2000. If one or more of
these risks or uncertainties materialize, or if the underlying assumptions prove
incorrect, actual results may vary materially from those described in the
forward-looking statement. Except as required by applicable securities laws, TC
PipeLines, LP does not intend to update these forward-looking statements.
19
PART I. FINANCIAL INFORMATION (CONCLUDED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TC PIPELINES, LP
TC PipeLines, LP's interest rate exposure results from its Revolving Credit
Facility which is subject to variability in LIBOR interest rates. Since December
31, 2000, there has not been any material change to TC PipeLines' interest rate
exposure.
The Partnership's market risk sensitivity is also influenced by and reflects the
same factors that influence Northern Border Pipeline.
Northern Border Pipeline's interest rate exposure results from variable rate
borrowings from commercial banks. To mitigate potential fluctuations in interest
rates, Northern Border Pipeline attempts to maintain a significant portion of
its debt portfolio in fixed rate debt. Northern Border Pipeline also uses
interest rate swap agreements to increase the portion of its fixed rate debt.
Since December 31, 2000, there has not been any material change to Northern
Border Pipeline's interest rate exposure.
20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
TC PIPELINES, LP
(a) Exhibits.
None
(b) Reports on Form 8-K
None
21
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
By: /S/ RUSSELL K. GIRLING
-------------------------------------
Date: May 14, 2001 Russell K. Girling
Chief Financial Officer
(duly authorized officer)
By: /S/ THERESA JANG
-------------------------------------
Date: May 14, 2001 Theresa Jang
Controller
(duly authorized officer)
22
