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ORRICK,
HERRINGTON & SUTCLIFFE LLP
THE
ORRICK BUILDING
405
HOWARD STREET
SAN
FRANCISCO, CALIFORNIA 94105-2669
tel 415-773-5700
fax 415-773-5759
www.orrick.com
Brett
Cooper
(415)
773-5918
bcooper@orrick.com
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August 1,
2008
VIA
EDGAR & FEDERAL EXPRESS
Securities
and Exchange Commission
100 F
Street, N.E.
Mail Stop
3561
Washington,
DC 20549
Attention: William
Thompson
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Re:
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TC
PipeLines, LP
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Form
10-K for the Fiscal Year Ended December 31,
2007
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Filed
February 28, 2008
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Form
10-Q for Fiscal Quarter Ended March 31,
2008
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| Filed April 30, 2008 | |
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File No. 0-26091
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Dear Mr.
Thompson:
On behalf
of TC PipeLines, LP (the “Partnership”), we submit this letter in response to
the Staff’s comment letter dated July 3, 2008 relating to the
above-referenced Form 10-K and Form 10-Q. To assist you in reviewing
the responses of the Partnership, the Staff’s comments are set forth in bold
typeface before each response.
Form 10-K for Fiscal Year
Ended December 31, 2007
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, page 32
Critical Accounting Policies
and Estimates, page 35
Impairment of Long-Lived
Assets and Goodwill, page 36
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1.
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We note your disclosure that
for purposes of testing long-lived assets for impairment, fair values are
based on the sum of the undiscounted future cash flows expected to result
from the use and eventual disposition of the assets. While we
agree recoverability is determined by comparing the carrying value of
long-lived assets to the sum of undiscounted cash flows, we do not agree
that fair value is based on this measure. Please revise your
disclosure or explain to us why your accounting policy is
appropriate. Refer to paragraphs 7, 23 and A11-A14 of SFAS
144.
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Securities and
Exchange Commission
August 1,
2008
Page
2
The
Partnership agrees with the Staff’s comment and will change the disclosure in
future filings by revising the sentence "Fair values are based on the sum of the
undiscounted future cash flows expected to result from the use and eventual
disposition of the assets." with the following:
“Fair
value is a market-based measure of the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date."
Partnership Cash Flows, page
42
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2.
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Please explain to us how your
presentation of partnership cash flows per common unit complies with the
guidance in paragraph 33 of SFAS 95, which prohibits reporting cash flow
per share. Refer also to Question 11 of our Frequently Asked
Questions Regarding the Use of Non-GAAP Financial Measures, available on
our website at www.sec.gov.
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The
Partnership historically interpreted that SFAS 95 was applicable specifically
only to the Statement of Cash Flows itself. The Partnership disclosed
partnership cash flows and partnership cash flows per common unit as non-GAAP
financial measures in its MD&A, as it believes this information enhances
investors’ understanding of the way that management analyzes the Partnership’s
financial performance and is a key measure of the available cash flows to
unitholders.
In light
of the Staff’s comment, the Partnership discontinued the presentation of
partnership cash flows per common unit in its second quarter earnings release on
July 31, 2008 and will not disclose this per unit measure in future filings and
other disclosures.
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3.
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Please clarify whether you use
partnership cash flows as a non-GAAP measure of liquidity or
performance. To the extent it is used as a liquidity measure,
present cash flows from operating, investing and financing activities and
reconcile partnership cash flows in table format to cash flow from
operating activities for each year presented. Otherwise,
reconcile partnership cash flows to net income for each year
presented. Refer to Item 10(e)(1)(i)(B) of Regulation S-K and
Question 12 of our Frequently Asked Questions Regarding the Use of
Non-GAAP Financial Measures, available on our website at www.sec.gov.
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While the
Partnership believes the use of partnership cash flows provides meaningful and
relevant information with respect to both the performance of its fundamental
business activities as well as its ability to meet its future debt service,
capital expenditures and working capital
Securities and
Exchange Commission
August 1,
2008
Page
3
requirements,
the Partnership views partnership cash flows predominantly as a non-GAAP measure
of its financial performance. 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 this is a key
measure of the available cash flows to its unitholders.
The
Partnership historically provided a reconciliation of partnership cash flows as
follows:
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(millions
of dollars )
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2007
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comments
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Total
cash distributions received
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147.6
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see
(a) below
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Cash
flow from Tuscarora's operating activites
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19.9
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per
'Summarized Tuscarora Cash Flow Statement' in Note 5 of the Partnership
Financial Statements poner page F-13
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Partnership
costs
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(32.8)
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see
(b) below
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Partnership
cash flows
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134.7
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(a)
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Equity
income from investment in Great Lakes
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49.0
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per
Partnership's Consolidated Statement of Income on page
F-5
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Return
of capital from Great Lakes
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12.3
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per
Partnership's Consolidated Statement of Cash Flows on page
F-6
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Cash
distributions from Great Lakes
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61.3
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Equity
income from investment in Northern Border
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61.2
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per
Partnership's Consolidated Statement of Income on page
F-5
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Return
of capital from Northern Border
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25.1
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per
Partnership's Consolidated Statement of Cash Flows on page
F-6
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Cash
distributions from Northern Border
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86.3
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Total
Cash distributions received
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147.6
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(b)
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Operating
expenses
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8.3
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per
Partnership's Consolidated Statement of Income on page
F-5
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Financial
charges, net and other
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33.8
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per
Partnership's Consolidated Statement of Income on page
F-5
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Less:
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Operating
expenses and financial charges from Tuscarora
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(9.3)
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per
Summarized Tuscarora Income Statement included in Note 5 of the
Partnership's Consolidated Financial Statements on page
F-13.
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Partnership
costs
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32.8
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The
Partnership believed that the reconciliation of partnership cash flows it
previously used provided the reconciliation required by Item 10 of Regulation
S-K in the most transparent, concise and useful manner and, more importantly,
provided information in the way that management analyzes the Partnership’s
financial performance.
However,
in light of the Staff’s comment, the Partnership reconciled partnership cash
flows to net income in its second quarter earnings release on July 31, 2008 and
will continue reconciliation to net income in future filings and other
disclosures.
Securities and
Exchange Commission
August 1,
2008
Page
4
Consolidated Statement of
Income, page F-5
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4.
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Please clearly disclose the
aggregate amount of net income allocated to the general partners and the
limited partners on the face of the income statement. Refer to
SAB Topic 4:F.
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Disclosure
of the aggregate amount of net income allocated to the general partner and the
limited partners has been provided in Note 11 to the financial statements as
currently referenced on the face of the income statement. However, as
a result of the Staff’s comments, we will add the required information to the
face of the income statement in future filings.
Form 10-Q for Fiscal Quarter
Ended March 31, 2008
Consolidated Statement of
Cash Flows, page 6
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5.
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Please explain to us what the
reduction in the return of capital from Great Lakes line item in investing
activities represents.
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Return of
capital as presented on the Statement of Cash Flows is based on the amount by
which cumulative cash distributions exceeds cumulative equity earnings at the
end of the reporting period. As at December 31, 2007, cumulative
equity earnings from Great Lakes totaled $49.0 million, while cumulative
distributions from Great Lakes totaled $61.3 million, resulting in a return of
capital of $12.3 million as reported in the Partnership’s Consolidated Statement
of Cash Flows (page F-6 of the Partnership’s Form 10-K). In first
quarter of 2008, Great Lakes contributed equity earnings of $18.6 million, while
distributions received from Great Lakes was $11.6 million, resulting in a $7.0
million reduction in the previously reported return of capital of $12.3
million. Please see page 19 of the Partnership’s Form 10-Q for the
fiscal quarter ended March 31, 2008 footnote (a) to Partnership Cash Flows
table.
***
In
connection with this response, the Partnership acknowledges that:
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·
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should
the Commission or the staff, acting pursuant to their delegated authority,
declare the filing effective, such declaration does not foreclose the
Commission from taking any action with respect to the
filing;
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Securities and
Exchange Commission
August 1,
2008
Page
5
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·
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the
action of the Commission or the staff, acting pursuant to their delegated
authority, in declaring the filing effective does not relieve the
Partnership from its full responsibility for the adequacy and accuracy of
the disclosure in the filing; and
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the
Partnership may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the Commission
or any person under the federal securities laws of the United
States.
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Please
contact me at 415-773-5918 or Amy Leong, the Partnership’s Controller, at (403)
920-2750 if you have any questions or require additional information concerning
the foregoing.
Very
truly yours,
/s/ Brett
Cooper
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cc:
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Sarah
Goldberg, Assistant Chief
Accountant
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Amy
W. Leong, TC PipeLines, LP
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Donald
J. DeGrandis, TC PipeLines, LP
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Alan
Talkington, Orrick, Herrington & Sutcliffe
LLP
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