SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
6-K
Report
of
Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
For
the
month of April 2008
Commission
File No. 1-31690
TransCanada
Corporation
(Translation
of Registrant's Name into English)
450
– 1 Street S.W., Calgary, Alberta, T2P 5H1, Canada
(Address
of Principal Executive Offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F:
Form
20-F ¨ Form
40-F þ
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): ¨
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7): ¨
Indicate
by check mark whether the registrant by furnishing the information contained
in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ¨ No þ
Exhibits
13.1 to 13.3 to this report, furnished on Form 6-K, shall be incorporated by
reference into each of the Registration Statements under the Securities Act
of
1933, as amended, of the registrant: Form S-8 (File Nos. 333-5916, 333-8470
and
333-9130), Form F-3 (File Nos. 33-13564 and 333-6132) and Form F-10 (File No.
333-140150).
Exhibit
99.1 to this report, furnished on Form 6-K, is furnished, not filed, and will
not be incorporated by reference into any registration statement filed by the
registrant under the Securities Act of 1933, as amended.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date:
April 25, 2008
|
TRANSCANADA
CORPORATION
|
||
|
By:
|
/s/
Gregory A.
Lohnes
|
|
|
Gregory
A. Lohnes
|
||
|
Executive
Vice-President and
|
||
|
Chief
Financial Officer
|
||
|
By:
|
/s/
G. Glenn
Menuz
|
|
|
G.
Glenn Menuz
|
||
|
Vice-President
and Controller
|
||
|
|
EXHIBIT
INDEX
|
|
13.1
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
of the registrant as at and for the period ended March 31,
2008.
|
|
13.2
|
Consolidated
comparative interim unaudited financial statements of the registrant
for
the period ended March 31, 2008 (included in the registrant's First
Quarter 2008 Quarterly Report to Shareholders).
|
|
13.3
|
U.S.
GAAP reconciliation of the consolidated comparative interim unaudited
financial statements of the registrant contained in the registrant's
First
Quarter 2008 Quarterly Report to Shareholders.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer regarding Periodic Report containing Financial
Statements.
|
|
32.2
|
Certification
of Chief Financial Officer regarding Periodic Report containing Financial
Statements.
|
|
99.1
|
A
copy of the registrant’s news release of April 25, 2008.
|
Exhibit
13.1
TRANSCANADA
CORPORATION – FIRST QUARTER 2008
Quarterly
Report to Shareholders
Management's
Discussion and Analysis
Management's
Discussion and Analysis (MD&A) dated April 24, 2008 should be read in
conjunction with the accompanying unaudited Consolidated Financial Statements
of
TransCanada Corporation (TransCanada or the Company) for the three months
ended
March 31, 2008. It should also be read in conjunction with the
audited Consolidated Financial Statements and notes thereto, and the MD&A
contained in TransCanada's 2007 Annual Report for the year ended December
31,
2007. Additional information relating to TransCanada, including the Company's
Annual Information Form and other continuous disclosure documents, is available
on SEDAR at www.sedar.com under TransCanada Corporation. Amounts are
stated in Canadian dollars unless otherwise indicated. Capitalized
and abbreviated terms that are used but not otherwise defined herein are
identified in the Glossary of Terms contained in TransCanada’s 2007 Annual
Report.
Forward-Looking
Information
This
MD&A may contain certain information that is forward-looking and is subject
to important risks and uncertainties. The words "anticipate", "expect",
"believe", "may", "should", "estimate", "project", "outlook", "forecast"
or
other similar words are used to identify such forward-looking information.
All
forward-looking statements reflect TransCanada’s beliefs and assumptions based
on information available at the time the statements were made. Actual results
or
events may differ from those predicted in these forward-looking statements.
Factors that could cause actual results or events to differ materially from
current expectations include, among other things, the ability of TransCanada
to
successfully implement its strategic initiatives and whether such strategic
initiatives will yield the expected benefits, the operating performance of
the
Company’s pipeline and energy assets, the availability and price of energy
commodities, regulatory processes and decisions, changes in environmental
and
other laws and regulations, competitive factors in the pipeline and energy
industry sectors, construction and completion of capital projects, labour,
equipment and material costs, access to capital markets, interest and currency
exchange rates, technological developments and the current economic conditions
in North America. By its nature, forward-looking information is subject to
various risks and uncertainties, which could cause TransCanada's actual results
and experience to differ materially from the anticipated results or expectations
expressed. Additional information on these and other factors is available
in the
reports filed by TransCanada with Canadian securities regulators and with
the
U.S. Securities and Exchange Commission (SEC). Readers are cautioned to not
place undue reliance on this forward-looking information, which is given
as of
the date it is expressed in this MD&A or otherwise, and to not use
forward-looking information for anything other than its intended purpose.
TransCanada undertakes no obligation to update publicly or revise any
forward-looking information, whether as a result of new information, future
events or otherwise, except as required by law.
TRANSCANADA
[2
FIRST
QUARTER REPORT 2008
Non-GAAP
Measures
TransCanada
uses the measures
"comparable earnings", "comparable earnings per share", "funds generated from
operations" and "operating income" in this MD&A. These measures
do not have any standardized meaning prescribed by GAAP. They are, therefore,
considered to be non-GAAP measures and are unlikely to be comparable to similar
measures presented by other entities. Management of TransCanada uses
non-GAAP measures to increase its ability to compare financial results between
reporting periods and to enhance its understanding of operating performance,
liquidity and ability to generate funds to finance operations. Non-GAAP measures
are also provided to readers as additional information on TransCanada’s
operating performance, liquidity and ability to generate funds to finance
operations.
Comparable
earnings comprise net income adjusted for specific items that are significant
but not typical of the Company’s operations. Specific items are subjective,
however, management uses its best judgement and informed decision-making when
identifying items to be excluded in calculating comparable earnings. Specific
items may include but are not limited to certain income tax refunds and
adjustments, gains or losses on sales of assets, legal settlements, and
bankruptcy settlements with former customers. The table in the Consolidated
Results of Operations section of this MD&A presents a reconciliation of
comparable earnings to net income. Comparable earnings per share is calculated
by dividing comparable earnings by the weighted average number of shares
outstanding for the period.
Funds
generated from operations comprises net cash provided by operations before
changes in operating working capital. A reconciliation of funds generated from
operations to net cash provided by operations is presented in the “Liquidity and
Capital Resources” section of this MD&A.
Operating
income is reported in the Company’s Energy business segment and comprises
revenues less operating expenses as shown on the Consolidated Income Statement.
A reconciliation of operating income to net income is presented in the Energy
section of this MD&A.
TRANSCANADA
[3
FIRST
QUARTER REPORT 2008
Consolidated
Results of Operations
|
Reconciliation
of Comparable Earnings to Net Income
|
|||||||||||
|
(unaudited)
|
Three
months ended March 31
|
||||||||||
|
(millions
of dollars except per share amounts)
|
2008
|
2007
|
|||||||||
|
Pipelines
|
|||||||||||
|
Comparable
earnings
|
199
|
155
|
|||||||||
|
Specific
items (net of tax):
|
|||||||||||
|
Calpine
bankruptcy settlements
|
152
|
-
|
|||||||||
|
GTN
lawsuit settlement
|
10
|
-
|
|||||||||
|
Net
income
|
361
|
155
|
|||||||||
|
Energy
|
|||||||||||
|
Comparable
earnings
|
149
|
106
|
|||||||||
|
Specific
items (net of tax):
|
|||||||||||
|
Writedown
of Broadwater LNG project costs
|
(27 | ) |
-
|
||||||||
|
Fair
value adjustments of natural gas storage inventory
|
|||||||||||
|
and
forward contracts
|
(12 | ) |
-
|
||||||||
|
Net
income
|
110
|
106
|
|||||||||
|
Corporate
|
|||||||||||
|
Comparable
expenses
|
(22 | ) | (11 | ) | |||||||
|
Specific
item:
|
|||||||||||
|
Income
tax reassessments and adjustments
|
-
|
15
|
|||||||||
|
Net
(expenses)/income
|
(22 | ) |
4
|
||||||||
|
Net
Income(1)
|
449
|
265
|
|||||||||
|
Net
Income Per Share(2)
|
|||||||||||
|
Basic
|
$ |
0.83
|
$ |
0.52
|
|||||||
|
Diluted
|
$ |
0.83
|
$ |
0.52
|
|||||||
| (1) |
Comparable
Earnings
|
326
|
250
|
||||||||
|
Specific
items (net of tax, where applicable):
|
|||||||||||
|
Calpine
bankruptcy settlements
|
152
|
-
|
|||||||||
|
GTN
lawsuit settlement
|
10
|
-
|
|||||||||
|
Writedown
of Broadwater LNG project costs
|
(27 | ) |
-
|
||||||||
|
Fair
value adjustments of natural gas storage inventory
|
|||||||||||
|
and
forward contracts
|
(12 | ) |
-
|
||||||||
|
Income
tax reassessments and adjustments
|
-
|
15
|
|||||||||
|
Net
Income
|
449
|
265
|
|||||||||
| (2) |
Comparable
Earnings Per Share
|
$ |
0.60
|
$ |
0.49
|
||||||
|
Specific
items - per share
|
|||||||||||
|
Calpine
bankruptcy settlements
|
0.28
|
-
|
|||||||||
|
GTN
lawsuit settlement
|
0.02
|
-
|
|||||||||
|
Writedown
of Broadwater LNG project costs
|
(0.05 | ) |
-
|
||||||||
|
Fair
value adjustments of natural gas storage inventory
|
|||||||||||
|
and
forward contracts
|
(0.02 | ) |
-
|
||||||||
|
Income
tax reassessments and adjustments
|
-
|
0.03
|
|||||||||
|
Net
Income Per Share
|
$ |
0.83
|
$ |
0.52
|
|||||||
TRANSCANADA
[4
FIRST
QUARTER REPORT 2008
TransCanada’s
net income in first-quarter 2008 was $449 million or $0.83 per share compared
to
$265 million or $0.52 per share in first-quarter 2007. The $184-million increase
in net income was primarily due to net income of $152 million after tax ($240
million pre-tax) on shares received by GTN and Portland for bankruptcy
settlements from certain subsidiaries of Calpine Corporation (Calpine) and
proceeds from a GTN lawsuit settlement of $10 million after tax ($17 million
pre-tax). In addition, net income in first-quarter 2008 increased primarily
due
to a full quarter of earnings for ANR, higher earnings in Natural Gas
Storage from the Edson facility, in GTN as a result of a rate case
settlement and in Eastern Power from increased generation at TC Hydro and higher
realized power pool prices in New England. These increases were partially offset
by a $27 million after-tax ($41 million pre-tax) writedown of costs previously
capitalized for the Broadwater liquefied natural gas (LNG) project and net
unrealized losses of $12 million after tax ($17 million pre-tax) due to changes
in fair value of proprietary natural gas storage inventory and natural gas
forward purchase and sale contracts. Net income in first-quarter 2007 included
positive income tax adjustments of $15 million relating to the resolution of
certain income tax matters with taxation authorities and a
corporate restructuring.
Comparable
earnings for first-quarter 2008 were $326 million or $0.60 per share, compared
to $250 million or $0.49 per share for the same period in 2007. Comparable
earnings in first-quarter 2008 excluded the Calpine bankruptcy settlements,
the GTN lawsuit settlement, the writedown of the Broadwater LNG project costs
and the net unrealized losses from the Natural Gas Storage fair value
adjustments. Comparable earnings in first-quarter 2007 excluded the $15-million
positive income tax adjustments.
In
first-quarter 2008, TransCanada excluded from Natural Gas Storage's comparable
earnings changes in fair value of proprietary natural gas inventory and forward
purchase and sale contracts. Since TransCanada simultaneously enters into a
forward purchase of natural gas for injection into storage and an offsetting
forward sale of natural gas for withdrawal at a later period, a positive margin
has been locked in and exposure to price movements of natural gas has
effectively been eliminated. As a result, changes in fair value of proprietary
natural gas inventory and these forward contracts do not reflect the amounts
that will be realized upon settlement of the forward contracts.
Results
from each business segment for the three months ended March 31, 2008 are
discussed further in the Pipelines, Energy and Corporate sections of this
MD&A.
Funds
generated from operations of $922 million for the three months ended March
31,
2008 increased $340 million compared to the same period in 2007. For a further
discussion on funds generated from operations, refer to the Liquidity and
Capital Resources section in this MD&A.
Pipelines
The
Pipelines business generated net income of $361 million and comparable
earnings of $199 million in first-quarter 2008, an increase of $206
million and $44 million, respectively, compared to net income and
comparable earnings of $155 million in first-quarter
2007.
Comparable
earnings for the first three months in 2008 excluded after-tax income of
$152 million on the Calpine shares received by GTN and Portland for
the Calpine bankruptcy settlements, and proceeds received by GTN as a
result of the $10 million after-tax lawsuit settlement with a software
supplier. For a further discussion of the Calpine bankruptcy settlements, refer
to the Other Recent Developments section in this MD&A.
TRANSCANADA
[5
FIRST
QUARTER REPORT 2008
|
Pipelines
Results
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Wholly
Owned Pipelines
|
||||||||
|
Canadian
Mainline
|
68
|
57
|
||||||
|
Alberta
System
|
32
|
31
|
||||||
|
ANR
(1)
|
45
|
21
|
||||||
|
GTN
|
19
|
11
|
||||||
|
Foothills
|
7
|
6
|
||||||
|
171
|
126
|
|||||||
|
Other
Pipelines
|
||||||||
|
Great
Lakes (2)
|
12
|
14
|
||||||
|
PipeLines
LP (3)
|
7
|
2
|
||||||
|
Iroquois
|
5
|
5
|
||||||
|
Tamazunchale
|
2
|
3
|
||||||
|
Other
(4)
|
13
|
15
|
||||||
|
Northern
Development
|
-
|
(1 | ) | |||||
|
General,
administrative, support costs and other
|
(11 | ) | (9 | ) | ||||
|
28
|
29
|
|||||||
|
Comparable
Earnings
|
199
|
155
|
||||||
|
Calpine
bankruptcy settlements (5)
|
152
|
-
|
||||||
|
GTN
lawsuit settlement
|
10
|
-
|
||||||
|
Net
Income
|
361
|
155
|
||||||
|
(1)
TransCanada acquired ANR on February 22, 2007.
|
||||||||
|
(2)
Great Lakes' results reflect TransCanada's 53.6 per cent ownership
in
Great Lakes since February 22, 2007 and 50 per cent ownership prior
to
that date.
|
||||||||
|
(3)
|
PipeLines
LP's results include TransCanada's effective ownership of an additional
15
per cent in Great Lakes since February 22, 2007 as a result
of PipeLines LP's acquisition of a 46.4 per cent interest in Great
Lakes and TransCanada's 32.1 per cent interest in PipeLines
LP.
|
|
(4)
Includes results of Portland, Ventures LP, TQM, TransGas and Gas
Pacifico/INNERGY.
|
||||||||
|
(5)
|
GTN and Portland received shares of Calpine
with an
initial after-tax value of $95 million and $38 million (TransCanada's
share), respectively, from the bankruptcy
settlements with Calpine. These shares were subsequently sold for
an
additional after-tax gain of $19
million.
|
Wholly Owned Pipelines
Canadian
Mainline's first-quarter 2008 net income of $68 million increased $11 million
compared to $57 million in first-quarter 2007. The increase reflects the
impact
of a settlement effective January 1, 2007 to December 31, 2011 that was approved
by the National Energy Board (NEB) in May 2007, which included an increase
in
the deemed common equity ratio from 36 per cent to 40 per cent. The
settlement also included certain performance-based incentive arrangements.
The terms of the settlement were not reflected in earnings until May 2007.
In addition, net income increased in first-quarter 2008 due to
the performance-based incentive arrangements, operations, maintenance and
administrative (OM&A) cost savings and a higher rate of return on common
equity (ROE), as determined by the NEB, of 8.71 per cent in 2008 compared
to
8.46 per cent in 2007. Partially offsetting the increase in
income was the negative impact of a lower average investment
base.
The
Alberta System’s net income was $32 million in first-quarter 2008 compared to
$31 million in the same quarter of 2007. An increase in ROE was partially
offset
by a lower investment base in 2008. Income in first-quarter 2008 reflects
an ROE
of 8.75 per cent compared to 8.51 per cent in 2007, both on a deemed common
equity of 35 per cent.
TRANSCANADA
[6
FIRST
QUARTER REPORT 2008
ANR’s
net
income in first-quarter 2008 was $45 million compared to $21 million for the
period commencing on the acquisition date of February 22, 2007 to March 31,
2007. The increase was primarily due to a full quarter of earnings in
2008.
GTN’s
comparable earnings for the three months ended March 31, 2008 increased $8
million compared to the same period in 2007 primarily due to the positive
impact
of a rate case settlement in January 2008 and lower OM&A
expenses.
|
Operating
Statistics
|
|||||||||||
|
Canadian
|
Alberta
|
||||||||||
|
Three
months ended March 31
|
Mainline(1)
|
System(2)
|
ANR
(3)(4)
|
GTN
(3)
|
Foothills
|
||||||
|
(unaudited)
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|
|
Average
investment base
|
|||||||||||
|
($
millions)
|
7,176
|
7,401
|
4,224
|
4,261
|
n/a
|
n/a
|
n/a
|
n/a
|
762
|
818
|
|
|
Delivery
volumes (Bcf)
|
|||||||||||
|
Total
|
928
|
881
|
1,065
|
1,070
|
484
|
172
|
213
|
193
|
388
|
356
|
|
|
Average
per day
|
10.2
|
9.8
|
11.7
|
11.9
|
5.3
|
4.6
|
2.3
|
2.1
|
4.3
|
4.0
|
|
(1)
Canadian Mainline physical receipts originating at the Alberta border and
in
Saskatchewan for the three months ended March 31, 2008 were 493 billion
cubic
feet (Bcf) (2007 - 565 Bcf); average per day was 5.4 Bcf (2007 - 6.3
Bcf).
(2)
Field receipt volumes for the Alberta System for the three months ended
March
31, 2008 were 947 Bcf (2007 - 1,005 Bcf); average per day was 10.4 Bcf
(2007 - 11.2 Bcf).
(3)
ANR and the GTN System results are not impacted by current average
investment base as these systems operate under a fixed rate model approved
by
the FERC.
(4)
TransCanada acquired ANR on February 22, 2007.
Other
Pipelines
TransCanada’s
proportionate share of net income from Other Pipelines was $28 million for
the
three months ended March 31, 2008 compared to $29 million for the same period
in
2007. The decrease is primarily due to the negative effect on
earnings of a stronger Canadian dollar, partially offset by increased earnings
from PipeLines LP, reflecting TransCanada’s increased ownership in PipeLines LP
and PipeLines LP’s February 2007 acquisition of a 46.4 per cent interest in
Great Lakes.
As
at
March 31, 2008, TransCanada had advanced $140 million to the Aboriginal Pipeline
Group with respect to the Mackenzie Gas Pipeline (MGP) project. TransCanada
and
the other co-venture companies involved in the MGP continue to pursue approval
of the proposed project, focusing on the regulatory process and discussions
with
the Canadian government on fiscal framework. Project timing is uncertain and
is
conditional upon resolution of regulatory and fiscal matters.
Energy
Energy’s
net income of $110 million in first-quarter 2008 increased $4 million
compared to $106 million in first-quarter 2007.
In
first-quarter 2008, comparable earnings excluded a $27 million after-tax ($41
million pre-tax) writedown of costs previously capitalized for the Broadwater
LNG project. For
a
further discussion of the Broadwater LNG project, refer to the Other Recent
Developments section of this MD&A. Comparable earnings for Natural Gas
Storage also excluded net unrealized losses of $12 million after tax ($17
million pre-tax) resulting from changes in fair value of proprietary natural
gas
storage inventory and natural gas forward purchase and sale contracts. The
forward contracts are transacted on a back-to-back basis, thereby locking in
positive future margins. Fair value adjustments recorded each period on
proprietary natural gas storage inventory and these forward contracts are not
representative of the amounts that will be realized on
settlement.
TRANSCANADA
[7
FIRST
QUARTER REPORT 2008
|
Energy
Results
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Western
Power
|
78
|
73
|
||||||
|
Eastern
Power
|
85
|
67
|
||||||
|
Bruce
Power
|
37
|
29
|
||||||
|
Natural
Gas Storage
|
48
|
30
|
||||||
|
General,
administrative, support costs and other
|
(41 | ) | (36 | ) | ||||
|
Operating
income
|
207
|
163
|
||||||
|
Financial
charges
|
(5 | ) | (4 | ) | ||||
|
Interest
income and other
|
1
|
3
|
||||||
|
Writedown
of Broadwater LNG project costs
|
(41 | ) |
-
|
|||||
|
Income
taxes
|
(52 | ) | (56 | ) | ||||
|
Net
Income
|
110
|
106
|
||||||
|
Comparable
Earnings
|
149
|
106
|
||||||
|
Writedown
of Broadwater LNG project costs (net of income taxes)
|
(27 | ) |
-
|
|||||
|
Fair
value adjustments of natural gas storage inventory and
forward
|
||||||||
|
contracts
(net of income taxes)
|
(12 | ) |
-
|
|||||
|
Net
Income
|
110
|
106
|
||||||
Western
Power
|
Western
Power Results
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Revenues
|
||||||||
|
Power
|
295
|
281
|
||||||
|
Other
(1)
|
17
|
28
|
||||||
|
312
|
309
|
|||||||
|
Commodity
purchases resold
|
||||||||
|
Power
|
(170 | ) | (174 | ) | ||||
|
Other
(2)
|
(13 | ) | (23 | ) | ||||
| (183 | ) | (197 | ) | |||||
|
Plant
operating costs and other
|
(44 | ) | (34 | ) | ||||
|
Depreciation
|
(7 | ) | (5 | ) | ||||
|
Operating
Income
|
78
|
73
|
||||||
|
(1)
Other revenue includes sales of natural gas and thermal carbon
black.
|
||||||||
|
(2)
Other commodity purchases resold includes the cost of natural
gas
sold.
|
||||||||
TRANSCANADA
[8
FIRST
QUARTER REPORT 2008
|
Western
Power Sales Volumes
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(GWh)
|
2008
|
2007
|
||||||
|
Supply
|
||||||||
|
Generation
|
629
|
592
|
||||||
|
Purchased
|
||||||||
|
Sundance
A & B and Sheerness PPAs
|
3,359
|
3,253
|
||||||
|
Other
purchases
|
269
|
449
|
||||||
|
4,257
|
4,294
|
|||||||
|
Sales
|
||||||||
|
Contracted
|
3,074
|
3,492
|
||||||
|
Spot
|
1,183
|
802
|
||||||
|
4,257
|
4,294
|
|||||||
Western
Power’s operating income of $78 million in first-quarter 2008 increased $5
million compared to $73 million in first-quarter 2007. This increase was
primarily due to increased margins from the Alberta power purchase arrangements
(PPAs) resulting from higher overall realized power prices. While average spot
market power prices in Alberta increased 21 per cent, or $13.07 per megawatt
hour (MWh), in first-quarter 2008 compared to first-quarter 2007, the majority
of Western Power’s sales are at contracted prices.
Western
Power manages the sale of its supply volumes on a portfolio basis. A portion
of
its supply is held for sale in the spot market for operational reasons and
the
amount of supply volumes eventually sold into the spot market is dependent
upon
the ability to transact in forward sales markets at acceptable contract terms.
This approach to portfolio management assists in minimizing costs in situations
where Western Power would otherwise have to purchase electricity in the open
market to fulfill its contractual sales obligations. Approximately 28 per cent
of power sales volumes were sold into the spot market in first-quarter 2008
compared to 19 per cent in first-quarter 2007. To reduce its exposure
to spot market prices on uncontracted volumes, as at March 31, 2008, Western
Power had fixed-price power sales contracts to sell approximately 7,500 gigawatt
hours (GWh) for the remainder of 2008 and 7,700 GWh for 2009.
Eastern
Power
|
Eastern
Power Results (1)
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Revenue
|
||||||||
|
Power
|
278
|
354
|
||||||
|
Other
(2)
|
82
|
83
|
||||||
|
360
|
437
|
|||||||
|
Commodity
purchases resold
|
||||||||
|
Power
|
(136 | ) | (177 | ) | ||||
|
Other
(2)
|
(66 | ) | (58 | ) | ||||
| (202 | ) | (235 | ) | |||||
|
Plant
operating costs and other
|
(59 | ) | (124 | ) | ||||
|
Depreciation
|
(14 | ) | (11 | ) | ||||
|
Operating
Income
|
85
|
67
|
||||||
|
(1)
Includes
Anse-à-Valleau effective November 10, 2007.
|
||||||||
TRANSCANADA
[9
FIRST
QUARTER REPORT 2008
|
Eastern
Power Sales Volumes (1)
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(GWh)
|
2008
|
2007
|
||||||
|
Supply
|
||||||||
|
Generation
|
1,086
|
2,023
|
||||||
|
Purchased
|
1,524
|
1,526
|
||||||
|
2,610
|
3,549
|
|||||||
|
Sales
|
||||||||
|
Contracted
|
2,512
|
3,357
|
||||||
|
Spot
|
98
|
192
|
||||||
|
2,610
|
3,549
|
|||||||
|
(1)
Includes Anse-à-Valleau effective November 10, 2007.
|
||||||||
Eastern
Power’s operating income of $85 million for the three months ended March 31,
2008 increased $18 million compared to the same period in 2007. The
increase was primarily due to the impact of increased generation from the TC
Hydro generation facilities in combination with higher realized power pool
prices in New England. Also contributing to the increase were increased sales
volumes to wholesale, commercial and industrial customers.
Generation
and contracted sales volumes decreased by 937 GWh and 845 GWh, respectively,
in
first-quarter 2008 compared to first-quarter 2007 primarily due to the
Hydro-Québec-requested temporary suspension of generation at the Bécancour
facility beginning January 1, 2008, partially offset by increased output from
the TC Hydro generation assets resulting from increased water
flows.
Eastern
Power’s power revenues of $278 million decreased $76 million in first-quarter
2008, compared to first-quarter 2007, primarily due to the temporary suspension
of generation at the Bécancour facility. Power commodity purchases resold
of $136 million in first-quarter 2008 were lower than in first-quarter 2007
due
to a lower overall cost per GWh on purchased power volumes. The related volumes
were consistent with those in first-quarter 2007. Plant operating costs and
other of $59 million, which includes fuel gas consumed in generation, decreased
in first-quarter 2008 from the prior year primarily due to the temporary
suspension of generation at the Bécancour facility. Reductions in volumes,
revenue and operating costs resulting from the agreement to temporarily suspend
generation at the Bécancour facility have not materially affected Eastern
Power's operating income due to payments received pursuant to the
agreement.
In
first-quarter 2008, approximately four per cent of power sales volumes were
sold
into the spot market compared to approximately five per cent in first-quarter
2007. Eastern Power is focused on selling the majority of its power
under contract to wholesale, commercial and industrial customers, while managing
a portfolio of power supplies sourced from its own generation and wholesale
power purchases. To reduce its exposure to spot market prices, as at March
31,
2008, Eastern Power entered into fixed price power sales contracts to sell
approximately 7,000 GWh for the remainder of 2008 and 9,700 GWh for 2009,
although certain contracted volumes are dependent on customer usage
levels.
TRANSCANADA
[10
FIRST
QUARTER REPORT 2008
Bruce
Power
|
Bruce
Power Results
|
Three
months ended March 31
|
|||||||
|
(unaudited)
|
2008
|
2007
|
||||||
|
Bruce
Power (100 per cent basis)
|
||||||||
|
(millions
of dollars)
|
||||||||
|
Revenues
|
||||||||
|
Power
|
468
|
460
|
||||||
|
Other
(1)
|
17
|
20
|
||||||
|
485
|
480
|
|||||||
|
Operating
expenses
|
||||||||
|
Operations
and maintenance(2)
|
(278 | ) | (295 | ) | ||||
|
Fuel
|
(28 | ) | (25 | ) | ||||
|
Supplemental
rent(2)
|
(43 | ) | (43 | ) | ||||
|
Depreciation
and amortization
|
(36 | ) | (36 | ) | ||||
| (385 | ) | (399 | ) | |||||
|
Operating
Income
|
100
|
81
|
||||||
|
TransCanada's
proportionate share - Bruce A
|
32
|
15
|
||||||
|
TransCanada's
proportionate share - Bruce B
|
10
|
16
|
||||||
|
TransCanada's
proportionate share
|
42
|
31
|
||||||
|
Adjustments
|
(5 | ) | (2 | ) | ||||
|
TransCanada's
operating income from Bruce Power
|
37
|
29
|
||||||
|
Bruce
Power - Other Information
|
||||||||
|
Plant
availability
|
||||||||
|
Bruce
A
|
93 | % | 90 | % | ||||
|
Bruce
B
|
72 | % | 78 | % | ||||
|
Combined
Bruce Power
|
79 | % | 82 | % | ||||
|
Planned
outage days
|
||||||||
|
Bruce
A
|
7
|
15
|
||||||
|
Bruce
B
|
50
|
71
|
||||||
|
Unplanned
outage days
|
||||||||
|
Bruce
A
|
1
|
-
|
||||||
|
Bruce
B
|
33
|
4
|
||||||
|
Sales
volumes (GWh)
|
||||||||
|
Bruce
A - 100 per cent
|
3,060
|
2,910
|
||||||
|
TransCanada's
proportionate share
|
1,496
|
1,416
|
||||||
|
Bruce
B - 100 per cent
|
5,140
|
5,430
|
||||||
|
TransCanada's
proportionate share
|
1,624
|
1,713
|
||||||
|
Combined
Bruce Power - 100 per cent
|
8,200
|
8,340
|
||||||
|
TransCanada's
proportionate share
|
3,120
|
3,129
|
||||||
|
Results
per MWh
|
||||||||
|
Bruce
A power revenues
|
$ |
60
|
$ |
59
|
||||
|
Bruce
B power revenues
|
$ |
56
|
$ |
53
|
||||
|
Combined
Bruce Power revenues
|
$ |
57
|
$ |
55
|
||||
|
Combined
Bruce Power fuel
|
$ |
3
|
$ |
3
|
||||
|
Combined
Bruce Power operating expenses (3)
|
$ |
45
|
$ |
47
|
||||
|
Percentage
of output sold to spot market
|
28 | % | 35 | % | ||||
|
(1)
|
Includes
fuel cost recoveries for Bruce A of $13 million for the three
months ended
March 31, 2008 ($8 million for the three months ended March 31,
2007).
Includes a loss of $9 million as a result of changes in fair
value of
held-for-trading derivatives for the three months ended March
31, 2008
(nil for the three months ended March 31,
2007).
|
|
(2)
Includes adjustments to eliminate the effects of inter-partnership
transactions between Bruce A and Bruce B.
|
||||||||
|
(3)
Net of fuel cost recoveries.
|
||||||||
TRANSCANADA
[11
FIRST
QUARTER REPORT 2008
TransCanada's operating income from its investment in Bruce Power was $37 million in first-quarter 2008 compared to $29 million in 2007.
TransCanada’s
proportionate share of operating income in Bruce B decreased $6 million
to $10
million in first-quarter 2008 compared to the same period in 2007 primarily
due
to the positive impact of a prior year adjustment in first-quarter
2007 to Bruce B's operating cost recoveries from Bruce A. Excluding
this adjustment, TransCanada’s share of operating income from Bruce B in
first-quarter 2008 is consistent with the same period in 2007. The positive
impact of higher realized prices and lower operating costs at Bruce B in
first-quarter 2008 were offset by lower output due to an increase in unplanned
outage days as well as mark-to-market losses on held-for-trading derivatives
in
first-quarter 2008. Bruce
B power
prices achieved during first-quarter 2008 were $56 per MWh compared to
$53 per
MWh in first-quarter 2007. The increase was due to higher
prices on
contracted volumes, partially offset by lower spot market prices in Ontario
and
lower output for first-quarter 2008.
TransCanada’s
proportionate share of operating income in Bruce A increased $17 million
to $32
million in first-quarter 2008 compared with 2007 due to the negative impact
of a
prior year adjustment in first-quarter 2007 to Bruce B's operating cost
recoveries from Bruce A. Excluding this adjustment, TransCanada’s
proportionate share of operating income in Bruce A increased $7 million in
first-quarter 2008 compared to the same period in 2007 as a result of the
higher
output and higher realized prices. Bruce
A prices were
slightly higher in first-quarter 2008 compared to the same period in 2007
due to
the April 1, 2007 inflation adjustment to the contracted fixed
price.
Increases
in TransCanada’s combined interest in Bruce Power’s operating income were
partially offset by lower positive purchase price amortizations related to
the
expiry of power sales agreements in 2007.
Bruce
Power's combined operating expenses (net of fuel cost recoveries) decreased
to
$45 per MWh in first-quarter 2008 from $47 per MWh in first-quarter 2007
primarily due to lower operating materials and services costs in first-quarter
2008.
TransCanada’s
share of Bruce Power’s generation for first-quarter 2008 decreased slightly to
3,120 GWh compared to 3,129 GWh in first-quarter 2007 as a result of an increase
in unplanned outage days at Bruce B in first-quarter 2008, offset by a decrease
in planned outage days at both Bruce A and Bruce B in first-quarter 2008.
The
Bruce units ran at a combined average availability of 79 per cent in
first-quarter 2008, compared to an 82 per cent average availability in
first-quarter 2007. The lower availability in first-quarter 2008 was the
result
of more unplanned maintenance outage days at Bruce B, partially offset by
fewer
planned outage days at both Bruce A and Bruce B. The overall plant availability
percentage in 2008 is expected to be in the low 90s for the four Bruce B
units
and the low 80s for the two operating Bruce A units.
As
a
result of a contract with the Ontario Power Authority (OPA), all of the output
from Bruce A in first-quarter 2008 was sold at a fixed price of $59.69 per
MWh
(before recovery of fuel costs from the OPA) compared to $58.63 per MWh for
first-quarter 2007. Sales from the Bruce B Units 5 to 8 were subject to a
floor price of $46.82 per MWh in first-quarter 2008 and $45.99 per MWh in
first-quarter 2007. Both the Bruce A and Bruce B reference prices are adjusted
annually for inflation on April 1. Per an amendment in 2007 of the contract
with the OPA, effective April 1, 2008, the fixed price for output from Bruce
A
will also increase by $2.11 per MWh, subject to inflation adjustments from
October 31, 2005, resulting in a Bruce A price of $63.00 per MWh and the
Bruce B floor price is $47.66 per MWh effective April 1, 2008. Payments received
pursuant to the Bruce B floor price mechanism are subject to a recapture payment
dependent on annual spot prices over the term of the contract. Bruce
B net income did not include any amounts received under this floor price
mechanism to date. To further reduce its exposure to spot market prices, Bruce
B
has entered into fixed price sales contracts to sell forward approximately
10,960 GWh for the remainder of 2008 and 7,190 GWh for 2009.
TRANSCANADA
[12
FIRST
QUARTER REPORT 2008
The
capital cost of Bruce A’s refurbishment and restart of Units 1 and 2 is expected
to total approximately $3.1 billion to $3.4 billion, with TransCanada’s share
being approximately $1.55 billion to $1.7 billion. As at March 31, 2008, Bruce
A
had incurred $2.0 billion in costs with respect to the restart and refurbishment
of Units 1 and 2, and approximately $0.2 billion for the refurbishment of Units
3 and 4. For further discussion on the Bruce refurbishment and restart, refer
to
the Other Recent Developments section of this MD&A.
Power
Plant Availability
|
Weighted
Average Power Plant Availability (1)
|
||||||||
|
Three
months ended March 31
|
||||||||
|
(unaudited)
|
2008
|
2007
|
||||||
|
Western
Power
|
92 | % | 99 | % | ||||
|
Eastern
Power (2)
|
94 | % | 97 | % | ||||
|
Bruce
Power
|
79 | % | 82 | % | ||||
|
All
plants, excluding Bruce Power investment
|
93 | % | 97 | % | ||||
|
All
plants
|
87 | % | 91 | % | ||||
|
(1)
|
Plant
availability represents the percentage of time in the period
that the
plant is available to generate power, whether actually running
or not,
reduced by planned and unplanned
outages.
|
|
(2)
|
Eastern Power includes Anse-à-Valleau
effective November 10,
2007.
|
Natural
Gas Storage
Natural
Gas Storage operating income of $48 million in first-quarter 2008 increased
$18
million compared to $30 million in first-quarter 2007. This increase was
primarily due to incremental income earned in first-quarter 2008 from the Edson
facility, which was fully operational in first-quarter 2008, but only in a
commissioning phase in first-quarter 2007. Partially offsetting the increase
in
earnings from the Edson facility was a decrease in earnings from the CrossAlta
facility as a result of decreased realized seasonal natural gas price spreads
in
first-quarter 2008 compared to the same period in 2007. Natural Gas Storage
comparable earnings of $60 million in first-quarter 2008
excluded $12-million after tax ($17 million pre-tax) of net unrealized
losses resulting from the changes in fair value of proprietary natural gas
inventory in storage and natural gas forward purchase and sale contracts. The
forward contracts are transacted on a back-to-back basis, thereby locking in
future positive margins. Fair value adjustments recorded each period on
proprietary natural gas storage inventory and these forward contracts are not
representative of the amounts that will be realized on settlement.
General,
Administrative and Support Costs
General,
administrative and support costs of $41 million for the three months ended
March
31, 2008, increased $5 million compared to the same period in 2007. The increase
was primarily due to higher business development costs associated with growing
the Energy business.
Corporate
Corporate
net expenses for the three months ended March 31, 2008 were $22 million compared
to net income of $4 million for the same period in 2007. The decrease
in net income was primarily due to the $15 million of positive income tax
adjustments in first-quarter 2007. In first-quarter 2008, net expenses also
increased due to higher financial charges, primarily as a result of financing
the February 2007 acquisitions of ANR and additional interest in Great Lakes,
and first-quarter 2008 losses on derivatives used to manage the Company's
exposure to foreign exchange rate fluctuations. Corporate's comparable expenses
of $11 million in first-quarter 2007 excluded the $15 million in income tax
adjustments.
TRANSCANADA
[13
FIRST
QUARTER REPORT 2008
Liquidity
and Capital Resources
|
Funds
Generated from Operations
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Cash
Flows
|
||||||||
|
Funds
generated from operations (1)
|
922
|
582
|
||||||
|
Decrease
in operating working capital
|
6
|
36
|
||||||
|
Net
cash provided by operations
|
928
|
618
|
||||||
(1)
For further discussion on funds generated from
operations, refer to the Non-GAAP Measures section in this
MD&A.
Net
cash
provided by operations increased $310 million in the three months ended March
31, 2008, compared to the same period in 2007. Funds generated from operations
increased $340 million for the three months ended March 31, 2008, compared
to
the same period in 2007. The increases were primarily due to gains from the
Calpine bankruptcy settlements and higher earnings.
The
Ravenswood
acquisition, discussed further in the Other Recent Developments section in
this
MD&A, is expected to be financed in a manner consistent with
TransCanada’s current capital structure and commitment to maintaining its ‘A’
credit ratings. TransCanada expects that both its ability to generate
adequate amounts of cash in the short and long term, when needed, and to
maintain financial capacity and flexibility to provide for planned growth
remain
substantially unchanged since December 31, 2007.
Investing
Activities
Acquisitions,
net of cash acquired, for the three months ended March 31, 2008 were $2 million
compared to $4,265 million for the same period in 2007. Acquisitions in
first-quarter 2007 included TransCanada's acquisition of ANR and an additional
3.6 per cent interest in Great Lakes for approximately US$3.4 billion, including
US$491 million of assumed long-term debt, as well as PipeLines LP’s acquisition
of a 46.4 per cent interest in Great Lakes for approximately US$942 million,
including US$209 million of assumed long-term debt.
For
the
three months ended March 31, 2008, capital expenditures totalled $460 million
(2007 - $306 million) and primarily related to the refurbishment and restart
of
Bruce A Units 1 and 2, the construction of new power plants in Energy, expansion
of the Alberta System and construction of the Keystone oil
pipeline.
Financing
Activities
In
the
three months ended March 31, 2008, TransCanada retired $394 million of long-term
debt (2007 - $325 million) and issued $112 million of long-term debt (2007
-
$1,362 million). TransCanada’s notes payable decreased $30 million in the three
months ended March 31, 2008 (2007 – increased $1,065 million).
Under
its
Dividend Reinvestment and Share Purchase Plan (DRP), TransCanada issued 1.4
million common shares in the three months ended March 31, 2008 in lieu of making
cash dividend payments of $54 million.
TRANSCANADA
[14
FIRST
QUARTER REPORT 2008
Dividends
On
April
24, 2008, TransCanada's Board of Directors declared a quarterly dividend
of
$0.36 per share for the quarter ending June 30, 2008 on the Company’s
outstanding common shares. It is payable on July 31, 2008 to shareholders
of
record at the close of business on June 30, 2008.
TransCanada’s
Board of Directors also approved the issuance of common shares from treasury
at
a two per cent discount under TransCanada’s DRP for the dividend payable July
31, 2008. The Company reserves the right to alter the discount or return
to
purchasing shares on the open market at any time.
Changes
in Accounting Policies
The
Company’s Accounting Policies and Future Accounting Changes have not changed
materially from those described in TransCanada’s 2007 Annual
Report.
Contractual
Obligations
The
Company is committed to acquiring the Ravenswood power facility in New York
City
from National Grid plc (National Grid) for US$2.8 billion plus closing
adjustments, as discussed in the Other Recent Developments section of this
MD&A. Other than this commitment, there have been no other material changes
to TransCanada’s contractual obligations from December 31, 2007 to March 31,
2008, including payments due for the next five years and thereafter. For
further
information on these contractual obligations, refer to the MD&A in
TransCanada’s 2007 Annual Report.
Financial
Instruments and Risk Management
Natural
Gas Inventory
At
March
31, 2008, $207 million of proprietary natural gas storage inventory was included
in Inventories (December 31, 2007 - $190 million). Effective
April 1,
2007, TransCanada began valuing its proprietary natural gas storage inventory
at
fair value, as measured by the one-month forward price for natural gas. The
Company did not have any proprietary natural gas inventory prior to April
1,
2007. The change in fair value of proprietary natural gas inventory in
the three months ended March 31, 2008 resulted in a gain of $59 million,
which
was recorded as an increase to Revenues and Inventory. The net change in
fair
value of natural gas forward purchase and sales contracts in first-quarter
2008 was a loss of $76 million (three months ended March 31, 2007 – loss of $3
million), which was recorded in Revenues.
TRANSCANADA
[15
FIRST
QUARTER REPORT 2008
Derivative
Financial Instruments
Derivatives
Hedging Net Investment in Foreign Operations
|
Asset/(Liability)
|
||||||||||
|
(unaudited)
|
||||||||||
|
(millions
of dollars)
|
March
31, 2008
|
December
31, 2007
|
||||||||
|
Notional
or
|
Notional
or
|
|||||||||
|
Fair
|
Principal
|
Fair
|
Principal
|
|||||||
|
Value(1)
|
Amount
|
Value(1)
|
Amount
|
|||||||
|
Derivative
financial Instruments in hedging relationships
|
||||||||||
|
U.S.
dollar cross-currency swaps
|
||||||||||
|
(maturing
2009 to 2014)
|
62
|
U.S.
450
|
77
|
U.S.
350
|
||||||
|
U.S.
dollar forward foreign exchange contracts
|
||||||||||
|
(maturing
2008 )
|
(36 | ) |
U.S.
1,440
|
(4 | ) |
U.S.
150
|
||||
|
U.S.
dollar options
|
||||||||||
|
(maturing
2008 )
|
(1 | ) |
U.S.
50
|
3
|
U.S.
600
|
|||||
|
25
|
U.S.
1,940
|
76
|
U.S.
1,100
|
|||||||
|
(1)
Fair values are equal to carrying
values.
|
|
Derivative
Financial Instruments Summary
Significant
changes from December 31, 2007 for the Company’s derivative financial
instruments are as follow:
|
Natural
Gas
|
||||||||
|
(unaudited)
|
March
31, 2008
|
December
31, 2007
|
||||||
|
|
||||||||
| Derivative Financial Instruments Held for Trading | ||||||||
|
Fair
Values(1)
|
||||||||
|
Assets
|
$ |
98
|
$ |
43
|
||||
|
Liabilities
|
$ | (149 | ) | $ | (19 | ) | ||
|
Volumes(2)
|
||||||||
|
Purchases
|
55
|
47
|
||||||
|
Sales
|
74
|
64
|
||||||
|
(1)
Fair value is equal to the carrying value of these derivatives.
Amounts
are in millions of dollars.
|
||||||||
|
(2) Volumes
for natural gas derivatives are in billion cubic feet.
|
||||||||
Risk
Related to Environmental Regulations
The
Alberta Utilities Commission (AUC) approved TransCanada’s request that any costs
incurred by the Alberta System in 2007 to comply with greenhouse gas emission
legislation may be recovered from customers on the Alberta System. It is
expected that costs incurred by the Alberta System in 2008 and onwards will
also
be recovered through future tolls.
TRANSCANADA
[16
FIRST
QUARTER REPORT 2008
Other
Risks
Additional
risks faced by the Company are discussed in the MD&A in TransCanada’s 2007
Annual Report. These risks remain substantially unchanged since December
31,
2007.
Controls
and Procedures
As
of
March 31, 2008, an evaluation was carried out under the supervision of, and
with
the participation of management, including the President and Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of TransCanada’s
disclosure controls and procedures as defined under the rules adopted by the
Canadian securities regulatory authorities and by the SEC. Based on this
evaluation, the President and Chief Executive Officer and the Chief Financial
Officer concluded that the design and operation of TransCanada’s disclosure
controls and procedures were effective as at March 31, 2008.
During
the recent fiscal quarter, there have been no changes in TransCanada’s internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, TransCanada’s internal control over
financial reporting.
During
first-quarter
2008, TransCanada completed its integration of ANR’s internal control
over financial reporting.
Significant
Accounting Policies and Critical Accounting Estimates
To
prepare financial statements that conform with Canadian GAAP, TransCanada
is
required to make estimates and assumptions that affect both the amount and
timing of recording assets, liabilities, revenues and expenses. The Company
uses
the most current information available and exercises careful judgement in
making
these estimates and assumptions.
TransCanada's
significant accounting policies and critical accounting estimates have remained
unchanged since December 31, 2007 and are the use of regulatory accounting
for the Company’s rate-regulated operations and the policies the Company adopts
to account for financial instruments and depreciation and amortization
expense. For further information on the Company’s accounting policies
and estimates refer to the MD&A in TransCanada's 2007 Annual
Report.
Outlook
Since
the
disclosure in TransCanada’s 2007 Annual Report, the Company's earnings outlook
is relatively unchanged except for the Calpine bankruptcy settlements, the
writedown of the Broadwater LNG project costs and the anticipated effects on
earnings for the recently-announced acquisition of Ravenswood, which the Company
expects to close in third-quarter 2008. The Company expects Ravenswood to be
modestly dilutive to TransCanada’s earnings in the first two full years of
ownership based on the near-term effects of a U.S. Federal Energy Regulatory
Commission (FERC) order pertaining to the New York Independent System Operator
(New York City) capacity market. TransCanada expects Ravenswood’s contribution
to TransCanada’s earnings to be accretive in subsequent years. The
Ravenswood acquisition is discussed further in the Other Recent Developments
section of this MD&A. For further information on outlook, refer to the
MD&A in TransCanada’s 2007 Annual Report.
TransCanada
Corporation’s issuer rating assigned by Moody’s Investors Service (Moody’s) is
A3. TCPL’s senior unsecured debt is rated A by DBRS; A2 by Moody's; and A with a
stable outlook by Standard & Poor's. Following TransCanada’s announcement
that it has agreed to acquire Ravenswood from National Grid, DBRS placed the
ratings of TCPL under review with developing implications and Moody’s placed the
ratings of TransCanada Corporation and its subsidiaries under review for
possible downgrade.
TRANSCANADA
[17
FIRST
QUARTER REPORT 2008
Other
Recent
Developments
Pipelines
Canadian
Mainline
On
March
18, 2008, TransCanada filed an application with the NEB to increase the Canadian
Mainline 2008 interim tolls previously approved in December 2007. This toll
increase is a result of a significant decrease in forecasted flows on the
Canadian Mainline and will allow TransCanada to more accurately meet its 2008
revenue requirement. On March 28, 2008, the NEB approved the amended interim
tolls for transportation service effective April 1, 2008. TransCanada expects
to
file an application with the NEB for final 2008 tolls in late second-quarter
2008.
Alberta
System
In
April
2008, the Alberta System expansion in the Fort McMurray area, comprising a
total
of approximately 150 kilometres (km), was placed in service on its projected
on-stream date.
In
March
2008, TransCanada reached a settlement agreement with stakeholders on the
Alberta System and filed a 2008-2009 Revenue Requirement Settlement Application
with the AUC. The settlement included all elements of the Alberta System revenue
requirement for the years 2008 and 2009, including establishing the
methodologies for calculation of the 2008 and 2009 revenue requirements based
on
fixed and flow-through cost components and the use of deferral accounts for
various revenues and costs. A decision from the AUC with respect to the
settlement is expected in second-quarter 2008.
In
February 2008, the AUC initiated a review of the Generic Cost of Capital
adjustment formula previously determined by the Alberta Energy Utilities Board.
The review will consider whether the formula continues to yield a fair return
on
equity and whether capital structures for utilities should be addressed.
TransCanada has registered as a participant and has expressed the view that
the
formula combined with the deemed capital structure does not yield a fair overall
return on equity. The AUC is expected to schedule a proceeding on these issues
in late 2008 or early 2009.
Keystone
Oil Pipeline
On
April
8, 2008, the NEB held an oral hearing to consider TransCanada’s application for
additional pumping facilities required to expand the Canadian portion of the
Keystone oil pipeline project from a nominal capacity of approximately 435,000
barrels per day to 590,000 barrels per day. An NEB decision is expected in
second-quarter 2008.
In
January 2008, Keystone U.S. received the U.S. Department of State Final
Environmental Impact Statement (FEIS) regarding construction of the Keystone
U.S. pipeline and its Cushing extension. The FEIS stated the pipeline would
result in limited adverse environmental impacts. In March 2008, the U.S.
Department of State issued a Presidential Permit to Keystone authorizing the
construction, maintenance and operation of facilities at the U.S./Canada border
to transport crude oil between the two countries. Construction of the Keystone
pipeline is expected to begin in second-quarter 2008 and phase one is expected
to be in service in fourth-quarter 2009.
TRANSCANADA
[18
FIRST
QUARTER REPORT 2008
Calpine
Bankruptcy Settlements
Certain
subsidiaries of Calpine filed for bankruptcy protection in both Canada and
the
U.S. in 2005. Gas Transmission Northwest Corporation (GTNC) and Portland reached
agreements with Calpine for allowed unsecured claims of US$192.5 million and
US$125 million, respectively, in the Calpine bankruptcy. In February 2008,
GTNC
and Portland received initial distributions of shares in the re-organized
Calpine of 9.4 million shares and 6.1 million shares, respectively, which
represented approximately 85 per cent of their agreed-upon claims. These shares
were subsequently sold into the open market, which resulted in an overall
increase to net income of $152 million after tax ($240 million pre-tax) as
a
result of the Calpine bankruptcy settlements. Timing and amount of any
additional distribution remains uncertain.
Claims
by
Foothills Pipe Lines (South B.C.) Ltd. and NGTL for $44 million and $32 million,
respectively, were received in cash in January 2008 and will be passed on to
shippers on these systems.
Sunstone
Pipeline Project
TransCanada
and Williams Companies, Inc. are evaluating the development of the Sunstone
pipeline, a proposed 995-km pipeline from Wyoming to Stanfield, Oregon, with
capacity of up to 1.2 Bcf per day (Bcf/d). Each company would own 50 per cent
of
this joint venture. The project would be expected to be placed in-service
beginning in 2011. A binding open season for capacity on the Sunstone pipeline
is being held until April 30, 2008.
Pathfinder
Pipeline Project
TransCanada
is evaluating the development of the Pathfinder pipeline, a proposed 805-km
pipeline from Wamsutter, Wyoming to the Northern Border system, with an initial
capacity of 1.2 Bcf/d and ultimate capacity of 2.0 Bcf/d. The project would
be
expected to be placed in service in late 2010. TransCanada is holding a binding
open season for capacity on the Pathfinder pipeline until May 22,
2008.
Bison
Pipeline Project
Northern
Border is evaluating the development of the Bison pipeline project, a proposed
465-km pipeline from Dead Horse, Wyoming to the Northern Border system, with
an
initial capacity of 400 million cubic feet per day (mmcf/d) and ultimate
capacity of up to 660 mmcf/d. The project would be expected to be placed
in-service beginning late 2010. A binding open season for capacity on the Bison
pipeline project is being held until May 16, 2008.
Portland
Rate Case
On
April
1, 2008, Portland filed a general rate case with the FERC proposing a rate
increase of approximately six per cent as well as other changes to its
tariff.
TQM
Settlement/Cost of Capital Application
In
November 2007, TQM filed an application with the NEB for approval of a
three-year partial negotiated settlement with interested parties concerning
all
matters, except cost of capital, for the years 2007 to 2009. In December 2007,
TQM filed a cost of capital application for the years 2007 and 2008. The
application requests approval of an 11 per cent return on 40 per cent deemed
common equity. TQM’s rates currently reflect the NEB ROE formula on 30 per cent
deemed common equity. The NEB has scheduled a hearing to take place in Montreal,
Québec, commencing September 23, 2008.
TRANSCANADA
[19
FIRST
QUARTER REPORT 2008
Alaska
Pipeline Project
In
November 2007, TransCanada submitted an application for a license to construct
the Alaska Pipeline project under the Alaska Gasline Inducement Act
(AGIA). On January 4, 2008, the State of Alaska announced that TransCanada
had
submitted a complete AGIA application and would be advancing to the Public
Comment stage. If approved by the Alaska Administration and the Alaska
Legislature, TransCanada could be granted the AGIA license later this year.
Although no other
applicant met all the AGIA requirements, in April 2008, BP p.l.c.
and
ConocoPhillips proposed an alternative Alaska pipeline project. TransCanada
continues to work with the State of Alaska and the Alaska producers to advance
this project.
Energy
Ravenswood
Acquisition
On
March
31, 2008, TransCanada announced that a subsidiary of the Company entered
into an
agreement to acquire all of the outstanding membership interests of
KeySpan-Ravenswood, LLC and all of the outstanding shares of KeySpan Ravenswood
Services Corp. from National Grid. Keyspan-Ravenswood, LLC directly or
indirectly owns or controls the 2,480 MW Ravenswood Generating Facility
(Ravenswood) located in Queens, New York. The purchase price is approximately
US$2.8 billion plus closing adjustments. This acquisition is subject to various
U.S. state and federal government approvals and is expected to close in
third-quarter 2008. The Company expects the acquisition to be modestly dilutive
to earnings in the first two full years of ownership based on the near-term
effects of a FERC order pertaining to the New York Independent System Operator
(New York City) capacity market. Subsequently, the Company expects earnings
to
be accretive.
National
Grid is divesting its 100 per cent interest in Ravenswood pursuant to a New
York
Public Service Commission order approving its acquisition of KeySpan
Corporation.
Ravenswood
is a gas- and oil-fired generating facility consisting of multiple units
employing steam turbine, combined-cycle and combustion turbine technology.
Ravenswood has the capacity to serve approximately 21 per cent of the overall
peak load in New York City. Upon close of the Ravenswood acquisition,
TransCanada will own, or have interests in, over 10,200 MW of power generation
in Canada and the U.S.
Bruce
Power Refurbishment and Restart
Under
the
August 29, 2007 amendment to the Bruce A refurbishment agreement between Bruce
Power and the OPA, the OPA had the option to elect, prior to April 1, 2008,
to
proceed with a three-unit refurbishment and restart program instead of the
revised four-unit program. The OPA chose to not exercise this option and instead
elected to proceed with the four-unit refurbishment and restart program.
In
April
2008, Bruce Power completed a comprehensive review of the estimated costs to
complete the Bruce A Units 1 and 2 refurbishment and restart project. Based
on
this assessment, the capital cost for the refurbishment and restart of Bruce
A
Units 1 and 2 is expected to be approximately $3.1 billion to $3.4 billion,
increasing from the original cost estimate of $2.75 billion. TransCanada’s share
is expected to be approximately $1.55 billion to $1.7 billion, compared to
an
original estimate of $1.4 billion. The project cost increases are subject to
the
capital cost risk- and reward-sharing mechanism under the agreement with the
OPA. TransCanada expects the unlevered after-tax return on its investment to
be
in the middle of the previously-announced range of 9.5 per cent to 13.5 per
cent. In the event of a further 10 per cent increase in capital costs, the
Company’s unlevered after-tax return on the project would be approximately 10
per cent. With approximately 60 per cent of the project complete, it is
expected that the two units will return to service in late 2009 and early
2010.
TRANSCANADA
[20
FIRST
QUARTER REPORT 2008
Broadwater
On
March
24, 2008, the FERC authorized the construction and operation of the Broadwater
LNG project, subject to conditions reflected in the authorization.
On
April
10, 2008, the New York State Department of State rejected the proposal to
construct this facility. As a result of this unfavourable decision, TransCanada
wrote down $27 million after tax ($41 million pre-tax) of costs that had been
capitalized to March 31, 2008 for Broadwater. Broadwater is assessing its
options with respect to this project.
Coolidge
Power Project
In
response to a request for proposals from the Salt River Project of Phoenix,
Arizona, TransCanada is proposing to build, own and operate an approximate
575
MW simple-cycle, natural gas-fired peaking power station in Coolidge,
Arizona. The capital cost of the project is estimated to be US$500
million. Subject to the execution of a successful PPA and receipt of
required permits, construction is scheduled to begin in third-quarter 2009
with the station expected to be placed in service by mid-2011.
Share
Information
As
at
March 31, 2008, TransCanada had 542 million issued and outstanding common
shares. In addition, there were 9 million outstanding options to purchase
common shares, of which 7 million were exercisable as at March 31,
2008.
Selected
Quarterly Consolidated Financial Data(1)
|
(unaudited)
|
2008
|
2007
|
2006
|
||||||||||||
|
(millions
of dollars except per share amounts)
|
First
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
|||||||
|
Revenues
|
2,133
|
2,189
|
2,187
|
2,208
|
2,244
|
2,091
|
1,850
|
1,685
|
|||||||
|
Net
Income
|
449
|
377
|
324
|
257
|
265
|
269
|
293
|
244
|
|||||||
|
Share
Statistics
|
|||||||||||||||
|
Net
income per share - Basic
|
$ 0.83
|
$ 0.70
|
$ 0.60
|
$ 0.48
|
$ 0.52
|
$ 0.55
|
$ 0.60
|
$ 0.50
|
|||||||
|
Net
income per share - Diluted
|
$ 0.83
|
$ 0.70
|
$ 0.60
|
$ 0.48
|
$ 0.52
|
$ 0.54
|
$ 0.60
|
$ 0.50
|
|||||||
|
Dividend
declared per common share
|
$ 0.36
|
$ 0.34
|
$ 0.34
|
$ 0.34
|
$ 0.34
|
$ 0.32
|
$ 0.32
|
$ 0.32
|
|||||||
(1)
The selected quarterly consolidated financial data has been prepared in
accordance with Canadian GAAP. Certain comparative figures have been
reclassified to conform with the current year's presentation.
Factors
Impacting Quarterly Financial Information
In
Pipelines, which consists primarily of the Company's investments in regulated
pipelines and regulated natural gas storage facilities, annual revenues and
net
income fluctuate over the long term based on regulators'
decisions and negotiated settlements with shippers. Generally,
quarter-over-quarter revenues and net income during any particular fiscal
year remain relatively stable with fluctuations resulting from adjustments
being
recorded due to regulatory decisions and negotiated settlements with
shippers, seasonal fluctuations in short-term throughput on U.S. pipelines,
acquisitions and divestitures, and developments outside of the normal
course of operations.
TRANSCANADA
[21
FIRST
QUARTER REPORT 2008
In
Energy, which consists primarily of the Company’s investments in electrical
power generation plants and non-regulated natural gas storage facilities,
quarter-over-quarter revenues and net income are affected by seasonal weather
conditions, customer demand, market prices, planned and unplanned plant outages,
acquisitions and divestitures, and developments outside of the normal course
of
operations.
Significant
developments that impacted the last eight quarters' net income are as
follows.
|
·
|
Second-quarter
2006 net income included $33 million of future income tax benefits
($23
million in Energy and $10 million in Corporate) as a result of reductions
in Canadian federal and provincial corporate income tax
rates. Pipelines’ net income included a $13-million after-tax
gain related to the sale of the Company’s general partner interest in
Northern Border Partners, L.P.
|
|
·
|
Third-quarter
2006 net income included an income tax benefit of approximately $50
million as a result of the resolution of certain income tax matters
with
taxation authorities and changes in estimates. Energy’s net income
included earnings from Bécancour, which came into service September 17,
2006.
|
|
·
|
Fourth-quarter
2006, net income included approximately $12 million related to income
tax
refunds and related interest.
|
|
·
|
First-quarter
2007 net income included $15 million related to positive income tax
adjustments. In addition, Pipelines’ net income included contributions
from the February 22, 2007 acquisitions of ANR and additional ownership
interests in Great Lakes. Energy’s net income included earnings from the
Edson natural gas facility, which was placed in service on December
31,
2006.
|
|
·
|
Second-quarter
2007 net income included $16 million ($12 million in Corporate and
$4
million in Energy) related to positive income tax adjustments resulting
from reductions in Canadian federal income tax rates. Pipelines’ net
income increased as a result of a settlement reached on the Canadian
Mainline, which was approved by the NEB in May
2007.
|
|
·
|
Third-quarter
2007 net income included $15 million of favourable income tax
reassessments and associated interest income relating to prior
years.
|
|
·
|
Fourth-quarter
2007 net income
included
$56 million ($30 million in Energy and $26 million in
Corporate) of
favourable income tax adjustments resulting from reductions in
Canadian
federal income tax rates and other legislative changes, and a
$14-million
after-tax ($16 million pre-tax) gain on sale of land previously held
for development. Pipelines’ net income increased as a result of recording
incremental earnings related to the rate case settlement reached
for the
GTN System, effective January 1,
2007.
|
|
·
|
First-quarter
2008, Pipelines’ net income included $152 million after tax ($240
million pre-tax) from the Calpine bankruptcy settlements received
by GTN
and Portland and proceeds from a lawsuit settlement of $10 million
after
tax ($17 million pre-tax). Energy’s net income included a writedown of
costs related to the Broadwater LNG project of $27 million after
tax ($41
million pre-tax) and net unrealized losses of $12 million after tax
($17
million pre-tax) due to changes in fair value of proprietary natural
gas
storage inventory and natural gas forward purchase and sale
contracts.
|
Exhibit
13.2
Consolidated
Income
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars except per share amounts)
|
2008
|
2007
|
||||||
|
Revenues
|
2,133
|
2,244
|
||||||
|
Operating
Expenses
|
||||||||
|
Plant
operating costs and other
|
698
|
732
|
||||||
|
Commodity
purchases resold
|
410
|
571
|
||||||
|
Depreciation
|
296
|
290
|
||||||
|
1,404
|
1,593
|
|||||||
|
729
|
651
|
|||||||
|
Other
Expenses/(Income)
|
||||||||
|
Financial
charges
|
218
|
237
|
||||||
|
Financial
charges of joint ventures
|
16
|
21
|
||||||
|
Interest
income and other
|
(39 | ) | (31 | ) | ||||
|
Calpine
bankruptcy settlements
|
(279 | ) |
-
|
|||||
|
Writedown
of Broadwater LNG project costs
|
41
|
-
|
||||||
| (43 | ) |
227
|
||||||
|
Income
before Income Taxes
and Non-Controlling Interests
|
772
|
424
|
||||||
|
Income
Taxes
|
||||||||
|
Current
|
247
|
168
|
||||||
|
Future
|
5
|
(37 | ) | |||||
|
252
|
131
|
|||||||
|
Non-Controlling
Interests
|
||||||||
|
Preferred
share dividends of subsidiary
|
6
|
6
|
||||||
|
Non-controlling
interest in PipeLines LP
|
21
|
17
|
||||||
|
Other
|
44
|
5
|
||||||
|
71
|
28
|
|||||||
|
Net
Income
|
449
|
265
|
||||||
|
Net
Income Per Share
|
||||||||
|
Basic
|
$ |
0.83
|
$ |
0.52
|
||||
|
Diluted
|
$ |
0.83
|
$ |
0.52
|
||||
|
Average
Shares Outstanding - Basic (millions)
|
541
|
508
|
||||||
|
Average
Shares Outstanding - Diluted (millions)
|
543
|
511
|
||||||
|
See
accompanying notes to the consolidated financial
statements.
|
||||||||
TRANSCANADA
[23
FIRST
QUARTER REPORT 2008
Consolidated Cash Flows
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Cash
Generated From Operations
|
||||||||
|
Net
income
|
449
|
265
|
||||||
|
Depreciation
|
296
|
290
|
||||||
|
Future
income taxes
|
5
|
(37 | ) | |||||
|
Non-controlling
interests
|
71
|
28
|
||||||
|
Employee
future benefits funding lower than expense
|
20
|
12
|
||||||
|
Writedown
of Broadwater LNG project costs
|
41
|
-
|
||||||
|
Other
|
40
|
24
|
||||||
|
922
|
582
|
|||||||
|
Decrease
in operating working capital
|
6
|
36
|
||||||
|
Net
cash provided by operations
|
928
|
618
|
||||||
|
Investing
Activities
|
||||||||
|
Capital
expenditures
|
(460 | ) | (306 | ) | ||||
|
Acquisitions,
net of cash acquired
|
(2 | ) | (4,265 | ) | ||||
|
Deferred
amounts and other
|
112
|
(61 | ) | |||||
|
Net
cash used in investing activities
|
(350 | ) | (4,632 | ) | ||||
|
Financing
Activities
|
||||||||
|
Dividends
on common shares
|
(130 | ) | (156 | ) | ||||
|
Distributions
paid to non-controlling interests
|
(21 | ) | (16 | ) | ||||
|
Notes
payable (repaid)/issued, net
|
(30 | ) |
1,065
|
|||||
|
Long-term
debt issued
|
112
|
1,362
|
||||||
|
Reduction
of long-term debt
|
(394 | ) | (325 | ) | ||||
|
Long-term
debt of joint ventures issued
|
17
|
12
|
||||||
|
Reduction
of long-term debt of joint ventures
|
(29 | ) | (12 | ) | ||||
|
Common
shares issued, net of issue costs
|
9
|
1,690
|
||||||
|
Partnership
units of subsidiary issued
|
-
|
348
|
||||||
|
Net
cash (used in)/ provided by financing activities
|
(466 | ) |
3,968
|
|||||
|
Effect
of Foreign Exchange Rate Changes on Cash
|
||||||||
|
and
Cash Equivalents
|
23
|
(3 | ) | |||||
|
Increase
/(Decrease) in Cash and Cash Equivalents
|
135
|
(49 | ) | |||||
|
Cash
and Cash Equivalents
|
||||||||
|
Beginning
of period
|
504
|
399
|
||||||
|
Cash
and Cash Equivalents
|
||||||||
|
End
of period
|
639
|
350
|
||||||
|
Supplementary
Cash Flow Information
|
||||||||
|
Income
taxes paid
|
167
|
87
|
||||||
|
Interest
paid
|
204
|
273
|
||||||
|
See
accompanying notes to the consolidated financial
statements.
|
||||||||
TRANSCANADA
[24
FIRST
QUARTER REPORT 2008
Consolidated
Balance Sheet
|
(unaudited)
|
March
31,
|
December
31,
|
||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
ASSETS
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
639
|
504
|
||||||
|
Accounts
receivable
|
964
|
1,116
|
||||||
|
Inventories
|
503
|
497
|
||||||
|
Other
|
268
|
188
|
||||||
|
2,374
|
2,305
|
|||||||
|
Plant,
Property and Equipment
|
23,877
|
23,452
|
||||||
|
Goodwill
|
2,839
|
2,633
|
||||||
|
Other
Assets
|
1,782
|
1,940
|
||||||
|
30,872
|
30,330
|
|||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities
|
||||||||
|
Notes
payable
|
373
|
421
|
||||||
|
Accounts
payable and accrued liabilities
|
1,702
|
1,767
|
||||||
|
Accrued
interest
|
303
|
261
|
||||||
|
Current
portion of long-term debt
|
895
|
556
|
||||||
|
Current
portion of long-term debt of joint ventures
|
28
|
30
|
||||||
|
3,301
|
3,035
|
|||||||
|
Deferred
Amounts
|
1,221
|
1,107
|
||||||
|
Future
Income Taxes
|
1,171
|
1,179
|
||||||
|
Long-Term
Debt
|
12,037
|
12,377
|
||||||
|
Long-Term
Debt of Joint Ventures
|
900
|
873
|
||||||
|
Junior
Subordinated Notes
|
1,015
|
975
|
||||||
|
19,645
|
19,546
|
|||||||
|
Non-Controlling
Interests
|
||||||||
|
Non-controlling
interest in PipeLines LP
|
619
|
539
|
||||||
|
Preferred
shares of subsidiary
|
389
|
389
|
||||||
|
Other
|
119
|
71
|
||||||
|
1,127
|
999
|
|||||||
|
Shareholders'
Equity
|
10,100
|
9,785
|
||||||
|
30,872
|
30,330
|
|||||||
|
See
accompanying notes to the consolidated financial
statements.
|
||||||||
TRANSCANADA
[25
FIRST
QUARTER REPORT 2008
Consolidated
Comprehensive Income
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Net
Income
|
449
|
265
|
||||||
|
Other
Comprehensive Income/(Loss), Net of Income Taxes
|
||||||||
|
Change
in foreign currency translation gains and losses on
|
||||||||
|
investments
in foreign operations
(1)
|
53
|
(37 | ) | |||||
|
Change
in gains and losses on hedges of investments
|
||||||||
|
in
foreign operations
(2)
|
(41 | ) |
9
|
|||||
|
Change
in gains and losses on derivative instruments
|
||||||||
|
designated
as cash flow hedges (3)
|
4
|
(1 | ) | |||||
|
Reclassification
to net income of gains and losses on derivative
|
||||||||
|
instruments
designated as cash flow hedges pertaining to
|
||||||||
|
prior
periods (4)
|
(19 | ) | (3 | ) | ||||
|
Other
Comprehensive Income/(Loss)
|
(3 | ) | (32 | ) | ||||
|
Comprehensive
Income
|
446
|
233
|
||||||
|
(1)
Net of income tax recovery of $25 million for the three months
ended March
31, 2008 (2007 - $5 million expense).
|
||||||||
|
(2)
Net of income tax recovery of $22 million for the three months
ended March
31, 2008 (2007 - $5 million expense).
|
||||||||
|
(3)
Net of income tax expense of $12 million for the three months
ended March
31, 2008 (2007 - $5 million recovery).
|
||||||||
|
(4)
Net of income tax recovery of $9 million for the three months
ended March
31, 2008 (2007 - $2 million recovery).
|
||||||||
|
See
accompanying notes to the consolidated financial
statements.
|
||||||||
TRANSCANADA
[26
FIRST
QUARTER REPORT 2008
Consolidated
Accumulated Other Comprehensive Income
|
(unaudited)
(millions
of dollars)
|
Currency
Translation Adjustment
|
Cash
Flow Hedges
|
Total
|
|||||||||
|
Balance
at December 31, 2007
|
(361 | ) | (12 | ) | (373 | ) | ||||||
|
Change
in foreign currency translation gains and losses on investments
in
|
||||||||||||
|
foreign
operations (1)
|
53
|
-
|
53
|
|||||||||
|
Change
in gains and losses on hedge of investments in foreign operations
(2)
|
(41 | ) |
-
|
(41 | ) | |||||||
|
Change
in gains and losses on derivative instruments designated as cash
flow
|
||||||||||||
|
hedges
(3)
|
-
|
4
|
4
|
|||||||||
|
Reclassification
to net income of gains and losses on derivative
instruments
|
||||||||||||
|
designated
as cash flow hedges pertaining to prior periods (4)(5)
|
-
|
(19 | ) | (19 | ) | |||||||
|
Balance
at March 31, 2008
|
(349 | ) | (27 | ) | (376 | ) | ||||||
|
Balance
at December 31, 2006
|
(90 | ) |
-
|
(90 | ) | |||||||
|
Transition
adjustment resulting from adopting new financial instruments standards
(6)
|
-
|
(96 | ) | (96 | ) | |||||||
|
Change
in foreign currency translation gains and losses on investments
in
|
||||||||||||
|
foreign
operations (1)
|
(37 | ) |
-
|
(37 | ) | |||||||
|
Change
in gains and losses on hedge of investments in foreign operations
(2)
|
9
|
-
|
9
|
|||||||||
|
Change
in gains and losses on derivative instruments designated as cash
flow
|
||||||||||||
|
hedges
(3)
|
-
|
(1 | ) | (1 | ) | |||||||
|
Reclassification
to net income of gains and losses on derivative
instruments
|
||||||||||||
|
designated
as cash flow hedges pertaining to prior periods (4)
|
-
|
(3 | ) | (3 | ) | |||||||
|
Balance
at March 31, 2007
|
(118 | ) | (100 | ) | (218 | ) | ||||||
|
(1)
Net of income tax recovery of $25 million for the three months
ended March
31, 2008 (2007 - $5 million expense).
|
||||||||||||
|
(2)
Net of income tax recovery of $22 million for the three months
ended March
31, 2008 (2007 - $5 million expense).
|
||||||||||||
|
(3)
Net of income tax expense of $12 million for the three months ended
March
31, 2008 (2007 - $5 million recovery).
|
||||||||||||
|
(4)
Net of income tax recovery of $9 million for the three months ended
March
31, 2008 (2007 - $2 million recovery).
|
||||||||||||
(5)
The amount of gains and 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 expected to be $12 million ($15 million net
of
tax) of net losses.
|
(6)
Net of income tax expense of $44 million.
|
||||||||||||
|
See
accompanying notes to the consolidated financial
statements.
|
TRANSCANADA
[27
FIRST
QUARTER REPORT 2008
Consolidated
Shareholders’ Equity
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Common
Shares
|
||||||||
|
Balance
at beginning of period
|
6,662
|
4,794
|
||||||
|
Shares
issued under dividend reinvestment plan
|
54
|
-
|
||||||
|
Proceeds
from shares issued on exercise of stock options
|
9
|
8
|
||||||
|
Proceeds
from shares issued under public offering (1)
|
-
|
1,682
|
||||||
|
Balance
at end of period
|
6,725
|
6,484
|
||||||
|
Contributed
Surplus
|
||||||||
|
Balance
at beginning of period
|
276
|
273
|
||||||
|
Issuance
of stock options
|
1
|
1
|
||||||
|
Balance
at end of period
|
277
|
274
|
||||||
|
Retained
Earnings
|
||||||||
|
Balance
at beginning of period
|
3,220
|
2,724
|
||||||
|
Transition
adjustment resulting from adopting new financial
|
||||||||
|
instruments
accounting standards
|
-
|
4
|
||||||
|
Net
income
|
449
|
265
|
||||||
|
Common
share dividends
|
(195 | ) | (182 | ) | ||||
|
Balance
at end of period
|
3,474
|
2,811
|
||||||
|
Accumulated
Other Comprehensive Income
|
||||||||
|
Balance
at beginning of period
|
(373 | ) | (90 | ) | ||||
|
Transition
adjustment resulting from adopting new financial
instruments
|
||||||||
|
accounting
standards
|
-
|
(96 | ) | |||||
|
Other
comprehensive income
|
(3 | ) | (32 | ) | ||||
|
Balance
at end of period
|
(376 | ) | (218 | ) | ||||
|
Total
Shareholders' Equity
|
10,100
|
9,351
|
||||||
|
(1)
Net of underwriting commissions and future income taxes.
|
||||||||
|
See
accompanying notes to the consolidated financial
statements.
|
||||||||
TRANSCANADA
[28
FIRST
QUARTER REPORT 2008
Notes
to Consolidated Financial Statements
(Unaudited)
|
1.
|
Significant
Accounting Policies
|
The
consolidated financial statements of TransCanada Corporation (TransCanada
or the
Company) have been prepared in accordance with Canadian generally accepted
accounting principles (GAAP). The accounting policies applied are consistent
with those outlined in TransCanada's annual audited Consolidated Financial
Statements for the year ended December 31, 2007. These Consolidated Financial
Statements reflect all normal recurring adjustments that are, in the opinion
of
management, necessary to present fairly the financial position and results
of
operations for the respective periods. These Consolidated Financial Statements
do not include all disclosures required in the annual financial statements
and
should be read in conjunction with the 2007 audited Consolidated Financial
Statements included in TransCanada’s 2007 Annual Report. Amounts are
stated in Canadian dollars unless otherwise indicated.
In
Pipelines, which consists primarily of the Company's investments in regulated
pipelines and regulated natural gas storage facilities, annual revenues and
net
earnings fluctuate over the long term based on regulators' decisions and
negotiated settlements with shippers. Generally, quarter-over-quarter revenues
and net earnings during any particular fiscal year remain relatively stable
with
fluctuations resulting from adjustments being recorded due to regulatory
decisions and negotiated settlements with shippers, seasonal fluctuations
in
short-term throughput on U.S. pipelines, acquisitions and divestitures, and
developments outside of the normal course of operations.
In
Energy, which consists primarily of the Company’s investments in electrical
power generation plants and non-regulated natural gas storage facilities,
quarter-over-quarter revenues and net earnings are affected by seasonal weather
conditions, customer demand, market prices, planned and unplanned plant
outages, acquisitions and divestitures, and developments outside of the
normal course of operations.
In
preparing these financial statements, TransCanada is required to make estimates
and assumptions that affect both the amount and timing of recording assets,
liabilities, revenues and expenses since the determination of these items
may be
dependent on future events. The Company uses the most current information
available and exercises careful judgement in making these estimates. In the
opinion of management, these consolidated financial statements have been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies.
TRANSCANADA
[29
FIRST
QUARTER REPORT 2008
|
2.
|
Segmented
Information
|
|
Three
months ended March 31
|
Pipelines
|
Energy
|
Corporate
|
Total
|
||||||||||||
|
(unaudited
- millions of dollars)
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
||||||||
|
Revenues
|
1,176
|
1,124
|
957
|
1,120
|
-
|
-
|
2,133
|
2,244
|
||||||||
|
Plant
operating costs and other
|
(399)
|
(383)
|
(298)
|
(347)
|
(1)
|
(2)
|
(698)
|
(732)
|
||||||||
|
Commodity
purchases resold
|
-
|
-
|
(410)
|
(571)
|
-
|
-
|
(410)
|
(571)
|
||||||||
|
Depreciation
|
(254)
|
(251)
|
(42)
|
(39)
|
-
|
-
|
(296)
|
(290)
|
||||||||
|
523
|
490
|
207
|
163
|
(1)
|
|
(2)
|
729
|
651
|
||||||||
|
Financial
charges and non-controlling interests
|
(235)
|
(217)
|
-
|
1
|
(54)
|
(49)
|
(289)
|
(265)
|
||||||||
|
Financial
charges of joint ventures
|
(11)
|
(16)
|
(5)
|
(5)
|
-
|
-
|
(16)
|
(21)
|
||||||||
|
Interest
income and other
|
32
|
13
|
1
|
3
|
6
|
15
|
39
|
31
|
||||||||
|
Calpine
bankruptcy settlements
|
279
|
-
|
-
|
-
|
-
|
-
|
279
|
-
|
||||||||
|
Writedown
of Broadwater LNG project costs
|
-
|
-
|
(41)
|
-
|
-
|
-
|
(41)
|
-
|
||||||||
|
Income
taxes
|
(227)
|
(115)
|
(52)
|
(56)
|
27
|
40
|
(252)
|
(131)
|
||||||||
|
Net
Income
|
361
|
155
|
110
|
106
|
(22)
|
4
|
449
|
265
|
||||||||
|
Total
Assets
|
||||||||
|
(unaudited
- millions of dollars)
|
March
31, 2008
|
December
31, 2007
|
||||||
|
Pipelines
|
22,429
|
22,024
|
||||||
|
Energy
|
7,171
|
7,037
|
||||||
|
Corporate
|
1,272
|
1,269
|
||||||
|
30,872
|
30,330
|
|||||||
|
3.
|
Share
Capital
|
In
the
three months ended March 31, 2008, TransCanada issued 1.4 million common shares
under its Dividend Reinvestment and Share Purchase Plan (DRP). In accordance
with the DRP, dividends were paid with common shares issued from treasury
instead of cash dividend payments totalling $54 million.
|
4.
|
Financial
Instruments and Risk
Management
|
Natural
Gas Inventory
At
March
31, 2008, $207 million of proprietary natural gas storage inventory was included
in Inventories (December 31, 2007 - $190 million). Effective
April 1,
2007, TransCanada began valuing its proprietary natural gas storage inventory
at
fair value, as measured by the one-month forward price for natural gas. The
Company did not have any proprietary natural gas inventory prior to April
1,
2007. The change in fair value of proprietary natural gas inventory in
the three months ended March 31, 2008 resulted in a gain of $59 million,
which
was recorded as an increase to Revenues and Inventory. The net change in
fair
value of natural gas forward purchase and sales contracts in
first-quarter 2008 was a loss of $76 million (three months ended March 31,
2007
– loss of $3 million), which was recorded in Revenues.
TRANSCANADA
[30
FIRST
QUARTER REPORT 2008
Derivative
Financial Instruments
Derivatives
Hedging Net Investment in Foreign Operations
|
Asset/(Liability)
|
||||||||||
|
(unaudited)
|
||||||||||
|
(millions
of dollars)
|
March
31, 2008
|
December
31, 2007
|
||||||||
|
Notional
or
|
Notional
or
|
|||||||||
|
Fair
|
Principal
|
Fair
|
Principal
|
|||||||
|
Value(1)
|
Amount
|
Value(1)
|
Amount
|
|||||||
|
Derivative
financial Instruments in hedging relationships
|
||||||||||
|
U.S.
dollar cross-currency swaps
|
||||||||||
|
(maturing
2009 to 2014)
|
62
|
U.S.
450
|
77
|
U.S.
350
|
||||||
|
U.S.
dollar forward foreign exchange contracts
|
||||||||||
|
(maturing
2008 )
|
(36 | ) |
U.S.
1,440
|
(4 | ) |
U.S.
150
|
||||
|
U.S.
dollar options
|
||||||||||
|
(maturing
2008 )
|
(1 | ) |
U.S.
50
|
3
|
U.S.
600
|
|||||
|
25
|
U.S.
1,940
|
76
|
U.S.
1,100
|
|||||||
|
(1)
Fair values are equal to carrying values.
|
||||||||||
Derivative
Financial Instruments Summary
Significant
changes from December 31, 2007 for the Company’s derivative financial
instruments are as follow:
|
Natural
Gas
|
||||||||
|
(unaudited)
|
March
31, 2008
|
December
31, 2007
|
||||||
|
Derivative
Financial Instruments Held for Trading
|
||||||||
|
Fair
Values(1)
|
||||||||
|
Assets
|
$ |
98
|
$ |
43
|
||||
|
Liabilities
|
$ | (149 | ) | $ | (19 | ) | ||
|
Volumes(2)
|
||||||||
|
Purchases
|
55
|
47
|
||||||
|
Sales
|
74
|
64
|
||||||
|
(1)
|
Fair value is equal to the carrying value of
these
derivatives. Amounts are in millions of
dollars.
|
|
(2) Volumes
for natural gas derivatives are in billion cubic feet.
|
TRANSCANADA
[31
FIRST
QUARTER REPORT 2008
|
5.
|
Employee
Future Benefits
|
The
net
benefit plan expense for the Company’s defined benefit pension plans and other
post-employment benefit plans for the three months ended March 31, 2008 is
as
follows.
|
Three
months ended March 31
|
Pension
Benefit Plans
|
Other
Benefit Plans
|
|||||||||
|
(unaudited
- millions of dollars)
|
2008
|
2007
|
2008
|
2007
|
|||||||
|
Current
service cost
|
13
|
11
|
-
|
-
|
|||||||
|
Interest
cost
|
19
|
17
|
2
|
1
|
|||||||
|
Expected
return on plan assets
|
(23)
|
(19)
|
-
|
-
|
|||||||
|
Amortization
of transitional obligation related to
|
|||||||||||
|
regulated
business
|
-
|
-
|
-
|
1
|
|||||||
|
Amortization
of net actuarial loss
|
4
|
6
|
-
|
1
|
|||||||
|
Amortization
of past service costs
|
1
|
1
|
-
|
-
|
|||||||
|
Net
benefit cost recognized
|
14
|
16
|
2
|
3
|
|||||||
|
6.
|
Calpine
Bankruptcy Settlements
|
Certain
subsidiaries of Calpine Corporation (Calpine) filed for bankruptcy protection
in
both Canada and the U.S. in 2005. Gas Transmission Northwest Corporation
(GTNC)
and Portland reached agreements with Calpine for allowed unsecured claims
in the Calpine bankruptcy. In February 2008, GTNC and Portland received initial
distributions of 9.4 million shares and 6.1 million shares, respectively,
which
represented approximately 85 per cent of their agreed-for claims. These shares
were subsequently sold into the open market for total pre-tax income of $279
million.
|
7.
|
Writedown
of Development Costs
|
On
March
24, 2008, the U.S. Federal Energy Regulatory Committee authorized the
construction and operation of the Broadwater liquefied natural gas (LNG)
project, subject to the conditions reflected in the authorization. On April
10,
2008, the New York State Department of State rejected a proposal to construct
the Broadwater facility. As a result of this unfavourable decision, TransCanada
wrote down $27 million after tax ($41 million pre-tax) of costs that had
been
previously capitalized for the Broadwater LNG project to March 31,
2008.
|
8.
|
Commitments
|
On
March
31, 2008, TransCanada entered into an agreement with National Grid plc to
acquire, for US$2.8 billion, 100 per cent of KeySpan–Ravenswood, LLC, which owns
the Ravenswood Generating Facility in Queens, New York. The acquisition is
expected to be financed in a manner that is consistent with TransCanada’s
current capital structure.
TransCanada
welcomes questions from shareholders and potential investors. Please
telephone:
Investor
Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct
dial David
Moneta/Myles Dougan/Terry Hook at (403) 920-7911. The investor
fax line is (403)
920-2457. Media Relations: Cecily Dobson/Shela Shapiro at (403)
920-7859 or
1-800-608-7859.
Visit
the
TransCanada website at: http://www.transcanada.com
Exhibit
13.3
TRANSCANADA
CORPORATION
RECONCILIATION
TO UNITED STATES GAAP
March
31,
2008
TRANSCANADA
CORPORATION
RECONCILIATION
TO UNITED STATES GAAP
The
unaudited consolidated financial statements of TransCanada Corporation
(TransCanada or the Company) for the three months ended March 31, 2008 have
been
prepared in accordance with Canadian generally accepted accounting principles
(GAAP), which in some respects, differ from United States (U.S.) GAAP. In
particular, Canadian GAAP requires the proportionate consolidation method of
accounting for joint venture investments, while U.S. GAAP requires the equity
method of accounting for these types of investments. This difference affects
only classification on the consolidated financial statements. It does not affect
earnings, cash and cash equivalents or shareholders’ equity.
The
effects of significant differences between Canadian and U.S. GAAP on the
Company’s consolidated financial statements for the three months ended March 31,
2008 are described below and should be read in conjunction with TransCanada’s
2007 audited consolidated financial statements for the year ended December
31,
2007 and unaudited consolidated financial statements for the three months ended
March 31, 2008 prepared in accordance with Canadian GAAP. Amounts are
stated in Canadian dollars unless otherwise indicated.
Reconciliation
of Net Earnings and Comprehensive Income from Continuing
Operations
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Net
Income in Accordance with Canadian GAAP
|
449
|
265
|
||||||
|
U.S.
GAAP adjustments:
|
||||||||
|
Unrealized
gain on natural gas
inventory held in storage, net of tax(1)
|
(23 | ) |
-
|
|||||
|
Unrealized
(loss) on foreign
exchange and interest rate derivatives, net of tax(2)
|
-
|
(3 | ) | |||||
|
Net
Income in Accordance with U.S. GAAP
|
426
|
262
|
||||||
|
Other
Comprehensive Loss in Accordance with Canadian
GAAP
|
(3 | ) | (32 | ) | ||||
|
U.S.
GAAP adjustments:
|
||||||||
|
Change
in funded status of
postretirement plan liability, net of tax(3)
|
1
|
2
|
||||||
|
Change
in equity investment
funded status of postretirement plan liability, net of tax(3)
|
2
|
9
|
||||||
|
Unrealized
loss on derivatives,
net of tax(4)
|
-
|
(5 | ) | |||||
|
Comprehensive
Income in Accordance with U.S. GAAP
|
426
|
236
|
||||||
|
Net
Earnings Per Share in Accordance with U.S. GAAP
|
||||||||
|
Basic
|
$ |
0.79
|
$ |
0.51
|
||||
|
Diluted
|
$ |
0.79
|
$ |
0.51
|
||||
|
Dividends
per common share
|
$ |
0.36
|
$ |
0.34
|
||||
Page
2
Condensed
Balance Sheet in Accordance with U.S. GAAP
|
(millions
of dollars)
|
March
31,
2008
(unaudited)
|
December
31, 2007
|
||||||
|
Current
assets(1)
|
1,826
|
1,766
|
||||||
|
Long-term
investments(3)(5)(6)
|
3,795
|
3,568
|
||||||
|
Plant,
property and equipment
|
19,458
|
19,225
|
||||||
|
Goodwill
|
2,722
|
2,521
|
||||||
|
Other
assets(8)(9)
|
3,212
|
3,448
|
||||||
|
31,013
|
30,528
|
|||||||
|
Current
liabilities(7)
|
3,086
|
2,774
|
||||||
|
Deferred
amounts(3)(6)
|
1,264
|
1,158
|
||||||
|
Deferred
income taxes(1)(3)(5)(8)
|
2,636
|
2,693
|
||||||
|
Long-term
debt and junior subordinated notes(2)(9)
|
13,123
|
13,423
|
||||||
|
Non-controlling
interests
|
1,127
|
999
|
||||||
|
21,236
|
21,047
|
|||||||
|
Shareholders’
equity:
|
||||||||
|
Common
shares
|
6,725
|
6,663
|
||||||
|
Contributed
surplus
|
277
|
276
|
||||||
|
Retained
earnings(1)(2)(5)(7)
|
3,413
|
3,180
|
||||||
|
Accumulated
other comprehensive income(3)(10)
|
(638 | ) | (638 | ) | ||||
|
9,777
|
9,481
|
|||||||
|
31,013
|
30,528
|
|||||||
|
(1)
|
In
accordance with Canadian GAAP, natural gas inventory held in storage
is
recorded at its fair value.
Under U.S. GAAP, inventory is recorded at lower of cost or
market.
|
|
(2)
|
Represents
the amortization of certain hedges that became ineffective at different
times under Canadian and U.S. GAAP.
|
|
(3)
|
Represents
the amortization of net loss and prior service cost amounts recorded
in
accumulated other comprehensive income under Statement of Financial
Accounting Standards No.158 “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans” for the Company’s defined benefit
pension and other postretirement
plans.
|
|
(4)
|
Relates
to gains and losses realized in 2006 on derivative energy contracts
for
periods before they were documented as hedges for purposes of U.S.
GAAP
and to differences in accounting with respect to physical energy
contracts.
|
|
(5)
|
Under
Canadian GAAP, pre-operating costs incurred during the commissioning
phase
of a new project are deferred until commercial production levels
are
achieved. After such time, those costs are amortized over the estimated
life of the project. Under U.S. GAAP, such costs are expensed
as incurred. Certain start-up costs incurred by Bruce Power L.P.
(Bruce),
an equity investment, were expensed under U.S. GAAP. Under both Canadian
GAAP and U.S. GAAP, interest is capitalized on expenditures relating
to
construction of development projects actively being prepared for
their
intended use. Under U.S. GAAP, the carrying value of Bruce’s development
projects against which interest is capitalized is lower due to the
expensing of certain pre-operating
costs.
|
|
(6)
|
For
U.S. GAAP purposes, the fair value of guarantees recorded as a liability
at March 31, 2008 was $12 million (December 31, 2007 - $12 million)
and
primarily relates to the Company’s equity interest in Bruce B and Bruce
Power A L.P. The net income impact with respect to the
guarantees for the three months ended March 31, 2008 was nil (March
31,
2007 - nil; March 31, 2006 – $1
million).
|
|
(7)
|
In
accordance with Canadian GAAP, the Company recorded income tax benefits
resulting from substantively enacted Canadian federal income tax
legislation. Under U.S. GAAP, the legislation must be fully
enacted for income tax adjustments to be
recorded.
|
|
(8)
|
Under
U.S. GAAP, the Company is required to record a deferred income tax
liability for its cost-of-service regulated businesses. As these
deferred
income taxes are recoverable through future revenues, a corresponding
regulatory asset is recorded for U.S. GAAP
purposes.
|
|
(9)
|
In
accordance with U.S. GAAP, debt issue costs are recorded as a deferred
asset rather than being included in long-term debt as required by
Canadian
GAAP.
|
|
(10)
|
At
March 31, 2008, Accumulated Other Comprehensive Income in accordance
with
U.S. GAAP is $262 million lower than under Canadian GAAP. The
difference relates to the accounting treatment for defined benefit
pension
and other postretirement plans.
|
Page
3
Fair
Value Measurements
The
Company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value Measurements” (SFAS 157) for its financial assets
and liabilities effective January 1, 2008. The statement defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements.
Under
SFAS 157, fair value is defined as the price that would be received to sell
an
asset or paid to transfer a liability (i.e., the ‘exit price’) in an orderly
transaction between market participants at the measurement
date.
The
Company’s financial assets and liabilities that are recorded at fair value on a
recurring basis have been categorized into one of three categories based upon
a
fair value hierarchy in accordance with SFAS 157. Fair values of assets
and liabilities included in Level I are determined by reference to quoted prices
in active markets for identical assets and liabilities. Assets and
liabilities in Level II include valuations based on quoted prices in markets
that are not active or for which all significant outputs are observable, either
directly or indirectly. This includes comparisons with similar
instruments that have observable market prices, option pricing models and other
valuation techniques commonly used by market participants, which may require
the
use of assumptions about the amount and timing of estimated future cash flows
and discount rates. In making these assumptions, the Company looks
primarily to readily observable external market input factors such as interest
rate yield curves, currency rates, and price and rate volatilities as
applicable. Level III valuations are based on inputs that are unobservable
and significant to the overall fair value measurement. TransCanada
does not have any assets or liabilities that are included in Level
III.
Assets
and liabilities measured at fair value on a recurring basis as of March 31,
2008
are categorized in accordance with SFAS 157 as follows:
|
Quoted
prices in active markets
(Level
I)
|
Significant
other observable inputs
(Level
II)
|
Significant
unobservable inputs
(Level
III)
|
Total
|
|||||||||||||
|
Derivative
Financial Instruments Held for Trading:
|
||||||||||||||||
|
Assets
|
49
|
168
|
-
|
217
|
||||||||||||
|
Liabilities
|
(25 | ) | (315 | ) |
-
|
(340 | ) | |||||||||
|
Derivative
Financial Instruments in Hedging Relationships:
|
||||||||||||||||
|
Assets
|
29
|
219
|
-
|
248
|
||||||||||||
|
Liabilities
|
(46 | ) | (221 | ) |
-
|
(267 | ) | |||||||||
| Non-Derivative Financial Instruments Available for Sale: | ||||||||||||||||
| Assets | 20 | - | - | 20 | ||||||||||||
| Liabilities | - | - | - | - | ||||||||||||
|
Total
|
27
|
(149 | ) |
-
|
(122 | ) | ||||||||||
Page
4
Income
Taxes
TransCanada
adopted Financial Accounting Standards Board (FASB), Financial Interpretation
48, Accounting for Uncertainty in Income Taxes (“FIN 48”), January 1, 2007. At
March 31, 2008, the total unrecognized tax benefit is approximately $76 million
(December 31, 2007 - $70 million).
TransCanada’s
continuing practice is to recognize interest and penalties related to income
tax
uncertainties in income tax expense. Included in net tax expense for
the period ended March 31, 2008 is $4 million for interest and nil for
penalties, (March 31, 2007; $10 million for interest and nil for penalties).
At
March 31, 2008, the Company had $18 million accrued for interest and nil accrued
for penalties, (December 31, 2007; $14 million accrued for interest
and nil accrued for penalties).
Other
In
February 2007, FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115”, which allows an entity to choose to measure many financial instruments and
certain other items at fair value for fiscal years beginning on or after
November 15, 2007. TransCanada’s U.S. GAAP financial statements were not
materially impacted by SFAS No. 159.
In
March
2008, FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and
Hedging Activities – an amendment of FASB Statement No. 133”, which is effective
for fiscal years beginning after November 15, 2008. SFAS No. 161 expands
the disclosure requirements for derivative instruments and hedging activities
with respect to how and why entities use derivative instruments, how they are
accounted for under FAS No. 133 and the related impact on financial position,
financial performance and cash flows. TransCanada does not expect a
material affect on its financial results as a result of adopting this standard
on January 1, 2009.
Page
5
Exhibit
31.1
Certifications
I,
Harold
N. Kvisle, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 6-K of TransCanada
Corporation;
|
||
|
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
controls 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 evaluation; 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:
|
April
25, 2008
|
/s/
Harold N. Kvisle
|
|
|
Harold
N. Kvisle
|
|||
|
President
and Chief Executive
Officer
|
|||
Exhibit
31.2
Certifications
I,
Gregory A. Lohnes, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 6-K of TransCanada
Corporation;
|
||
|
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
controls 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 evaluation; 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:
|
April
25, 2008
|
/s/
Gregory A. Lohnes
|
|
|
Gregory
A. Lohnes
|
|||
|
Executive
Vice-President
and
Chief Financial
Officer
|
|||
Exhibit
32.1
TRANSCANADA
CORPORATION
450
–
1st Street
S.W.
Calgary,
Alberta, Canada
T2P
5H1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
REGARDING
PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I,
Harold
N. Kvisle, the Chief Executive Officer of TransCanada Corporation (the
“Company”), in compliance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify,
in
connection with the Company’s Quarterly Report as filed on Form 6-K for the
period ended March 31, 2008 with the Securities and Exchange Commission (the
“Report”), that:
|
1.
|
the
Report fully complies with the requirements of Section 13(a) or 15(d)
of
the Securities Exchange Act of 1934; and
|
|
2.
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
/s/
Harold N. Kvisle
|
|
|
Harold
N. Kvisle
|
|
|
Chief
Executive Officer
|
|
|
April
25, 2008
|
Exhibit
32.2
TRANSCANADA
CORPORATION
450
–
1st Street
S.W.
Calgary,
Alberta, Canada
T2P
5H1
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
REGARDING
PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I,
Gregory A. Lohnes, the Chief Financial Officer of TransCanada Corporation (the
“Company”), in compliance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify,
in
connection with the Company’s Quarterly Report as filed on
Form 6-K for the period ended March 31, 2008 with the
Securities and Exchange Commission (the “Report”), that:
|
1.
|
the
Report fully complies with the requirements of Section 13(a) or 15(d)
of
the Securities Exchange Act of 1934; and
|
|
2.
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
/s/
Gregory A. Lohnes
|
|
|
Gregory
A. Lohnes
|
|
|
Chief
Financial Officer
|
|
|
April
25, 2008
|
Exhibit
99.1
TRANSCANADA
CORPORATION – FIRST QUARTER 2008
|
Media
Inquiries:
|
Shela
Shapiro /Cecily Dobson
|
(403)
920-7859
(800)
608-7859
|
|
Investor
and Analyst Inquiries:
|
David
Moneta/Myles Dougan/Terry Hook
|
(403)
920-7911
(800)
361-6522
|
NewsRelease
TransCanada
Announces First Quarter Net Income of $449 Million
Comparable
Earnings Per Share Increase 22 Per Cent
CALGARY,
Alberta – April 25, 2008 – (TSX: TRP) (NYSE: TRP)
First
Quarter Highlights
(All
financial figures are unaudited and in Canadian dollars unless noted
otherwise)
|
·
|
Net
income for first quarter 2008 of $449 million ($0.83 per share) compared
to $265 million ($0.52 per share) in first quarter 2007, an increase
of
approximately 60 per cent on a per share
basis
|
|
|
Comparable
earnings for first quarter 2008 of $326 million ($0.60 per share),
compared to $250 million ($0.49 per share) for the same period in
2007, an
increase of approximately 22 per cent on a per share
basis
|
|
·
|
Funds
generated from operations for first quarter 2008 of $922 million
compared
to $582 million for the same period in 2007, an increase of approximately
58 per cent
|
|
·
|
Dividend
of $0.36 per common share declared by the Board of
Directors
|
|
·
|
Agreed
to acquire the 2,480 megawatt (MW) Ravenswood Generating Facility
in New
York City for US$2.8 billion
|
|
|
Realized
$152 million from Calpine bankruptcy
settlements
|
|
|
The
Keystone Oil Pipeline project received U.S. Department of State
Presidential Permit. Construction is expected to begin in second
quarter
2008.
|
“Strong
first quarter earnings and cash flow from our pipelines and energy
businesses are the result of TransCanada’s focus on quality investment
opportunities in markets where we have expertise and competitive advantage"said
Hal Kvisle, TransCanada president and chief executive officer. “As we continue
to pursue our goal of becoming the leading energy infrastructure company in
North America, we are excited by the significant growth opportunities
available within our core businesses and our core market
regions. In the first quarter, we announced the Ravenswood
acquisition in New York City and continued to advance the Keystone Oil Pipeline
project. It is opportunities such as these that will continue to build long-term
value for our shareholders.”
TransCanada
Corporation (TransCanada) reported net income for first quarter 2008 of $449
million ($0.83 per share) compared to $265 million ($0.52 per share) for first
quarter 2007.
Comparable
earnings were $326 million ($0.60 per share) for first quarter 2008 compared
to
$250 million ($0.49 per share) in first quarter 2007. The $76 million ($0.11
per
share) increase was due to higher contributions from both the Pipelines and
Energy businesses. The increase in Pipelines was primarily due to a
full quarter of earnings from the February 2007 acquisition of ANR and higher
earnings from both the Canadian Mainline and GTN. The increase in the
Energy business was primarily due to increased earnings from Eastern Power
and
Natural Gas Storage. Comparable earnings in first quarter 2008
excluded $152 million realized on shares from the Calpine bankruptcy
settlements, a loss of $27 million to record the writedown of costs previously
capitalized for the Broadwater LNG project, $10 million related to a favourable
lawsuit settlement, and a net unrealized loss of $12 million from fair value
adjustments in the natural gas storage business. Comparable
earnings
in first quarter 2007 excluded $15 million of favourable income tax
adjustments.
Funds
generated from operations in first quarter 2008 of $922 million was $340 million
higher than the $582 million generated in the same period in
2007. Net cash provided by operations in first quarter 2008 was $928
million compared to $618 million for the same period in 2007. These
increases were mainly due to the positive impact of the Calpine bankruptcy
settlements and higher earnings noted above.
Notable
recent developments in Pipelines and Energy include:
Pipelines
|
·
|
The
Keystone Oil Pipeline project achieved a major milestone after
receiving the U.S. Department of State Presidential Permit authorizing
the
construction, maintenance and operation of facilities at the U.S./Canada
border to transport crude oil between the two countries. Construction
of
the Keystone Oil Pipeline is scheduled to begin in second quarter
2008
with initial deliveries expected to commence to Wood River and Patoka,
Illinois in fourth quarter
2009.
|
|
·
|
Gas
Transmission Northwest Corporation (GTNC) and Portland have reached
agreements with Calpine for allowed unsecured claims of US$192.5
million
and US$125 million, respectively, in the Calpine bankruptcy. GTNC
and
Portland received initial distributions of Calpine shares in February
2008
equal to approximately 85 per cent of the agreed upon
claim. These shares were sold and TransCanada realized $152
million after tax from this initial distribution. Timing and
amount of any additional distributions remain
uncertain.
|
|
·
|
TransCanada
reached a settlement agreement with stakeholders on the Alberta System
and
filed a 2008-2009 Revenue Requirement Settlement Application with
the
Alberta Utilities Commission (AUC). The settlement includes all elements
of the Alberta System revenue requirement for the years 2008 and
2009.
|
|
·
|
In
an effort to connect U.S. Rockies natural gas supply to various markets
in
North America, TransCanada announced the proposed Pathfinder and
Sunstone
natural gas transmission pipelines. A segment of the proposed Pathfinder
Pipeline project follows the same route as the recently proposed
Bison
Pipeline project. TransCanada would be a partial owner in the proposed
Bison Pipeline project through its interest in TC PipeLines,
LP.
|
|
·
|
TransCanada
submitted an application for license to construct the Alaska Pipeline
project under the Alaska Gasline Inducement Act (AGIA) at the end
of 2007.
That application is currently under review by the Alaska Administration
and, if recommended, will go to the Alaska Legislature in second
quarter
2008. If approved by the Legislature, TransCanada could be granted
the
AGIA license later this year.
|
Energy
|
·
|
TransCanada
recently announced an agreement to acquire all the outstanding membership
interests of the 2,480 MW Ravenswood Generating Facility in New York
City
from National Grid for US$2.8 billion plus closing adjustments. The
acquisition is subject to various state and federal government approvals,
which are expected during the third
quarter.
|
|
·
|
Bruce
Power has completed its comprehensive assessment of cost to complete
the
Bruce A Units 1 and 2 Restart Project. The capital program for the
restart
and refurbishment of Bruce A Units 1 and 2 is expected to be in the
range
of $3.1 to $3.4 billion, up from an original 2005 cost estimate of
$2.75
billion. TransCanada’s 50 per cent share is expected to be $1.55 to $1.70
billion, compared to an original estimate of $1.38 billion. Project
cost
increases are subject to the capital cost risk and reward sharing
mechanism under the agreement with the Ontario Power
Authority. TransCanada expects the unlevered after tax return
on its investment to be in the middle of the previously announced
range of
9.5 per cent to 13.5 per cent. In the event of a further 10 per
cent increase in capital costs, TransCanada’s unlevered after tax return
on the project would be approximately 10 per cent. With
approximately 60 per cent of the project complete, it is expected
that the
two units will return to service in late 2009 and early
2010.
|
|
·
|
The
U.S. Federal Energy Regulatory Commission authorized the construction
and
operation of the Broadwater LNG project, subject to the conditions
reflected in the authorization on March 24, 2008. On April 10, 2008
the
New York State Department of State rejected the proposal to construct
this
facility. Broadwater is assessing its options with respect to this
project.
|
Teleconference
– Audio and Slide Presentation
TransCanada
will hold a teleconference today at 1:00 p.m. (Mountain) / 3:00 p.m. (Eastern)
to discuss the first quarter 2008 financial results and general developments
and
issues concerning the company. Analysts, members of the media and other
interested parties wanting to participate should phone 1-866-225-6564 or
416-641-6136 (Toronto area) at least 10 minutes prior to
the start of the teleconference. No passcode is required. A live audio and
slide
presentation webcast of the teleconference will also be available on
TransCanada's website at www.transcanada.com.
The
conference will begin with a short address by members of TransCanada's executive
management, followed by a question and answer period for investment analysts.
A
question and answer period for members of the media will immediately
follow.
A
replay
of the teleconference will be available two hours after the conclusion of the
call until midnight (Eastern) May 2, 2008. Please call 1-800-408-3053 or
416-695-5800 (Toronto area) and enter passcode 3256829#. The webcast will be
archived and available for replay on www.transcanada.com.
With
more
than 50 years experience, TransCanada is a leader in the responsible development
and reliable operation of North American energy infrastructure including
natural
gas pipelines, power generation, gas storage facilities, and projects related
to
oil pipelines and LNG facilities. TransCanada’s network of wholly owned
pipelines extends more than 59,000 kilometres (36,500 miles), tapping into
virtually all major gas supply basins in North America. TransCanada is one
of
the continent’s largest providers of gas storage and related services with
approximately 355 billion cubic feet of storage capacity. A growing independent
power producer, TransCanada owns, or has interests in, approximately 7,700
megawatts of power generation in Canada and the United States. TransCanada’s
common shares trade on the Toronto and New York stock exchanges under the
symbol
TRP.
Note:
All financial figures are in Canadian dollars unless noted
otherwise.
FORWARD-LOOKING
INFORMATION
This
news release may contain certain information that is forward looking and is
subject to important risks and uncertainties. The words "anticipate", "expect",
"may", "should", "estimate", "project", "outlook", "forecast" or other similar
words are used to identify such forward-looking information. All forward-looking
statements reflect TransCanada’s beliefs and assumptions based on information
available at the time the statements were made. Actual results or events may
differ from those predicted in these forward-looking statements. Factors which
could cause actual results or events to differ materially from current
expectations include, among other things, the ability of TransCanada to
successfully implement its strategic initiatives and whether such strategic
initiatives will yield the expected benefits, the operating performance of
the
Company’s pipeline and energy assets, the availability and price of energy
commodities, regulatory processes and decisions, changes in environmental and
other laws and regulations, competitive factors in the pipeline and energy
industry sectors, construction and completion of capital projects, labour,
equipment and material costs, access to capital markets, interest and currency
exchange rates, technological developments and the current economic conditions
in North America. By its nature, such forward-looking information is subject
to
various risks and uncertainties, which could cause TransCanada's actual results
and experience to differ materially from the anticipated results
or expectations expressed. Additional information on
these and other factors is available in the reports filed by TransCanada
with Canadian securities regulators and with the U.S. Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on this
forward-looking information, which is given as of the date it is expressed
in
this news release or otherwise, and to not use future-oriented information
or
financial outlooks for anything other than their intended purpose. TransCanada
undertakes no obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events or otherwise,
except as required by law.
NON-GAAP
MEASURES
TransCanada
uses the measures "comparable earnings", "comparable earnings per share" and
"funds generated from operations" in this news release. These measures do not
have any standardized meaning prescribed by GAAP. They are, therefore,
considered to be non-GAAP measures and are unlikely to be comparable to similar
measures presented by other entities. Management of TransCanada uses non-GAAP
measures to increase its ability to compare financial results between reporting
periods and to enhance its understanding of operating performance, liquidity
and
ability to generate funds to finance operations. Non-GAAP measures are also
provided to readers as additional information on TransCanada’s operating
performance, liquidity and ability to generate funds to finance
operations.
Comparable
earnings comprise net earnings adjusted for specific items that are significant
but not typical of the Company’s operations. Specific items are subjective;
however, management uses its best judgement and informed decision-making when
identifying items to be excluded in calculating comparable earnings. Specific
items may include but are not limited to certain income tax refunds and
adjustments, gains or losses on sales of assets, legal settlements, and
bankruptcy settlements with former customers. The Consolidated Results of
Operations section of the Management’s Discussion and Analysis presents a
reconciliation of comparable earnings to net income. Comparable earnings per
share is calculated by dividing comparable earnings by the weighted average
number of shares outstanding for the period.
Funds
generated from operations comprises net cash provided by operations before
changes in operating working capital. A reconciliation of funds generated from
operations to net cash provided by operations is presented in the First Quarter
2008 Financial Highlights chart in this news release.
-30-
First
Quarter 2008 Financial Highlights
(unaudited)
|
Operating
Results
|
||||||||
|
(unaudited)
|
Three
months ended March 31
|
|||||||
|
(millions
of dollars)
|
2008
|
2007
|
||||||
|
Revenues
|
2,133
|
2,244
|
||||||
|
Net
Income
|
449
|
265
|
||||||
|
Comparable
Earnings (1)
|
326
|
250
|
||||||
|
Cash
Flows
|
||||||||
|
Funds
generated from operations (1)
|
922
|
582
|
||||||
|
Decrease
in operating working capital
|
6
|
36
|
||||||
|
Net
cash provided by operations
|
928
|
618
|
||||||
|
Capital
Expenditures
|
460
|
306
|
||||||
|
Acquisitions,
Net of Cash Acquired
|
2
|
4,265
|
||||||
|
Common
Share Statistics
|
Three
months ended March 31
|
|||||||
|
(unaudited)
|
2008
|
2007
|
||||||
|
Net
Income Per Share - Basic
|
$ |
0.83
|
$ |
0.52
|
||||
|
Comparable
Earnings Per Share - Basic (1)
|
$ |
0.60
|
$ |
0.49
|
||||
|
Dividends
Declared Per Share
|
$ |
0.36
|
$ |
0.34
|
||||
|
Basic
Common Shares Outstanding (millions)
|
||||||||
|
Average
for the period
|
541
|
508
|
||||||
|
End
of period
|
542
|
535
|
||||||
|
(1)
|
For
a further discussion on comparable earnings, funds generated from
operations and comparable earnings per share, refer to the Non-GAAP
Measures section in Management’s Discussion and Analysis of this First
Quarter 2008 Quarterly Report to
Shareholders.
|