We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Customisable watchlists with full streaming quotes from leading exchanges, such as LSE, NASDAQ, NYSE, AMEX, Bovespa, BIT and more.
| Name | Symbol | Market | Type |
|---|---|---|---|
| Citi Fun 24 | LSE:BC93 | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
Hot Features
Premium
RNS Number:8656J
TransCanada Pipelines Ld
16 March 2005
************************************************************************************************
* IMPORTANT: Please note the information in the submission header MUST match the information *
* on the cover page of your filing. The SEC accepts or suspends filings based upon the *
* information in the submission header. Please carefully check all tags and values, *
* as well as the content of your EDGAR proof. *
* *
* REGISTRANT TRANSMISSION AUTHORIZATION *
* *
* ( ) I have reviewed the submission header and find it to be correct. *
* ( ) I have reviewed the submission file and find it to be correct and complete. *
* ( ) I have reviewed the electronic HTML proof and find all content including graphics and *
* links to be correct. *
* ( ) I authorize Merrill Corporation to transmit this filing to the SEC. *
* *
* Printed Name: ____________________________ Date: _______________ Time: ______________ *
* *
* Signature: _________________________________________ *
* *
************************************************************************************************
40-F
18 (6 Edgar Docs, 12 Graphic Docs)
0000099070
XXXXXXXX
NYSE
12/31/2004
EDGAR Advantage Service Team
(800) 688 - 1933
40-F
Form 40-F
a2153568z40-f.htm
QuickLinks -- Click here to rapidly navigate through this document
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 40-F
( ) REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT of 1934
OR
(X) ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004 Commission File Number 1-8887
TRANSCANADA PIPELINES LIMITED
(Exact Name of Registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
4922, 4923, 4924, 5172
(Primary Standard Industrial Classification Code Number (if applicable))
Not Applicable
(I.R.S. Employer Identification Number (if applicable))
TransCanada Tower, 450 - 1 Street S.W.
Calgary, Alberta, Canada, T2P 5H1
(403) 920-2000
(Address and telephone number of Registrant's principal executive offices)
CT Corporation, Suite 2610, 520 Pike Street
Seattle, Washington, 98101; (206) 622-4511; 1-800-456-4511
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
8.25% Preferred Securities due 2047 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
(X) Annual Information Form (X )Audited annual financial
statements
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
At December 31, 2004, 4,000,000 Cumulative Redeemable First Preferred Shares
Series U
and 4,000,000 Cumulative Redeemable First Preferred Shares Series Y
were issued and outstanding
All of the Registrant's common shares are owned by TransCanada Corporation.
Indicate by check mark whether the Registrant by filing 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
(the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to
the Registrant in connection with such Rule.
Yes ( ) No ( )
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes ( ) No ( )
The documents (or portions thereof) forming part of this Form 40-F are
incorporated by reference in Amendment No. 1 on Form F-9 to Registration
Statement (Reg. No. 333-121265) under the Securities Act of 1933, as amended.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION & ANALYSIS
A. Audited Annual Financial Statements
The Registrant's consolidated audited annual financial statements,
including the report of independent chartered accountants with respect thereto
are included herein, see pages F-3 through F-49. See Note 23 of the Notes to
Consolidated Financial Statements on pages F-41 through F-49 of the Registrant's
consolidated audited annual financial statements, reconciling the important
differences between Canadian and United States generally accepted accounting
principles.
B. Management's Discussion & Analysis
For management's discussion and analysis, see the Management's
Discussion & Analysis on pages M-1 through M-50 included herein.
UNDERTAKING
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an Annual Report on Form 40-F arises;
or transactions in said securities.
DISCLOSURE CONTROLS AND PROCEDURES
Pursuant to the Sarbanes-Oxley Act of 2002 as adopted by the U.S.
Securities and Exchange Commission, the Registrant's management evaluates the
effectiveness of the design and operation of the company's disclosure controls
and procedures (disclosure controls). This evaluation is done under the
supervision of, and with the participation of, the President and Chief Executive
Officer and the Chief Financial Officer.
As of the end of the period covered by this Annual Report, the
Registrant's management evaluated the effectiveness of its disclosure controls.
Based on that evaluation, the President and Chief Executive Officer and the
Chief Financial Officer have concluded that the Registrant's disclosure controls
are effective in ensuring that material information relating to the Registrant
is made known to management on a timely basis, and is included in this Form
40-F.
No change in the Registrant's internal control over financial reporting
occurred during the period covered by this annual report that has materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's board of directors has determined that it has at least
one audit committee financial expert serving on its audit committee. Mr. Harry
G. Schaefer has been determined to be such audit committee financial expert and
is independent, as that term is defined by the New York Stock Exchange's listing
standards applicable to the Registrant. The SEC has indicated that the
designation of Mr. Schaefer as an audit committee financial expert does not make
Mr. Schaefer an "expert" for any purpose, impose any duties, obligations or
liability on Mr. Schaefer that are greater than those imposed on members of the
audit committee and board of directors who do not carry this designation or
affect the duties, obligations or liability of any other member of the audit
committee.
CODE OF ETHICS
The Registrant has adopted codes of business ethics for its employees
and officers, its principal executive officer, principal financial officer and
controller and its directors. The Registrant's codes are available on its
website at www.transcanada.com. There has been no waiver of the codes granted
during the 2004 fiscal year.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees for professional services rendered by KPMG LLP for
TransCanada PipeLines Limited and its subsidiaries for the 2004 and 2003 fiscal
years are shown in the table below:
Fees in millions of dollars 2004 2003
Audit Fees $ 2.47 $ 1.78
Audit-Related Fees 0.06 0.05
Tax Fees 0.06 0.06
All Other Fees 0.05 0.05
Total $ 2.64 $ 1.94
The nature of each category of fees is described below.
Audit Fees
Audit fees were incurred for professional services rendered by the
auditors for the audit of the Registrant's and its subsidiaries' annual
financial statements or services provided in connection with statutory and
regulatory filings or engagements, the review of interim consolidated financial
statements and information contained in various prospectuses and other offering
documents.
Audit-Related Fees
Audit-related fees were incurred for the audit of the financial
statements of the Registrant's various pension plans.
Tax Fees
Tax fees were incurred for tax compliance and tax advice. These services
consisted of: tax compliance including the review of original and amended tax
returns, assistance with questions regarding tax audits, the preparation of
employee tax returns under the Registrant's expatriate tax services program and
assistance in completing routine tax schedules and calculations; and tax
services relating to common forms of domestic and international taxation (i.e.,
income tax, capital tax, Goods and Services Tax and Value Added Tax).
All Other Fees
Fees disclosed in the table above under the item "all other fees" were
incurred for services other than the audit fees, audit-related fees and tax fees
described above. These services consisted of advice with regards to compliance
with the Sarbanes-Oxley Act of 2002.
Pre-Approval Policies and Procedures
The Registrant's Audit Committee has adopted a pre-approval policy with
respect to permitted non-audit services. Under the policy, the Audit Committee
has granted pre-approval for specified non-audit services of $25,000 CDN or less
that are within the annual pre-approved limit for non-audit services. For
engagements of $25,000 CDN or less which are not within the annual pre-approved
limit, and for engagements between $25,000 CDN and $100,000 CDN, approval of the
Audit Committee chair is required and the Audit Committee is to be informed of
the engagement at the next scheduled Audit Committee meeting. For all
engagements of $100,000 or more, pre-approval of the Audit Committee is
required. In all cases, regardless of dollar amount involved, where there is a
potential for conflict of interest for the external auditor to arise on an
engagement, the Audit Committee chair must pre-approve the assignment.
To date, the Registrant has not approved any non-audit services on the
basis of the de-minimis exemptions. All non-audit services are pre-approved by
the Audit Committee in accordance with the pre-approval policy referenced
herein.
OFF-BALANCE SHEET ARRANGEMENTS
The Registrant has no off-balance sheet arrangements, as defined in this
Form, other than the guarantees described in Notes 21 and 23 of the Notes to the
Consolidated Financial Statements. The disclosure relating to guarantees in
Notes 21 and 23 to the Consolidated Financial Statements is incorporated herein
by reference.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Contractual Obligations Total Less 1-3 3-5 More
than 1 years years than 5
year years
Long-Term Debt Obligations 11,341 849 1,069 1,457 7,966
Capital (Finance) Lease Obligations
Operating Lease Obligations 869 28 77 88 676
Purchase Obligations(1) 6,351 1,099 1,196 974 3,082
Other Long-Term Liabilities Reflected on the
Registrant's Balance Sheet under the GAAP of
the primary financial statements
Total 18,561 1,976 2,342 2,519 11,724
-------
(1)
The amounts in this table exclude expected funding contributions of
approximately $67 million and $6 million, in 2005, to the Registrant's
pension plans and other benefit plans, respectively.
For further information on purchase obligations see "Management's Discussion and
Analysis - Contractual Obligations - Purchase Obligations", which is
incorporated herein by reference.
IDENTIFICATION OF THE AUDIT COMMITTEE
The Registrant has a separately-designated standing Audit Committee. The members
of the Audit Committee are:
Chair: H.G. Schaefer
Members: D.D. Baldwin
P. Gauthier
S.B. Jackson
P.L. Joskow
FORWARD-LOOKING INFORMATION
This document, documents herein incorporated by reference, and other
reports and filings made with the securities regulatory authorities, include
forward-looking statements. All forward looking statements are based on TCPL's
beliefs as well as assumptions based on information available at the time the
assumption was made. Foward-looking statements relate to, among other things,
anticipated financial performance, business prospects, strategies, regulatory
developments, new services, market forces, commitments and technological
developments. By its nature, such forward-looking information is subject to
various risks and uncertainties, including those discussed herein, which could
cause TCPL's actual results and experience to differ materially from the
anticipated results or other expectations expressed. Readers are cautioned not
to place undue reliance on this forward-looking information, which is given as
of the date hereof or otherwise, and TCPL undertakes no obligation to update
publicly or revise any forward-looking information, whether as a result of new
information, future events or otherwise.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant
certifies that it meets all of the requirements for filing on Form 40-F and has
duly caused this Annual Report to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Calgary, Province of Alberta, Canada.
TRANSCANADA PIPELINES LIMITED
By: /s/ RUSSELL K. GIRLING Russell K. Girling,
Executive Vice-President,
Corporate Development and Chief Financial Officer
Date: March 15, 2005
DOCUMENTS FILED AS PART OF THIS REPORT
13.1 TransCanada PipeLines Limited Annual Information Form for the year ended
December 31, 2004.
13.2 Management's Discussion and Analysis included herein on pages M-1
through M-50.
13.3 2004 Consolidated Audited Financial Statements included herein on pages
F-3 through F-49.
13.4 U.S. GAAP reconciliation included herein on pages F-41 through F-49 of
the 2004 Consolidated Audited Financial Statements.
99.1 Comments by Auditors for U.S. Readers on Canada - U.S. Reporting
Difference.
EXHIBITS
23.1 Consent of KPMG LLP, Chartered Accountants.
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.
TRANSCANADA PIPELINES LIMITED
ANNUAL INFORMATION FORM
March 7, 2005
TABLE OF CONTENTS
Page
TABLE OF CONTENTS i
PRESENTATION OF INFORMATION ii
FORWARD-LOOKING INFORMATION ii
REFERENCE INFORMATION ii
TRANSCANADA PIPELINES LIMITED 1
Corporate Structure 1
Significant Subsidiaries 1
GENERAL DEVELOPMENT OF THE BUSINESS 2
Developments in Gas Transmission Business 2
Developments in Power Business 4
Recent Developments 5
BUSINESS OF TCPL 5
Gas Transmission Business 6
Gas Transmission 7
Wholly-Owned Pipelines 7
Other Gas Transmission 12
Regulation of North American Pipelines 15
Competition in Gas Transmission 15
Research and Development 15
Power 16
TransCanada Power, L.P. 17
Other Power 17
Power Performance 18
Regulation of Power 18
Competition in Power 19
Other Interests 19
Cancarb Limited 19
TransCanada Turbines 19
TransCanada Calibrations 19
Discontinued Operations 19
HEALTH, SAFETY AND ENVIRONMENT 20
Environment 20
LEGAL PROCEEDINGS 21
TRANSFER AGENTS AND REGISTRAR 21
INTEREST OF EXPERTS 21
RISK FACTORS 21
DIVIDENDS 22
DESCRIPTION OF CAPITAL STRUCTURE 23
RATINGS 24
MARKET FOR SECURITIES 25
DIRECTORS AND OFFICERS 27
Directors 27
Officers 30
CORPORATE GOVERNANCE 31
Audit Committee 32
Other Board Committees 33
Conflicts of Interest 34
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS 34
SECURITIES OWNED BY DIRECTORS 34
COMPENSATION OF DIRECTORS 35
EXECUTIVE COMPENSATION AND OTHER INFORMATION 37
ADDITIONAL INFORMATION 56
GLOSSARY 56
SCHEDULE "A" 58
Exchange Rate of the Canadian Dollar 58
Metric Conversion Table 58
SCHEDULE "B" 59
TRANSCANADA PIPELINES LIMITED i
PRESENTATION OF INFORMATION
Unless otherwise noted, the information contained in this Annual Information
Form ("AIF") is given at or for the year ended, December 31, 2004 ("Year End").
Amounts are expressed in Canadian dollars unless otherwise indicated. Financial
information is presented in accordance with Canadian generally accepted
accounting principles.
This AIF provides material information about the business and operations of
TransCanada PipeLines Limited ("TCPL"). TCPL's Management's Discussion and
Analysis dated March 1, 2005 ("MD&A") and TCPL's Audited Consolidated Financial
Statements are incorporated by reference into this AIF and are available on
SEDAR at www.sedar.com.
Unless the context indicates otherwise, a reference in this AIF to "TCPL"
includes TCPL's parent, TransCanada Corporation ("TransCanada"), and
subsidiaries of TCPL through which its various business operations are
conducted. Where TCPL is referred to with respect to actions that occurred prior
to its 2003 plan of arrangement with TransCanada, which is described below under
the heading "TransCanada PipeLines Limited - Corporate Structure", these actions
were taken by TCPL or its subsidiaries. The term "subsidiary", when referred to
in this AIF, means direct and indirect wholly-owned subsidiaries of TransCanada
or TCPL, as applicable.
Trends impacting TCPL's gas transmission and power businesses are discussed in
the MD&A under the headings "Gas Transmission" (under the subheadings
"Opportunities and Developments", "Regulatory Developments" and "Business
Risks") and "Power" (under the subheadings "Opportunities and Developments" and
"Business Risks").
FORWARD-LOOKING INFORMATION
This AIF, the documents incorporated by reference into this AIF, and other
reports and filings made with the securities regulatory authorities include
forward-looking statements. All forward-looking statements are based on TCPL's
beliefs and assumptions based on information available at the time the
assumption was made. Forward-looking statements relate to, among other things,
anticipated financial performance, business prospects, strategies, regulatory
developments, new services, market forces, commitments and technological
developments. Much of this information also appears in the MD&A. By its nature,
such forward-looking information is subject to various risks and uncertainties,
including those discussed in this AIF, which could cause TCPL's actual results
and experience to differ materially from the anticipated results or other
expectations expressed. 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 AIF or otherwise, and TCPL undertakes no obligation to update publicly
or revise any forward-looking information, whether as a result of new
information, future events or otherwise.
REFERENCE INFORMATION
For the reference information noted below, please refer to Schedule "A".
*
Exchange Rate of the Canadian Dollar
*
Metric Conversion Table
ii TRANSCANADA PIPELINES LIMITED
TRANSCANADA PIPELINES LIMITED
Corporate Structure
TCPL's head office and registered office are located at 450 - 1st Street S.W.,
Calgary, Alberta, T2P 5H1.
TCPL is a Canadian public company. Significant dates and events are set forth
below.
Date Event
March 21, 1951 Incorporated by Special Act of Parliament as Trans-Canada Pipe Lines Limited.
April 19, 1972 Continued under the Canada Corporations Act by Letters Patent, which included the alteration of
its capital and change of name to TransCanada PipeLines Limited.
June 1, 1979 Continued under the Canada Business Corporations Act.
July 2, 1998 Certificate of Arrangement issued in connection with the Plan of Arrangement with NOVA
Corporation ("NOVA") through which the companies merged and then split off the commodity
chemicals business carried on by NOVA into a separate public company.
January 1, 1999 Certificate of Amalgamation issued reflecting TCPL's vertical short form amalgamation with a
wholly-owned subsidiary, Alberta Natural Gas Company Ltd.
January 1, 2000 Certificate of Amalgamation issued reflecting TCPL's vertical short form amalgamation with a
wholly-owned subsidiary, NOVA Gas International Ltd.
May 4, 2001 Restated TransCanada PipeLines Limited Articles of Incorporation issued.
June 20, 2002 Restated TransCanada PipeLines Limited By-Laws.
May 15, 2003 Certificate of Arrangement issued in connection with the plan of arrangement with TransCanada.
TransCanada was incorporated pursuant to the provisions of the Canada Business Corporation Act
on February 25, 2003. The arrangement was approved by TCPL common shareholders on April 25,
2003 and following court approval, Articles of Arrangement were filed making the arrangement
effective May 15, 2003. The common shareholders of TCPL exchanged each of their TCPL common
shares for one common share of TransCanada. The debt securities and preferred shares of TCPL
remained obligations and securities of TCPL. TCPL continues to hold the assets it held prior to
the arrangement and continues to carry on business as the principal operating subsidiary of the
TransCanada group of entities.
The significant dates and events relating to TransCanada are set out in
TransCanada's Annual Information Form for the year ended December 31, 2004,
dated March 7, 2005.
At Year End, TCPL had approximately 2,473 employees, substantially all of whom
were employed in Canada and the United States.
Significant Subsidiaries
TCPL's significant subsidiaries(1) at Year End and the jurisdiction under which
each subsidiary was incorporated are noted below. TCPL owns, directly or
indirectly, 100 per cent of the voting shares of each of these subsidiaries.
TRANSCANADA PIPELINES LIMITED 1
-------
(1)
Excludes certain of TCPL's subsidiaries where:
*
the total assets of each excluded subsidiary does not exceed ten per cent of
the consolidated assets of TCPL at Year End;
*
the sales and operating revenues of each excluded subsidiary does not exceed
ten per cent of the consolidated sales and operating revenues of TCPL for
the year ended December 31, 2004;
*
the aggregate assets of all the excluded subsidiaries does not exceed 20 per
cent of the consolidated assets of TCPL at Year End; and
*
the aggregate sales and operating revenues of all the excluded subsidiaries
does not exceed 20 per cent of the consolidated sales and operating revenues
of TCPL for the year ended December 31, 2004.
GENERAL DEVELOPMENT OF THE BUSINESS
The general development of TCPL's business during the last three financial
years, and the significant acquisitions, events or conditions which have had an
influence on that development, are described below.
Developments in Gas Transmission Business
TCPL's focus has been to sustain, grow and optimize its natural gas
transmission business. Summarized below are significant developments that have
occurred in TCPL's natural gas transmission business over the last three years.
2004
In September 2004, TCPL and Petro-Canada signed a memorandum of understanding
for the development of the Cacouna Energy liquefied natural gas ("LNG") facility
in Cacouna, Quebec, approximately 15 kilometers northeast of Riviere-du-Loup.
The proposed facility will be capable of receiving, storing and regasifying
imported LNG with an average annual send out capacity of approximately 500
million cubic feet per day of natural gas. TCPL and Petro-Canada will share
equally the construction costs of the facility, which are estimated to be $660
million. TCPL will operate the facility while Petro-Canada will contract for the
facility's entire regasification capacity and supply the LNG. The proposed
facility requires regulatory and other approvals from federal, provincial and
municipal governments and regulators and the regulatory approval process is
anticipated to take approximately two years to complete. Provided the necessary
approvals are obtained, the facility is anticipated to be in service towards the
end of this decade.
On October 1, 2004, TCPL acquired the 380 kilometre Simmons pipeline system
("Simmons Pipeline System"), which delivers natural gas to the oil sands region
near Fort McMurray, Alberta from several connecting receipt points on the
Alberta System, for approximately $22 million.
2 TRANSCANADA PIPELINES LIMITED
On November 1, 2004, TCPL acquired the Gas Transmission Northwest pipeline
system ("GTN System") and the North Baja pipeline system ("North Baja System")
from National Energy & Gas Transmission, Inc. ("NEGT") for US$1.7 billion,
including approximately US$0.5 billion of assumed debt, subject to typical
closing adjustments. The GTN System, formerly known as Pacific Gas Transmission,
extends more than 2,174 kilometres from a connection point on TCPL's BC System
and Foothills System near Kingsgate, British Columbia on the B.C. - Idaho border
to a point near Malin, Oregon on the Oregon - California border. The natural gas
transported on this system originates primarily in Canada and is supplied to
markets in the Pacific Northwest, California and Nevada. The North Baja System
extends 128 kilometres from a point near Ehrenberg, Arizona to a point near
Ogilby, California on the California - Mexico border. The natural gas
transported on the North Baja System comes primarily from supplies in the
southwestern U.S. for markets in northern Baja California, Mexico.
In November 2004, TCPL and Shell US Gas & Power LLC ("Shell") announced plans
to jointly develop an offshore LNG regasification terminal, Broadwater Energy,
in the New York State waters of Long Island Sound. The proposed floating storage
and regasification unit will be capable of receiving, storing and regasifying
imported LNG with an average send out capacity of approximately one billion
cubic feet ("Bcf") per day of natural gas. TCPL and Shell will build and install
a floating storage and regasification unit at a location approximately 15
kilometers off the Long Island coast and 18 kilometers off the Connecticut
coast. TCPL will own 50 per cent of Broadwater Energy LLC, which will own and
operate the facility, while Shell will contract for the facility's entire
regasification capacity and supply the LNG. The estimated cost of construction
is US$700 million. The proposed Broadwater Energy LNG facility requires
regulatory approval from Federal and State governments before construction can
begin and the regulatory approval process is anticipated to take up to three
years to complete. Provided the necessary approvals are granted and commercial
commitments obtained, the facility could be in service in late 2010. TCPL and
Shell have filed a request with the U.S. Federal Energy Regulatory Commission
("FERC") to initiate a six to nine month public review of the Broadwater
proposal.
In a referendum held in March 2004, the residents of Harpswell, Maine voted
against leasing a town-owned site to build the Fairwinds LNG regasification
facility. As a result, TCPL and its partner, ConocoPhillips Company, suspended
further work on this LNG project.
For further information about Gas Transmission Developments in 2004, refer to
the headings "Business of TCPL - Gas Transmission - Wholly-Owned Pipelines" and
"Business of TCPL - Gas Transmission - Other Gas Transmission" below.
2003
In August 2003, TCPL acquired the remaining interests in Foothills Pipe Lines
Ltd. ("Foothills") that it did not previously own. The Foothills System, which
is owned by Foothills, extends 1,040 kilometres and has two legs: one which
originates south of Caroline, Alberta and runs along the foothills of the Rocky
Mountains through the Crowsnest Pass to Kingsgate, B.C. where it connects to the
GTN System; and the other which originates south of Caroline, Alberta and runs
southeast across Alberta and Saskatchewan to the Canada - U.S. border near
Monchy, Saskatchewan where it interconnects with Northern Border Pipeline
Company ("Northern Border Pipeline"). The Foothills System carries over 30 per
cent of all Canadian natural gas exports to the U.S.
TCPL, through Foothills, holds certificates for both the Alaskan and Canadian
segments of the Alaska Highway Pipeline Project and also holds significant
right-of-way assets for the project in both Canada and Alaska.
In June 2003, TCPL, the Mackenzie Delta Producers Group ("Mackenzie Producers")
and Mackenzie Valley Aboriginal Pipeline L.P. ("Aboriginal Pipeline Group" or
"APG") reached a funding and participation agreement. TCPL agreed to finance the
APG's share of project development costs in exchange for several options,
including an ownership interest in the pipeline, certain rights of first refusal
in the Mackenzie Gas Pipeline Project and the right to have the Mackenzie Delta
gas flow into the Alberta System.
Through acquisitions that took place in September and December 2003, TCPL
increased its ownership interest in Portland Natural Gas Transmission System
Partnership ("Portland") in the northeastern U.S. from 33.3 per cent to 61.7 per
cent.
TRANSCANADA PIPELINES LIMITED 3
2002
In August 2002, TCPL completed the acquisition of a portion of the two per cent
general partnership interest in Northern Border Partners, L.P. ("NBP L.P."), a
publicly held limited partnership. This interest provides TCPL with a 17.5 per
cent voting interest on the partnership policy committee. NBP L.P. owns
interests in pipelines and gas processing plants in the U.S. and Canada,
including a 70 per cent interest in Northern Border Pipeline.
Developments in Power Business
In the past three years, TCPL has grown its power business and, in particular,
has increased its generation capacity from facilities it owns, operates and/or
controls, including those under construction or development, from approximately
4,033 megawatts ("MW") in 2002 to 5,712 MW at Year End. Summarized below are
significant developments that have occurred in TCPL's power business over the
last three years.
2004
TCPL received approval from the Quebec government in April 2004, to develop the
550 MW natural gas-fired Becancour cogeneration plant which is located at an
industrial park near Trois-Rivieres, Quebec ("Becancour Plant") and which will
supply its entire power output to Hydro-Quebec Distribution under a 20 year
power purchase agreement. The Becancour Plant will also supply steam to two
other companies located within the same industrial park. Construction of the 550
MW Becancour Plant began in the third quarter of 2004. The cost of the
Becancour Plant is estimated to be $550 million, including capitalized interest,
and the plant is expected to be in service in late 2006.
In April 2004, TCPL sold its ManChief and Curtis Palmer power plants to
TransCanada Power, L.P. ("Power LP") for approximately US$402.6 million
excluding closing adjustments. The acquisition was partially financed by Power
LP through a public offering of subscription receipts which were subsequently
converted into limited partnership units. TCPL did not take up its full pro rata
share of the units and as a result, its interest in the Power LP was reduced
from 35.6 per cent to 30.6 per cent.
On September 29, 2004, TCPL entered into an asset purchase agreement with USGen
New England, Inc. ("USGen"), a power generation company, for the purchase of
hydroelectric generation assets with a total generating capacity of 567 MW of
power for US$505 million. The asset purchase was subject to a bankruptcy court
sanctioned auction in which TCPL was declared the successful bidder. The assets
include generating systems on two rivers in New England: the 484 MW Connecticut
River system in New Hampshire and Vermont and the 83 MW Deerfield River system
in Massachusetts and Vermont. The necessary bankruptcy court approvals for the
sale have been granted; however, the sale is also subject to certain regulatory
approvals and conditions. In December 2004, Vermont Hydroelectric Power
Authority exercised its option with USGen to purchase the 49 MW Bellows Falls
facility located on the Connecticut River system. Upon closing of this purchase
option, the Bellows Falls facility will be sold to Vermont Hydroelectric for
US$72 million, thereby effectively reducing TCPL's total purchase price by that
amount.
Cartier Wind Energy Inc. ("Cartier Wind Energy"), of which 62 per cent is owned
by TCPL, was awarded six wind energy projects by Hydro-Quebec Distribution in
October 2004, representing a total of 739.5 MW in the Gaspe region of Quebec.
The six projects are distributed throughout the Gaspesie-Iles-de-la-Madeleine
region and the Regional County Municipality of Matane and are expected to cost a
total of more than $1.1 billion to develop and construct. Construction of the
projects is expected to begin late in 2005 and the projects are expected to be
commissioned between 2006 and 2012. Long-term electricity supply contracts,
which are subject to approval by the Regie de l'Energie, were negotiated with
Hydro-Quebec Distribution for each of the six facilities and were executed on
February 25, 2005. Cartier Wind Energy has begun the process of seeking
environmental approvals for the projects.
Construction of the 165 MW MacKay River power plant located in Alberta was
completed in 2003 and the plant was put into commercial service in 2004.
Construction of the 90 MW Grandview natural gas-fired cogeneration power plant
on the site of the Irving Oil refinery in Saint John, New Brunswick ("Grandview
Plant") was completed by the end of 2004 and was commissioned in the first
quarter of 2005. Under a 20 year tolling arrangement, a subsidiary of Irving Oil
4 TRANSCANADA PIPELINES LIMITED
Limited will provide fuel to the Grandview Plant and has contracted for 100 per
cent of the Grandview Plant's heat and electricity output.
2003
In February 2003, TCPL, as part of a consortium, acquired a 31.6 per cent
interest in Bruce Power L.P. ("Bruce Power") and a 33.3 per cent interest in
Bruce Power Inc., the general partner of Bruce Power. Bruce Power leases its
generation facilities from Ontario Power Generation Inc. ("OPG"). The facilities
consist of eight nuclear reactors, five of which were operational at the end of
2003, with a capacity of 3,950 MW. An additional reactor with capacity of 750 MW
commenced commercial operations in March 2004.
The members of the purchasing consortium of Bruce Power severally guaranteed,
on a pro-rata basis, certain contingent financial obligations of Bruce Power
related to operator licenses, the OPG lease agreement, power sales agreements
and contractor services. Bruce Power continues to be operated by experienced
nuclear power plant operators. Spent fuel and decommissioning liabilities remain
with OPG under the terms of the lease.
2002
In November 2002, TCPL completed the acquisition of the 300 MW ManChief power
plant, situated approximately 145 kilometres northeast of Denver, Colorado. The
ManChief power plant was subsequently sold to Power LP in 2004.
Recent Developments
In January 2005, TCPL announced that it would develop a $200 million natural
gas storage facility near Edson, Alberta. The Edson facility is expected to have
a capacity of approximately 50 Bcf and will connect to TCPL's Alberta System.
TCPL has also secured a long-term contract with a third party for up to an
additional 40 Bcf of storage capacity in Alberta. Upon completion of the Edson
facility, combined with the existing storage capacity it holds through its 60
per cent interest in CrossAlta Gas Storage & Services Ltd., TCPL will own or
control more than 110 Bcf of storage capacity, which will amount to
approximately one third of the storage capacity in Alberta at that time. TCPL is
in a position to provide fee based gas storage services directly to customers by
April 2005 and the Edson facility's capacity will be available to customers on a
phased in basis commencing in 2006.
In February 2005, TCPL announced its intention to gauge industry interest in a
project to develop a 3,000 kilometre oil pipeline, with capacity to transport
approximately 400,000 barrels per day. The pipeline will run from Hardisty, in
southeastern Alberta, south through Alberta, eastwards through Saskatchewan and
Manitoba, and then south across the Canada-U.S. border through North Dakota,
South Dakota, Iowa, Missouri and finally to the Wood River and Patoka delivery
points in Illinois. The oil pipeline project will involve the conversion from
gas service of approximately 1,240 kilometres of one line of TCPL's existing
multi-line Alberta System and Canadian Mainline as well as new pipeline
construction. Discussions with various stakeholders have begun and, if
sufficient support for the oil pipeline project is attained, TCPL will proceed
to seek the necessary regulatory approvals.
BUSINESS OF TCPL
TCPL is a leading North American energy infrastructure company focused on
natural gas transmission and power generation. At Year End, the gas transmission
business accounted for approximately 77 per cent of revenues and 83 per cent of
TCPL's total assets and the power business accounted for approximately 23 per
cent of revenues and 13 per cent of TCPL's total assets. The following is a
description of each of TCPL's two main areas of operation.
TRANSCANADA PIPELINES LIMITED 5
The following table shows TCPL's revenues from operations by segment,
classified geographically, for the years ended December 31, 2004 and 2003.
2004 2003
(millions of (millions of
dollars) dollars)
Gas Transmission
Canada - Domestic Deliveries 2,441 2,492
Canada - Export Deliveries(1) 1,259 1,291
United States 217 173
3,917 3,956
Power
Canada - Domestic Deliveries 706 765
Canada - Export Deliveries(1) 2 2
United States 482 634
1,190 1,401
Total Revenues(2) 5,107 5,357
Notes:
(1)
Export deliveries include gas transmission revenues attributable to
deliveries to U.S. pipelines and power deliveries to U.S. markets.
(2)
Revenues are attributed to countries based on country of origin of product
or service.
Gas Transmission Business
Canada
TCPL, through subsidiaries, has substantial Canadian natural gas pipeline
holdings, including:
*
a natural gas transmission system running from the Alberta border east
to delivery points in eastern Canada and the U.S. border ("Canadian
Mainline");
*
a natural gas transmission system throughout the province of Alberta
("Alberta System");
*
a natural gas transmission system in southeastern B.C., southern Alberta
and southwestern Saskatchewan ("Foothills System");
*
a natural gas transmission system in southeastern B.C. ("BC System");
and
*
a 50 per cent interest in Trans Quebec & Maritimes Pipeline Inc. ("TQM")
which operates a natural gas transmission system in southeastern Quebec
("TQM System").
United States
TCPL, through subsidiaries, has natural gas pipeline holdings in the U.S.
including:
*
a natural gas transmission system running from northwestern Idaho,
through Washington and Oregon to the California border (the "GTN
System");
*
a natural gas transmission system in southern Arizona and California
(the "North Baja System");
*
a 50 per cent interest in the Great Lakes Gas Transmission system
("Great Lakes System") which is located in the north central U.S.,
roughly parallel to the Canada - U.S. Border;
*
a 41 per cent interest in the Iroquois Gas Transmission System
("Iroquois System") which runs southwards down through the eastern part
of the State of New York;
*
a 61.7 per cent interest in the Portland system which runs through Maine
into Massachusetts;
*
a 10 per cent effective ownership interest, held through TC PipeLines,
L.P., in the Northern Border Pipeline system which is located in the
upper midwestern portion of the U.S.; and
6 TRANSCANADA PIPELINES LIMITED
*
a 17.4 per cent effective ownership interest in the Tuscarora Gas
Transmission Company ("Tuscarora") system which runs from Oregon
eastwards to the upper portion of Nevada. One per cent of this interest
is held directly through a subsidiary of TransCanada and the remainder
is held through TransCanada's interest in TC PipeLines, L.P.
TCPL holds a 33.4 per cent interest in TC PipeLines, L.P., a publicly held
limited partnership of which a subsidiary of TCPL acts as the general partner.
The remaining interest of TC PipeLines, L.P. is widely held by the public. TC
PipeLines, L.P. holds a 30 per cent interest in Northern Border Pipeline and a
49 per cent interest in Tuscarora.
Gas Transmission
TCPL's transmission business principally includes the operation of the
wholly-owned Canadian Mainline, Alberta System, Foothills System, BC System, GTN
System and North Baja System as well as TCPL's other investments in
partially-owned natural gas pipelines and storage facilities located primarily
in Canada and the U.S.
Canadian natural gas transmission services are provided under gas
transportation tariffs that provide for cost recovery including return of and
return on capital as approved by the applicable regulatory authorities. In some
cases, such tariffs are determined under agreements with customers and other
interested parties, subject to regulatory approval. The net income of the gas
transmission business is generated based on such tariffs. Under the current
regulatory model, net income is not affected by fluctuations in the commodity
price of natural gas, but such fluctuations influence both production levels and
the natural gas basins from which North American natural gas consumers elect to
purchase natural gas supplies.
Both the GTN System and the North Baja System operate under fixed rate models,
under which maximum and minimum rates for various service types have been
ordered by FERC and under which, these two systems are permitted to discount or
negotiate rates on a non-discriminatory basis. The net earnings attributable to
the GTN System and the North Baja System are impacted by variations in volumes
delivered under the various service types that are provided, as well as by
variations in the costs of providing transportation service.
The volume of natural gas shipments on the Canadian Mainline, Alberta System,
Foothills System, BC System, GTN System and North Baja System depends on the
volume of natural gas produced and sold both in and outside of Alberta, and on
the cost and availability of other pipeline capacity. The natural gas
transported by TCPL on its Canadian pipelines comes primarily from the Western
Canada Sedimentary Basin ("WCSB"). The WCSB's estimated remaining established
reserves of natural gas are approximately 55 trillion cubic feet ("Tcf") with a
remaining reserve-to-production ratio of approximately nine years at current
levels of production. At present, incremental reserves are continually being
discovered and generally maintain the reserve-to-production ratio at close to
nine years. Production of natural gas from the WCSB has not increased since
2001. With the expansion of capacity on TCPL's wholly and partially-owned
pipelines over the past decade, and the competition provided by other pipelines,
combined with significant growth in natural gas demand in Alberta, TCPL
anticipates there will be excess pipeline capacity out of the WCSB for the
foreseeable future.
In addition to the information concerning the gas transmission segment of
TCPL's business set out herein, further information can be found in the MD&A
under the heading "Gas Transmission - Opportunities and Developments".
Wholly-Owned Pipelines
Canadian Mainline
The Canadian Mainline consists of 14,898 kilometres of pipeline system
transporting natural gas from the Alberta border east to various delivery points
in Canada and at the U.S. border.
Capital expenditures on the Canadian Mainline in 2004 were approximately $43
million. These expenditures were primarily for some localized capacity capital
and maintenance capital projects. TCPL anticipates approximately $57 million of
further localized capital spending on the Canadian Mainline in 2005, primarily
related to capacity capital and maintenance capital projects.
TRANSCANADA PIPELINES LIMITED 7
The following table sets forth the revenues earned and volumes delivered for
the years ended December 31, 2004 and 2003 for the Canadian Mainline.
2004 2003
Revenues(1) Per cent Revenues Per cent
(millions of (millions of
dollars) dollars)
Revenues
Domestic Deliveries 952 44 1,035 46
Export Deliveries 1,201 56 1,214 54
Total 2,153 100 2,249 100
2004 2003
Volume Per cent Volume Per cent
(Bcf) (Bcf)
Volumes Transported
Domestic Deliveries 1,345 51 1,295 49
Export Deliveries 1,276 49 1,333 51
Total 2,621 100 2,628 100
Note:
(1)
2004 domestic revenues were reduced as a result of transportation service
credits related to a new service offered. Total credits of $23 million were
reported against 2004 domestic revenues.
Canadian Mainline Contracted Firm Transportation Services
As of Year End, the Canadian Mainline was providing transportation for 127
shippers pursuant to 371 firm service transportation contracts. Approximately 44
per cent of the total daily transportation volume represented by these
contracts relates to contracts for delivery of natural gas at U.S. border
points.
As of Year End, the weighted average remaining term of firm transportation
contracts on the Canadian Mainline was approximately 2.5 years compared to a
weighted average remaining term of 3.2 years at December 31, 2003. These
contracts are renewable by the customer providing notice to TCPL at least six
months prior to the expiry of the current contract term. The Canadian Mainline
last operated at capacity with one year or longer firm service contracts during
the 1998-1999 contract year. Since then, the Canadian Mainline has seen a 36 per
cent decrease in firm contracted deliveries and a 19 per cent decrease in total
deliveries originating at the Alberta border and in Saskatchewan. Further
information can be found in the MD&A under the headings "Gas Transmission -
Earnings Analysis" and "Gas Transmission - Opportunities and Developments".
Regulation of the Canadian Mainline
Under the terms of the National Energy Board Act (Canada), the National Energy
Board ("NEB") regulates the construction, operation, tolls and tariffs of the
Canadian Mainline. The NEB is the authority under the Canadian Environmental
Assessment Act responsible for considering the environmental and social impacts
of proposed pipeline projects. The Canadian Mainline tolls are designed to
generate sufficient revenues for TCPL to recover operating expenses,
depreciation, taxes and financing costs of the Canadian Mainline, including
interest on debt and payments on preferred securities attributable to the
Canadian Mainline, together with a return on deemed common equity.
The tolls are composed of a demand charge component and a commodity charge
component. The demand charge is independent of the volumes shipped and is
designed to recover fixed costs, such as fixed operating expenses, financing
costs (including a return on deemed common equity), taxes and depreciation. The
commodity charge is designed to recover variable operating costs. These charges
are paid by shippers under transportation contracts with TCPL.
8 TRANSCANADA PIPELINES LIMITED
In February 2003, the NEB denied TCPL's September 2002 request for a Review and
Variance of an NEB decision referred to as the Fair Return Decision, which TCPL
considered unsatisfactory. Consequently, TCPL applied for and was granted leave
to appeal the NEB's denial of the Review and Variance to the Federal Court of
Appeal. However, in April 2004, the Federal Court of Appeal dismissed TCPL's
appeal. TCPL remains disappointed with the Fair Return Decision; however, the
Federal Court of Appeal decision extinguished any means of having it varied. In
the 2002 Fair Return Decision, the NEB denied an application by TCPL requesting
the adoption of an after-tax weighted average cost of capital methodology for
establishing investment return and an after-tax weighted average cost of capital
of 7.5 per cent, equivalent to a 12.5 per cent rate of return on deemed common
equity of 40 per cent. The NEB instead affirmed a formula under which the rate
of return on common equity ("ROE") for the Canadian Mainline was determined to
be 9.61 per cent in 2001, 9.53 per cent in 2002 and 9.79 per cent in 2003. The
NEB increased deemed common equity to 33 per cent from the previously approved
level of 30 per cent. TCPL is of the belief that the Fair Return Decision does
not recognize the long-term business risks of the Canadian Mainline.
In January 2004, TCPL filed an application with the NEB to determine 2004
Canadian Mainline tolls and the NEB, because of the then pending appeal to the
Federal Court of Appeal regarding the Fair Return Decision, decided to hear the
application in two phases: Phase I which addressed all matters except cost of
capital and Phase II which addressed cost of capital. As part of Phase I of the
application, TCPL originally requested an 11 per cent return on deemed common
equity of 40 per cent, however, given the Federal Court of Appeal's dismissal of
TCPL's appeal respecting its request of the NEB to review the Fair Return
Decision, TCPL amended the application so as to request an ROE of 9.56 per cent,
as determined under the NEB's generic ROE formula on deemed common equity of 40
per cent. In its Phase I decision issued in September 2004, the NEB approved
virtually all applied-for costs and the new Firm Transportation - Non Renewable
service. The NEB considered the cost of capital portions of TCPL's application
in Phase II of the proceeding and a decision on Phase II is expected in the
second quarter of 2005.
In February 2005, TCPL announced that it had reached a settlement with its
Canadian Mainline shippers regarding the tolls and tariff that are applicable to
the Canadian Mainline in 2005.
Further information about regulatory development involving the Canadian
Mainline can be found in the MD&A under the headings "Gas Transmission -
Regulatory Developments - Canadian Mainline" and "Consolidated Financial Review
- Gas Transmission".
Alberta System
The Alberta System, held by NOVA Gas Transmission Ltd. ("NGTL"), a subsidiary
of TCPL, is an Alberta-wide natural gas transmission system that collects and
transports natural gas for use in Alberta and for delivery to connecting
pipelines, such as the Canadian Mainline, the Foothills System and the BC
System, as well as to other unaffiliated pipelines, at various points on the
Alberta border for delivery to eastern Canada, B.C. and the U.S. The Alberta
System includes 23,186 kilometres of mainlines and laterals. On October 1, 2004,
the Simmons Pipeline System, which delivers gas to the Fort McMurray area,
became part of the Alberta System.
Capital expenditures, which are dependent in part upon requests for increased
transportation service by customers, were $87 million in 2004. TCPL anticipates
approximately $97 million of capital spending on the Alberta System in 2005.
These capital expenditures will be primarily related to capacity expansion.
TRANSCANADA PIPELINES LIMITED 9
The following table sets forth the annual volumes delivered by the Alberta
System for the years ended December 31, 2004 and 2003.
2004 2003
Deliveries to Market Areas Volume(1) Per cent Volume(2) Per cent
(Bcf) (Bcf)
Alberta 589 15 539 14
Eastern Canada and Eastern United States 1,418 36 1,552 40
Western United States 737 19 665 17
Midwestern United States 1,155 30 1,117 29
B.C. 10 - 10 -
Total 3,909 100 3,883 100
Notes:
(1)
Of the total volumes transported in 2004, 1.80 Tcf of natural gas was
delivered to the Canadian Mainline, 743 Bcf of natural gas was delivered to
the BC System and 768 Bcf of natural gas was delivered to the Saskatchewan
portion of the Foothills System.
(2)
Of the total volumes transported in 2003, 1.89 Tcf of natural gas was
delivered to the Canadian Mainline, 673 Bcf of natural gas was delivered to
the BC System and 777 Bcf of natural gas was delivered to the Saskatchewan
portion of the Foothills System.
Alberta System Contracted Firm Transportation Services
As of Year End, the Alberta System was providing transportation for 282
shippers pursuant to approximately 18,300 firm service transportation contracts.
As of Year End, the weighted average remaining term of firm transportation
contracts was approximately 2.9 years, compared to a weighted average remaining
term of 2.4 years as of December 31, 2003. Currently, these contracts are
renewable by the customer providing notice to NGTL at least twelve months prior
to the expiry of the current contract term.
Further information about the Alberta System can be found in the MD&A under the
headings "Gas Transmission - Earnings Analysis" and "Gas Transmission -
Opportunities and Developments".
Regulation of the Alberta System
The construction and operation of the Alberta System is regulated by the
Alberta Energy and Utilities Board ("EUB") primarily under the provisions of the
Gas Utilities Act (Alberta) and the Pipeline Act (Alberta). NGTL also requires
the EUB's approval for rates, tolls and charges, and the terms and conditions
under which it provides its services. Under the provisions of the Pipeline Act,
the EUB oversees various matters, including the economic, orderly and efficient
development of the pipeline, the operation and abandonment of the pipeline, and
certain related pollution and environmental conservation issues. In addition to
requirements under the Pipeline Act, the construction and operation of natural
gas pipelines in Alberta are subject to certain provisions of, and require
certain approvals under, other provincial legislation such as the Environmental
Protection and Enhancement Act (Alberta).
Alberta System tolls are designed to generate sufficient revenues for NGTL to
recover operating expenses, depreciation, taxes and financing costs of the
Alberta System, including interest on debt and payments on securities
attributable to the Alberta System, together with a return on deemed common
equity.
In 2004, TCPL received two significant regulatory decisions from the EUB in
respect of the Alberta System which were disappointing.
In July 2004, the EUB released its decision in the generic cost of capital
("GCOC") proceeding. All Alberta provincially regulated utilities, including the
Alberta System, were mandated an ROE of 9.60 per cent for 2004. This generic ROE
will be adjusted annually by 75 per cent of the change in long-term Government
of Canada bonds from the previous year, consistent with the approach used by the
NEB. The EUB also established a deemed common equity of 35 per cent for the
Alberta System. This result was less than the applied for ROE of 11 per cent on
deemed common equity of 40 per cent, which the company considered to be a fair
return.
10 TRANSCANADA PIPELINES LIMITED
In September 2003, TCPL filed Phase I of the 2004 General Rate Application
("GRA") with the EUB, consisting of evidence in support of the applied-for rate
base and revenue requirement. In its August 2004 decision, the EUB approved
TCPL's purchase of the Simmons Pipeline System and the recovery of costs
associated with firm transportation service arrangements with the Foothills,
Simmons and Ventures LP systems; however, the EUB decision disallowed certain
operating costs, including incentive compensation costs.
In September 2004, TCPL filed with the Alberta Court of Appeal for leave to
appeal the EUB's decision on Phase I of the 2004 GRA with respect to the
disallowance of applied-for incentive compensation costs. TCPL believes the EUB
made errors of law in deciding to deny the inclusion of these
compensation-related costs in the revenue requirement which it considers
necessary and prudent for the safe, reliable and efficient operation of the
Alberta System. At TCPL's request, the Court of Appeal adjourned the appeal for
an indefinite period of time to allow TCPL to consider the merits of a review
and variance application to the EUB in respect of 2004 costs, and work toward a
negotiated settlement of future years' tolls with its customers which would
replace or amend TCPL's 2005 GRA. In September 2004, the EUB gave approval for
TCPL to enter into negotiations for a settlement that would not exceed three
years.
In December 2004, the EUB approved interim rates that were effective in 2004 as
final rates and approved interim rates effective January 1, 2005, which will
remain in place until final 2005 rates are determined. In addition, in February
2005, TCPL reached an agreement in principle with its Alberta System shippers in
respect of a revenue requirement settlement for the period from January 1, 2005
until December 31, 2007. TCPL is proceeding with finalizing the terms of the
settlement with the negotiating parties and anticipates executing the settlement
agreement in March 2005. TCPL expects to file the settlement agreement with the
EUB for approval, shortly thereafter.
Further information about regulatory developments involving the Alberta System
can be found in the MD&A under the headings "Gas Transmission - Regulatory
Developments - Alberta System" and "Consolidated Financial Review - Gas
Transmission".
Tolling Methodology for the Alberta System
The current tolling methodology and rate design for the Alberta System features
differentiated pricing for each gas receipt point on the Alberta System. The
receipt-point price is dependent on geographic location, the diameter of the
pipe through which the customer's natural gas travels, and the term of the
transportation contract.
Foothills System
The Foothills System, which is regulated by the NEB and the Northern Pipeline
Agency of Canada, is a 1,040 kilometre natural gas pipeline that transports
western Canadian natural gas from central Alberta to connecting pipelines for
transportation to markets in the U.S. Midwest, Pacific Northwest, California and
Nevada. TCPL merged Foothills' operations with its own in February 2004. TCPL
previously held a 50 per cent interest in Foothills and in August 2003, acquired
the remaining interest.
The Alaska Highway Pipeline Project, which will bring Prudhoe Bay natural gas
from Alaska to markets in Canada and the U.S., involves pipeline construction in
Canada and Alaska. Foothills holds the priority right to build, own and operate
the first pipeline through Canada for the transportation of Alaskan gas. This
right was granted under the Northern Pipeline Act of Canada following a lengthy
competitive hearing before the NEB in the late 1970's which resulted in a
decision in favor of Foothills.
TCPL spent approximately $1 million on the Foothills System in 2004 and
anticipates that it will spend approximately $2 million on the Foothills System
in 2005, primarily for maintenance capital.
BC System
The BC System, which is regulated by the NEB, consists of 201 kilometres of
pipeline that carries natural gas from a connecting point with the Alberta
System through the southeastern corner of B.C. to connect with the GTN System at
the Canada - U.S. border near Kingsgate, B.C. The GTN System delivers gas to
markets in California, Nevada and the northwestern U.S. Further information can
be found about the GTN System under
TRANSCANADA PIPELINES LIMITED 11
the heading "General Development of the Business - Developments in Gas
Transmission Business - 2004", above and under the heading "Business of TCPL -
Gas Transmission - Wholly Owned Pipelines - GTN System", below.
In 2004, capital expenditures on the BC System were approximately $1 million,
primarily for maintenance capital. TCPL anticipates approximately $2 million of
capital spending on the BC System in 2005, primarily for maintenance capital.
The BC System is regulated on a complaint basis and the tolls are based on a
cost-of-service methodology. In December 2003, the NEB adopted interim rates and
charges for 2004 pending the resolution of compensation cost issues with
shippers on the BC System. As discussions continue in an effort to resolve these
issues, the BC System closed the year on interim rates. On December 23, 2004,
the NEB adopted new interim rates and charges for 2005, again pending resolution
of the outstanding issues.
GTN System
The GTN System, which is a natural gas pipeline system regulated by FERC, is
comprised of more than 2,174 kilometres of pipeline and runs from a connection
point on TCPL's BC System near Kingsgate, B.C. on the B.C.-Idaho border to a
point near Malin, Oregon on the Oregon-California border. The natural gas
transported on this system originates primarily in Canada and is supplied to the
Pacific Northwest, California and Nevada.
As of Year End, 95 per cent of the GTN System's available long-term firm
capacity was held among 43 shippers. The volume-weighted average remaining term
of those contracts was approximately ten years. The GTN System operates under
fixed rate models.
TCPL acquired the GTN System in November 2004 and anticipates approximately $11
million of capital spending on it in 2005, primarily for maintenance capital.
North Baja System
The North Baja System is a 128 kilometre natural gas pipeline which extends
from a point near Ehrenberg, Arizona to a point near Ogilby, California on the
California - Mexico border. The natural gas transported on the North Baja System
comes primarily from supplies in the southwestern U.S. for markets in northern
Baja California, Mexico. FERC also regulates the North Baja System.
During 2004, the North Baja System provided long-term transportation service to
four customers. As of Year End, the volume-weighted average remaining term of
all long-term contracted capacities on the North Baja System was approximately
18 years. Long-term firm service accounted for 93 per cent of the North Baja
System's total transportation revenue and transported volumes in 2004. Like the
GTN System, the North Baja System operates under fixed rate models.
TCPL acquired the North Baja System in November 2004 and anticipates spending
approximately $2 million on capital expenditures in 2005. The majority of these
capital expenditures relate to accommodating future gas supplies from LNG
facilities on the Pacific Coast of Mexico, which are expected to be operational
in 2007.
Other Gas Transmission
TCPL actively pursues natural gas pipeline and pipeline-related development,
acquisition and operation opportunities in Canada and the U.S., where these
opportunities are driven by strong customer demand.
Great Lakes
TCPL holds a 50 per cent interest in the Great Lakes System which is a 3,387
kilometre pipeline system which is operated by Great Lakes Gas Transmission
Limited Partnership. The Great Lakes System transports Canadian natural gas from
its interconnection with the Canadian Mainline at Emerson, Manitoba to markets
in central Canada through an interconnect at St. Clair, Ontario as well as
markets in the eastern and midwestern U.S. The Great Lakes System's rates are
based on a five year settlement agreement which was approved by FERC in 2001 and
is effective until October 31, 2005.
12 TRANSCANADA PIPELINES LIMITED
TC PipeLines, L.P.
TC PipeLines, L.P., a U.S. publicly-held limited partnership, was formed to
acquire, own and participate in the management of U.S. based pipeline assets
which are regulated by FERC. In May 1999, TCPL's 30 per cent general partner
interest in Northern Border Pipeline was conveyed to TC PipeLines, L.P. in
exchange for cash and a 33.4 per cent interest in TC PipeLines, L.P., 31.4 per
cent of which is comprised of units and two per cent of which is a general
partnership interest. TC PipeLines, L.P. issued the balance of the units to the
public. The main asset of TC Pipelines, L.P. is the 30 per cent interest in
Northern Border Pipeline which operates a 2,010 kilometre natural gas pipeline
system which connects with the Foothills System at the Saskatchewan - Montana
border and serves the midwestern U.S., terminating at North Hayden, Indiana. In
October 2001, Northern Border Pipeline completed a 55 kilometre pipeline
extension and installed additional compression that provided 545 MMcf/d of
incremental transportation capacity to North Hayden, Indiana and expanded
Northern Border Pipeline's delivery capability into the Chicago area by
approximately 30 per cent.
In September 2000, TC PipeLines, L.P. acquired a 49 per cent general
partnership interest in Tuscarora from TCPL. Tuscarora owns a 386 kilometre
natural gas pipeline system which transports natural gas from Malin, Oregon to
Wadsworth, Nevada and delivers to points in northeastern California. In January
2001, the Tuscarora system was extended by the addition of a second citygate
connection to the expanding Reno, Nevada metropolitan market.
A subsidiary of TCPL acts as the general partner of TC PipeLines, L.P.
Iroquois
The Iroquois System, which is regulated by FERC, connects with the Canadian
Mainline near Waddington, New York and delivers natural gas to customers in the
northeastern U.S. TCPL's aggregate interest in the Iroquois System, through two
subsidiaries, is approximately 41 per cent.
Iroquois' Eastchester extension and expansion was completed and the facilities
were put into service in February 2004. This expansion extends the Iroquois
System from Long Island into New York City, adding 59 kilometres to the Iroquois
System and will provide an additional 230 MMcf/d of new service into this
market. The Iroquois System is now 663 kilometres in length.
In January 2004, Iroquois filed a rate application with FERC to establish rates
for the Eastchester expansion. As a result of settlement conferences held in
June and July 2004, Iroquois submitted a comprehensive settlement agreement to
FERC in August 2004, which was approved by FERC in October 2004. The settlement
agreement provides for recourse rates applicable until 2011 and implements an
eight year rate moratorium for Eastchester.
Trans Quebec & Maritimes
TCPL holds a 50 per cent interest in the 572 kilometre TQM System which
connects with the Canadian Mainline. TQM serves markets in Quebec and connects
with the Portland system. The TQM System is regulated by the NEB.
Portland
TCPL holds a 61.7 per cent controlling interest in Portland which is a 471
kilometre interstate pipeline that interconnects with the pipeline system of TQM
at the U.S.-Canada border near East Hereford, Quebec, and with the Tennessee Gas
Pipeline in Haverhill and Dracut, Massachusetts. The southern sections of
Portland's system, consisting of 163 kilometres of pipeline, are part of the
joint facilities shared with the Maritimes and Northeast Pipeline. Portland
holds a one-third ownership interest in the joint facilities. Portland is
regulated by FERC.
In August 2004, Portland initiated a restructuring plan whereby all of its
operating and administrative functions would be performed by TCPL pursuant to a
services agreement. The transition of duties was completed by November 2004.
TRANSCANADA PIPELINES LIMITED 13
Northern Development
In 2004, TCPL continued to pursue pipeline opportunities to move both Mackenzie
Delta and Alaska North Slope natural gas to markets throughout North America.
TCPL worked with key stakeholders in the interest of participating in these
pipeline projects, as set out below:
TCPL, the Mackenzie Producers and the APG reached funding and participation
agreements in June 2003. These agreements secured a role for TCPL in the
proposed Mackenzie Gas Pipeline Project and entitled the APG to become an equity
participant. The Mackenzie Gas Pipeline Project involves the construction and
operation of a natural gas pipeline system in the Mackenzie Valley that would
move Mackenzie Delta natural gas from Inuvik, Northwest Territories to the
northern border of Alberta, where it would connect with the Alberta System. TCPL
has agreed to finance the APG for its one-third share of project development
costs. This share is currently expected to be $90 million. This loan will be
repaid from the APG's share of available future pipeline revenues. TCPL funded
$34 million of this loan in 2003 and another $26 million in 2004, for a total
funding of $60 million to date.
In October 2004, Imperial Oil Resources announced that applications for the
main regulatory approvals for the Mackenzie Gas Pipeline Project had been
submitted to the boards, panels and agencies responsible for assessing and
regulating energy developments in the Northwest Territories. These filings mark
a significant milestone in the project definition phase.
In 2004, TCPL continued its discussions with Alaska Highway pipeline
stakeholders including Alaska North Slope producers and the State of Alaska,
relating to the Alaskan portion of the Alaska Highway pipeline project. In June
2004, TCPL filed an application under the State of Alaska's Stranded Gas
Development Act, and requested the State to resume processing the long pending
application for a right of way lease across State lands. Once the right of way
lease application is approved, TCPL is prepared to convey the right of way lease
to another entity if that entity is willing to connect with TCPL's pipeline
system. The lease conveyance would require an interconnection agreement with
TCPL at the Yukon - Alaska border.
In January 2004, Foothills and the Kaska First Nation signed an Agreement in
Principle that provides the framework for a future participation agreement. The
Agreement in Principle marks the completion of the second stage of negotiations
related to a potential participation agreement for the Alaska Highway Pipeline
Project.
Liquefied Natural Gas
In September and November of 2004, TCPL announced plans for the development of
two significant LNG facilities: the Cacouna Energy LNG facility and the offshore
Broadwater Energy LNG regasification terminal. These developments are more fully
described under the heading "General Development of the Business - Developments
in Gas Transmission Business - 2004", above in this AIF.
Ventures LP
TransCanada Pipeline Ventures Limited Partnership ("Ventures LP"), which is
wholly owned by TCPL, owns a 121 kilometre pipeline and related facilities,
which supply natural gas to the oil sands region of northern Alberta, and a 27
kilometre pipeline which supplies natural gas to a petrochemical complex at
Joffre, Alberta.
CrossAlta
TCPL holds a 60 per cent interest in the Crossfield Storage Joint Venture which
controls an underground gas storage facility near Crossfield, Alberta. The
facility is commercially operated on behalf of the joint venture by CrossAlta
Gas Storage & Services Ltd., in which TCPL also holds a 60 per cent interest.
TransGas
TCPL holds a 46.5 per cent interest in TransGas de Occidente S.A., a Colombian
corporation which operates a 344 kilometre natural gas pipeline between the
cities of Mariquita and Cali, Colombia.
14 TRANSCANADA PIPELINES LIMITED
Gas Pacifico
TCPL holds a 30 per cent interest in Gasoducto del Pacifico ("Gas Pacifico"), a
540 kilometre natural gas pipeline from Argentina to Concepcion, Chile.
Innergy
TCPL holds a 30 per cent interest in INNERGY Holdings S.A., an industrial
natural gas transportation and marketing company operating in the area of
Concepcion, Chile, which markets natural gas transported on the Gas Pacifico
system.
Regulation of North American Pipelines
Under the National Energy Board Act (Canada), the NEB regulates the
construction and operation of interprovincial pipelines and the Canadian portion
of international pipelines as well as the traffic, tolls and tariffs applicable
to those pipelines. The NEB also approves the import and export of natural gas.
Pipelines located within provincial boundaries are regulated by the applicable
provincial regulatory body.
The construction and operations of the Alberta System and Ventures LP's
pipeline are regulated by the EUB.
With respect to TCPL's U.S. pipeline investments, the U.S. Natural Gas Act of
1938 ("NGA") establishes the framework for regulation of interstate natural gas
transportation, facilities construction and terms and conditions of service.
FERC is charged with implementing the NGA's requirements. The terms and
conditions of service under which TCPL transports natural gas on the Great Lakes
System, are subject to NGA authorizations issued by FERC. Interconnected natural
gas pipelines and other U.S. interstate pipeline projects in which TCPL owns an
interest, are subject to FERC and NGA regulation, as well as certain state
regulatory requirements.
Further information about the regulation of the Canadian Mainline, Alberta
System and other pipeline systems, can be found under the heading "Business of
TCPL - Gas Transmission - Wholly Owned Pipelines" above.
Competition in Gas Transmission
TCPL's wholly-owned pipelines are connected to and supplied by one of North
America's largest natural gas basins, the WCSB. However, the WCSB is maturing
and it will be a challenge for producers to increase production in this basin.
Other pipeline systems connected to the WCSB, including some of TCPL's
interconnected pipelines, have expanded in the last few years. These expansions
have provided shippers with additional flexibility and competitive choices when
moving WCSB supplies to market. The WCSB gas supply is expected to remain
essentially flat.
The Alberta System is the primary transporter of natural gas within the
province of Alberta and to provincial boundary points. However, there are a
number of alternative pipelines which offer price advantages and which compete
with the Alberta System. In anticipation of and in response to these
developments, the Alberta System's current tolling methodology was designed to
enhance NGTL's ability to provide competitive pricing and service flexibility
and to provide TCPL with the ability to respond to potential future export
bypass pipelines.
The Canadian Mainline is now one of five natural gas pipelines providing
transportation service from the WCSB. Increased competition has led to the
non-renewal of some of the firm service contracts on the Alberta System and the
Canadian Mainline, and has led to decreased utilization on certain pipeline
segments.
Further information about business risks in Gas Transmission can be found under
the heading "Risk Factors - Gas Transmission" below and in the MD&A under the
headings "Gas Transmission - Opportunities and Developments" and "Gas
Transmission - Business Risks".
Research and Development
In 2004, TCPL spent approximately $7.0 million on research and development
activities of which approximately $2.5 million related to research on pipeline
integrity management, approximately $3.0 million on other regulated pipeline
activities and approximately $1.5 million on non-regulated pipeline ventures.
TRANSCANADA PIPELINES LIMITED 15
Power
The Power segment of TCPL's business includes the acquisition, development,
construction, ownership, operation and management of power plants, the marketing
of electricity and the provision of electricity account services to energy and
industrial customers.
The power plants and power supply that TCPL owns, operates and/or controls,
including those under development or in construction, in the aggregate,
represent approximately 5,700 MW of power generation capacity in Canada and the
U.S.
TCPL owns and operates:
*
gas-fired cogeneration plants in Alberta at Carseland (80 MW), Redwater
(40 MW), Bear Creek (80 MW) and MacKay River (165 MW);
*
a gas-fired cogeneration Grandview plant (90 MW) near Saint John, New
Brunswick;
*
a waste-heat fuelled power plant at the Cancarb facility in Medicine
Hat, Alberta (27 MW); and
*
a gas-fired, combined-cycle Ocean State Power plant in Burrillville,
Rhode Island (560 MW).
TCPL has long-term power purchase arrangements in place for:
*
100 per cent of the production of the Sundance A (560 MW) and 50 per
cent interest, through a partnership, of the production of the Sundance
B (353 MW of 706 MW) power facilities near Wabamun, Alberta.
TCPL owns, but does not operate:
*
a 31.6 per cent interest in the nuclear power generation facilities of
Bruce Power in Ontario (1,485 MW of a total of 4,700 MW that is in
operation); and
*
a 17 per cent interest in Huron Wind L.P. whose assets are located at
the Bruce Power site (2 MW of a total of 9 MW that is in operation).
TCPL owns the following facilities which are under construction or development:
*
the 550 MW gas-fired cogeneration Becancour plant near Trois-Rivieres,
Quebec, which is expected to be completed in late 2006; and
*
a 62 per cent interest in Cartier Wind Energy which will construct six
wind energy projects in the Gaspe region of Quebec (458 MW of a total of
739.5 MW).
TCPL is in the process of acquiring hydroelectric generation assets from USGen
which are located on two rivers in New England and which will have a generating
capacity of up to 518 MW, which excludes the generating capacity of the Bellows
Falls facility (49 MW) as this plant is the subject of a purchase option held by
a third party which has been exercised but not yet closed.
TCPL has a power marketing office in Westborough, Massachusetts to manage the
Ocean State Power purchase agreements and fulfill supply obligations, and to
take advantage of additional marketing opportunities in the New England and New
York markets. The office also markets the output of Power LP's Castleton power
plant.
Operations and maintenance services for the Bruce Power plant continue to be
supplied by Bruce Power management and staff. Bruce Power leases the Bruce Power
facilities from OPG and currently operates six nuclear power units out of the
eight on site. The two units that are not being operated are laid up. Bruce
Power sells the output from the operating units through a combination of
fixed-price contracts and spot market sales. Bruce Power is the tenant under a
long-term lease with OPG and under the terms of the lease, spent fuel and site
decommissioning liabilities remain the responsibility of OPG. Bruce Power is
subject to risks related to the operation and maintenance of the nuclear power
generating facilities, including risks relating to the use, handling,
containment and storage of radioactive materials; limitations on the amounts and
types of insurance that are commercially available to cover any related
liabilities that may arise from these operations; changes in and varying
interpretations of the extensive federal regulations that apply to Bruce Power's
nuclear operations; modifications needed to meet increasing security
requirements; and repairs, modifications, replacements and
16 TRANSCANADA PIPELINES LIMITED
outages that may be necessitated as a result of testing and inspection programs
which, themselves, may need to be enhanced in coming years to improve operations
or satisfy increasing regulatory or other requirements.
Late in the fourth quarter of 2004, TCPL responded to the Ontario government's
Request for Proposals for 2,500 MW of new electricity generation capacity. TCPL
and OPG, through their limited partnership, Portlands Energy Centre L.P.,
responded by proposing a 550 MW combined-cycle natural gas-fuelled power plant
that would be located in the Portlands area of downtown Toronto, Ontario. TCPL,
in its own right, responded to the Request for Proposals with another, unrelated
proposal.
TCPL continues to investigate potential power investment opportunities
throughout North America, including a potential investment, together with its
Bruce Power partners, in the Point Lepreau nuclear generating station in New
Brunswick. The Point Lepreau facility, which is indirectly owned by the New
Brunswick provincial government, is a 680 MW nuclear power plant with a CANDU
reactor similar to the reactors operated by Bruce Power. No decision has been
made by TCPL and its partners as to whether an investment will be made in the
Point Lepreau facility; however, discussions are ongoing with New Brunswick
Power.
TransCanada Power, L.P.
TCPL is the general partner of, manages and operates Power LP and holds 30.6
per cent of its outstanding limited partnership units. Power LP is a
publicly-held limited partnership that owns eleven power plants in Canada and
the U.S. which generate approximately 744 MW of power. It is one of the largest
publicly traded power limited partnerships in Canada with a market
capitalization of approximately $1.7 billion. TCPL supplies the natural gas fuel
and waste heat for certain of Power LP's plants and buys output from one of the
plants.
Power LP owns:
*
the combined-cycle power plants, fuelled by a combination of natural gas
and waste heat from adjacent TCPL compression facilities in Tunis (43
MW), Nipigon (40 MW), Kapuskasing (40 MW) and North Bay (40 MW), all in
Ontario;
*
a natural gas cogeneration plant at Castleton-on-Hudson, New York (64
MW);
*
a wood-waste fuelled power plant at Williams Lake, B.C. (66 MW);
*
the wood-waste and waste heat Calstock power plant near Hearst, Ontario
(35 MW);
*
the simple-cycle ManChief power plant near Brush, Colorado (300 MW);
*
the Curtis Palmer hydroelectric power facilities on the Hudson River
near Corinth, New York (60 MW);
*
the run-of-river hydroelectric facility on the Mamquam River north of
Vancouver (50 MW); and
*
the three-unit reservoir based hydroelectric Queen Charlotte station
facility located on Moresby Island in B.C. (6 MW).
Other Power
PT Paiton
TCPL effectively holds an approximate 11 per cent interest in PT Paiton Energy
Company, which owns a power project consisting of two 615 MW coal-fired power
units located in Indonesia.
TRANSCANADA PIPELINES LIMITED 17
Power Performance
The following tables set forth the revenues earned, power volumes marketed and
generation capacity in Canada and the U.S. for the years ended December 31, 2004
and 2003 from TCPL's power operations.
2004 2003
Revenues Per cent Revenues Per cent
(millions of (millions of
dollars) dollars)
Revenues(1)
Canada - Domestic 706 59 765 55
Canada - Export 2 - 2 -
United States 482 41 634 45
Total 1,190 100 1,401 100
2004 2003
Volume Per cent Volume Per cent
(gigawatt hours) (gigawatt hours)
Volumes Sold(2)(3)(4)
Canada - Domestic 24,426 79 20,575 74
Canada - Export 37 - 38 -
United States 6,457 21 7,397 26
Total 30,920 100 28,010 100
2004 2003
Generation Per cent Generation Per cent
(MW) (MW)
Generation Capacity(2)(3)(4)(5)(6)
Canada 3,112 76 2,641 73
United States 984 24 984 27
Total 4,096 100 3,625 100
Notes:
(1)
2004 revenues reflect the sale of Curtis Palmer and ManChief facilities to
Power LP on April 30, 2004.
(2)
Includes 100 per cent of volumes sold by, and the generation capacity of,
Power LP (after eliminating intercompany transactions with TCPL).
(3)
TCPL, directly or indirectly, acquires 560 MW from Sundance A and 353 MW
from Sundance B through long-term power purchase arrangements, which
represent 100 per cent of the Sundance A and 50 per cent of the Sundance B
power plant output, respectively.
(4)
Sales volumes in 2003 reflect TCPL's 31.6 per cent share of Bruce Power
output from the acquisition date of February 14, 2003.
(5)
2004 excludes Becancour (550 MW) and Grandview (90 MW) which were not in
commercial service at Year End. 2003 excludes MacKay River (165 MW),
Becancour (550 MW), Grandview (90 MW) and Bruce, Unit 3 (237 MW) which were
not in commercial service at December 31, 2003.
(6)
Excludes USGen generation capacity (518 MW, excluding the Bellows Falls
facility), which TCPL expects to acquire in 2005. Also excludes TCPL's
proportionate share of Cartier Wind Energy's generation capacity (458 MW)
which is under development.
Regulation of Power
Deregulation of the power industry is proceeding at different stages throughout
most of the markets in which TCPL currently operates, which are primarily
Alberta, Ontario and the northeastern U.S. In 2001, Alberta deregulated its
generation assets and opened the market for retailers and wholesalers. In May
2002, the government of Ontario created a competitive, bid-based wholesale
market for electricity in Ontario, a process that began with legislation first
enacted under the Electricity Act in 1998. Later in 2002, after considerable
volatility and rising prices under this new market, the government of Ontario
instituted retail price caps, effectively shielding eligible customers from
wholesale price volatility. After a change in government in Ontario, these
retail caps were increased on April 1, 2004, to better reflect the cost of
electricity. These caps do not
18 TRANSCANADA PIPELINES LIMITED
directly affect the wholesale market in which TCPL is primarily focused. In
December 2004, the government of Ontario again restructured the Ontario markets
by passing the Electricity Restructuring Act, 2004 ("ERA"). Among other things,
the ERA places certain of the Ontario Power Generation Corporation's baseload
nuclear and hydro generation assets under direct rate regulation by the Ontario
Energy Board. Bruce Power was not affected by this legislation and remains a
participant in the wholesale market in Ontario. Bruce Power is presently in
discussions with a provincially appointed negotiator respecting the possible
restart of Bruce Power's units 1 and 2. It is unclear whether these negotiations
will result in any change to the commercial context in which Bruce Power
operates. In addition, the ERA provides for a return to coordinated system
planning by the newly created Ontario Power Authority ("OPA"), which is charged
with managing the long-term supply of electricity in Ontario. The OPA will
assume responsibility for procuring electricity supply through requests for
proposals or otherwise, and will enter into new power purchase agreements with
generators responding to procurement initiatives. It is possible that these and
subsequent changes in Ontario's power industry, will have both positive and
negative impacts on TCPL's Ontario power operations.
TCPL's investment in Ocean State Power and TCPL's U.S. electric power marketing
activities are subject to the jurisdiction of FERC under the U.S. Federal Power
Act, as well as to the jurisdiction of certain state regulatory authorities in
which the generation facilities are located. In 1998 and 1999, respectively,
FERC began operation of competitive, bid-based wholesale power markets in New
England and New York. These markets continue to evolve through consultation with
government, regulators and market stakeholders. The northeastern markets in
which TCPL operates are converging in terms of structure with the recent
adoption of Standard Market Design elements that have been defined by FERC.
Competition in Power
TCPL's power business has operated and continues to operate in highly
competitive markets with many participants that are driven mainly by price. TCPL
mitigates the effects of short-term changes in the market using various forms of
hedging, including entering into fixed price forward sales. The quantity and
term of such forward sales varies by region and depends on liquidity of markets
in these regions. TCPL also retains an amount of unsold generation capacity in
order to preserve its flexibility in the short-term to manage TCPL's portfolio
of assets.
Further information about business risks in TCPL's power business can be found
in the MD&A under the heading "Risk Factors - Power" below and in the MD&A under
the heading "Power - Business Risks".
Other Interests
Cancarb Limited
TCPL owns Cancarb Limited, a world scale thermal carbon black manufacturing
facility located in Medicine Hat, Alberta.
TransCanada Turbines
TCPL owns a 50 per cent interest in TransCanada Turbines Ltd., a repair and
overhaul business for aero-derivative industrial gas turbines. This business
operates primarily out of facilities in Calgary, Alberta, with offices in
Bakersfield, California; East Windsor, Connecticut and Liverpool, England.
TransCanada Calibrations
TCPL owns an 80 per cent interest in TransCanada Calibrations Ltd., a gas meter
calibration business certified by Measurement Canada, located at Ile des Chenes,
Manitoba.
Discontinued Operations
Since 1999, TCPL has focused on natural gas transmission and power generation
in North America. During that time, TCPL sold substantially all of its assets in
the international, midstream, and oil and gas marketing businesses. For further
information about Discontinued Operations please refer to the MD&A under the
heading "Corporate - Discontinued Operations".
TRANSCANADA PIPELINES LIMITED 19
HEALTH, SAFETY AND ENVIRONMENT
TCPL is committed to providing a safe and healthy environment for its employees
and the public, and to the protection of the environment. Health, safety and
environment ("HS&E") is a priority in all of TCPL's operations. The HS&E
Committee of TCPL's Board of Directors ("Board") monitors compliance with the
TCPL HS&E corporate policy through regular reporting by TCPL's department of
Community, Safety & Environment. TCPL's senior executives are also committed to
ensuring TCPL is in compliance with its policies and is an industry leader.
Senior executives are regularly advised of all important operational issues and
initiatives relating to HS&E by way of a formal reporting process. In addition,
TCPL's management system and performance in the HS&E area are assessed by an
independent outside firm every three years or more often if the HS&E Committee
requests it. The most recent assessment was completed by PricewaterhouseCoopers
in January of 2004. These assessments involve senior executive interviews,
review of policies and objectives, performance measurement and reporting.
TCPL has an HS&E management system modeled after elements of the International
Organization for Standardization's standard for environmental management systems
which is known as ISO 14001, to facilitate the focus of resources on the areas
of greatest risk to the organization's business activities relating to HS&E. It
highlights opportunities for improvement, enables TCPL to work towards defined
HS&E expectations and objectives, and provides a competitive business advantage.
HS&E outside, independent assessments, management system assessments and planned
inspections are used to assess both the effectiveness of implementation of HS&E
programs, processes and procedures, and TCPL's compliance with regulatory
requirements.
TCPL employs full-time staff dedicated to HS&E matters, and incorporates HS&E
policies and principles into the planning, development, construction and
operation of all its projects. Environmental protection requirements have not
had a material impact on the capital expenditures of TCPL to date; however,
there can be no assurance that such requirements will not have a material impact
on TCPL's financial or operating results in future years. Such requirements can
be dependent on a variety of factors including the regulatory environment in
which TCPL operates.
Environment
The most significant environmental issues facing TCPL relate to climate change.
Climate change is a strategic issue for TCPL, particularly in light of the
Canadian government's ratification of the Kyoto Protocol which came into force
in February 2005 and requires Canada to reduce its greenhouse gas emissions
significantly. The Canadian government is currently developing the policies
relating to how it intends to meet these reduction targets and, until it is
completed, TCPL cannot predict the degree to which it will be affected. TCPL has
had a comprehensive climate change strategy in place since 1999, which includes
five key areas of activity:
*
Participation in policy forums;
*
Implementation of direct emissions reduction programs;
*
Assessment of new technology;
*
Evaluation of emissions trading mechanisms; and
*
Assessment of business opportunities.
Activities in each of these areas occurred in 2004 and will continue in 2005.
TCPL received its sixth consecutive gold level reporting status for its 2004
Climate Change and Air Issues Annual Report from the Canadian GHG Challenge
Registry which was formerly the Voluntary Challenge and Registry ("VCR")
program. To achieve gold level status, reports are rated in several categories.
Only 12 per cent of the submissions to the registry have received gold level
reporting recognition. In 2004, the VCR program was replaced with the Canadian
GHG Challenge Registry as a result of the Canadian government passing
legislation to mandate greenhouse gas emissions reporting.
20 TRANSCANADA PIPELINES LIMITED
LEGAL PROCEEDINGS
The Canadian Alliance of Pipeline Landowners' Association and two individual
landowners have commenced an action under Ontario's Class Proceedings Act, 1992,
against TCPL and Enbridge Inc. for damages of $500 million alleged to arise from
the creation of a control zone within 30 metres of the pipeline pursuant to
section 112 of the National Energy Board Act. TCPL believes the claim is without
merit and will vigorously defend the action. TCPL has made no provision for any
potential liability. A liability, if any, would be dealt with through the
regulatory process.
TCPL and its subsidiaries are subject to various other legal proceedings and
actions arising in the normal course of business. While the final outcome of
such legal proceedings and actions cannot be predicted with certainty, it is the
opinion of TCPL's management that the resolution of such proceedings and actions
will not have a material impact on TCPL's consolidated financial position or
results of operations.
TRANSFER AGENT AND REGISTRAR
TCPL's transfer agent and registrar is Computershare Trust Company of Canada
with transfer facilities in the Canadian cities of Vancouver, Calgary, Winnipeg,
Toronto, Montreal and Halifax.
INTEREST OF EXPERTS
TCPL's auditor is KPMG LLP and as of March 1, 2005, the partners of KPMG LLP do
not hold any registered or beneficial ownership, directly or indirectly, in the
securities of TCPL or TransCanada.
RISK FACTORS
A number of factors, including but not limited to those discussed in this
section, could cause actual results or events to differ materially from current
expectations.
TCPL's businesses are highly complex and are dispersed over tens of thousands
of square kilometres, often in remote locations. Pipeline and power facilities
are subject to operational risks, including mechanical failure, physical
degradation, operator error, manufacturer defects, labour disputes, terrorism,
failure of supply, catastrophic events and natural disasters. The occurrence or
continuation of such events could increase TCPL's costs and reduce its ability
to transport natural gas or generate power.
Gas Transmission
TCPL faces competition in its gas transmission business at both the supply and
market ends of its systems. The competition is a result of other pipelines
accessing an increasingly mature WCSB and serving some of the same markets as
TCPL. In addition, the continued expiration of firm transportation contracts has
resulted in significant reductions in firm contracted capacity on both the
Canadian Mainline and Alberta System. As well, regulatory decisions continue to
have significant impact on the financial returns for and future investments in
TCPL's Canadian wholly-owned pipelines.
Further information about competition risks in TCPL's natural gas transmission
business can be found under the heading "Business of TCPL - Gas Transmission -
Competition in Transmission" above and in the MD&A under the headings "Gas
Transmission - Opportunities and Developments" and "Gas Transmission - Business
Risks".
Power
TCPL's power business and investments can be affected by a variety of factors
including competition from other market participants, fluctuating market demand,
reliance on the supply of feed stocks such as natural gas, wood waste, water,
coal and uranium, fluctuating feed stock prices, fluctuating electricity prices,
unexpected outages, third party power plant operator performance, power
transmission disruptions and regulatory changes and influences.
Further information about competition risks in TCPL's power business can be
found under the headings "Business of TCPL - Power - Competition in Power" above
and in the MD&A under the heading "Power - Business Risks".
TRANSCANADA PIPELINES LIMITED 21
International
TCPL's international investments are subject to a number of risks unique to
international business. These risks include exchange controls and fluctuation of
the local currency, political risk, community actions, changes in laws, price
controls, the availability and quality of local labour skills, and labour
unrest, among others. Such risks are mitigated by insurance policies,
participation of local and foreign partners, prudent commercial structuring and
other measures.
Corporate
TCPL carries on its businesses with numerous counterparties with a wide range
of creditworthiness. While processes are followed to address the
creditworthiness of these counterparties, the failure of any counterparty to
meet its financial obligations could have an impact on TCPL's financial
position. Such failure could result from a number of factors beyond TCPL's
control, including (but not limited to) fluctuating energy prices, currency
exchange and interest rates, changes in regulatory and economic environments,
political instability and legally reviewable activities.
TCPL operates primarily in Canada and the U.S. and as a result, its financial
performance can be impacted by interest rates and foreign exchange rates. TCPL
has an active hedging program in place to address interest and foreign exchange
rate risks, but there can be no assurance that such hedging will be adequate to
address the risks.
TCPL's growth strategy is dependent upon acquiring or constructing facilities
and businesses that align with or complement its current businesses. TCPL may
incur costs in the pursuit of acquisitions or development of power or natural
gas transmission assets that may not be completed. Failure by TCPL to consummate
negotiated acquisitions or new developments may result in contractual
liabilities, liquidated damages, additional costs and expenses which could
affect financial performance.
TCPL's growth is also dependent on access to capital markets in the U.S. and
Canada. Although significant credit facilities are currently available, changing
market conditions could result in a materially increased cost of, or reduced
access to capital which would reduce TCPL's ability to pursue growth
opportunities.
Further information about TCPL's risk factors and risk management can be found
in the MD&A under the headings "Gas Transmission - Business Risks", "Power -
Business Risks" and "Risk Management".
DIVIDENDS
All of TCPL's common shares are held by TransCanada and as a result, any
dividends declared by TCPL on its common shares are paid to TransCanada. TCPL
has no formal dividend policy. The Board reviews the financial performance of
TCPL quarterly and makes a determination of the appropriate level of dividends
to be declared on its common shares in the following quarter. Provisions of
various trust indentures and credit arrangements to which TCPL is a party,
restrict TCPL's ability to declare and pay dividends to TransCanada and
preferred shareholders under certain circumstances and, if such restrictions
apply, they may, in turn, have an impact on TransCanada's ability to declare and
pay dividends on its common and preferred shares. In the opinion of TCPL
management, such provisions do not restrict or alter TCPL's ability to declare
or pay dividends.
The dividends declared per share during the past three completed financial
years are set forth in the following table:
2004 2003 2002
Dividends declared on common shares(1) 1.17 1.08 1.00
Dividends declared on preferred shares, Series U 2.80 2.80 2.80
Dividends declared on preferred shares, Series Y 2.80 2.80 2.80
Note:
(1)
Effective May 15, 2003, TCPL dividends have been declared in an amount equal
to the aggregate dividend paid by TransCanada. The amounts presented reflect
the aggregate amount divided by total outstanding common shares of TCPL.
22 TRANSCANADA PIPELINES LIMITED
DESCRIPTION OF CAPITAL STRUCTURE
Share Capital
TCPL's authorized share capital consists of an unlimited number of common
shares, of which 480,668,110 were issued and outstanding at Year End which are
held entirely by TransCanada, as well as an unlimited number of first preferred
shares, issuable in series. There were 4,000,000 Series U and 4,000,000 Series Y
first preferred shares issued and outstanding at Year End. The following is a
description of the material characteristics of the first preferred shares.
Common Shares
As the holder of all of TCPL's issued common shares, TransCanada holds all the
voting rights in those common shares.
First Preferred Shares, Series U
Subject to certain limitations, the Board may, from time to time, issue first
preferred shares in one or more series and determine for any such series, its
designation, number of shares and respective rights, privileges, restrictions
and conditions. The first preferred shares as a class, have, among others,
provisions to the following effect.
The holders of the first preferred shares, Series U are entitled to receive, as
and when declared by the Board, fixed cumulative preferential cash dividends at
an annual rate of $2.80 per share, payable quarterly.
The first preferred shares of each series shall rank on a parity with the first
preferred shares of every other series, and shall be entitled to preference over
the common shares and any other shares ranking junior to the first preferred
shares with respect to the payment of dividends, the repayment of capital and
the distribution of assets to TCPL in the event of a liquidation, dissolution or
winding up of TCPL.
TCPL is entitled to purchase for cancellation, some or all of the first
preferred shares, Series U outstanding at the lowest price which such shares are
obtainable, in the opinion of the Board, but not exceeding $50.00 per share plus
costs of purchase. Furthermore, TCPL may redeem, on or after October 15, 2013,
some or all of the first preferred shares, Series U upon payment for each share
at $50.00 per share.
Except as provided by the Canada Business Corporations Act or as referred to
below, the holders of the first preferred shares will not have any voting rights
nor will they be entitled to receive notice of or to attend shareholders'
meetings unless and until TCPL fails to pay, in the aggregate, six quarterly
dividends on the first preferred shares, Series U.
The provisions attaching to the first preferred shares as a class may be
modified, amended or varied only with the sanction of the holders of the first
preferred shares as a class. Any such sanction to be given by the holders of the
first preferred shares may be given by the affirmative vote of the holders of
not less than 662/3 per cent of the first preferred shares represented and voted
at a meeting or adjourned meeting of such holders.
First Preferred Shares, Series Y
The rights, privileges, restrictions and conditions attaching to the first
preferred shares, Series Y are substantially identical to those attaching to the
first preferred shares, Series U, except that the first preferred shares, Series
Y are redeemable by TCPL after March 5, 2014.
Debt
The following tables sets out the issuances of senior unsecured notes with
terms to maturity in excess of one year, of TCPL during the 12 months ended,
December 31, 2004:
Date Issued Issue Price per $1,000 Aggregate Issue Price
Principal
Amount of Notes
February 11, 2004 $998.96 $199,792,000
March 25, 2004 US$996.53 US$348,786,000
October 7, 2004 US$997.99 US$299,397,000
TRANSCANADA PIPELINES LIMITED 23
There are no provisions associated with this debt that entitle debt holders to
voting rights. From time to time, TCPL issues commercial paper for terms not
exceeding nine months.
RATINGS
The following table sets out the credit ratings of outstanding classes of
securities of TCPL:
Overall DBRS Moody's S&P
Senior Secured Debt
First Mortgage Bonds A A2 A
Senior Unsecured Debt
Debentures A A2 A-
Medium-term Notes A A2 A-
Subordinated Debt A (low) A3 BBB+
Junior Subordinated Debt Pfd-2 A3 BBB
Preferred Shares Pfd-2 (low) Baa1 BBB
Commercial Paper R-1 (low) P-1 -
Trend/Rating Outlook Stable Stable Negative
Credit ratings are intended to provide investors with an independent measure of
credit quality of an issue of securities. Credit ratings are not recommendations
to purchase, hold or sell securities and do not address the market price or
suitability of a specific security for a particular investor. There is no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be revised or withdrawn entirely by a rating agency in
the future if, in its judgment, circumstances so warrant. A description of the
rating agencies' credit ratings listed in the table above is set out below.
Dominion Bond Rating Service (DBRS)
DBRS has different rating scales for short and long-term debt and preferred
shares. "High" or "low" grades are used to indicate the relative standing within
a rating category. The absence of either a "high" or "low" designation indicates
the rating is in the "middle" of the category. The R-1 (low) rating assigned to
TCPL's short-term debt is the third highest of ten rating categories and
indicates satisfactory credit quality. The overall strength and outlook for key
liquidity, debt and profitability ratios is not normally as favourable as with
higher rating categories, but these considerations are still respectable. Any
qualifying negative factors that exist are considered manageable, and the entity
is normally of sufficient size to have some influence in its industry. The A
ratings assigned to TCPL's senior secured and senior unsecured debt and the A
(low) rating assigned to its subordinated debt are the third highest of ten
categories for long-term debt. Long-term debt rated A is of satisfactory credit
quality. Protection of interest and principal is still substantial, but the
degree of strength is less than that of AA rated entities. While a respectable
rating, entities in the A category are considered to be more susceptible to
adverse economic conditions and have greater cyclical tendencies than higher
rated entities. The Pfd-2 and Pfd-2 (low) ratings assigned to TCPL's junior
subordinated debt and preferred shares are the second highest of six rating
categories for preferred shares. Preferred shares rated Pfd-2 are of
satisfactory credit quality. Protection of dividends and principal is still
substantial; however, earnings, the balance sheet and coverage ratios are not as
strong as Pfd-1 rated companies.
Moody's Investor Services (Moody's)
Moody's has different rating scales for short and long-term obligations.
Numerical modifiers 1, 2 and 3 are applied to each rating classification, with 1
being the highest and 3 being the lowest. The P-1 rating assigned to TCPL's
short-term debt is the highest of four rating categories and indicates a
superior ability to repay short-term debt obligations. The A2 ratings assigned
to TCPL's senior secured and senior unsecured debt and the A3 ratings assigned
to its subordinated debt and junior subordinated debt are the third highest of
nine rating categories for long-term obligations. Obligations rated A are
considered upper-medium grade and are subject to low credit risk. The Baa1
rating assigned to TCPL's preferred shares is the fourth highest of nine rating
categories for long-term obligations. Obligations rated Baa are subject to
moderate credit risk, are considered medium-grade, and as such, may possess
certain speculative characteristics.
24 TRANSCANADA PIPELINES LIMITED
Standard & Poor's (S&P)
S&P has different rating scales for short and long-term obligations. Ratings
may be modified by the addition of a plus (+) or minus (-) sign to show the
relative standing within a particular rating category. The A and A- ratings
assigned to TCPL's senior secured and senior unsecured debt are the third
highest of ten rating categories for long-term obligations. An A rating
indicates the obligor's capacity to meet its financial commitment is strong;
however, the obligation is somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. The BBB+ rating assigned to TCPL's subordinated debt and the
BBB ratings assigned to its junior subordinated debt and preferred shares are
the fourth highest of ten rating categories for long-term obligations. An
obligation rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
This information is provided by RNS
The company news service from the London Stock Exchange
MORE TO FOLLOW
FR PKAKKNBKBFND
1 Year Citi Fun 24 Chart |
1 Month Citi Fun 24 Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
