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RNS Number:3196C
TransCanada Pipelines Ld
02 May 2006
6-K
0000099070
xxxxxxx
05/01/2006
NYSE
EDGAR Advantage Service Team
(800) 688 - 1933
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May 2006
COMMISSION FILE No. 1-8887
TransCanada PipeLines Limited
(Translation of Registrant's Name into English)
450 - 1 Street S.W., Calgary, Alberta, T2P 5H1, Canada
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F
Form 20-F N Form 40-F Y
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): N
Indicated by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): N
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes N No Y
--------------------------------------------------------------------------------
I
The documents listed below in this Section and filed as Exhibits 13.1 to 13.3
and 99.1 to this Form 6-K are hereby filed with the Securities and Exchange
Commission for the purpose of being and hereby are incorporated by reference
into Registration Statement on Form F-9 (Reg. No. 333-121265) under the
Securities Act of 1933, as amended.
13.1 Management's Discussion and Analysis of Financial Condition and Results of Operations of the registrant as at
and for the period ended March 31, 2006.
13.2 Consolidated comparative interim unaudited financial statements of the registrant for the period ended March 31,
2006 (included in the registrant's First Quarter 2006 Quarterly Report).
13.3 U.S. GAAP reconciliation of the consolidated comparative interim unaudited financial statements of the
registrant contained in the registrant's First Quarter 2006 Quarterly Report.
99.1 Schedule of earnings coverage calculations at March 31, 2006.
II
The document listed below in this Section and in the Exhibit Index to this Form
6-K is hereby filed with the Securities and Exchange Commission.
99.2 Comfort letter of KPMG LLP dated May 1, 2006.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANSCANADA PIPELINES LIMITED
By: /s/ Russell K. Girling
Russell K. Girling
Executive Vice-President, Corporate
Development and Chief Financial Officer
By: /s/ Lee G. Hobbs
Lee G. Hobbs
Vice-President and Controller
May 1, 2006
3
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EXHIBIT INDEX
13.1 Management's Discussion and Analysis of Financial Condition and Results of Operations of the registrant as at
and for the period ended March 31, 2006.
13.2 Consolidated comparative interim unaudited financial statements of the registrant for the period ended March 31,
2006 (included in the registrant's First Quarter 2006 Quarterly Report).
13.3 U.S. GAAP reconciliation of the consolidated comparative interim unaudited financial statements of the
registrant contained in the registrant's First Quarter 2006 Quarterly Report.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer regarding Periodic Report containing Financial Statements.
32.2 Certification of Chief Financial Officer regarding Periodic Report containing Financial Statements.
99.1 Schedule of earnings coverage calculations at March 31, 2006.
99.2 Comfort letter of KPMG LLP dated May 1, 2006.
4
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Exhibit 13.1
TRANSCANADA PIPELINES LIMITED - FIRST QUARTER 2006
Quarterly Report
Management's Discussion and Analysis
Management's discussion and analysis (MD&A) dated April 27, 2006 should be read
in conjunction with the accompanying unaudited consolidated financial statements
of TransCanada PipeLines Limited (TCPL or the company) for the three months
ended March 31, 2006. It should also be read in conjunction with the audited
consolidated financial statements and the MD&A contained in TCPL's 2005 Report
for the year ended December 31, 2005. Additional information relating to TCPL,
including the company's Annual Information Form and continuous disclosure
documents, is available on SEDAR at www.sedar.com under TransCanada PipeLines
Limited. Amounts are stated in Canadian dollars unless otherwise indicated.
Capitalized and abbreviated terms that are used but not otherwise defined herein
have the meanings given to these terms in the annual MD&A contained in TCPL's
2005 Report.
--------------------------------------------------------------------------------
Results of Operations
Consolidated
Segment Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Gas Transmission
Excluding gains 168 163
Gain on sale of PipeLines LP units - 48
168 211
Power 89 30
Corporate (13 ) (9 )
Net Income Applicable to Common Shares
Continuing operations (1) 244 232
Discontinued operations 28 -
272 232
------------------------
(1)Net Income Applicable to Common Shares from
Continuing Operations is comprised of:
Excluding gains 244 184
Gain on sale of PipeLines LP units - 48
244 232
--------------------------------------------------------------------------------
TCPL's net income applicable to common shares for first quarter 2006 was $272
million. This includes net income from discontinued operations of $28 million
reflecting bankruptcy settlements with Mirant Corporation and certain of its
subsidiaries (Mirant) received in first quarter 2006 related to TCPL's Gas
Marketing business divested in 2001. Net income applicable to common shares for
first quarter 2005 was $232 million.
TCPL's net income applicable to common shares from continuing operations (net
earnings) for first quarter 2006 of $244 million increased by $12 million
compared to $232 million for the same quarter in 2005. The increase was
primarily due to significantly higher net earnings from the Power segment,
partially offset by a $48 million gain on sale of the TC PipeLines, LP
(PipeLines LP) units in first quarter 2005. Excluding this gain, the company
reported increases in Gas Transmission earnings and Corporate net expenses
compared to first quarter 2005.
The increase of $59 million in Power's net earnings for first quarter 2006
compared to first quarter 2005 was primarily due to higher operating and other
income from Bruce Power, Western Operations and Eastern Operations, partially
offset by the loss of operating and other income associated with the sale of the
Power LP investment in third quarter 2005.
Excluding the gain on sale of PipeLines LP units in first quarter 2005, Gas
Transmission's net earnings for first quarter 2006 increased $5 million
primarily due to higher net earnings from GTN as a result of a $29 million
bankruptcy settlement ($18 million after tax) with Mirant, a former shipper on
the Gas Transmission Northwest System. In addition, TCPL's Other Gas
Transmission businesses had higher net earnings mainly due to improved natural
gas storage net earnings. These increases were partially offset by lower net
earnings from the Canadian Mainline and Alberta System, primarily as a result of
lower rates of return on common equity (ROE) and lower average investment bases
in first quarter 2006 compared to first quarter 2005.
The increase of $4 million in Corporate's net expenses in first quarter 2006 was
primarily due to increased interest costs.
Funds generated from operations of $516 million for first quarter 2006 increased
$96 million compared to first quarter 2005.
Forward-Looking Information
Certain information in this MD&A includes forward-looking statements. All
forward-looking statements are based on TCPL's beliefs and assumptions based on
information available at the time the assumptions were made. Forward-looking
statements relate to, among other things, anticipated financial performance,
business prospects, strategies,
2
--------------------------------------------------------------------------------
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 material risks
discussed in the MD&A contained in TCPL's 2005 Report under "Gas Transmission -
Business Risks" and "Power - Business Risks", which could cause TCPL's actual
results and experience to differ materially from the anticipated results or
other expectations expressed. The material assumptions in making these
forward-looking statements are disclosed in this MD&A under the heading "Outlook
" and in the MD&A contained in the 2005 Report under the headings "Overview and
Strategic Priorities", "Gas Transmission - Opportunities and Developments", "Gas
Transmission - Outlook", "Power - Opportunities and Developments" and "Power -
Outlook". 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 MD&A 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.
3
--------------------------------------------------------------------------------
Gas Transmission
The Gas Transmission business generated net earnings of $168 million for the
quarter ended March 31, 2006 compared to $211 million for the same quarter in
2005.
Gas Transmission Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Wholly-Owned Pipelines
Canadian Mainline 59 63
Alberta System 33 37
GTN 32 23
Foothills System 5 5
BC System 2 2
131 130
Other Gas Transmission
Great Lakes 12 14
Iroquois 4 4
PipeLines LP 1 4
Portland 6 6
Ventures LP 3 3
TQM 2 2
CrossAlta and other natural gas storage 14 5
TransGas 3 3
Northern Development (1 ) (1 )
General, administrative, support costs and other (7 ) (7 )
37 33
Gain on sale of PipeLines LP units - 48
37 81
Net Earnings 168 211
Wholly-Owned Pipelines
Canadian Mainline's first quarter 2006 net earnings of $59 million decreased $4
million compared to first quarter 2005. This decrease was primarily due to a
lower ROE, as determined by the National Energy Board (NEB), of 8.88 per cent in
2006 compared to 9.46 per cent in 2005 and a lower average investment base. The
net earnings decline related to ROE and average investment base was partially
offset by an increase in the deemed common equity ratio from 33 to 36 per cent
as determined by the NEB in its decision on the Canadian Mainline's 2004 Tolls
and Tariff Application (Phase II), released in April 2005.
4
--------------------------------------------------------------------------------
The Alberta System's net earnings of $33 million in first quarter 2006 decreased
$4 million compared to $37 million in first quarter 2005. The decrease was
primarily due to a lower average investment base as well as a lower ROE in 2006
compared to 2005. Net earnings in first quarter 2006 reflected an ROE of 8.93
per cent on deemed common equity of 35 per cent compared to an ROE of 9.50 per
cent on deemed common equity of 35 per cent in first quarter 2005.
GTN's first quarter 2006 net earnings of $32 million were $9 million higher than
net earnings for first quarter 2005 primarily due to a $29 million bankruptcy
settlement ($18 million after tax) in first quarter 2006 with Mirant, a former
shipper on the Gas Transmission Northwest System, partially offset by lower
transportation revenues and the impact of a weaker U.S. dollar in first quarter
2006. In addition, first quarter 2005 results included $4 million of net
earnings related to the amortization of the fair value adjustment on long-term
debt included in the GTN purchase price allocation in late 2004.
Operating Statistics
Three months ended Canadian Alberta System Gas Foothills BC System
March 31 Mainline (1) (2) Transmission System
Northwest
System (3)
(unaudited) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
Average investment
base
($millions) 7,471 7,910 4,319 4,559 n/a n/a (3) 661 693 209 220
Delivery volumes
(Bcf)
Total 829 767 1,062 1,051 171 215 263 287 82 94
Average per day 9.2 8.5 11.8 11.7 1.9 2.4 2.9 3.2 0.9 1.1
--------------------
(1) Canadian Mainline deliveries originating at the Alberta border and in
Saskatchewan for the three months ended March 31, 2006 were 584 Bcf (2005 - 531
Bcf); average per day was 6.5 Bcf (2005 - 5.9 Bcf).
(2) Field receipt volumes for the Alberta System for the three months ended
March 31, 2006 were 1,021 Bcf (2005 - 965 Bcf); average per day was 11.3 Bcf
(2005 - 10.7 Bcf).
(3) The Gas Transmission Northwest System operates under a fixed rate model
approved by the United States Federal Energy Regulatory Commission and, as a
result, the system's current results are not dependent on average investment
base.
Other Gas Transmission
TCPL's proportionate share of net earnings from Other Gas Transmission was $37
million for the three months ended March 31, 2006 compared to $81 million for
the same period in 2005. First quarter 2005 results included a $48 million
after-tax gain on the sale of PipeLines LP units. Excluding this gain, net
earnings for first quarter 2006 increased $4 million compared to the same period
in 2005. The increase was mainly due to higher net earnings from CrossAlta as a
result of increased capacity and higher natural gas storage spreads, and a
contribution from other contracted third party natural gas storage capacity in
Alberta. These increases were partially offset by the negative impact of a
weaker U.S. dollar in first quarter 2006 and lower net earnings from PipeLines
LP due to a lower ownership interest in 2006.
5
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As at March 31, 2006, TCPL had advanced $96 million to the Aboriginal Pipeline
Group with respect to the Mackenzie Gas Pipeline Project, and had capitalized
$21 million of costs related to the Broadwater project and $8 million related to
the Keystone pipeline.
6
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Power
Power Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Bruce Power 63 30
Western operations 58 30
Eastern operations 49 5
Power LP investment - 9
General, administrative, support costs and other (25 ) (28 )
Operating and other income 145 46
Financial charges (7 ) (4 )
Interest income and other 2 3
Income taxes (51 ) (15 )
Net Earnings 89 30
Power's net earnings of $89 million in first quarter 2006 increased $59 million
compared to $30 million reported in first quarter 2005 due to higher operating
and other income from Bruce Power, Western Operations and Eastern Operations,
partially offset by the loss of operating and other income associated with the
sale of the Power LP investment in third quarter 2005.
Bruce Power's contribution to operating and other income increased $33 million
in first quarter 2006 compared to first quarter 2005, primarily due to higher
generation volumes, higher overall realized prices and an increased ownership
interest in the Bruce A facilities, effective October 31, 2005.
Western Operations' operating and other income was $28 million higher in first
quarter 2006 compared to first quarter 2005 primarily due to incremental
earnings from the December 31, 2005 acquisition of the 756 megawatt (MW)
Sheerness power purchase arrangement (PPA) and improved margins from higher
overall realized power prices and higher market heat rates on uncontracted
volumes sold.
Eastern Operations' operating and other income was $44 million higher in first
quarter 2006 compared to first quarter 2005 primarily due to contributions from
the TC Hydro generation assets acquired on April 1, 2005, margins earned in 2006
on transportation related to unutilized OSP natural gas fuel and a first quarter
2005 one-time contract restructuring payment from OSP to its natural gas fuel
suppliers.
Bruce Power
Effective October 31, 2005, TCPL increased its interest in the Bruce A units
through the formation of the Bruce A partnership. Bruce A subleases its
facilities from Bruce B. TCPL commenced proportionately
7
--------------------------------------------------------------------------------
consolidating its investments in Bruce A and Bruce B effective October 31, 2005.
The following Bruce Power financial results reflect the operations of the full
six-unit operation for both periods.
8
--------------------------------------------------------------------------------
Bruce Power Results-at-a-Glance(1)
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Bruce Power (100 per cent basis)
Revenues
Power 479 411
Other (2) 17 7
496 418
Operating expenses
Operations and maintenance (220 ) (205 )
Fuel (20 ) (19 )
Supplemental rent (43 ) (41 )
Depreciation and amortization (31 ) (48 )
(314 ) (313 )
Operating income 182 105
Financial charges under equity accounting - (17 )
182 88
TCPL's proportionate share 62 28
Adjustments 1 2
TCPL's operating and other income from
Bruce Power(3) 63 30
Bruce Power - Other Information
Plant availability
Bruce A 78 %
Bruce B 95 %
Combined Bruce Power 90 % 81 %
Sales volumes (GWh) (4)
Bruce A - 100 per cent 2,520
Bruce B - 100 per cent 6,620
Combined Bruce Power - 100 per cent 9,140 8,221
TCPL's proportionate share 3,306 2,598
Results per MWh (5)
Bruce A revenues $ 57
Bruce B revenues $ 50
Combined Bruce Power revenues $ 52 $ 50
Fuel $ 2 $ 2
Total operating expenses (6) $ 34 $ 38
Percentage of output sold to spot market 38 % 50 %
--------------------
(1) All information in the table includes adjustments to eliminate the effects
of intercompany transactions between Bruce A and Bruce B.
(2) Includes fuel cost recoveries for Bruce A of $6 million for the three months
ended March 31, 2006.
(3) TCPL's consolidated equity income included $30 million for the three months
ended March 31, 2005 representing TCPL's 31.6 per cent share of Bruce Power
earnings for the period.
(4) Gigawatt hours.
(5) Megawatt hours.
(6) Net of cost recoveries.
TCPL's operating and other income of $63 million from its combined investment in
Bruce Power increased $33 million in first quarter 2006
9
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compared to first quarter 2005, primarily due to higher generation volumes,
higher overall realized prices and an increased ownership interest in the Bruce
A facilities, effective October 31, 2005. TCPL's share of Bruce Power's
generation for first quarter 2006 increased 708 GWh to 3,306 GWh compared to
first quarter 2005 generation of 2,598 GWh as a result of fewer planned
maintenance outage days in first quarter 2006 than in first quarter 2005 and an
increased ownership interest in the Bruce A facilities.
Bruce Power prices achieved during first quarter 2006 were $52 per MWh, compared
to $50 per MWh in first quarter 2005. Bruce Power operating expenses (net of
fuel cost recoveries) in first quarter 2006 decreased to $34 per MWh from $38
MWh in first quarter 2005 primarily due to increased output in first quarter
2006 combined with costs incurred in first quarter 2005 related to one
additional planned maintenance outage compared to the same quarter in 2006.
Approximately 30 reactor days of planned maintenance outages as well as 13
reactor days of unplanned outages occurred on the six operating units in first
quarter 2006. In first quarter 2005, Bruce Power experienced 70 reactor days of
planned maintenance outages and 25 reactor days of unplanned outages. The Bruce
Power units ran at a combined average availability of 90 per cent in first
quarter 2006, compared to an 81 per cent average availability during first
quarter 2005.
The overall plant availability percentage in 2006 is still expected to be in the
low 90s for the four Bruce B units and in the low 80s for the two operating
Bruce A units. A planned one month maintenance outage on Bruce A Unit 3 was
completed during first quarter 2006 and a planned two month maintenance outage
of Bruce A Unit 4 commenced on April 22, 2006. The only planned maintenance
outage for 2006 for Bruce B is an approximate two month outage scheduled for
Unit 8 beginning in third quarter 2006.
Income for Bruce B is directly impacted by fluctuations in wholesale spot market
prices for electricity. Income from both Bruce A and Bruce B units is impacted
by overall plant availability, which in turn is impacted by scheduled and
unscheduled maintenance. As a result of the contract with the Ontario Power
Authority (OPA), all of the output from Bruce A is sold at a fixed price of
$57.37 per MWh (before recovery of fuel costs from the OPA) and sales from the
Bruce B Units 5 to 8 are subject to a floor price of $45 per MWh. Both of these
reference prices are adjusted annually on April 1 for inflation and other
potential adjustments per the terms of the contract with OPA. Effective April 1,
2006, the Bruce A fixed price is $58.63 per MWh and the Bruce B floor price is
$45.99 per MWh. To further reduce its exposure to spot market prices, Bruce B
has entered into fixed price sales contracts to sell forward approximately 9,900
GWh of output for the remainder of 2006 and 5,100 GWh of output for 2007.
10
--------------------------------------------------------------------------------
Bruce A's capital program for the restart and refurbishment project is expected
to total approximately $4.25 billion with TCPL's share being approximately
$2.125 billion. As at March 31, 2006, Bruce A had incurred $468 million with
respect to the restart and refurbishment project.
Western Operations
Western Operations Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Revenue
Power 275 164
Other (1) 64 42
339 206
Cost of sales
Power (190 ) (110 )
Other (2) (48 ) (28 )
(238 ) (138 )
Other costs and expenses (38 ) (33 )
Depreciation (5 ) (5 )
Operating and other income 58 30
--------------------
(1) Includes Cancarb Thermax and natural gas sales.
(2) Other cost of sales includes the cost of natural gas sold.
Western Operations Sales Volumes
Three months ended March 31 (unaudited)
(GWh) 2006 2005
Supply
Generation 585 636
Purchased
Sundance A & B PPAs 3,391 1,831
Other purchases 486 731
4,462 3,198
Contracted vs. Spot
Contracted 2,022 2,685
Spot 2,440 513
4,462 3,198
11
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Western Operations' operating and other income of $58 million in first quarter
2006 was $28 million higher compared to first quarter 2005 primarily due to
incremental earnings from the December 31, 2005 acquisition of the 756 MW
Sheerness PPA. Operating and other income was also higher due to increased
margins in first quarter 2006 compared to first quarter 2005 from higher overall
realized power prices and higher market heat rates on uncontracted volumes of
power generated. The market heat rate is determined by dividing the average
price of power per MWh by the average price of natural gas per gigajoule (GJ)
for a given period. Market heat rates increased by approximately 11 per cent as
a result of an approximate 24 per cent ($10.85 per MWh) increase in spot market
power prices in first quarter 2006 compared to the same quarter in 2005, while
average spot market natural gas prices in Alberta increased by approximately 10
per cent ($0.65 per GJ). A significant portion of power sales volumes were sold
into the spot market in first quarter 2006 due to the acquisition of the
Sheerness PPA. TCPL manages the sale of its supply volumes on a portfolio basis.
Depending on market conditions, TCPL will commit a portion of this supply to
long-term sales arrangements with the remaining volumes subject to spot market
price volatility. This approach to portfolio management assists in minimizing
costs in situations where TCPL would otherwise have to purchase electricity in
the open market to fulfill its contractual sales obligations.
Western Operations' power sales revenues and power cost of sales increased in
first quarter 2006 compared to first quarter 2005 primarily due to the
acquisition of the Sheerness PPA, effective December 31, 2005, and higher
overall realized power prices in first quarter 2006. Generation volumes of 585
GWh in first quarter 2006 decreased 51 GWh compared to first quarter 2005
primarily due to reduced dispatch from the MacKay River facility. The Bear Creek
facility is expected to be back in service in mid-2006. Purchased power volumes
and the percentage of power volumes sold into the Alberta spot market increased
in first quarter 2006 due to the acquisition of the Sheerness PPA. A significant
portion of the Sheerness PPA purchased volumes were not sold under contract and
were subject to spot market prices. As a result, approximately 55 per cent of
power sales volumes were sold into the spot market in first quarter 2006
compared to 16 per cent in first quarter 2005. To reduce its exposure to spot
market prices on uncontracted volumes, as at March 31, 2006, Western Operations
had fixed price sales contracts to sell approximately 7,800 GWh of power for the
remainder of 2006 and approximately 6,000 GWh of power for 2007.
12
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Eastern Operations
Eastern Operations Results-at-a-Glance
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Revenue
Power 161 115
Other (1) 117 70
278 185
Cost of sales
Power (101 ) (62 )
Other (1) (96 ) (65 )
(197 ) (127 )
Other costs and expenses (25 ) (49 )
Depreciation (7 ) (4 )
Operating and other income 49 5
--------------------
(1) Other includes natural gas.
Eastern Operations Sales Volumes
Three months ended March 31 (unaudited)
(GWh) 2006 2005
Supply
Generation 705 444
Purchased 730 811
1,435 1,255
Contracted vs. Spot
Contracted 1,383 1,189
Spot 52 66
1,435 1,255
Operating and other income in first quarter 2006 from Eastern Operations of $49
million was $44 million higher compared to $5 million in first quarter 2005. The
increase was primarily due to incremental income from the TC Hydro generation
assets acquired on April 1, 2005, margins earned in 2006 on transportation
related to unutilized OSP natural gas fuel and a $16 million pre-tax ($10
million after-tax) first quarter 2005 one-time contract restructuring payment
from OSP to its natural gas fuel suppliers.
Generation volumes in first quarter 2006 increased 261 GWh to 705 GWh compared
to first quarter 2005 primarily due to the acquisition of the TC Hydro assets.
Partially offsetting these increases was reduced generation from the OSP
facility due to a mild winter in 2006.
Eastern Operations' power sales revenues of $161 million increased $46 million
in first quarter 2006 primarily due to higher realized prices and higher sales
volumes. Power cost of sales of $101 million was higher in first quarter 2006
due to the impact of higher prices for purchased power, partially offset by
lower purchased power volumes. Purchased power volumes of 730 GWh were lower in
first quarter 2006 compared to first quarter 2005 due to the incremental power
generation from the TC Hydro assets. Volumes generated from these hydroelectric
assets reduced the requirement to purchase power to fulfill contractual sales
13
--------------------------------------------------------------------------------
obligations. First quarter 2006 other revenue and other cost of sales of $117
million and $96 million, respectively, increased year-over-year primarily as a
result of natural gas purchased and resold under the new natural gas supply
contracts at OSP. Other costs and expenses in first quarter 2006 of $25 million,
which include fuel gas consumed in generation, decreased from the prior year as
the incremental operating costs of the TC Hydro assets were more than offset by
a decrease in fuel costs at the OSP facility including the one-time contract
restructuring payment of $16 million in first quarter 2005 to its natural gas
fuel suppliers.
In first quarter 2006, approximately four per cent of power sales volumes were
sold into the spot market compared to approximately five per cent in first
quarter 2005. Eastern Operations is focused on selling the majority of its power
under contract to wholesale, commercial and industrial customers while managing
a portfolio of power supplies sourced from its own generation and wholesale
power purchases. To reduce its exposure to spot market prices, as at March 31,
2006, Eastern Operations had entered into fixed price sales contracts to sell
approximately 3,800 GWh of power for the remainder of 2006 and approximately
3,500 GWh of power for 2007, although certain contracted volumes are dependent
on customer usage levels.
Power Sales Volumes and Plant Availability
Power Sales Volumes
Three months ended March 31 (unaudited)
(GWh) 2006 2005
Bruce Power (1) 3,306 2,598
Western operations (2) 4,462 3,198
Eastern operations (3) 1,435 1,255
Power LP investment (4) - 697
Total 9,203 7,748
--------------------
(1) Sales volumes reflect TCPL's proportionate share of Bruce Power output.
(2) The Sheerness PPA is included in Western Operations, effective December 31,
2005.
(3) TC Hydro is included in Eastern Operations, effective April 1, 2005.
(4) TCPL operated and managed Power LP until August 31, 2005. The volumes in the
table represent 100 per cent of Power LP's sales volumes in first quarter 2005.
14
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Weighted Average Plant Availability (1)
Three months ended March 31 (unaudited) 2006 2005
Bruce Power 90 % 81 %
Western Operations (2) 90 % 89 %
Eastern Operations (3) 95 % 85 %
Power LP Investment (4) - 99 %
All plants, excluding Bruce Power 94 % 91 %
All plants 91 % 87 %
--------------------
(1) Plant availability represents the percentage of time in the period that the
plant is available to generate power, even if the plant is not operating,
reduced by planned and unplanned outages.
(2) The Sheerness PPA is included in Western Operations, effective December 31,
2005.
(3) TC Hydro is included in Eastern Operations, effective April 1, 2005.
(4) Power LP is included up to August 31, 2005.
Corporate
Net expenses were $13 million and $9 million for the three months ended March
31, 2006 and 2005, respectively. The $4 million increase in net expenses is
primarily due to increased interest costs.
Liquidity and Capital Resources
Funds Generated from Operations
Funds generated from operations were $516 million for the three months ended
March 31, 2006 compared to $420 million for the same period in 2005.
TCPL expects that its ability to generate adequate amounts of cash in the short
and long term, when needed, and to maintain financial capacity and flexibility
to provide for planned growth remains substantially unchanged since December 31,
2005.
Investing Activities
In the three months ended March 31, 2006, capital expenditures totalled $303
million (2005 - $108 million) and related primarily to the restart and
refurbishment of Bruce A Units 1 and 2, construction of new power plants,
construction of Tamazunchale and Edson and maintenance and other capacity
capital in the Gas Transmission business.
In the three months ended March 31, 2006, there was no disposition of assets
(2005 - $101 million, net of current tax expense). The disposition in 2005
relates to the sale of PipeLines LP units.
15
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Financing Activities
TCPL retired $140 million of long-term debt in the three months ended March 31,
2006. In January 2006, the company issued $300 million of 4.3 per cent
medium-term notes due 2011 and in March 2006, the company issued US$500 million
of 5.85 per cent senior unsecured notes due 2036. For the three months ended
March 31, 2006, outstanding notes payable decreased by $633 million, while cash
and short-term investments increased by $141 million.
Dividends
On April 27, 2006, TCPL's Board of Directors declared a quarterly dividend for
the quarter ending June 30, 2006 in an aggregate amount equal to the aggregate
quarterly dividend to be paid on July 31, 2006 by TransCanada Corporation on the
issued and outstanding common shares at the close of business on June 30, 2006.
The Board also declared regular dividends on TCPL's preferred shares.
Contractual Obligations
There have been no material changes to TCPL's contractual obligations from
December 31, 2005 to March 31, 2006, including payments due for the next five
years and thereafter. For further information on these contractual obligations,
refer to the MD&A in TCPL's 2005 Report.
Financial and Other Instruments
The following represents the material changes to the company's financial
instruments since December 31, 2005.
Energy Price Risk Management
The company executes power, natural gas and heat rate derivatives for overall
management of its asset portfolio. Heat rate contracts are contracts for the
sale or purchase of power that are priced based on a natural gas index. The fair
value and notional volumes of contracts for differences and the swap, future,
option and heat rate contracts are shown in the tables below.
16
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Power
March 31, 2006 December 31,
2005
(unaudited)
Asset/(Liability) Accounting Fair Fair
(millions of dollars) Treatment Value Value
Power - swaps and contracts for differences
(maturing 2006 to 2011) Hedge (77 ) (130 )
(maturing 2006 to 2010) Non-hedge 6 13
Gas - swaps, futures and options
(maturing 2006 to 2016) Hedge (20 ) 17
(maturing 2006 to 2008) Non-hedge 5 (11 )
Heat rate contracts
(maturing 2006) Non-hedge - -
Notional Volumes
Power (GWh)
March 31, 2006 Accounting Gas (Bcf)
(unaudited) Treatment Purchases Sales Purchases Sales
Power - swaps and contracts for
differences
(maturing 2006 to 2011) Hedge 2,572 8,899 - -
(maturing 2006 to 2010) Non-hedge 1,365 1,035 - -
Gas - swaps, futures and options
(maturing 2006 to 2016) Hedge - - 91 63
(maturing 2006 to 2008) Non-hedge - - 17 20
Heat rate contracts
(maturing 2006) Non-hedge - 26 - -
Notional Volumes
Power (GWh)
Accounting Gas (Bcf)
December 31, 2005 Treatment Purchases Sales Purchases Sales
Power - swaps and contracts for Hedge 2,566 7,780 - -
differences
Non-hedge 1,332 456 - -
Gas - swaps, futures and options Hedge - - 91 69
Non-hedge - - 15 18
Heat rate contracts Non-hedge - 35 - -
Risk Management
TCPL's market, financial and counterparty risks remain substantially unchanged
since December 31, 2005. For further information on risks, refer to the MD&A in
TCPL's 2005 Report.
17
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Controls and Procedures
As of March 31, 2006, TCPL's management, together with TCPL's President and
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the company's disclosure controls and procedures.
Based on this evaluation, the President and Chief Executive Officer and the
Chief Financial Officer of TCPL have concluded that the disclosure controls and
procedures are effective.
There were no changes in TCPL's internal control over financial reporting during
the most recent fiscal quarter that have materially affected or are reasonably
likely to materially affect TCPL's internal control over financial reporting.
Critical Accounting Policy
TCPL's critical accounting policy, which remains unchanged since December 31,
2005, is the use of regulatory accounting for its regulated operations. For
further information on this critical accounting policy, refer to the MD&A in
TCPL's 2005 Report.
Critical Accounting Estimates
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of the company's consolidated
financial statements requires the use of estimates and assumptions which have
been made using careful judgment. TCPL's critical accounting estimate from
December 31, 2005 continues to be depreciation expense. For further information
on this critical accounting estimate, refer to the MD&A in TCPL's 2005 Report.
Outlook
In 2006, TCPL expects higher net income than originally anticipated due to net
income from discontinued operations as a result of bankruptcy settlements
received from Mirant related to the divested Gas Marketing business. Excluding
this impact, the company's outlook is relatively unchanged since December 31,
2005. For further information on outlook, refer to the MD&A in TCPL's 2005
Report.
In 2006, TCPL will continue to direct its resources towards long-term growth
opportunities that will strengthen its financial performance and create
long-term value for shareholders. The company's net income and cash flow
combined with a strong balance sheet continue to provide the financial
flexibility for TCPL to make disciplined investments in its core businesses of
Gas Transmission and Power.
18
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Credit ratings on TCPL's senior unsecured debt assigned by Dominion Bond Rating
Service Limited (DBRS), Moody's and Standard & Poor's remain at A, A2 and A-,
respectively. DBRS and Moody's both maintain a 'stable' outlook on their ratings
and Standard & Poor's maintains a 'negative' outlook on its rating.
Other Recent Developments Gas Transmission
Wholly-Owned Pipelines
Canadian Mainline
In March 2006, TCPL reached a settlement with its customers and other interested
parties with respect to its 2006 tolls on the Canadian Mainline. The settlement
results in a revenue requirement of approximately $1.8 billion for 2006.
The settlement establishes the Canadian Mainline's fixed operating, maintenance
and administration (OM&A) costs for 2006 at $174 million, which is six per cent
higher than the OM&A costs of $164 million incurred in 2005. Any variance
between actual OM&A costs and those agreed to in the settlement will accrue to
TCPL. The settlement also provides TCPL with an opportunity to realize modest
additional net earnings through performance-based incentive arrangements. These
incentive arrangements are focused on certain cost management activities and the
management of fuel, and provide mutual benefits to both TCPL and its customers.
There is no change in the Canadian Mainline depreciation rates or methodology
from 2005 to 2006.
The settlement included an ROE of 8.88 per cent, as determined for 2006 under
the NEB's return adjustment formula, on a deemed common equity ratio of 36 per
cent.
Interim tolls will continue to be charged for transportation service on the
Canadian Mainline until final tolls are approved by the NEB pursuant to this
settlement. With NEB approval, the terms of this settlement will be effective
January 1, 2006 for one year. In March 2006, TCPL filed its application with the
NEB for approval of this settlement and associated tolls.
Alberta System
In February 2006, the Alberta Energy and Utilities Board (EUB) issued its
decision on the 2005 General Rate Application (GRA) Phase II which determined
the allocation of 2005 approved costs among transportation
19
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services and rate design. The decision approved the 2005 rate design as applied
for.
In March 2006, TCPL filed for 2005 Final Rates and 2006 Final Rates with the
EUB. The 2005 Final Rates as filed are the same as the 2005 Interim Rates since
there were no changes to the rate design required in the EUB decision on the
2005 GRA Phase II. The 2006 Final Rates filed with the EUB are based on the 2006
revenue requirement, including deferrals from 2005 as per the Alberta System
three year settlement, a revised throughput forecast and the approved rate
design.
Other Gas Transmission
In April 2006, PipeLines LP closed its acquisition of an additional 20 per cent
general partnership interest in Northern Border for approximately US$297 million
plus US$10 million in transaction costs payable to a subsidiary of TCPL,
bringing its total general partnership interest to 50 per cent. As part of the
transaction, PipeLines LP also indirectly assumed approximately US$120 million
of debt of Northern Border. The transaction was effective as of December 31,
2005. As part of the transaction, and effective by early second quarter 2007, a
subsidiary of TCPL will become the operator of Northern Border which is
currently operated by a subsidiary of ONEOK Inc. (ONEOK).
Concurrent with this transaction, TCPL closed the sale of its 17.5 per cent
general partner interest in Northern Border Partners, L.P. to a subsidiary of
ONEOK for net proceeds of approximately US$30 million, resulting in an expected
after-tax gain of approximately $10 million to be recorded in second quarter
2006.
Northern Development
Public hearings commenced in January 2006 on the Mackenzie Gas Pipeline Project
which includes a proposed 1,194 kilometre natural gas pipeline system along the
Mackenzie Valley of Canada's Northwest Territories that will connect northern
onshore natural gas fields with North American markets. The hearings take a
two-stage approach with a Joint Review Panel focusing on environmental and
socio-economic impacts, and the NEB reviewing all other matters including
engineering, safety, need and economic feasibility. The hearings are scheduled
in a number of locations throughout the Mackenzie Valley and Alberta through to
December 2006. The company plans to seek approval from the EUB in second quarter
2006 to build certain related interconnecting facilities in northwest Alberta.
20
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Keystone Pipeline
In March and April 2006, TCPL announced that it will host a series of open house
meetings in March, April and May to provide stakeholders along portions of the
proposed corridor of the Keystone pipeline with information and updates about
the crude oil pipeline project and to solicit feedback. TCPL has also commenced
meeting with potentially affected landowners and landowners adjacent to the
proposed pipeline route on an individual basis.
In response to interest from customers, TCPL is also considering the possible
extensions of the Keystone pipeline north to Fort Saskatchewan, Alberta and
south through Kansas to Cushing, Oklahoma. Open houses along the contemplated
extension to Cushing are planned for later this year.
Public and stakeholder consultation and detailed environmental assessments and
field studies along with engineering work will continue throughout 2006. On
April 20, 2006, TCPL filed with the U.S. Department of State an application for
a Presidential Permit authorizing the construction, operation and maintenance of
the Keystone pipeline. Various other major regulatory applications are currently
being prepared for submission in Canada and the U.S. Construction is expected to
start in 2008, with commercial operations expected to begin by fourth quarter
2009.
Liquefied Natural Gas
In early April 2006, Cacouna Energy, a partnership between TCPL and
Petro-Canada, awarded a contract for front-end engineering and design work to an
international consortium of engineering and construction firms with experience
in the development of liquefied natural gas receiving terminals. The project's
next significant milestone is hearings before a joint review panel of the
Canadian Environmental Assessment Agency and Quebec's Bureau d'audiences
publiques sur l'environnement scheduled to begin May 8, 2006. Pending regulatory
approval, construction is expected to begin in 2007 with the facility becoming
operational in late 2009 or early 2010.
Share Information
As at March 31, 2006, TCPL had 483,344,109 issued and outstanding common shares.
In addition, there were 4,000,000 Series U and 4,000,000 Series Y Cumulative
First Preferred Shares issued and outstanding as at March 31, 2006.
21
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Selected Quarterly Consolidated Financial Data (1)
(unaudited) 2006 2005 2004
(millions of dollars except First Fourth Third Second First Fourth Third Second
per share amounts)
Revenues 1,894 1,771 1,494 1,449 1,410 1,480 1,311 1,347
Net income applicable to
common shares
Continuing operations 244 350 428 199 232 184 192 388
Discontinued operations 28 - - - - - 52 -
272 350 428 199 232 184 244 388
Share Statistics
Net income per share - Basic
and diluted
Continuing operations $ 0.50 $ 0.72 $ 0.89 $ 0.41 $ 0.48 $ 0.38 $ 0.40 $ 0.81
Discontinued operations 0.06 - - - - - 0.11 -
$ 0.56 $ 0.72 $ 0.89 $ 0.41 $ 0.48 $ 0.38 $ 0.51 $ 0.81
--------------------
(1) The selected quarterly consolidated financial data has been prepared in
accordance with Canadian GAAP. Certain comparative figures have been
reclassified to conform with the current year's presentation. For a discussion
on the factors affecting the comparability of the financial data, including
discontinued operations, refer to Note 1, Note 2 and Note 24 of TCPL's 2005
audited consolidated financial statements.
Factors Impacting Quarterly Financial Information
In the Gas Transmission business, which consists primarily of the company's
investments in regulated pipelines, annual revenues and net earnings fluctuate
over the long term based on regulators' decisions and negotiated settlements
with shippers. Generally, quarter over quarter revenues and net earnings during
any particular fiscal year remain relatively stable with fluctuations arising as
a result of adjustments being recorded due to regulatory decisions and
negotiated settlements with shippers and due to items outside of the normal
course of operations.
In the Power business, which builds, owns and operates electrical power
generation plants and sells electricity, quarter over quarter revenues and net
earnings are affected by seasonal weather conditions, customer demand, market
prices, planned and unplanned plant outages as well as items outside of the
normal course of operations.
Significant items which impacted the last eight quarters' net earnings are as
follows.
* Second quarter 2004 net earnings included after-tax gains related
to Power LP of $187 million, of which $132 million were previously deferred and
were being amortized into income to 2017.
22
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* In third quarter 2004, the EUB's decisions on the Generic Cost of
Capital and Phase I of the 2004 GRA resulted in lower earnings for the Alberta
System compared to the previous quarters. In addition, third quarter 2004
included a $12 million after-tax adjustment related to the release of previously
established restructuring provisions and recognition of $8 million of
non-capital loss carry forwards.
* In fourth quarter 2004, TCPL completed the acquisition of GTN and
recorded $14 million of net earnings from the November 1, 2004 acquisition date.
Power recorded a $16 million pre-tax positive impact of a restructuring
transaction related to power purchase contracts between OSP and Boston Edison in
Eastern Operations.
* First quarter 2005 net earnings included a $48 million after-tax
gain related to the sale of PipeLines LP units. Power earnings included a $10
million after-tax cost for the restructuring of natural gas supply contracts by
OSP. In addition, Bruce Power's equity income was lower than previous quarters
due to the impact of planned maintenance outages and the increase in operating
costs as a result of moving to a six-unit operation.
* Second quarter 2005 net earnings included $21 million ($13 million
related to 2004 and $8 million related to the six months ended June 30, 2005)
with respect to the NEB's decision on the Canadian Mainline's 2004 Tolls and
Tariff Application (Phase II). On April 1, 2005, TCPL completed the acquisition
of TC Hydro generation assets from USGen New England, Inc. Bruce Power's equity
income was lower than previous quarters due to the continuing impact of planned
maintenance outages and an unplanned maintenance outage on Unit 6 relating to a
transformer fire.
* Third quarter 2005 net earnings included a $193 million after-tax
gain related to the sale of the company's ownership interest in Power LP. In
addition, Bruce Power's equity income increased from prior quarters due to
higher realized power prices and slightly higher generation volumes.
* Fourth quarter 2005 net earnings included a $115 million after-tax
gain on sale of Paiton Energy. In addition, Bruce A was formed and Bruce Power's
results were proportionately consolidated effective October 31.
* First quarter 2006 net earnings included an $18 million after-tax
bankruptcy claim settlement received by the Gas Transmission Northwest System.
In addition, Power's net earnings included contributions from the December 31,
2005 acquisition of the 756 MW Sheerness PPA.
23
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Exhibit 13.2
Consolidated Income
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Revenues 1,894 1,410
Operating Expenses
Cost of sales 505 265
Other costs and expenses 537 422
Depreciation 257 251
1,299 938
Operating Income 595 472
Other Expenses/(Income)
Financial charges 203 208
Financial charges of joint ventures 21 16
Equity income (18 ) (50 )
Interest income and other (49 ) (24 )
Gain on sale of PipeLines LP units - (80 )
157 70
Income from Continuing Operations before Income Taxes and Non-Controlling Interests 438 402
Income Taxes
Current 210 161
Future (41 ) (12 )
169 149
Non-Controlling Interests
Non-controlling interest in PipeLines LP 13 9
Other 6 6
19 15
Net Income from Continuing Operations 250 238
Net Income from Discontinued Operations (Note 5) 28 -
Net Income 278 238
Preferred Share Dividends 6 6
Net Income Applicable to Common Shares 272 232
Net Income Applicable to Common Shares
Continuing operations 244 232
Discontinued operations 28 -
272 232
See accompanying notes to the consolidated financial statements.
1
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Consolidated Cash Flows
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Cash Generated from Operations
Net income from continuing operations 250 238
Depreciation 257 251
Gain on sale of PipeLines LP units, net of current income tax - (30 )
Equity income in excess of distributions received (4 ) (31 )
Future income taxes (41 ) (12 )
Non-controlling interests 19 15
Funding of employee future benefits in excess of expense (2 ) (7 )
Other 37 (4 )
Funds generated from operations 516 420
Increase in operating working capital (1 ) (86 )
Net cash provided by operations 515 334
Investing Activities
Capital expenditures (303 ) (108 )
Disposition of assets, net of current income tax - 101
Deferred amounts and other (15 ) 40
Net cash (used in)/provided by investing activities (318 ) 33
Financing Activities
Dividends (149 ) (146 )
Advances from parent - (75 )
Distributions paid to non-controlling interests (10 ) (9 )
Notes payable (repaid)/issued, net (633 ) 244
Long-term debt issued 878 300
Reduction of long-term debt (140 ) (329 )
Long-term debt of joint ventures issued 2 5
Reduction of long-term debt of joint ventures (6 ) (4 )
Common shares issued - 80
Net cash (used in)/provided by financing activities (58 ) 66
Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments 2 2
Increase in Cash and Short-Term Investments 141 435
Cash and Short-Term Investments
Beginning of period 212 190
Cash and Short-Term Investments
End of period 353 625
Supplementary Cash Flow Information
Income taxes paid 217 191
Interest paid 199 196
See accompanying notes to the consolidated financial statements.
2
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Consolidated Balance Sheet
December 31,
(millions of dollars) March 31, 2006 2005
(unaudited)
ASSETS
Current Assets
Cash and short-term investments 353 212
Accounts receivable 700 796
Inventories 219 281
Other 281 277
1,553 1,566
Long-Term Investments 419 400
Plant, Property and Equipment 20,090 20,038
Other Assets 2,049 2,109
24,111 24,113
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable 329 962
Accounts payable 1,383 1,536
Accrued interest 231 222
Current portion of long-term debt 533 393
Current portion of long-term debt of joint ventures 37 41
2,513 3,154
Deferred Amounts 1,149 1,196
Future Income Taxes 661 703
Long-Term Debt 10,249 9,640
Long-Term Debt of Joint Ventures 935 937
Preferred Securities 537 536
16,044 16,166
Non-Controlling Interests
Non-controlling interest in PipeLines LP 320 318
Other 82 76
402 394
Shareholders' Equity
Preferred shares 389 389
Common shares 4,712 4,712
Contributed surplus 275 275
Retained earnings 2,383 2,267
Foreign exchange adjustment (94 ) (90 )
7,665 7,553
24,111 24,113
See accompanying notes to the consolidated financial statements.
3
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Consolidated Retained Earnings
Three months ended March 31 (unaudited)
(millions of dollars) 2006 2005
Balance at beginning of period 2,267 1,653
Net income 278 238
Preferred share dividends (6 ) (6 )
Common share dividends (156 ) (148 )
2,383 1,737
See accompanying notes to the consolidated financial statements.
4
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Notes to Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
The consolidated financial statements of TransCanada PipeLines Limited (TCPL or
the company) have been prepared in accordance with Canadian generally accepted
accounting principles (GAAP). The accounting policies applied are consistent
with those outlined in TCPL's annual audited consolidated financial statements
for the year ended December 31, 2005. These consolidated financial statements
reflect all normal recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position and results of operations for
the respective periods. These consolidated financial statements do not include
all disclosures required in the annual financial statements and should be read
in conjunction with the 2005 audited consolidated financial statements included
in TCPL's 2005 Report. Amounts are stated in Canadian dollars unless otherwise
indicated. Certain comparative figures have been reclassified to conform with
the current period's presentation.
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of these consolidated financial
statements requires the use of estimates and assumptions. In the opinion of
Management, these consolidated financial statements have been properly prepared
within reasonable limits of materiality and within the framework of the
company's significant accounting policies.
2. Segmented Information
Three months ended March 31 Gas Transmission Power Corporate Total
(unaudited - millions of 2006 2005 2006 2005 2006 2005 2006 2005
dollars)
Revenues 1,088 998 806 412 - - 1,894 1,410
Cost of sales (70 ) - (435 ) (265 ) - - (505 ) (265 )
Other costs and expenses (340 ) (307 ) (196 ) (113 ) (1 ) (2 ) (537 ) (422 )
Depreciation (227 ) (233 ) (30 ) (18 ) - - (257 ) (251 )
Operating income/(loss) 451 458 145 16 (1 ) (2 ) 595 472
Financial charges and (192 ) (197 ) - (2 ) (36 ) (30 ) (228 ) (229 )
non-controlling interests
Financial charges of joint (14 ) (14 ) (7 ) (2 ) - - (21 ) (16 )
ventures
Equity income 18 20 - 30 - - 18 50
Interest income and other 32 14 2 3 15 7 49 24
Gain on sale of PipeLines LP - 80 - - - - - 80
units
Income taxes (127 ) (150 ) (51 ) (15 ) 9 16 (169 ) (149 )
Continuing Operations 168 211 89 30 (13 ) (9 ) 244 232
Discontinued Operations 28 -
Net Income Applicable to Common 272 232
Shares
5
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Total Assets
December 31,
(millions of dollars) March 31, 2006 2005
(unaudited)
Gas Transmission 18,077 18,252
Power 4,920 4,923
Corporate 1,114 938
24,111 24,113
6
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3. Risk Management and Financial Instruments
The following represents the material changes to the company's financial
instruments since December 31, 2005.
Energy Price Risk Management
The company executes power, natural gas and heat rate derivatives for overall
management of its asset portfolio. Heat rate contracts are contracts for the
sale or purchase of power that are priced based on a natural gas index. The fair
value and notional volumes of contracts for differences and the swap, future,
option and heat rate contracts are shown in the tables below.
Power
March 31, 2006 December 31, 2005
(unaudited)
Asset/(Liability) Accounting Fair Fair
(millions of dollars) Treatment Value Value
Power - swaps and contracts for differences
(maturing 2006 to 2011) Hedge (77 ) (130 )
(maturing 2006 to 2010) Non-hedge 6 13
Gas - swaps, futures and options
(maturing 2006 to 2016) Hedge (20 ) 17
(maturing 2006 to 2008) Non-hedge 5 (11 )
Heat rate contracts
(maturing 2006) Non-hedge - -
7
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Notional Volumes
March 31, 2006 Accounting Power (GWh) Gas (Bcf)
(unaudited) Treatment Purchases Sales Purchases Sales
Power - swaps and contracts for
differences
(maturing 2006 to 2011) Hedge 2,572 8,899 - -
(maturing 2006 to 2010) Non-hedge 1,365 1,035 - -
Gas - swaps, futures and
options
(maturing 2006 to 2016) Hedge - - 91 63
(maturing 2006 to 2008) Non-hedge - - 17 20
Heat rate contracts
(maturing 2006) Non-hedge - 26 - -
Notional Volumes Accounting Power (GWh) Gas (Bcf)
December 31, 2005 Treatment Purchases Sales Purchases Sales
Power - swaps and contracts for Hedge 2,566 7,780 - -
differences Non-hedge 1,332 456 - -
Gas - swaps, futures and Hedge - - 91 69
options Non-hedge - - 15 18
Heat rate contracts Non-hedge - 35 - -
8
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4. Long-Term Debt
In January 2006, the company issued $300 million of 4.3 per cent medium-term
notes due 2011 and in March 2006, the company issued US$500 million of 5.85 per
cent senior unsecured notes due 2036.
5. Discontinued Operations
TCPL's net income includes $28 million of net income from discontinued
operations, reflecting settlements received in first quarter 2006 from
bankruptcy claims related to the Gas Marketing business divested in 2001.
6. Employee Future Benefits
The net benefit plan expense for the company's defined benefit pension plans and
other post-employment benefit plans for the three months ended March 31 is as
follows.
Three months ended March 31 Pension Benefit Plans Other Benefit Plans
(unaudited - millions of dollars) 2006 2005 2006 2005
Current service cost 9 7 - -
Interest cost 17 16 2 1
Expected return on plan assets (18 ) (16 ) - -
Amortization of transitional obligation related to - - 1 1
regulated business
Amortization of net actuarial loss 7 4 1 1
Amortization of past service costs 1 1 - -
Net benefit cost recognized 16 12 4 3
TCPL welcomes questions from shareholders and potential investors. Please
telephone:
Investor Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct dial
David Moneta/Myles Dougan at (403) 920-7911. The investor fax line is (403)
920-2457. Media Relations: Jennifer Varey at (403) 920-7859
Visit TCPL's Internet site at: http://www.transcanada.com
9
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Exhibit 13.3
TRANSCANADA PIPELINES LIMITED
RECONCILIATION TO UNITED STATES GAAP
The first quarter 2006 unaudited consolidated financial statements of
TransCanada PipeLines Limited (TCPL or the Company) have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP), which
in some respects differ from U.S. GAAP. The effects of these differences on the
Company's consolidated financial statements for the three months ended March 31,
2006 are provided in the following U.S. GAAP condensed consolidated financial
statements which should be read in conjunction with TCPL's audited consolidated
financial statements for the year ended December 31, 2005 and unaudited
consolidated financial statements for the three months ended March 31, 2006
prepared in accordance with Canadian GAAP.
Condensed Statement of Consolidated Income and Comprehensive Income in
Accordance with U.S. GAAP(1)
Three months ended
March 31
(millions of dollars) 2006 2005
Revenues 1,493 1,271
Cost of sales 365 221
Other costs and expenses 430 422
Depreciation 223 228
1,018 871
Operating income 475 400
Other (income)/expenses
Equity income(1) (119 ) (98 )
Other expenses(2) 174 119
Income taxes 169 146
224 167
Net income from continuing operations - U.S. GAAP 251 233
Net income from discontinued operations - U.S. GAAP 28 -
Net Income in Accordance with U.S. GAAP 279 233
Adjustments affecting comprehensive income under U.S. GAAP
Foreign currency translation adjustment, net of tax (4 ) 5
Unrealized gain/(loss) on derivatives, net of tax(3) 18 (9 )
Comprehensive Income in Accordance with U.S. GAAP 293 229
Reconciliation of Income from Continuing Operations
Three months ended
March 31
(millions of dollars) 2006 2005
Net Income from Continuing Operations in Accordance with Canadian GAAP 250 238
U.S. GAAP adjustments
Unrealized gain/(loss) on energy contracts(3) 1 (10 )
Tax impact of unrealized gain/(loss) on energy contracts - 4
Equity gain(4)(5) - 2
Tax impact of equity gain - (1 )
Net income from Continuing Operations in Accordance with U.S. GAAP 251 233
--------------------------------------------------------------------------------
Condensed Statement of Consolidated Cash Flows in Accordance with U.S. GAAP(1)
Three months ended
March 31
(millions of dollars) 2006 2005
Cash Generated from Operations(6)
Net cash provided by operating activities 494 264
Investing Activities
Net cash (used in)/provided by investing activities (270 ) 92
Financing Activities
Net cash (used in)/provided by financing activities (63 ) 65
Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments 1 2
Increase in Cash and Short-Term Investments 162 423
Cash and Short-Term Investments
Beginning of period 83 126
Cash and Short-Term Investments
End of period 245 549
Condensed Balance Sheet in Accordance with U.S. GAAP(1)
March December
31, 31,
(millions of dollars) 2006 2005
Current assets(7) 1,094 1,058
Long-term investments(4)(5) 2,284 2,168
Plant, property and equipment 17,343 17,348
Regulatory asset(8) 2,576 2,601
Other assets(4) 2,025 2,028
25,322 25,203
Current liabilities(9) 2,223 2,797
Deferred amounts(3)(5) 1,304 1,298
Long-term debt(3) 10,278 9,675
Deferred income taxes(8) 3,045 3,102
Preferred securities 537 536
Non-controlling interests 402 394
Shareholders' equity 7,533 7,401
25,322 25,203
Statement of Other Comprehensive Income in Accordance with U.S. GAAP
(millions of dollars) Cumulative Minimum Cash Flow Total
Translation Pension Hedges
Account Liability (SFAS No.
(SFAS No. 133)
87)
Balance at December 31, 2005 (89 ) (77 ) (58 ) (224 )
Unrealized gain on derivatives, net of tax of (10)(3) - - 18 18
Foreign currency translation adjustment, net of tax of (4 ) - - (4 )
$3
Balance at March 31, 2006 (93 ) (77 ) (40 ) (210 )
Balance at December 31, 2004 (71 ) (26 ) (4 ) (101 )
Unrealized loss on derivatives, net of tax of $8(3) - - (9 ) (9 )
Foreign currency translation adjustment, net of tax of 5 - - 5
$10
Balance at March 31, 2005 (66 ) (26 ) (13 ) (105 )
2
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--------------------
(1) In accordance with U.S. GAAP, the Condensed Statement of
Consolidated Income, Statement of Consolidated Cash Flows and Consolidated
Balance Sheet of TCPL are prepared using the equity method of accounting for
joint ventures.
(2) Other expenses included an allowance for funds used during
construction of $1 million for the three months ended March 31, 2006 (March 31,
2005 - $1 million).
(3) All foreign exchange and interest rate derivatives are recorded in
the Company's consolidated financial statements at fair value under Canadian
GAAP. Under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 133 "Accounting for Derivatives and Hedging Activities", all derivatives are
recognized as assets and liabilities on the balance sheet and measured at fair
value. For derivatives designated as fair value hedges, changes in the fair
value are recognized in earnings together with an equal or lesser amount of
changes in the fair value of the hedged item attributable to the hedged risk.
For derivatives designated as cash flow hedges, changes in the fair value of the
derivative that are effective in offsetting the hedged risk are recognized in
other comprehensive income until the hedged item is recognized in earnings. Any
ineffective portion of the change in fair value is also recognized in earnings
each period. Substantially all of the amounts recorded in the three months ended
March 31, 2006 and 2005 as differences between U.S. and Canadian GAAP, for
income from continuing operations, relate to the differences in accounting
treatment with respect to the hedged item and, for comprehensive income, relate
to cash flow hedges.
Substantially all of the amounts recorded in the three months ended March 31,
2006 and 2005 as differences between U.S. and Canadian GAAP in respect of energy
contracts relate to gains and losses on derivative energy contracts for periods
before they were documented as hedges for purposes of U.S. GAAP and to
differences in accounting with respect to physical energy contracts.
(4) Under Canadian GAAP, pre-operating costs incurred during the
commissioning phase of a new project are deferred until commercial production
levels are achieved. After such time, those costs are amortized over the
estimated life of the project. Under U.S. GAAP, such costs are expensed as
incurred. Certain start-up costs incurred by Bruce Power L.P. (Bruce B), an
equity investment, are required to be expensed under U.S. GAAP. Under both
Canadian GAAP and U.S. GAAP, interest is capitalized on expenditures relating to
construction of development projects actively being prepared for their intended
use. In Bruce B, under U.S. GAAP, the carrying value of development projects
against which interest is capitalized is lower due to the expensing of
pre-operating costs.
(5) Financial Interpretation (FIN) 45 requires the recognition of a
liability for the fair value of certain guarantees that require payments
contingent on specified types of future events. The measurement standards of FIN
45 are applicable to guarantees entered into after January 1, 2003. For U.S.
GAAP purposes, the fair value of guarantees recorded as a liability at March 31,
2006 was $18 million (December 31, 2005 - $17 million) and relates to the
Company's equity interest in Bruce B and Bruce Power A L.P. The net income
impact with respect to the guarantees for the three months ended March 31, 2006
was nil (March 31, 2005 - nil).
(6) In accordance with U.S. GAAP, all current taxes are included in
cash generated from operations.
(7) Current assets at March 31, 2006 include derivative contracts of
$33 million (December 31, 2005 - $49 million) and hedging deferrals of $64
million (December 31, 2005 - $93 million).
3
--------------------------------------------------------------------------------
(8) Under U.S. GAAP, the Company is required to record a deferred
income tax liability for its cost-of-service regulated businesses. As these
deferred income taxes are recoverable through future revenues, a corresponding
regulatory asset is recorded for U.S. GAAP purposes.
(9) Current liabilities at March 31, 2006 include dividends payable of
$162 million (December 31, 2005 - $154 million) and current taxes payable of
$257 million (December 31, 2005 - $251 million).
Other
In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No 154
"Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20
and SFAS No. 3" which is effective for fiscal years beginning after December 15,
2005. SFAS No. 154 changes the requirements for the accounting for and reporting
of a change in accounting principle and error correction. It establishes, unless
impracticable, retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle. Adopting the
provisions under SFAS No. 154, as of January 1, 2006, has had no impact on the
U.S. GAAP financial statements of the Company.
In February 2006, FASB issued SFAS No. 155 "Accounting for Certain Hybrid
Financial Instruments - an amendment of SFAS No. 133 and 140" which is effective
for fiscal years beginning after September 15, 2006. Earlier adoption is
permitted as of the beginning of an entity's fiscal year, provided the entity
has not yet issued financial statements, including interim statements for any
interim period, for that fiscal year. SFAS No. 155 permits fair value
remeasurement of any hybrid instrument that contains an embedded derivative that
otherwise would require bifurcation. Adopting the provisions under SFAS No. 155,
as of January 1, 2007, is not expected to have an impact on the U.S. GAAP
financial statements of the Company.
4
--------------------------------------------------------------------------------
Summarized Financial Information of Long-Term Investments
The following summarized financial information of long-term investments includes
those investments that are accounted for by the equity method under U.S. GAAP
(including those that are accounted for by the proportionate consolidation
method under Canadian GAAP).
Three months
ended March 31
(millions of dollars) 2006 2005
Income
Revenues 356 314
Other costs and expenses (174 ) (146 )
Depreciation (40 ) (44 )
Financial charges and other (23 ) (26 )
Proportionate share of income before income taxes of long-term investments 119 98
(millions of dollars) March December
31, 31, 2005
2006
Balance Sheet
Current assets 444 456
Plant, property and equipment 3,426 3,365
Other assets (net) 15 -
Current liabilities (274 ) (319 )
Deferred amounts (net) - (2 )
Non-recourse debt (1,300 ) (1,307 )
Deferred income taxes (27 ) (25 )
Proportionate share of net assets of long-term investments 2,284 2,168
5
--------------------------------------------------------------------------------
Exhibit 31.1
Certifications
I, Harold N. Kvisle, certify that:
1. I have reviewed this quarterly report on Form 6-K of TransCanada
PipeLines Limited;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Dated May 1, 2006
/s/ Harold N. Kvisle
Harold N. Kvisle
President and Chief Executive Officer
--------------------------------------------------------------------------------
Exhibit 31.2
Certifications
I, Russell K. Girling, certify that:
1. I have reviewed this quarterly report
on Form 6-K of TransCanada PipeLines Limited;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying
officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15
(e)) for the registrant and have:
(a) designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared;
(b) evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the
registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
/ s / Russell K. Girling
Dated May 1, 2006 Russell K. Girling
Executive Vice-President, Corporate Development and
Chief Financial Officer
--------------------------------------------------------------------------------
Exhibit 32.1
TRANSCANADA PIPELINES LIMITED
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS
I, Harold N. Kvisle, the Chief Executive Officer of TransCanada PipeLines
Limited (the "Company"), in compliance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, in
connection with the Company's Quarterly Report as filed on Form 6-K for the
period ended March 31, 2006 with the Securities and Exchange Commission (the "
Report"), that:
1. the Report fully complies with the requirements of Section 13
(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Harold N. Kvisle
Harold N. Kvisle
Chief Executive Officer
May 1, 2006
--------------------------------------------------------------------------------
Exhibit 32.2
TRANSCANADA PIPELINES LIMITED
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF FINANCIAL OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL STATEMENTS
I, Russell K. Girling, the Chief Financial Officer of TransCanada PipeLines
Limited (the "Company"), in compliance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, in
connection with the Company's Quarterly Report as filed on Form 6-K for the
period ended March 31, 2006 with the Securities and Exchange Commission (the "
Report"), that:
1. the Report fully complies with the requirements of Section 13
(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/ s / Russell K. Girling
Russell K. Girling
Chief Financial Officer
May 1, 2006
--------------------------------------------------------------------------------
Exhibit 99.1
TransCanada PipeLines Limited
EARNINGS COVERAGE
MARCH 31, 2006
The following financial ratios have been calculated on a consolidated basis for
the respective 12 month period ended March 31, 2006 and are based on unaudited
financial information. The financial ratios have been calculated based on
financial information prepared in accordance with Canadian generally accepted
accounting principles. The following ratios have been prepared based on net
income:
March 31, 2006
Earnings coverage on long-term debt 3.18 times
Earnings coverage on long-term debt and First Preferred Shares 3.06 times
--------------------------------------------------------------------------------
Exhibit 99.2
kpmg
KPMG LLP
Chartered Accountants Telephone (403) 691-8000
1200 205 - 5th Avenue SW Fax (403) 691-8008
Calgary AB T2P 4B9 Internet www.kpmg.ca
The securities regulatory authorities in each of the provinces and territories
of Canada
May 1, 2006
Dear Sirs
TransCanada PipeLines Limited (the "Company")
We refer to the short-form base shelf prospectus of the Company dated December
21, 2004 relating to the sale of up to $1,500,000,000 Medium Term Note
Debentures of the Company (the "Prospectus").
We are the auditors of the Company and under date of February 27, 2006 we
reported on the following financial statements incorporated by reference in the
Prospectus:
* Consolidated balance sheets as at December 31, 2005 and
December 31, 2004; and
* Consolidated statements of income, retained earnings and cash
flows for each of the years in the three-year period ended December 31, 2005.
Also incorporated by reference in the Prospectus are the following unaudited
interim financial statements, which have been filed with the securities
regulatory authorities:
* Consolidated balance sheet as at March 31, 2006;
* Consolidated statements of income and cash flows for the
three-month periods ended March 31, 2006 and 2005; and
* Consolidated statements of retained earnings for the
three-months ended March 31, 2006 and 2005.
We have not audited any financial statements of the Company as at any date or
for any period subsequent to December 31, 2005. Although we have performed an
audit for the year ended December 31, 2005, the purpose and therefore the scope
of the audit was to enable us to express our opinion on the consolidated
financial statements as at December 31, 2005 and for the year then ended, but
not on the financial statements for any interim period within that year.
Therefore, we are unable to and do not express an opinion on the above-mentioned
unaudited interim consolidated financial statements or on the financial
position, results of operations or cash flows as at any date or for any period
subsequent to December 31, 2005.
We have, however, performed a review of the unaudited interim consolidated
financial statements of the Company as at March 31, 2006 and for the three-month
periods ended March 31, 2006 and 2005. We performed our review in accordance
with Canadian generally accepted standards for a review of interim financial
statements by an entity's auditors. Such an interim review consists principally
of applying analytical procedures to financial data and making inquiries of, and
having discussions with, persons responsible for financial and accounting
matters. An interim review is substantially less in scope than an audit, whose
objective is the expression of an opinion regarding the financial statements. An
interim review does not provide assurance that we would become aware of any, or
all, significant matters that might be identified in an audit.
KPMG LLP, a Canadian limited liability partnership is the Canadian member
firm of KPMG International, a Swiss cooperative
--------------------------------------------------------------------------------
Based on our review, we are not aware of any material modification that needs to
be made for these interim consolidated financial statements to be in accordance
with Canadian generally accepted accounting principles.
This letter is provided solely for the purpose of assisting the securities
regulatory authority to which it is addressed in discharging its
responsibilities and should not be used for any other purpose. Any use that a
third party makes of this letter or any reliance or decisions based on it, are
the responsibility of such third parties. We accept no responsibility for loss
or damages, if any, suffered by any third party as a result of decisions made or
actions taken based on this letter.
Yours very truly
Chartered Accountants
Calgary, Canada
2
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This information is provided by RNS
The company news service from the London Stock Exchange
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