INVESTMENTS IN UNCONSOLIDATED AFFILIATES

9 Months Ended

Sep. 30, 2012

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

NOTE 3                 INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Great Lakes, Northern Border, GTN and Bison are regulated by the FERC and are operated by TransCanada. We use the equity method of accounting for our interests in our equity investees.

			Equity Earnings from Unconsolidated Affiliates								Investments in Unconsolidated Affiliates
(unaudited)	Ownership Interest at September 30,		Three months ended September 30,				Nine months ended September 30,				September 30,		December 31,
(millions of dollars)	2012		2012		2011		2012		2011		2012		2011
Great Lakes	46.45	%		6		14		23		49		679		686
Northern Border (a)	50	%		18		19		54		56		519		536
GTN (b)	25	%		5		5		15		7		219		225
Bison (b)	25	%		2		2		8		4		159		163
				31		40		100		116		1,576		1,610

(a)   Equity earnings from Northern Border is net of the 12-year amortization of a $10 million transaction fee paid to the operator of Northern Border at the time of the Partnership’s additional 20 percent interest acquisition in April 2006.

(b)   25 percent interests in each of GTN and Bison were acquired in May 2011.

Great Lakes

The Partnership made an equity contribution to Great Lakes of $4 million in the first quarter of 2012. This amount represents the Partnership’s 46.45 percent share of a $9 million cash call from Great Lakes to make a scheduled debt repayment.

The Partnership recorded no undistributed earnings from Great Lakes for the nine months ended September 30, 2012 and 2011.

The summarized financial information for Great Lakes is as follows:

(unaudited)
(millions of dollars)	September 30, 2012		December 31, 2011
ASSETS
Current assets		56		65
Plant, property and equipment, net		805		826
Other assets		1		1
		862		892
Liabilities and Partners’ Equity
Current liabilities		23		30
Long-term debt, including current maturities		364		373
Partners’ equity		475		489
		862		892

	Three months ended						Nine months ended
(unaudited)	September 30,						September 30,
(millions of dollars)	2012			2011			2012			2011
Transmission revenues		46			63			143			196
Operating expenses		(17	)		(16	)		(48	)		(46	)
Depreciation		(8	)		(8	)		(24	)		(24	)
Financial charges and other		(7	)		(7	)		(21	)		(22	)
Michigan business tax		-			(1	)		-			2
Net income		14			31			50			106

 Northern Border

On September 27, 2012, Northern Border filed a petition with the FERC requesting approval of a Stipulation and Agreement of Settlement (Northern Border Settlement) with its customers to modify its transportation rates. The Northern Border Settlement, if approved, will be effective January 1, 2013 and will eliminate Northern Border's obligation to otherwise file a Section 4 rate case by December 31, 2012.  If approved, the settlement will establish maximum long-term transportation rates on the Northern Border system and current transportation rates will be reduced by approximately 11 percent. In addition, the composite depreciation rate will be reduced to 2.19 percent from 2.40 percent. The settlement includes a three-year moratorium on filing rate cases or challenging the settlement rates and requires that Northern Border file for new rates no later than January 1, 2018.

The Partnership recorded no undistributed earnings from Northern Border for the nine months ended September 30, 2012 and 2011.

The summarized financial information for Northern Border is as follows:

(unaudited)
(millions of dollars)	September 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents		35			33
Other current assets		36			35
Plant, property and equipment, net		1,237			1,267
Other assets		30			31
		1,338			1,366
Liabilities and Partners’ Equity
Current liabilities		51			48
Deferred credits and other		16			13
Long-term debt, including current maturities		473			473
Partners’ equity
Partners’ capital		801			835
Accumulated other comprehensive loss		(3	)		(3	)
		1,338			1,366

	Three months ended						Nine months ended
(unaudited)	September 30,						September 30,
(millions of dollars)	2012			2011			2012			2011
Transmission revenues		78			77			232			230
Operating expenses		(21	)		(17	)		(57	)		(53	)
Depreciation		(16	)		(15	)		(48	)		(46	)
Financial charges and other		(5	)		(6	)		(18	)		(17	)
Net income		36			39			109			114

GTN

On May 3, 2011, the Partnership acquired a 25 percent interest in GTN from a subsidiary of TransCanada. The acquisition was accounted for as a transaction between entities under common control, whereby the equity investment in GTN was recorded at TransCanada’s carrying value. See Note 4 for additional disclosure regarding the Acquisitions.

In November 2011, the FERC approved a Stipulation and Agreement of Settlement for GTN (GTN Settlement) with shippers and regulators regarding rates and terms and conditions of service without modification, effective January 1, 2012. The GTN Settlement includes a moratorium on the filing of future rate proceedings until December 31, 2015. Following the expiration of the moratorium, GTN must file a rate case such that the new rates will be effective January 1, 2016.

 The Partnership recorded no undistributed earnings from GTN for the nine months ended September 30, 2012 and recorded undistributed earnings of $7 million from May 3, 2011, date of acquisition, to September 30, 2011.

The summarized financial information for GTN is as follows:

(unaudited)
(millions of dollars)	September 30, 2012		December 31, 2011
ASSETS
Current assets		62		55
Plant, property and equipment, net		1,174		1,207
Other assets		1		1
		1,237		1,263
Liabilities and Members’ Equity
Current liabilities		17		18
Deferred credits and other		20		20
Long-term debt, including current maturities		325		325
Members’ capital		875		900
		1,237		1,263

	Three months ended						Nine months ended
(unaudited)	September 30,						September 30,
(millions of dollars)	2012			2011(a)			2012			2011(a)
Transmission revenues		47			50			147			83
Operating expenses		(11	)		(14	)		(35	)		(23	)
Depreciation		(14	)		(9	)		(41	)		(15	)
Financial charges and other		(4	)		(4	)		(13	)		(10	)
Net income		18			23			58			35

(a)   25 percent interest in GTN was acquired in May 2011.

Bison

On May 3, 2011, the Partnership acquired a 25 percent interest in Bison from a subsidiary of TransCanada. The acquisition was accounted for as a transaction between entities under common control, whereby the equity investment in Bison was recorded at TransCanada’s carrying value. See Note 4 for additional disclosure regarding the Acquisitions.

The Partnership recorded no undistributed earnings from Bison for the nine months ended September 30, 2012 and recorded undistributed earnings of $4 million from May 3, 2011, date of acquisition, to September 30, 2011.

 The summarized financial information for Bison is as follows:

(unaudited)
(millions of dollars)	September 30, 2012		December 31, 2011
ASSETS
Current assets		7		10
Plant, property and equipment, net		650		658
		657		668
Liabilities and Members’ Equity
Current liabilities		20		17
Members’ capital		637		651
		657		668

	Three months ended						Nine months ended
(unaudited)	September 30,						September 30,
(millions of dollars)	2012			2011(a)			2012			2011(a)
Transmission revenues		20			18			60			32
Operating expenses		(4	)		(6	)		(11	)		(9	)
Depreciation		(5	)		(5	)		(15	)		(8	)
Net income		11			7			34			15

(a)   25 percent interest in Bison was acquired in May 2011.