-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VzmOJieG54WvZzC13KLSsYsZ97ReVuo71ZI+LRvMf7GFn1JFrLQHya2GKQ1Ig9xU 4wfeyYMdQM7q5tNx5qpA0w== 0001047469-04-002683.txt : 20040130 0001047469-04-002683.hdr.sgml : 20040130 20040130163039 ACCESSION NUMBER: 0001047469-04-002683 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20040130 FILED AS OF DATE: 20040130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSCANADA PIPELINES LTD CENTRAL INDEX KEY: 0000099070 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 522179728 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08887 FILM NUMBER: 04556309 BUSINESS ADDRESS: STREET 1: 450 I STREET SW STREET 2: P O BOX 1000 STATION M CITY: CALGARY ALBERTA STATE: A0 ZIP: T2P 5H1 BUSINESS PHONE: 4039207669 MAIL ADDRESS: STREET 1: 450 I STREET SW CITY: CALGARY ALBERTA STATE: A0 ZIP: T2P 5H1 6-K 1 a2127432z6-k.txt FORM 6-K 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 January 2004 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 Form 40-F X ----- ----- Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X ----- ----- I The documents listed below in this Section and filed as Exhibits 1 to 4 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 in the Registration Statement on Form F-9 under the Securities Act of 1933 (Reg. No. 333-101140) of TransCanada PipeLines Limited. 1 Management's Discussion and Analysis of Financial Condition and Results of Operations of the registrant as at and for the period ended December 31, 2003. 2 Consolidated comparative interim unaudited financial statements of the registrant for the period ended December 31, 2003 (included in the registrant's Fourth Quarter 2003 Quarterly Report). 3 Schedule of earnings coverage calculations at December 31, 2003. 4 U.S. GAAP reconciliation of the consolidated comparative interim unaudited financial statements of the registrant contained in the registrant's Fourth Quarter 2003 Quarterly Report. 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. 5 Comfort letter of KPMG LLP dated January 30, 2004. III The document listed below in this Section and in the Exhibit Index is hereby furnished in accordance with the requirements of Form 6-K. 6 Registrant's Pricing Supplement No. 1 dated November 18, 2003 relating to Cdn $450,000,000 principal amount of Medium Term Note Debentures (unsecured). 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 January 30, 2004 EXHIBIT INDEX 1 Management's Discussion and Analysis of Financial Condition and Results of Operations of the registrant as at and for the period ended December 31, 2003. 2 Consolidated comparative interim unaudited financial statements of the registrant for the period ended December 31, 2003 (included in the registrant's Fourth Quarter 2003 Quarterly Report). 3 Schedule of earnings coverage calculations at December 31, 2003. 4 U.S. GAAP reconciliation of the consolidated comparative interim unaudited financial statements of the registrant contained in the registrant's Fourth Quarter 2003 Quarterly Report. 5 Comfort letter of KPMG LLP dated January 30, 2004. 6 Registrant's Pricing Supplement No. 1 dated November 18, 2003 relating to Cdn $450,000,000 principal amount of Medium Term Note Debentures (unsecured). 7 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 8 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 9 Certification of Chief Executive Officer regarding Periodic Report containing Financial Statements. 10 Certification of Chief Financial Officer regarding Periodic Report containing Financial Statements. EX-1 3 a2127432zex-1.txt EXHIBIT 1 EXHIBIT 1 [TRANSCANADA LOGO] TRANSCANADA PIPELINES LIMITED FOURTH QUARTER 2003 Quarterly Report CONSOLIDATED RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31 (millions of dollars) 2003 2002 2003 2002 - ----------------------------------------------------------------- ----------------- ---------------- ----------------- NET INCOME APPLICABLE TO COMMON SHARES Continuing operations 193 180 801 747 Discontinued operations - - 50 - ----------------- ----------------- ---------------- ----------------- 193 180 851 747 ================= ================= ================ =================
MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements of TransCanada PipeLines Limited (TCPL or the company) for the year ended December 31, 2003 and the notes thereto. RESULTS OF OPERATIONS CONSOLIDATED TCPL's net income applicable to common shares from continuing operations (net earnings) and net income for fourth quarter 2003 were $193 million compared to $180 million for fourth quarter 2002. The increase of $13 million was primarily due to higher earnings from the Power business. Higher net earnings from the Power business included $7 million after tax from TCPL's investment in Bruce Power L.P. (Bruce Power) and lower general, administrative and support costs. TCPL's net income applicable to common shares for the year ended December 31, 2003 was $851 million compared to $747 million for FOURTH QUARTER REPORT 2003 TCPL [2 the comparable period in 2002. Included in 2003 was net income from discontinued operations of $50 million reflecting the third quarter 2003 income recognition of a portion of the initially deferred gain of approximately $100 million after tax relating to the 2001 disposition of the company's Gas Marketing business. TCPL's net earnings applicable to common shares from continuing operations for the year ended December 31, 2003 were $801 million compared to $747 million for the comparable period in 2002. The increase of $54 million in 2003 compared to 2002 was primarily due to higher net earnings of $74 million from the Power business and lower net expenses in the Corporate segment, partially offset by lower net earnings from the Gas Transmission business. Net earnings from the Power business for the year ended December 31, 2003 included $73 million after tax from TCPL's investment in Bruce Power which was acquired in February 2003 and a $19 million positive after-tax earnings impact of a June 2003 settlement with a former counterparty which defaulted in 2001 under power forward contracts. This amount represents the value of power forward contracts terminated at the time of the counterparty's default. These increases were partially offset by reduced operating and other income from the Northeastern U.S. Operations, combined with higher general, administrative and support costs. The $11 million decrease in 2003 net expenses in the Corporate segment was primarily due to the positive impacts of a weaker U.S. dollar in 2003 compared to 2002. The lower net earnings of $31 million in the Gas Transmission business for the year ended December 31, 2003 compared to the prior year were primarily due to the decline in the Alberta System's 2003 net earnings, reflecting the one-year fixed revenue requirement settlement reached between TCPL and its stakeholders in February 2003. In June 2002, TCPL received the National Energy Board (NEB) decision on its Fair Return application (Fair Return decision) to determine the cost of capital to be included in the calculation of 2001 and 2002 final tolls on its Canadian Mainline. The results for the year ended December 31, 2002 included after-tax income of $16 million representing the impact of the Fair Return decision for 2001. The 2003 results for the Gas Transmission segment included TCPL's $11 million share of future income tax benefits recognized by TransGas de Occidente (TransGas) while the 2002 results included TCPL's $7 million share of a favourable ruling for Great Lakes related to Minnesota use tax paid in prior years. FOURTH QUARTER REPORT 2003 TCPL [3 SEGMENT RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31 (millions of dollars) 2003 2002 2003 2002 - ------------------------------------------------------------------- ----------------- ---------------- ----------------- Gas Transmission 160 162 622 653 Power 44 30 220 146 Corporate (11) (12) (41) (52) ----------------- ----------------- ---------------- ----------------- Continuing operations 193 180 801 747 Discontinued operations - - 50 - ----------------- ----------------- ---------------- ----------------- Net Income Applicable to Common Shares 193 180 851 747 ================= ================= ================ =================
Funds generated from continuing operations of $403 million for fourth quarter 2003 decreased $64 million compared to fourth quarter 2002. Funds generated from continuing operations of $1,810 million for the year ended December 31, 2003 decreased $17 million compared to last year. GAS TRANSMISSION The Gas Transmission business generated net earnings of $160 million and $622 million for the quarter and year ended December 31, 2003, respectively, compared to $162 million and $653 million for the same periods in 2002. FOURTH QUARTER REPORT 2003 TCPL [4 GAS TRANSMISSION RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31 (millions of dollars) 2003 2002 2003 2002 - ----------------------------------------------------------------- ----------------- ---------------- ---------------- WHOLLY-OWNED PIPELINES Alberta System 54 56 190 214 Canadian Mainline 75 75 290 307 Foothills* 6 4 20 17 BC System 2 2 6 6 --------------- ----------------- ---------------- ---------------- 137 137 506 544 --------------- ----------------- ---------------- ---------------- OTHER GAS TRANSMISSION Great Lakes 14 17 52 66 Iroquois 3 3 18 18 TC PipeLines, LP 4 5 15 17 Portland** 4 - 11 2 Ventures LP 3 2 10 7 Trans Quebec & Maritimes 2 2 8 8 CrossAlta 2 4 6 13 TransGas de Occidente 2 1 22 6 Northern Development (2) (1) (4) (6) General, administrative, support and other (9) (8) (22) (22) --------------- ----------------- ---------------- ---------------- 23 25 116 109 --------------- ----------------- ---------------- ---------------- Net earnings 160 162 622 653 =============== ================= ================ ================
* The remaining interests in Foothills, previously not held by TCPL, were acquired on August 15, 2003. ** TCPL increased its ownership interest in Portland from 33.3 per cent to 43.4 per cent on September 29, 2003 and from 43.4 per cent to 61.7 per cent on December 3, 2003. WHOLLY-OWNED PIPELINES The Alberta System's net earnings of $54 million in fourth quarter 2003 decreased $2 million compared to $56 million in the same quarter of 2002. Net earnings for the year ended December 31, 2003 decreased $24 million compared to the prior year. This decrease is primarily due to lower earnings from the one-year 2003 Alberta System Revenue Requirement Settlement (the 2003 Settlement) reached in February 2003. The 2003 Settlement includes a fixed revenue requirement component, before non-routine adjustments, of $1.277 billion compared to $1.347 billion in 2002. As discussed in the third quarter 2003 Quarterly Report to Shareholders, the lower negotiated 2003 revenue requirement was expected to reduce 2003 earnings by approximately $30 million relative to 2002 earnings of $214 million. However, lower financing and operating costs partially offset the previously anticipated reduction in earnings. FOURTH QUARTER REPORT 2003 TCPL [5 The Canadian Mainline's fourth quarter net earnings of $75 million are consistent with net earnings in the same quarter of 2002. The 2003 net earnings of $290 million are $17 million lower than 2002 net earnings due to the impact of the NEB's Fair Return decision in 2002. This decision included an increase in the deemed common equity ratio from 30 to 33 per cent effective January 1, 2001 and resulted in additional net earnings of $16 million for the year ended December 31, 2001, recognized in June 2002. The impact of a lower average investment base was substantially offset by an increase in the approved rate of return on common equity from 9.53 per cent in 2002 to 9.79 per cent in 2003. In December 2002, the NEB approved TCPL's application to charge interim tolls for transportation service, effective January 1, 2003. In August 2003, subsequent to the NEB's decision on the 2003 Tolls and Tariff Application, it approved interim tolls that the company charged from September 1, 2003 to December 31, 2003. The NEB ordered that tolls will remain interim pending a decision from the Federal Court of Appeal on TCPL's appeal of the NEB's decision on TCPL's Fair Return Review and Variance Application, which is expected to be heard commencing February 16, 2004. OPERATING STATISTICS
Year ended December 31 Alberta Canadian (unaudited) System* Mainline** Foothills*** BC System - --------------------------------------- ------------------- ------------------- ------------------- ------------------ 2003 2002 2003 2002 2003 2002 2003 2002 ------------------- ------------------- ------------------- ------------------ Average investment base ($ millions) 4,878 5,074 8,565 8,884 739 *** 236 211 Delivery volumes (Bcf) Total 3,883 4,146 2,628 2,630 1,110 *** 325 371 Average per day 10.6 11.4 7.2 7.2 3.0 *** 0.9 1.0 ======================================================================================================================
* Field receipt volumes for the Alberta System for the year ended December 31, 2003 were 3,892 Bcf (2002 - 4,101 Bcf); average per day was 10.7 Bcf (2002 - 11.2 Bcf). ** Canadian Mainline deliveries originating at the Alberta border and in Saskatchewan for the year ended December 31, 2003 were 2,055 Bcf (2002 - 2,221 Bcf); average per day was 5.6 Bcf (2002 - 6.1 Bcf). *** The remaining interests in Foothills were acquired in August 2003. The annual 2003 delivery volumes in the table represent 100 per cent of Foothills. OTHER GAS TRANSMISSION TCPL's proportionate share of net earnings from Other Gas Transmission was $23 million and $116 million for the quarter and year ended December 31, 2003, respectively. Net earnings for fourth quarter 2003 were slightly lower than the same quarter in 2002. Higher contributions from Portland, Ventures LP and TransGas were more than offset by lower earnings from CrossAlta, higher project development costs, and the impact of a weaker U.S. dollar. FOURTH QUARTER REPORT 2003 TCPL [6 The 2002 results included TCPL's $7 million share of a favourable ruling for Great Lakes related to Minnesota use tax paid in prior years. Excluding the impact of the Great Lakes ruling in 2002, net earnings for 2003 increased $14 million compared to 2002. Earnings from TransGas were $16 million higher as a result of higher contractual tolls and the recognition of future tax benefits in 2003. TCPL's share of Portland's net earnings in 2003 has increased $9 million compared to last year primarily due to the impacts of a rate settlement in early 2003 and TCPL's increased ownership interest in 2003. These increases were partially offset by a weaker U.S. dollar and lower earnings from CrossAlta due to reduced storage margins as a result of unfavourable market conditions. On December 3, 2003, TCPL increased its ownership interest in Portland Natural Gas Transmission System Partnership (Portland) from 43.4 per cent to 61.7 per cent. The company acquired the additional interest from El Paso Corporation for US$82 million, including US$50 million of assumed debt. POWER POWER RESULTS-AT-A-GLANCE
(unaudited) Three months ended December 31 Year ended December 31 (millions of dollars) 2003 2002 2003 2002 - --------------------------------------------------------------- ----------------- ----------------- ----------------- Western operations 31 30 160 131 Northeastern U.S. operations 36 35 127 149 Bruce Power L.P. investment 7 - 99 - Power LP investment 9 9 35 36 General, administrative and support costs (20) (25) (86) (73) ------------------ ----------------- ----------------- ----------------- Operating and other income 63 49 335 243 Financial charges (4) (4) (12) (13) Income taxes (15) (15) (103) (84) ------------------ ----------------- ----------------- ----------------- Net earnings 44 30 220 146 ================== ================= ================= =================
Power's net earnings in fourth quarter 2003 of $44 million increased $14 million compared to $30 million in fourth quarter 2002. Earnings from the February 2003 acquisition of the 31.6 per cent interest in Bruce Power and reduced general, administrative and support costs were the primary reasons for the increase. Net earnings for the year ended December 31, 2003 of $220 million were $74 million higher compared to the prior year. Bruce Power earnings, a second quarter 2003 settlement in Western Operations for the value of power forward contracts terminated with a former counterparty and the addition of the ManChief plant in late 2002 were the primary reasons for the increase. Partially offsetting FOURTH QUARTER REPORT 2003 TCPL [7 the increase were lower earnings from the Northeastern U.S. Operations and higher general, administrative and support costs. WESTERN OPERATIONS Operating and other income for fourth quarter 2003 in Western Operations of $31 million was comparable to fourth quarter 2002. Higher contributions from the Sundance power purchase arrangements reflecting lower transmission costs were partially offset by the unfavourable effects in fourth quarter 2003 of lower prices achieved on the overall sale of power. Operating and other income for the year ended December 31, 2003 in Western Operations of $160 million was $29 million higher compared to the prior year, mainly due to a $31 million pre-tax ($19 million after tax) positive earnings impact related to a June 2003 settlement with a former counterparty which defaulted in 2001 under power forward contracts. A full year of earnings from the ManChief plant, acquired in late 2002, and higher contributions from the Sundance power purchase arrangements reflecting lower transmission costs also contributed to higher operating income. Partially offsetting these increases were the effects in 2003 of lower prices achieved on the overall sale of power and the higher cost of natural gas fuel at the carbon black facility. NORTHEASTERN U.S. OPERATIONS Operating and other income for fourth quarter 2003 in Northeastern U.S. Operations of $36 million increased marginally compared to fourth quarter 2002. Increased water flows through the Curtis Palmer hydroelectric facility and earnings from the Cobourg temporary generation facility were partially offset by the unfavourable impact of a weaker U.S. dollar and higher natural gas fuel cost at Ocean State Power (OSP) resulting from an arbitration process. Operating and other income for the year ended December 31, 2003 in Northeastern U.S. Operations of $127 million decreased $22 million compared to 2002 primarily due to the impact of higher operating costs at OSP and the unfavourable impact of a weaker U.S. dollar. Partially offsetting these decreases were incremental earnings from the growth in volumes and margins in the Northeastern U.S. retail business with large commercial and industrial customers. The long- term gas supply for OSP is subject to a yearly price renegotiation, taking effect after the tenth year of the contract. If OSP and the suppliers are unable to reach an agreement on price in a given year, the matter is settled by arbitration. OSP is currently in arbitration with its natural gas fuel suppliers regarding changes to the pricing of its fuel supply. FOURTH QUARTER REPORT 2003 TCPL [8 BRUCE POWER L.P. INVESTMENT BRUCE POWER RESULTS-AT-A-GLANCE
(unaudited) Three months ended Year ended (millions of dollars) December 31, 2003 December 31, 2003 - ------------------------------------------------------------------------------------------------- --------------------- Bruce Power (100 per cent basis) Revenues 269 1,208 Operating expenses 254 853 --------------------- --------------------- Operating income 15 355 Financial charges 20 69 --------------------- --------------------- (Loss)/Income before income taxes (5) 286 ===================== ===================== TCPL's interest in Bruce Power (loss)/income before income taxes* (1) 65 Adjustments** 8 34 --------------------- --------------------- TCPL's income from Bruce Power before income taxes 7 99 ===================== =====================
* TCPL acquired its interest in Bruce Power on February 14, 2003. Bruce Power's 100 per cent income before income taxes from February 14, 2003 to December 31, 2003 was $205 million. ** See Note 7 to the December 31, 2003 financial statements for an explanation of the amounts included in Adjustments. Bruce Power contributed $7 million of pre-tax equity income in fourth quarter 2003 compared to $38 million in third quarter 2003. The decrease reflected lower power output and higher maintenance costs compared to third quarter 2003, primarily due to a maintenance outage at one of the Bruce B units for the entire fourth quarter 2003. Overall prices achieved during fourth quarter 2003 were approximately $45 per megawatt hour (MWh) which is consistent with third quarter 2003. The average price achieved for the year ended December 31, 2003 was approximately $48 per MWh. Approximately 30 per cent of the output was sold into Ontario's wholesale spot market in fourth quarter 2003 with the remainder being sold under longer term contracts. TCPL's share of power output for fourth quarter 2003 from four Bruce B units and one Bruce A unit was 1,846 gigawatt hours (GWh) compared to 2,041 GWh in third quarter 2003. This includes power output from Bruce A Unit 4 from November 1, 2003 to December 31, 2003 of approximately 275 GWh. Bruce A Unit 4 began producing electricity to the Ontario electricity grid on October 7, 2003 and was considered commercially in-service November 1, 2003. Bruce B Unit 8 was offline for the entire fourth quarter for maintenance. As well, Bruce B Unit 7 incurred a week long forced outage in the fourth quarter. The Bruce units ran at an average availability of 73 per cent in the fourth quarter. The average availability during TCPL's period of ownership ending December 31, 2003 was 83 per cent. Bruce A Unit 3 reconnected to the Ontario electricity grid on January 8, 2004. Similar to the Bruce A Unit 4 startup process, after performing and evaluating tests of the shutdown system, FOURTH QUARTER REPORT 2003 TCPL [9 Bruce A Unit 3 is expected to reconnect to the grid and begin ramping up to full power. Bruce Power's cumulative restart cost for the two Bruce A units was approximately $720 million. Bruce Power incurred approximately $300 million on the two unit restart program for the period February 14, 2003 to December 31, 2003, of which approximately $32 million was incurred in fourth quarter 2003. TCPL did not provide any funding to Bruce Power subsequent to the acquisition of its ownership interest in February 2003. The two Bruce A units add 1,500 megawatts (MW) of capacity bringing Bruce Power's total capacity to 4,660 MW. Bruce Power spent approximately $147 million on capital expenditures at Bruce B for the period February 14, 2003 to December 31, 2003, the majority of which was for safety systems and power uprate programs. In 2004, Bruce Power's capital expenditure program for the two Bruce A and four Bruce B reactors is expected to total approximately $400 million. Equity income from Bruce Power is directly impacted by fluctuations in wholesale spot market prices for electricity as well as overall plant availability, which in turn, is impacted by scheduled and unscheduled maintenance. To reduce its exposure to spot market prices, Bruce Power has entered into fixed price sales contracts for approximately 1,560 MW of output for 2004. The average availability in 2004 for the six Bruce units is expected to be 80 per cent compared to 85 per cent for the year ended December 31, 2003. This decrease reflects planned maintenance outages for two Bruce B and two Bruce A units and a test of the Bruce B vacuum building expected in the fall, which will require all four Bruce B units to be taken offline for approximately one month. There is a planned maintenance outage at one of the Bruce A units for approximately one month, towards the end of first quarter 2004. POWER LP INVESTMENT Operating and other income of $9 million and $35 million for the three and twelve months ended December 31, 2003, was consistent with the same periods in 2002. GENERAL, ADMINISTRATIVE AND SUPPORT COSTS General, administrative and support costs for fourth quarter 2003 of $20 million were $5 million lower compared to fourth quarter 2002. The decrease is primarily due to lower business development costs in fourth quarter 2003. General, administrative and support costs for the year ended December 31, 2003 increased $13 million compared to the prior FOURTH QUARTER REPORT 2003 TCPL [10 year, mainly reflecting higher support costs as part of the company's continued investment in Power. POWER SALES VOLUMES
(unaudited) Three months ended December 31 Year ended December 31 (GWh) 2003 2002 2003 2002 - --------------------------------------------------- ---------------------------------- -------------------------------- Western operations* 2,972 2,864 12,296 12,065 Northeastern U.S. operations 1,794 1,513 6,906 5,630 Bruce Power L.P. investment** 1,846 n/a 6,655 n/a Power LP investment 549 637 2,153 2,416 ---------------- ---------------- --------------- --------------- Total 7,161 5,014 28,010 20,111 ====================================================================================== ================================
* Sales volumes include TCPL's share of the Sundance B power purchase arrangement (50 per cent). ** Acquired in February 2003. Sales volumes reflect TCPL's share of Bruce Power output (31.6 per cent) for the period February 14, 2003 to December 31, 2003.
WEIGHTED AVERAGE PLANT AVAILABILITY* Three months ended December 31 Year ended December 31 (unaudited) 2003 2002 2003 2002 - -------------------------------------------------- --------------------------------- ---------------- --------------- Western operations 94% 99% 93% 99% Northeastern U.S. operations 99% 82% 94% 95% Bruce Power L.P. investment** 73% n/a 83% n/a Power LP investment 98% 98% 96% 94% All plants 89% 92% 90% 96% ==================================================================================== ================================
* Plant availability is reduced by planned and unplanned outages. ** Acquired in February 2003. TCPL's availability reflects the period February 14, 2003 to December 31, 2003. CORPORATE Net expenses were $11 million and $12 million for the three months ended December 31, 2003 and 2002, respectively. Net expenses were $41 million for the year ended December 31, 2003 compared to $52 million for 2002. The $11 million decrease in net expenses for 2003 is primarily due to the positive impacts of a weaker U.S. dollar compared to the prior year. These positive impacts substantially offset the negative impacts of a weaker U.S. dollar reflected in the other segments. DISCONTINUED OPERATIONS The company's exit from the Gas Marketing business was substantially completed by December 31, 2001. In third quarter 2003, $50 million of the original approximately $100 million after-tax deferred gain related to Gas Marketing was recognized in income. At December 31, 2003, TCPL reviewed the provision for loss on discontinued operations and the deferred gain and concluded that the remaining provision was adequate and the deferral of the remaining approximately $50 million of deferred after-tax gain related to the Gas Marketing business was appropriate. FOURTH QUARTER REPORT 2003 TCPL [11 TCPL's investments in Gasoducto del Pacifico, INNERGY Holdings S.A. and P.T. Paiton Energy Company, which were approved for disposal under a plan in December 1999, will be accounted for as part of continuing operations as of December 31, 2003 due to the length of time it has taken the company to dispose of these assets. It is the intention of the company to continue with the plan to dispose of these investments. LIQUIDITY AND CAPITAL RESOURCES FUNDS GENERATED FROM OPERATIONS Funds generated from continuing operations were $403 million and $1,810 million for the three and twelve months ended December 31, 2003, respectively, compared with $467 million and $1,827 million for the same periods in 2002. TCPL expects that its ability to generate sufficient amounts of cash in the short term and the long term, when needed, and to maintain financial capacity and flexibility to provide for planned growth is adequate and remains substantially unchanged since December 31, 2002. INVESTING ACTIVITIES In the three months and year ended December 31, 2003, capital expenditures, excluding acquisitions, totalled $127 million (2002 - $202 million) and $391 million (2002 - $599 million), respectively, and related primarily to Iroquois' ongoing Eastchester Expansion project into New York City, maintenance and capacity capital in wholly-owned pipelines and construction of the MacKay River power plant in Alberta. Acquisitions for the year ended December 31, 2003 totalled $570 million (2002 - $228 million) and were primarily comprised of: o in fourth quarter 2003, the increase in interest in Portland from 43.4 per cent to 61.7 per cent for approximately US$32 million, o in third quarter 2003, the increase in interest in Portland from 33.3 per cent to 43.4 per cent for approximately US$19 million, o in third quarter 2003, the acquisition of the remaining interests in Foothills for approximately $105 million, and o in first quarter 2003, the acquisition of a 31.6 per cent interest in Bruce Power for approximately $409 million including closing adjustments. In addition, TCPL assumed $154 million and US$78 million of debt on the Foothills and Portland acquisitions, respectively. FOURTH QUARTER REPORT 2003 TCPL [12 FINANCING ACTIVITIES TCPL used a portion of its cash resources to retire long-term debt of $358 million and $744 million in the quarter and year ended December 31, 2003, respectively. In November 2003, the company issued $450 million of ten year notes bearing interest at 5.65 per cent and in June 2003, the company issued US$350 million of ten year notes bearing interest at 4.00 per cent. For the year ended December 31, 2003, outstanding notes payable decreased by $62 million, while cash and short-term investments increased by $126 million. In July 2003, TCPL redeemed all of its outstanding US$160 million, 8.75 per cent Junior Subordinated Debentures, also known as Cumulative Trust Originated Preferred Securities. Holders of these debentures received US$25.0122 per US$25.00 of the principal amount, which included accrued and unpaid interest to the redemption date. DIVIDENDS On January 27, 2004, TCPL's Board of Directors declared a dividend for the quarter ending March 31, 2004 in an aggregate amount equal to the aggregate quarterly dividend to be paid on April 30, 2004 by TransCanada Corporation on the issued and outstanding common shares as at the close of business on March 31, 2004. The Board also declared regular dividends on TCPL's preferred shares. RISK MANAGEMENT With respect to continuing operations, TCPL's market, financial and counterparty risks remain substantially unchanged since December 31, 2002. See explanation for discontinued operations' risk management activity under Results of Operations - Discontinued Operations. For further information on risks, refer to Management's Discussion and Analysis in TransCanada PipeLines Limited's 2002 Annual Report. The processes within TCPL's risk management function are designed to ensure that risks are properly identified, quantified, reported and managed. Risk management strategies, policies and limits are designed to ensure TCPL's risk-taking is consistent with its business objectives and risk tolerance. Risks are managed within limits ultimately established by the Board of Directors and implemented by senior management, monitored by risk management personnel and audited by internal audit personnel. TCPL manages market and financial risk exposures in accordance with its corporate market risk policy and position limits. The FOURTH QUARTER REPORT 2003 TCPL [13 company's primary market risks result from volatility in commodity prices, interest rates and foreign currency exchange rates. TCPL's counterparty risk exposure results from the failure of a counterparty to meet its contractual financial obligations, and is managed in accordance with its corporate counterparty risk policy. CONTROLS AND PROCEDURES As of the end of the period covered by this quarterly report, 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, 2002, is the use of regulatory accounting for its regulated operations. For further information on this critical accounting policy, refer to Management's Discussion and Analysis in TransCanada PipeLines Limited's 2002 Annual 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 estimates from December 31, 2002 continue to be depreciation expense and certain deferred after-tax gains and remaining obligations related to the Gas Marketing business. For further information on these critical accounting estimates, refer to Results of Operations-Discontinued Operations and to Management's Discussion and Analysis in TransCanada PipeLines Limited's 2002 Annual Report. OUTLOOK In 2004, the outcome of regulatory proceedings could have a significant impact on the expected results for the Alberta System and Canadian Mainline. Plant availability and fluctuating power FOURTH QUARTER REPORT 2003 TCPL [14 prices could have a significant impact on Power results. Excluding these impacts as well as the settlement with a former counterparty in 2003 and the recognition of the TransGas future tax benefits in 2003, the outlook for the company is relatively unchanged since December 31, 2002. For further information on outlook, refer to Management's Discussion and Analysis in TransCanada PipeLines Limited's 2002 Annual Report. The company's net earnings 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. The strengthening of the Canadian dollar compared to the U.S. dollar in 2003 has not significantly impacted TCPL's consolidated financial results in 2003 and is not expected to have a significant impact in 2004. Credit ratings on TCPL's senior unsecured debt assigned by Dominion Bond Rating Service Limited (DBRS), Moody's Investors Service (Moody's) and Standard & Poor's are currently 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 ALBERTA SYSTEM In July 2003, TCPL, along with other utilities, filed evidence in the Generic Cost of Capital (GCOC) Proceeding with the Alberta Energy and Utilities Board (EUB). TCPL has requested a return on equity of 11 per cent based on a deemed common equity of 40 per cent in its GCOC Application. The EUB expects to adopt a standardized approach to determining the rate of return and capital structure for all utilities under its jurisdiction at the conclusion of this proceeding. The oral portion of the hearing was completed on January 16, 2004 with written arguments to follow. 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. The company applied for a composite depreciation rate of 4.13 per cent compared to the current depreciation rate of 4.00 per cent. Phase II of the application, dealing primarily with rate design and services, was filed in December 2003. EUB hearings to consider the 2004 GRA Phase I and Phase II applications are scheduled to FOURTH QUARTER REPORT 2003 TCPL [15 commence, in Calgary, on April 1, 2004 and June 1, 2004, respectively. In December 2003, the EUB approved TCPL's application to charge interim tolls for transportation service, effective January 1, 2004. Final tolls for 2004 will be determined based on the EUB decisions for the GCOC hearing and both phases of the GRA. On December 1 and 2, 2003, two natural gas pipeline failures occurred on the Alberta System. Deliveries of gas to local communities were not impacted as a result of either incident. Following preliminary investigations into the causes of the two pipeline ruptures, TCPL found evidence of external corrosion on the pipeline. No one was injured and the impacted segment of the Alberta System was repaired within days. The incidents are not expected to have an impact on the company's earnings. CANADIAN MAINLINE In July 2003, TCPL filed a notice of appeal with the Federal Court of Appeal and served notice of appeal on parties to the NEB proceeding on TCPL's Fair Return Review and Variance Application. In September 2003, TCPL filed a Memorandum of Fact and Law with the Federal Court of Appeal, and in October 2003 all interested parties filed their memoranda in response to TCPL's filing. The case will be heard in an oral hearing scheduled to commence February 16, 2004. In December 2003, the NEB approved interim tolls effective January 1, 2004 for the Canadian Mainline. The 2004 Tolls and Tariff Application for the Canadian Mainline was filed on January 26, 2004 and includes a request for an 11 per cent return on a 40 per cent deemed common equity component. OTHER GAS TRANSMISSION IROQUOIS Iroquois continues to make progress on the construction of the Eastchester expansion project and is expected to place the expansion facilities into service in February 2004. NORTHERN DEVELOPMENT For the Mackenzie Gas Pipeline Project, TCPL has agreed to finance the Aboriginal PipeLine Group (APG) for its one-third share of project definition phase costs which is estimated to be approximately $90 million over three years. In the year ended December 31, 2003, TCPL funded $34 million which is included in Other Assets. Regulatory applications for the Mackenzie Gas FOURTH QUARTER REPORT 2003 TCPL [16 Pipeline Project have been delayed and are expected to be filed mid-2004. LIQUEFIED NATURAL GAS In September 2003, TCPL and ConocoPhillips Company announced the Fairwinds partnership to jointly evaluate a site in Harpswell, Maine for the development of a liquefied natural gas (LNG) regasification facility. The residents of the Town of Harpswell are expected to vote in first quarter 2004 on leasing a town-owned site for the facility. If leasing of the site is approved and necessary regulatory approvals are subsequently received, construction of the LNG facility could begin in 2006 with the facility becoming operational in 2009. Natural gas from the LNG facility would be delivered by pipeline to markets in the northeast U.S. POWER In August 2003, TCPL successfully commenced operations under a fee-for-service power purchase arrangement with the Ontario government through the Ontario Electricity Financial Corporation (OEFC). Under the agreement, TCPL supplied 110 MW of capacity from a temporary facility adjacent to the Canadian Mainline near Cobourg, Ontario up to December 31, 2003. Demobilization of the temporary facility began in early January 2004 and is expected to be complete by late spring. On October 24, 2003, TCPL and Grandview Cogeneration Corporation, an affiliate of Irving Oil Limited (Irving), announced an agreement to build a 90 MW natural gas-fired cogeneration power plant in Saint John, New Brunswick. This cogeneration facility will be developed and owned by TCPL. Under a 20 year tolling arrangement, Irving will provide fuel for the plant and contract for 100 per cent of the plant's heat and electricity output. Construction of the plant commenced in December 2003 and is expected to be in-service in December 2004. Construction of MacKay River, a 165 MW facility near Fort McMurray, Alberta, was completed in fourth quarter 2003 and commissioning is underway. The fourth quarter scheduled maintenance outage of Bruce B Unit 8 was originally planned to take approximately eight weeks, but was extended after inspections identified some erosion on support plates in three of the unit's eight steam generators. Repairs have been completed and approved by the Canadian Nuclear Safety FOURTH QUARTER REPORT 2003 TCPL [17 Commission and the unit is in the process of being returned to service. - ------------------------------------------------------------------------------- FORWARD-LOOKING INFORMATION Certain information in this quarterly report is forward-looking and is subject to important risks and uncertainties. The results or events predicted in this information may differ from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include, among other things, the ability of TCPL to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the availability and price of energy commodities, regulatory decisions, competitive factors in the pipeline and power industry sectors, and the prevailing economic conditions in North America. For additional information on these and other factors, see the reports filed by TCPL with Canadian securities regulators and with the United States Securities and Exchange Commission. TCPL disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. EX-2 4 a2127432zex-2.txt EXHIBIT 2 FOURTH QUARTER REPORT 2003 TCPL [18 EXHIBIT 2 CONSOLIDATED INCOME
Three months ended Year ended (unaudited) December 31 December 31 (millions of dollars) 2003 2002 2003 2002 - --------------------------------------------------------- --------- --------- --------- REVENUES 1,319 1,338 5,357 5,214 OPERATING EXPENSES Cost of sales 159 161 692 627 Other costs and expenses 434 423 1,682 1,546 Depreciation 222 217 914 848 --------- --------- --------- --------- 815 801 3,288 3,021 --------- --------- --------- --------- OPERATING INCOME 504 537 2,069 2,193 OTHER EXPENSES/(INCOME) Financial charges 202 215 821 867 Financial charges of joint ventures 14 23 77 90 Equity income (14) (7) (165) (33) Interest and other income (16) (17) (60) (53) --------- --------- --------- --------- 186 214 673 871 --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS 318 323 1,396 1,322 INCOME TAXES - CURRENT AND FUTURE 108 128 535 517 NON-CONTROLLING INTERESTS 2 - 2 - --------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS 208 195 859 805 NET INCOME FROM DISCONTINUED OPERATIONS - - 50 - --------- --------- --------- --------- NET INCOME 208 195 909 805 PREFERRED SECURITIES CHARGES 10 10 36 36 PREFERRED SHARE DIVIDENDS 5 5 22 22 --------- --------- --------- --------- NET INCOME APPLICABLE TO COMMON SHARES 193 180 851 747 ========= ========= ========= ========= NET INCOME APPLICABLE TO COMMON SHARES Continuing operations 193 180 801 747 Discontinued operations - - 50 - --------- --------- --------- --------- 193 180 851 747 ========= ========= ========= =========
See accompanying Notes to the Consolidated Financial Statements. FOURTH QUARTER REPORT 2003 TCPL [19 CONSOLIDATED CASH FLOWS
Three months ended Year ended (unaudited) December 31 December 31 (millions of dollars) 2003 2002 2003 2002 - ------------------------------------------------------------------ --------- --------- --------- CASH GENERATED FROM OPERATIONS Net income from continuing operations 208 195 859 805 Depreciation 222 217 914 848 Future income taxes (18) 67 230 247 Equity income in excess of distributions received (3) - (128) (6) Other (6) (12) (65) (67) --------- --------- --------- --------- Funds generated from continuing operations 403 467 1,810 1,827 Decrease in operating working capital 29 101 112 33 --------- --------- --------- --------- Net cash provided by continuing operations 432 568 1,922 1,860 Net cash provided by/(used in) discontinued operations - 29 (17) 59 --------- --------- --------- --------- 432 597 1,905 1,919 --------- --------- --------- --------- INVESTING ACTIVITIES Capital expenditures (127) (202) (391) (599) Acquisitions, net of cash acquired (23) (209) (570) (228) Deferred amounts and other 43 (103) (190) (115) --------- --------- --------- --------- Net cash used in investing activities (107) (514) (1,151) (942) --------- --------- --------- --------- FINANCING ACTIVITIES Dividends and preferred securities charges (150) (139) (588) (546) Advances from parent 39 - 46 - Notes payable (repaid)/issued, net (341) 182 (62) (46) Long-term debt issued 455 - 930 - Reduction of long-term debt (358) (256) (744) (486) Non-recourse debt of joint ventures issued - 20 60 44 Reduction of non-recourse debt of joint ventures (16) (29) (71) (80) Redemption of junior subordinated debentures - - (218) - Common shares issued - 7 18 50 --------- --------- --------- --------- Net cash used in financing activities (371) (215) (629) (1,064) --------- --------- --------- --------- (DECREASE)/INCREASE IN CASH AND SHORT-TERM INVESTMENTS (46) (132) 125 (87) CASH AND SHORT-TERM INVESTMENTS Beginning of period 383 344 212 299 --------- --------- --------- --------- CASH AND SHORT-TERM INVESTMENTS End of period 337 212 337 212 ========= ========= ========= ========= SUPPLEMENTARY CASH FLOW INFORMATION Income taxes paid 28 52 220 257 Interest paid 222 227 846 866 ========= ========= ========= =========
See accompanying Notes to the Consolidated Financial Statements. FOURTH QUARTER REPORT 2003 TCPL [20 CONSOLIDATED BALANCE SHEET
(unaudited) December 31 (millions of dollars) 2003 2002 - --------------------------------------------------------------------------------- ----------------- ASSETS CURRENT ASSETS Cash and short-term investments 337 212 Accounts receivable 603 691 Inventories 165 178 Other 88 107 ------------------ ----------------- 1,193 1,188 LONG-TERM INVESTMENTS 733 345 PLANT, PROPERTY AND EQUIPMENT 17,451 17,496 OTHER ASSETS 1,164 937 ------------------ ----------------- 20,541 19,966 ================== ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable 367 297 Accounts payable 1,069 990 Accrued interest 208 227 Current portion of long-term debt 550 517 Current portion of non-recourse debt of joint ventures 19 75 ------------------ ----------------- 2,213 2,106 DEFERRED AMOUNTS 466 549 LONG-TERM DEBT 9,465 8,815 FUTURE INCOME TAXES 427 226 NON-RECOURSE DEBT OF JOINT VENTURES 761 1,222 JUNIOR SUBORDINATED DEBENTURES 22 238 ------------------ ----------------- 13,354 13,156 ------------------ ----------------- ------------------ ----------------- NON-CONTROLLING INTERESTS 82 - ------------------ ----------------- SHAREHOLDERS' EQUITY Preferred securities 672 674 Preferred shares 389 389 Common shares 4,632 4,614 Contributed surplus 267 265 Retained earnings 1,185 854 Foreign exchange adjustment (40) 14 ------------------ ----------------- 7,105 6,810 ------------------ ----------------- 20,541 19,966 ================== =================
See accompanying Notes to the Consolidated Financial Statements. FOURTH QUARTER REPORT 2003 TCPL [21 CONSOLIDATED RETAINED EARNINGS
(unaudited) Year ended December 31 (millions of dollars) 2003 2002 - ---------------------------------------------------------- --------------- Balance at beginning of year 854 586 Net income 909 805 Preferred securities charges (36) (36) Preferred share dividends (22) (22) Common share dividends (520) (479) --------------- --------------- 1,185 854 =============== ===============
See accompanying Notes to the Consolidated Financial Statements. FOURTH QUARTER REPORT 2003 TCPL [22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION Pursuant to a plan of arrangement, effective May 15, 2003, common shares of TransCanada PipeLines Limited (TCPL or the company) were exchanged on a one-to-one basis for common shares of TransCanada Corporation (TransCanada). As a result, TCPL became a wholly-owned subsidiary of TransCanada. The consolidated financial statements for the year ended December 31, 2003 include the accounts of TCPL and the consolidated accounts of all its subsidiaries. On December 3, 2003, TCPL increased its ownership interest in Portland Natural Gas Transmission System Partnership (Portland) from 43.4 per cent to 61.7 per cent. Subsequent to the acquisition, Portland was fully consolidated in the company's financial statements, with 38.3 per cent reflected in non-controlling interests. 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of TCPL have been prepared in accordance with Canadian generally accepted accounting principles. The accounting policies applied are consistent with those outlined in TCPL's annual financial statements for the year ended December 31, 2002. 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 annual financial statements included in TransCanada PipeLines Limited's 2002 Annual 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. REGULATION In December 2002, the National Energy Board (NEB) approved TCPL's application for the Canadian Mainline to charge interim tolls for transportation service, effective January 1, 2003. In August 2003, subsequent to the NEB's decision on the 2003 Tolls and Tariff Application, it approved interim tolls for the period September 1, 2003 to December 31, 2003. The NEB determined that tolls will remain interim pending a decision from the Federal Court of Appeal on TCPL's Fair Return Review and Variance Application. Any adjustments to the interim tolls will be recorded in accordance with the final NEB decision. FOURTH QUARTER REPORT 2003 TCPL [23 3. SEGMENTED INFORMATION
GAS TRANSMISSION POWER CORPORATE TOTAL -------------------- -------------------- -------------------- -------------------- Three months ended December 31 (unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002 - ---------------------------------------- ---------- --------- ---------- --------- --------- --------- ---------- --------- Revenues 982 1,007 337 331 - - 1,319 1,338 Cost of sales - - (159) (161) - - (159) (161) Other costs and expenses (326) (319) (106) (103) (2) (1) (434) (423) Depreciation (202) (197) (20) (20) - - (222) (217) ---------- --------- ---------- --------- --------- --------- ---------- --------- Operating income/(loss) 454 491 52 47 (2) (1) 504 537 Financial and preferred equity charges and non-controlling interests (193) (205) (4) (4) (22) (21) (219) (230) Financial charges of joint ventures (14) (23) - - - - (14) (23) Equity income 7 7 7 - - - 14 7 Interest and other income 6 5 4 2 6 10 16 17 Income taxes (100) (113) (15) (15) 7 - (108) (128) ---------- --------- ---------- --------- --------- --------- ---------- --------- Continuing operations 160 162 44 30 (11) (12) 193 180 ========== ========= ========== ========= ========= ========= Discontinued operations - - ---------- --------- NET INCOME APPLICABLE TO COMMON SHARES 193 180 ========== =========
GAS TRANSMISSION POWER CORPORATE TOTAL -------------------- -------------------- -------------------- -------------------- Year ended December 31 (unaudited - millions of dollars) 2003 2002 2003 2002 2003 2002 2003 2002 - ---------------------------------------- ---------- --------- ---------- --------- --------- --------- ---------- --------- Revenues 3,956 3,921 1,401 1,293 - - 5,357 5,214 Cost of sales - - (692) (627) - - (692) (627) Other costs and expenses (1,270) (1,166) (405) (371) (7) (9) (1,682) (1,546) Depreciation (831) (783) (82) (65) (1) - (914) (848) ---------- --------- ---------- --------- --------- --------- ---------- --------- Operating income/(loss) 1,855 1,972 222 230 (8) (9) 2,069 2,193 Financial and preferred equity charges and non-controlling interests (781) (821) (11) (13) (89) (91) (881) (925) Financial charges of joint ventures (76) (90) (1) - - - (77) (90) Equity income 66 33 99 - - - 165 33 Interest and other income 17 17 14 13 29 23 60 53 Income taxes (459) (458) (103) (84) 27 25 (535) (517) ---------- --------- ---------- --------- --------- --------- ---------- --------- Continuing operations 622 653 220 146 (41) (52) 801 747 ========== ========= ========== ========= ========= ========= Discontinued operations 50 - ---------- --------- NET INCOME APPLICABLE TO COMMON SHARES 851 747 ========== =========
TOTAL ASSETS December 31 2003 2002 (millions of dollars) (unaudited) - ---------------------------------------------------------- ------------------ Gas Transmission 16,972 16,979 Power 2,746 2,391 Corporate 812 457 ------------------ ------------------ Continuing Operations 20,530 19,827 Discontinued Operations 11 139 ------------------ ------------------ 20,541 19,966 ================== ==================
FOURTH QUARTER REPORT 2003 TCPL [24 4. LONG-TERM DEBT
December 31 2003 2002 (millions of dollars) (unaudited) - -------------------------------------------------------------------------------- ---------------- Alberta System 2,341 2,892 Foreign exchange differential recoverable through the tollmaking process (16) (271) ----------------- ---------------- 2,325 2,621 ----------------- ---------------- Canadian Mainline 4,913 5,277 Foreign exchange differential recoverable through the tollmaking process (60) (330) ----------------- ---------------- 4,853 4,947 ----------------- ---------------- Other 2,837 1,764 ----------------- ---------------- 10,015 9,332 Less: current portion of long-term debt 550 517 ----------------- ---------------- 9,465 8,815 ================= ================
On June 9, 2003, the company issued US$350 million of unsecured 4.00 per cent notes maturing on June 15, 2013. On November 18, 2003, the company issued $450 million of unsecured 5.65 per cent notes maturing on January 15, 2014. 5. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS The following represents the significant changes to the company's risk management and financial instruments since December 31, 2002. FOREIGN INVESTMENTS At December 31, 2003 and December 31, 2002, the company had foreign currency denominated assets and liabilities which created an exposure to changes in exchange rates. The company uses foreign currency derivatives to hedge this net exposure on an after-tax basis. The company's portfolio of foreign investment derivatives is comprised of contracts for periods up to four years. The fair values shown in the table below for foreign exchange risk are offset by translation gains or losses on the net assets and are recorded in the foreign exchange adjustment account in Shareholders' Equity. FOURTH QUARTER REPORT 2003 TCPL [25
ASSET/(LIABILITY) December 31 2003 2002 (millions of dollars) (unaudited) - -------------------------------- ----------------------------- ------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ----------------------------- ------------------------------ FOREIGN EXCHANGE Cross-currency swaps U.S. dollars 65 65 (8) (8) - ----------------------------------------------------------------------------------------------------
At December 31, 2003, the notional principal amounts of cross-currency swaps were US$250 million (2002 - US$350 million).
RECONCILIATION OF FOREIGN EXCHANGE ADJUSTMENT December 31 2003 2002 (millions of dollars) (unaudited) - --------------------------------------------------------------------- --------------------- -------------- Balance at beginning of year 14 13 Translation (losses)/gains on foreign currency denominated net assets (136) 3 Foreign exchange gains/(losses) on derivatives, and other 82 (2) --------------------- -------------- (40) 14 - ----------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE AND INTEREST RATE MANAGEMENT ACTIVITY The company manages the foreign exchange risk of U.S. dollar debt, U.S. dollar expenses and the interest rate exposures of the Alberta System, the Canadian Mainline and the Foothills System through the use of foreign currency and interest rate derivatives. These derivatives are comprised of contracts for periods up to nine years. Certain of the realized gains and losses on these derivatives are shared with shippers on predetermined terms.
ASSET/(LIABILITY) December 31 2003 2002 (millions of dollars) (unaudited) - -------------------------------- ----------------------------- ------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ----------------------------- ------------------------------ FOREIGN EXCHANGE Cross-currency swaps (26) (26) 56 56 INTEREST RATE Interest rate swaps Canadian dollars 2 15 4 56 U.S. dollars - 8 (1) 4 - ----------------------------------------------------------------------------------------------------
At December 31, 2003, the notional principal amounts of cross-currency swaps were US$282 million (2002 - US$282 million). Notional principal amounts for interest rate swaps were $964 million (2002 - $874 million) and US$100 million (2002 - US$175 million). FOURTH QUARTER REPORT 2003 TCPL [26 6. DISCONTINUED OPERATIONS The Board of Directors approved plans to dispose of the company's International, Canadian Midstream, and certain other businesses (December Plan) and the Gas Marketing business in December 1999 and July 2001, respectively. The company's disposals under both plans were substantially completed at December 31, 2001. TCPL's investments in Gasoducto del Pacifico, INNERGY Holdings S.A. and P.T. Paiton Energy Company approved for disposal under the December Plan will be accounted for as part of continuing operations as of December 31, 2003, due to the length of time it has taken the company to dispose of these assets. It is the intention of the company to continue with its plan to dispose of these investments. The company mitigated certain of its remaining exposures associated with the contingent liabilities related to the divested Gas Marketing operations by acquiring from a subsidiary of Mirant Corporation certain contracts under which it still had exposure in 2003, and simultaneously hedging the market price exposures of these contracts. The company remains contingently liable for certain residual obligations. In 2003, $50 million of the original approximately $100 million after-tax deferred gain was recognized in income. The after-tax deferred gain is included in Deferred Amounts. At December 31, 2003, TCPL reviewed the provision for loss on discontinued operations and the deferred gain and concluded that the remaining provision was adequate and the deferral of the remaining approximately $50 million of after-tax deferred gain related to the Gas Marketing business was appropriate. Revenues from discontinued operations for the year ended December 31, 2003 were $2 million (2002 - $36 million). Net income/(loss) from discontinued operations for the year ended December 31, 2003 was $50 million, net of $29 million income taxes (2002 - nil). The provision for loss on discontinued operations at December 31, 2003 was $41 million (2002 - $83 million). The provision for loss on discontinued operations is included in Accounts Payable. 7. INVESTMENT IN BRUCE POWER L.P. On February 14, 2003, the company acquired a 31.6 per cent interest in Bruce Power L.P. (Bruce Power) for $409 million, including closing adjustments. As part of the acquisition, the company also funded a one-third share ($75 million) of a $225 million accelerated deferred rent payment made by Bruce Power to Ontario Power Generation. The resulting note receivable from Bruce Power is recorded in Other Assets. FOURTH QUARTER REPORT 2003 TCPL [27 The purchase price of TCPL's 31.6 per cent interest in Bruce Power has been allocated as follows.
PURCHASE PRICE ALLOCATION (unaudited) (millions of dollars) - ----------------------------------------------------------------- Net book value of assets acquired 281 Capital lease 301 Power sales agreements (131) Pension liability and other (42) ---------- 409 ==========
The amount allocated to the investment in Bruce Power includes a purchase price allocation of $301 million to the capital lease of the Bruce Power plant which will be amortized on a straight-line basis over the lease term which extends to 2018, resulting in an annual amortization expense of $19 million. The amount allocated to the power sales agreements will be amortized to income over the remaining term of the underlying sales contracts. The amortization of the fair value allocated to these contracts is: 2003 - $38 million; 2004 - $37 million; 2005 - $25 million; 2006 - $29 million; and 2007 - $2 million. The amount allocated to the pension liability will be amortized to income over the 11 year expected average remaining service life of Bruce Power employees, resulting in an annual amortization of $3 million. 8. COMMITMENT On June 18, 2003, an agreement was reached among the Mackenzie Delta gas producers, the Aboriginal PipeLine Group (APG) and TCPL which governs TCPL's role in the Mackenzie Gas Pipeline Project. The Mackenzie Gas Pipeline Project would result in a natural gas pipeline being constructed from Inuvik, Northwest Territories to the northern border of Alberta, where it would then connect with the Alberta System. Under the agreement, TCPL has agreed to finance the APG for its one-third share of project definition phase costs, which is estimated to be approximately $90 million over three years. In the year ended December 31, 2003, TCPL funded $34 million of this loan which is included in Other Assets. The ability to recover this investment is contingent upon the outcome of the project. - ------------------------------------------------------------------------------- TransCanada welcomes questions from shareholders and potential investors. Please telephone: Investor Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct dial David Moneta/Debbie Stein at (403) 920-7911. The investor fax line is (403) 920-2457. Media Relations: Hejdi Feick/Anita Perry at (403) 920-7859. Visit TransCanada's Internet site at: http://www.transcanada.com - ------------------------------------------------------------------------------- EX-3 5 a2127432zex-3.txt EXHIBIT 3 EXHIBIT 3 TransCanada PipeLines Limited EARNINGS COVERAGE DECEMBER 31, 2003 The following financial ratios have been calculated on a consolidated basis for the respective 12 month period ended December 31, 2003 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:
DECEMBER 31, 2003 ----------------- Earnings coverage on long-term debt(1).................... 2.79 times Earnings coverage on long-term debt and First Preferred Shares(1).............................. 2.67 times
(1) The above ratios have been calculated without including the annual carrying charges relating to the equity component of TransCanada's outstanding preferred securities. If the equity component of the preferred securities were classified as debt, the entire carrying charges of the preferred securities would be included in interest expense and dividends. If these annual carrying charges had been included in the calculations, the earnings coverage on long-term debt would have been 2.64 times for the 12 month period ended December 31, 2003 and the earnings coverage on long-term debt and First Preferred Shares would have been 2.54 times for the 12 month period ended December 31, 2003. The following ratios have been prepared based on net income from continuing operations:
DECEMBER 31, 2003 ----------------- Earnings coverage on long-term debt(2).................... 2.70 times Earnings coverage on long-term debt and First Preferred Shares(2).............................. 2.59 times
(2) The above ratios have been calculated without including the annual carrying charges relating to the equity component of TransCanada's outstanding preferred securities. If the equity component of the preferred securities were classified as debt, the entire carrying charges of the preferred securities would be included in interest expense and dividends. If these annual carrying charges had been included in the calculations, the earnings coverage on long-term debt would have been 2.55 times for the 12 month period ended December 31, 2003 and the earnings coverage on long-term debt and First Preferred Shares would have been 2.45 times for the 12 month period ended December 31, 2003. EX-4 6 a2127432zex-4.txt EXHIBIT 4 EXHIBIT 4 TRANSCANADA PIPELINES LIMITED U.S. GAAP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) CONDENSED STATEMENT OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP(1)
Three months ended Year ended December 31 December 31 ---------------------------- ---------------------------- (MILLIONS OF DOLLARS) 2003 2002 2003 2002 - ----------------------------------------------------------------- -------------- ------------ ------------- -------------- Revenues(2) 1,227 1,178 4,919 4,565 -------------- ------------ ------------- -------------- Cost of sales(2) 127 127 592 441 Other costs and expenses 424 410 1,663 1,532 Depreciation 209 185 819 729 -------------- ------------ ------------- -------------- 760 722 3,074 2,702 -------------- ------------ ------------- -------------- Operating income 467 456 1,845 1,863 Other (income)/expenses Equity income(1)(3)(4) (49) (61) (334) (260) Other expenses(4)(5)(6) 211 217 841 850 Income taxes 104 121 515 499 -------------- ------------ ------------- -------------- 266 277 1,022 1,089 -------------- ------------ ------------- -------------- Income from continuing operations - U.S. GAAP 201 179 823 774 Net income from discontinued operations - U.S. GAAP - - 50 - -------------- ------------ ------------- -------------- Income before cumulative effect of the application of accounting changes in accordance with U.S. GAAP 201 179 873 774 Cumulative effect of the application of EITF 02-3, net of tax(2) - - (13) - -------------- ------------ ------------- -------------- NET INCOME IN ACCORDANCE WITH U.S. GAAP 201 179 860 774 Adjustments affecting comprehensive income under U.S. GAAP Foreign currency translation adjustment, net of tax(7) (11) - (54) 1 Additional minimum pension liability, net of tax(8) (11) (40) (2) (40) Unrealized (loss)/gain on derivatives, net of tax(4) (6) - 8 (4) -------------- ------------ ------------- -------------- COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP 173 139 812 731 ============== ============ ============= ==============
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
Three months ended Year ended December 31 December 31 --------------------------- ---------------------------- (MILLIONS OF DOLLARS) 2003 2002 2003 2002 - ----------------------------------------------------------------- ------------- ------------ ------------- -------------- Net income from continuing operations in accordance with Canadian GAAP 208 195 859 805 U.S. GAAP adjustments Preferred securities charges(5) (16) (15) (57) (58) Tax impact of preferred securities charges 6 5 21 22 Unrealized (loss)/gain on foreign exchange and interest rate derivatives(4) (3) (1) (9) 30 Tax impact of (loss)/gain on foreign exchange and interest rate derivatives 1 - 3 (12) Unrealized gain/(loss) on energy trading contracts(2) 14 (7) 28 (21) Tax impact of unrealized gain/(loss) on energy trading contracts (5) 2 (10) 8 Equity loss(3)(4) (6) - (18) - Tax impact of equity loss 2 - 6 - ------------- ------------ ------------- -------------- Income from continuing operations in accordance with U.S. GAAP 201 179 823 774 ============= ============ ============= ==============
Page 1 of 5 CONDENSED BALANCE SHEET IN ACCORDANCE WITH U.S. GAAP(1)
December 31, December 31, (MILLIONS OF DOLLARS) 2003 2002 - ----------------------------------------------------------------------------------- ---------------- Current assets 1,017 1,079 Long-term energy trading assets(2) - 218 Long-term investments(3)(9) 1,760 1,683 Plant, property and equipment(10) 15,798 14,992 Regulatory asset(11) 2,721 2,578 Other assets(4) 1,192 884 ----------------- ---------------- 22,488 21,434 ================= ================ Current liabilities(12) 2,117 2,006 Long-term energy trading liabilities(2) - 41 Deferred amounts(2)(4)(9)(10) 741 789 Long-term debt(4) 9,494 8,963 Deferred income taxes(11) 3,039 2,692 Preferred securities(13) 694 694 Trust originated preferred securities - 218 Non-controlling interests 82 - Shareholders' equity 6,321 6,031 ----------------- ---------------- 22,488 21,434 ================= ================
STATEMENT OF OTHER COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP
Cumulative Minimum Cash Flow Translation Pension Liability Hedges (MILLIONS OF DOLLARS) Account (SFAS No. 87) (SFAS No. 133) Total ------------------------------------------------------------------------- ----------------- ------------------ ---------- Balance at January 1, 2002 13 (56) (9) (52) Additional minimum liability for employee future benefits, net of tax of $22(8) - (40) - (40) Unrealized loss on derivatives, net of tax of $(1)(4) - - (4) (4) Foreign currency translation adjustment, net of tax of nil(7) 1 - - 1 ---------------- ----------------- ----------------- ---------- Balance at December 31, 2002 14 (96) (13) (95) ADDITIONAL MINIMUM LIABILITY FOR EMPLOYEE FUTURE BENEFITS, NET OF TAX OF $1(8) - (2) - (2) UNREALIZED GAIN ON DERIVATIVES, NET OF TAX OF NIL(4) - - 8 8 FOREIGN CURRENCY TRANSLATION ADJUSTMENT, NET OF TAX OF $(64)(7) (54) - - (54) ---------------- ------------------------------------ ---------- BALANCE AT DECEMBER 31, 2003 (40) (98) (5) (143) ================ ==================================== ==========
(1) In accordance with U.S. GAAP, the Condensed Statement of Consolidated Income and Balance Sheet are prepared using the equity method of accounting for joint ventures. Excluding the impact of other U.S. GAAP adjustments, the use of the proportionate consolidation method of accounting for joint ventures, as required under Canadian GAAP, results in the same net income and Shareholders' Equity. Page 2 of 5 (2) In 2002, for U.S. GAAP purposes, TransCanada PipeLines Limited (TCPL or the Company) adopted the transitional provisions of FASB Emerging Issues Task Force (EITF) 02-3, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" whereby the Company was netting all revenues and expenses related to derivative energy trading contracts. Prior to the adoption of EITF 02-3, energy trading contracts were measured at fair value determined as at the balance sheet date. The accounting change was applied retroactively with reclassification of prior periods. Effective January 1, 2003, the Company fully adopted EITF 02-3. This accounting change was effected through a cumulative adjustment of $(13) million, after tax, in the current year's income with no restatement of prior periods. Substantially all of the energy trading contracts are accounted for as hedges under Canadian GAAP. Subsequent to October 1, 2003, the energy trading contracts that qualified as hedges were accounted for as hedges under the provisions of Statement of Financial Accounting Standards (SFAS) No. 133. All gains or losses on the contracts that did not qualify as hedges, and the amounts of any ineffectiveness on the hedging contracts, are included in income each period. Substantially all of the amounts recorded in 2003 as differences between U.S. and Canadian GAAP relate to gains and losses on contracts that were not accounted for as hedges. (3) (a) 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. (an equity investment) are required to be expensed under U.S. GAAP. (b) 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 Power L.P., 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. (4) Under the provisions of 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 derivatives 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 recognized in earnings each period. (5) Under U.S. GAAP, the financial charges related to preferred securities are recognized as an expense, rather than dividends. (6) Other expenses included an allowance for funds used during construction of $2 million for the year ended December 31, 2003 (2002 - $4 million). (7) Under U.S. GAAP, changes in the foreign currency translation adjustment account must be recorded as a component of comprehensive income. Page 3 of 5 (8) Under U.S. GAAP, a net loss recognized pursuant to SFAS No. 87 "Employers' Accounting for Pensions" as an additional pension liability not yet recognized as net period pension cost, must be recorded as a component of comprehensive income. (9) Effective January 1, 2003, the Company adopted the provisions of Financial Interpretation (FIN) 45 that require 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, the Company has recorded the fair value of the guarantees ($4 million) arising on the acquisition of the interest in Bruce Power L.P. as a liability and an increase in the cost of the investment. (10) Effective January 1, 2003, the Company adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset. The liability is accreted at the end of each period through charges to operating expenses. The plant, property and equipment of the regulated natural gas transmission operations consist primarily of underground pipelines and above ground compression equipment and other facilities. No amount has been recorded for asset retirement obligations relating to these assets as it is not possible to make a reasonable estimate of the fair value of the liability due to the indeterminate timing and scope of the asset retirements. Management believes that all retirement costs associated with the regulated pipelines will be recovered through tolls in future periods. The plant, property and equipment in the power business consists primarily of power plants in Canada and the United States. The estimated fair value of the liability for the power plants and associated assets as at January 1, 2003 was $6 million. The asset retirement cost, net of accumulated depreciation that would have been recorded if the cost had been recorded in the period in which it arose, is recorded as an additional cost of the assets as at January 1, 2003. The estimated fair value of the liability as at December 31, 2003 was $7 million. The cumulative effect of the application of SFAS No. 143 on income with respect to the years ended December 31, 2001 and 2002 would have been less than $1 million. The Company has no legal liability for asset retirement obligations with respect to its investment in Bruce Power L.P. and the Sundance A and B power purchase arrangements. (11) 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. Page 4 of 5 (12) Current liabilities at December 31, 2003 include dividends payable of $136 million (2002 - $125 million) and current taxes payable of $271 million (2002 - $150 million). (13) Under U.S. GAAP, the preferred securities are classified as a liability. The fair value of the preferred securities at December 31, 2003 was $612 million (2002 - $743 million). The Company made preferred securities charges payments of $57 million for the year ended December 31, 2003 (2002 - $58 million). (14) The Company's Statement of Consolidated Cash Flows under U.S. GAAP would be identical to that under Canadian GAAP except that the preferred securities charges would be classified with funds generated from continuing operations. (15) Effective December 31, 2003, the Company adopted the provisions of FIN 46 "Consolidation of Variable Interest Entities". Adopting these provisions has had no impact on the U.S. GAAP financial statements of the Company. SUMMARIZED FINANCIAL INFORMATION OF LONG-TERM INVESTMENTS(16)
Three months ended Year ended December 31 December 31 --------------------------- ---------------------------- (MILLIONS OF DOLLARS) 2003 2002 2003 2002 - ----------------------------------------------------------------- ------------- ------------ ------------- -------------- INCOME Revenues 257 210 1,063 798 Other costs and expenses (157) (77) (528) (273) Depreciation (28) (40) (141) (146) Financial charges and other (19) (28) (53) (112) ------------- ------------ ------------- -------------- Proportionate share of income before income taxes of long-term investments 53 65 341 267 ============= ============ ============= ==============
December 31, December 31, (MILLIONS OF DOLLARS) 2003 2002 - ---------------------------------------------------------------- ----------------- ------------------ BALANCE SHEET Current assets 385 246 Plant, property and equipment 2,944 3,251 Other assets (net) - 112 Current liabilities (204) (216) Deferred amounts (net) (286) - Non-recourse debt (1,060) (1,646) Deferred income taxes (19) (64) ----------------- ------------------ Proportionate share of net assets of long-term investments 1,760 1,683 ================= ==================
(16) This 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). Page 5 of 5 EX-5 7 a2127432zex-5.txt EXHIBIT 5 EXHIBIT 5 Alberta Securities Commission British Columbia Securities Commission The Manitoba Securities Commission Office of the Administrator, New Brunswick Securities Commission of Newfoundland Registrar of Securities, Northwest Territories Nova Scotia Securities Commission Registrar of Securities, Nunavut Ontario Securities Commission Registrar of Securities, Prince Edward Island Commission des valeurs mobilieres du Quebec Saskatchewan Securities Commission Registrar of Securities, Government of the Yukon Territory January 30, 2004 Dear Sirs TRANSCANADA PIPELINES LIMITED (THE "COMPANY") We refer to the short form prospectus of the Company dated November 20, 2002 relating to the sale and issue of $2,000,000,000 Common Shares, Preferred Shares or Debt Securities of the Company as supplemented by a prospectus supplement dated November 29, 2002 relating to the sale and issue of Medium Term Note Debentures (Unsecured), collectively the "Prospectus". We are the auditors of the Company and under date of February 25, 2003, we reported on the following financial statements incorporated by reference in the Prospectus: o Consolidated balance sheets as at December 31, 2002 and December 31, 2001; and o Consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2002. Also incorporated by reference in the Prospectus are the following unaudited interim financial statements which have been filed with the securities regulatory authorities: o Consolidated balance sheet as at December 31, 2003; o Consolidated statements of income and cash flows for the three-month and the twelve-month periods ended December 31, 2003 and 2002; and o Consolidated statements of retained earnings for the twelve-month periods ended December 31, 2003 and 2002. Page 2 January 30, 2004 We have not audited any financial statements of the Company as at any date or for any period subsequent to December 31, 2002. Although we have performed an audit for the year ended December 31, 2002, 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, 2002 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, 2002. We have, however, performed a review of the unaudited interim consolidated financial statements of the Company as at December 31, 2003 and for the three and twelve-month periods ended December 31, 2003 and 2002. 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. 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 authorities to which it is addressed in discharging their 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 Signed "KPMG LLP" Chartered Accountants Calgary, Canada January 30, 2004 EX-6 8 a2127432zex-6.txt EXHIBIT 6 EXHIBIT 6 Pricing Supplement No. 1 dated November 18, 2003 CUSIP # 89353Z BM 9 (To a short form base shelf prospectus dated November 20, 2002, and prospectus supplement dated November 29, 2002) [TRANSCANADA LOGO] MEDIUM TERM NOTE DEBENTURES (UNSECURED) TRANSCANADA PIPELINES LIMITED Amount of Issue (Cdn. $): $450,000,000 Date of Debentures: November 21, 2003 Delivery Date: November 21, 2003 Issue Price (%): 99.764% Proceeds (Cdn. $): $448,938,000 Less Agent Commission (%, $): 0.40%, $1,800,000 Maturity Date: January 15, 2014 Redemption Provisions: The Corporation may redeem the Medium Term Note Debentures referred to herein on the terms and conditions and in the manner described below under the heading "Redemption Provisions". The Government of Canada Yield Additional Percentage is 0.20%. Agents: BMO Nesbitt Burns Scotia Capital Inc. RBC Dominion Securities Inc. TD Securities Inc. CIBC World Markets Inc. HSBC Securities (Canada) Inc. National Bank Financial Inc. Bearer Non-Interest Bearing Notes: Yes X No ----- ----- Registered Interest Bearing Notes: X Yes No ----- ----- Interest Rate: 5.65% per annum Interest Payment Dates: January 15 and July 15 commencing January 15, 2004 DOCUMENTS INCORPORATED BY REFERENCE: The following is a list of the documents which have been filed with the various securities commissions in each of the provinces and territories of Canada and which are specifically incorporated by reference in and form an integral part of the short form base shelf prospectus dated November 20, 2002 as supplemented by the prospectus supplement dated November 29, 2002 (collectively, the "MTN Prospectus") other than documents already listed in the MTN Prospectus: (a) Consolidated comparative audited financial statements of the Corporation as at and for the year ended December 31, 2002, the notes thereto, and the auditors' report thereon; (b) Management's Discussion and Analysis of Financial Condition and Results of Operations of the Corporation as at and for the year ended December 31, 2002; (c) Renewal Annual Information Form of the Corporation for the year ended December 31, 2002 dated February 25, 2003; (d) Management Proxy Circular of the Corporation dated February 25, 2003 relating to the annual and special meeting of shareholders held on April 25, 2003 (excluding the sections entitled "Composition of the Human Resources Committee", "Report on Executive Compensation", "Performance Graph" and "Corporate Governance"); (e) Consolidated comparative interim unaudited financial statements of the Corporation for the nine month period ended September 30, 2003; (f) Management's Discussion and Analysis of Financial Condition and Results of Operations of the Corporation for the nine month period ended September 30, 2003; and (g) Material change report of the Corporation dated May 23, 2003 relating to the plan of arrangement with TransCanada Corporation, establishing TransCanada Corporation as the parent company of the Corporation. REDEMPTION PROVISIONS: The Corporation shall be entitled to redeem the Medium Term Note Debentures referred to herein (the "Debentures"), in whole at any time, or in part from time to time, on not more than 60 and not less than 30 days' prior notice, at the higher of the Canada Yield Price (as defined below) and par, together with accrued and unpaid interest to the date fixed for redemption. "Canada Yield Price" shall mean, in effect, a price equal to the price of the Debentures calculated to provide a yield to maturity equal to the Government of Canada Yield (as defined below) plus 0.20% on the business day preceding the date of the resolution of the Corporation authorizing the redemption. "Government of Canada Yield" on any date shall mean, in effect, the yield to maturity on such date compounded semi-annually which a non-callable Government of Canada Bond would carry if issued, in Canadian Dollars in Canada, at 100% of its principal amount on such date with a term to maturity equal to the remaining term to maturity of the Debentures. The Government of Canada Yield will be the average of the yields determined by two major Canadian investment dealers selected by the Corporation. EX-7 9 a2127432zex-7.txt EXHIBIT 7 EXHIBIT 7 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 January 28, 2004 /s/ HAROLD N. KVISLE ------------------------------------- Harold N. Kvisle President and Chief Executive Officer EX-8 10 a2127432zex-8.txt EXHIBIT 8 EXHIBIT 8 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. Dated January 28, 2004 /s/ RUSSELL K. GIRLING ------------------------- Russell K. Girling Executive Vice-President, Corporate Development and Chief Financial Officer EX-9 11 a2127432zex-9.txt EXHIBIT 9 EXHIBIT 9 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 December 31, 2003 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 January 28, 2004 EX-10 12 a2127432zex-10.txt EXHIBIT 10 EXHIBIT 10 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 December 31, 2003 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 January 28, 2004 -----END PRIVACY-ENHANCED MESSAGE-----