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TransCanada Credits Pipelines, Energy Businesses for Improved 1Q

TransCanada Corp.'s pipelines and energy businesses turned in strong results in the first quarter, yielding overall net income for the company of C$449 million (83 cents/share) compared to C$265 million (52 cents/share) in first quarter 2007, an increase of about 60% per share.

First quarter earnings of C$326 million (60 cents/share) compared to C$250 million (49 cents/share) for the same period in 2007, an increase of about 22% per share.

"Strong first quarter earnings and cash flow from our pipelines and energy businesses are the result of TransCanada's focus on quality investment opportunities in markets where we have expertise and competitive advantage." said CEO Hal Kvisle. "As we continue to pursue our goal of becoming the leading energy infrastructure company in North America, we are excited by the significant growth opportunities available within our core businesses and our core market regions. In the first quarter, we announced the Ravenswood acquisition in New York City and continued to advance the Keystone Oil Pipeline project."

Improvement in the pipelines business was mainly due to a full quarter of earnings from the February 2007 acquisition of ANR and higher earnings from both the Canadian Mainline and Gas Transmission Northwest. The increase in the energy business was primarily due to increased earnings from business units for Eastern Power and Natural Gas Storage.

First quarter 2008 earnings excluded C$152 million realized on shares from Calpine bankruptcy settlements, a loss of C$27 million for the writedown of costs previously capitalized for the Broadwater liquefied natural gas (LNG) project, C$10 million related to a favorable lawsuit settlement, and a net unrealized loss of C$12 million from fair value adjustments in the company's gas storage business. First quarter 2007 earnings excluded C$15 million of favorable income tax adjustments.

In an effort to connect U.S. Rockies natural gas supply to various markets in North America, TransCanada announced the proposed Pathfinder (see NGI, April 14) and Sunstone (see NGI, March 17) gas pipelines. A segment of the proposed Pathfinder project follows the same route as the recently proposed Bison Pipeline. TransCanada would be a partial owner in the proposed Bison Pipeline through its interest in TC PipeLines LP.

Russell K. Girling, president of the pipelines business, said on a conference call with financial analysts last Friday that TransCanada has seen a reduction in flows on its mainline system. However, since the pipeline has a cost of service tolling structure, tolls have gone up C20-25 cents, which is offset by a slight decrease in fuel charges. One bright spot is the Rockies, where TransCanada has proposed projects to tap the markets, whichever way the gas wants to go.

"[Rockies producers] would like to take their gas to the closest liquid market that they can, making the least possible commitment that they can," Girling said. "We don't know which direction the market will want to move so we've made several proposals to move the gas both east and west. The eastern proposal, the first one, Bison, goes from the Powder River Basin to our Northern Border Pipeline, so it can basically fill some of that capacity that's left open by declining export volumes out of the Western [Canadian] Sedimentary Basin. And then we have a Pathfinder project, which would go deeper into the Rockies basins in Colorado and Wyoming and then farther on to interconnect at Emerson, which is the connection of the Canadian mainline system to the Great Lakes system, which would offer those producers several market options, both in eastern Canada, the Midwest, storage in the Midwest and ultimately moving the gas through our system to the East Coast, where the prices are the highest."

TransCanada also submitted an application at the end of 2007 for a license to construct the Alaska Pipeline project under the Alaska Gasline Inducement Act (AGIA) (see NGI, March 31). That application is currently under review and, if recommended, will go to the Alaska legislature in second quarter 2008. If approved by the legislature, TransCanada could be granted the AGIA license later this year. The U.S. Federal Energy Regulatory Commission authorized the construction and operation of the controversial Broadwater LNG project, subject to conditions (see NGI, March 24). Earlier this month the New York State Department of State rejected the proposal to construct this facility (see NGI, April 14). Broadwater said it is weighing its options for the project.

During the first quarter TransCanada agreed to acquire the 2,480 MW Ravenswood Generating Facility in New York City for US$2.8 billion and realized $152 million from Calpine Corp. bankruptcy settlements. TransCanada's Keystone Oil Pipeline project received a U.S. Department of State Presidential Permit, and the company said construction is expected to begin in the second quarter on the project to transport crude oil between Canada and the United States.

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