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Early Work Under Way on TransCanada Mainline Conversion

TransCanada Corp.'s first quarter earnings were positively impacted by the recent decision by Canada's National Energy Board (NEB) on the company's Mainline restructuring proposal, the company said Friday. TransCanada also pushed back the in-service date of its long-delayed Keystone XL oil pipeline to late 2015 from the previously planned late 2014/early 2015 due to regulatory delays.

Profits were up in the first quarter, and CEO Russ Girling talked up the billions of dollars worth of projects the company has on the drawing board during an earnings conference call Friday.

"...[W]e continue to progress our $25 billion portfolio of commercially secured projects and advance other value-creating opportunities including the Energy East Pipeline Project, which would transport crude oil from western receipt points to eastern Canadian markets," Girling said.

"Over the next three years, subject to required approvals, we expect to complete $12 billion of projects that are currently in advanced stages of development. They include the Gulf Coast Project, Keystone XL, the Keystone Hardisty Terminal, the initial phase of the Grand Rapids Pipeline, the Tamazunchale Pipeline Extension, the acquisition of nine Ontario Solar projects, and the ongoing expansion of the NGTL System. We have also commercially secured an additional $13 billion of long-life, contracted energy infrastructure projects that are expected to be placed into service in 2016 and beyond."

Net income was C$446 million (63 cents/share) compared to C$352 million (50 cents) in first quarter 2012. Earnings for first quarter were C$370 million or (52 cents/share) compared to C$363 million (52 cents) for the same period in 2012. Higher earnings contributions from the Canadian Mainline in the first quarter as a result of the NEB decision on its restructuring proposal, Bruce Power and U.S. Power, were offset by lower contributions from U.S. Natural Gas Pipelines and Western Power.

In the restructuring decision, among other items, the NEB approved a return on equity for the Canadian Mainline of 11.50% for the years 2012 to 2017 compared to the last approved return on equity of 8.08% (see NGI, April 1). Girling said Friday that although the company does not agree with the decision, "we are trying to work within it."

The Energy East project involves converting natural gas capacity in 1,864 miles of the company's existing Canadian Mainline to crude oil service and constructing up to 870 miles of new pipeline (see NGI, April 8a). Subject to the results of an open season, the project will have the capacity to transport as much as 850,000 b/d, increasing access to eastern Canadian markets. Rival Enbridge Inc. has mounted a competing project (see NGI, April 8b).

"We have begun Aboriginal and stakeholder engagement and field work as part of our initial design and planning," Girling said of Energy East project work. "If the open season is successful, we will apply for regulatory approval to build and operate the facilities, with a potential in service date of late 2017."

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