TransCanada Blames Earnings Erosion on Market
"Earnings from market-based businesses are less predictable than
regulated earnings," TransCanada PipeLines President George Watson
reminded stockholders last Thursday in explaining how lower
second-quarter earnings in marketing, gathering and processing had
erased some pipeline gains.
The company had net earnings of $193.9 million for the first six
months of 1998, down 5.5% from the $205.2 million in the same
period last year. The bulk of the erosion came in this second
quarter when earnings were $91.2 million compared to $100 million
"Our energy transmission businesses have turned in another
strong performance this quarter, but the results from our marketing
and gas gathering and processing businesses reflect unfavorable
market conditions that have prevailed throughout Canada and the
U.S. in the first six months of 1998," Watson said. Since the
regulated business is rate-based and TransCanada increased its rate
base this year, the returns from that sector were up 6.9% and 3.8%
for six months and the second quarter respectively. Net
transmission earnings for the most recent six months were $172.4
million compared to $161.3 in 1997, while earnings for the quarter
were $86.5 million, above the $83.3 million in 1997.
TransCanada increased its throughput on the Canadian Mainline
from 1,239 Bcf in the first six months of 1997 to 1,306 Bcf in this
The biggest drop came in processing which had net six month
earnings of $14.4 million this year compared to $34.7 million for
the same period in 1997. The latest quarter saw an earnings decline
from $13.8 million in 1997 to $3.9 million in 2Q 1998.
TransCanada saw its marketing earnings squeezed as "a result of
low volatility in natural gas prices during the second quarter and
extreme price volatility and oversupply in certain price markets
for natural gas liquids and propane." Net for marketing in the
first half was $1.6 million compared to $9.2 million in first half
1997. For the quarter those figures were minus $800,000 compared to
a loss of $300,000 in 1997. The cause of the loss was "low
volatility in natural gas prices during the second quarter and
extreme price volatility and oversupply in certain markets for
natural gas liquids and propane," the company said.
And Watson offered the rationale: "TransCanada has diversified
into these market-based businesses because of the opportunities
they offer for long-term growth and the skills they bring to our
company, skills that are required to manage our energy transmission
assets successfully in the new deregulated marketplace."
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