Power Generation Business Leads TransCanada Improvements in 2003
TransCanada PipeLines broke with tradition in letting its power business take the spotlight last year. The company said Tuesday that it raised its dividend by C2 cents/share to 29 cents and reported higher net income for the fourth quarter and the full year of 2003 mainly due to improvements made possible by its power plant acquisitions. Its full-year $1.66/share earnings from continuing operations beat analysts estimates of $1.59/share.
Quarterly net income increased 7% to C$193 million. Full-year net income rose 14% to C$851 million, including income of $50 million from a gain on the sale of its gas marketing business. For the full year, TransCanada reported a 51% increase in income from its power business to C$220 million. Results slipped 5% from gas pipeline operations to $622 million.
"Over the course of the year, we've invested more than $1.2 billion, including the assumption of debt, in our natural gas transmission and power businesses," said CEO Hal Kvisle. "This includes our purchase of a 31.6% interest in Bruce Power, a low cost power producer in one of the highest demand markets in North America, [Ontario]."
TransCanada and BPC Generation Infrastructure Trust of Toronto teamed with Cameco Corp. of Saskatoon to buy 79.8% of the massive Ontario-based nuclear power facility, Bruce Power LP, from the financially ailing British Energy in February 2003 for an $376 million. Bruce A Unit 4 began producing power to the Ontario power grid on Oct. 7, 2003 and achieved commercial production effective Nov. 1, 2003. Bruce A Unit 3 was synchronized to the grid on Jan. 8, 2004. Similar to the Unit 4 startup process, after performing and evaluating tests of the shutdown system, Unit 3 is expected to reconnect to the grid and begin ramping up to full power. Units 3 and 4 together will have a capacity of 1,500 MW of electricity bringing Bruce Power's total capacity to 4,660 MW.
"The Bruce facility is a high quality asset. The restarts of Bruce A Units 3 and 4 took a tremendous amount of work and we applaud the Bruce team on their efforts related to this complex project," said Kvisle. "Bruce made a significant contribution to TransCanada's earnings in 2003, and we're very pleased with its performance to date."
In December, TransCanada also increased its ownership interest in Portland Natural Gas Transmission (PNGTS) to about 62% from 43% by purchasing a stake from El Paso Corp. for US$82 million including US$50 million of assumed debt. "The Portland pipeline is essentially an extension of our mainline system into the Boston regional market," said Kvisle. "Our increased stake in Portland further bolsters our role as an energy supplier to the U.S. Northeast.
"We continued to grow our gas transmission business through the purchase of additional interests in the Foothills and Portland pipelines, and longer term, we remain focused on strengthening our ability to tap into new sources of natural gas supply. To that end, we made good progress on the development of new pipelines to connect northern gas and new receiving terminals to bring liquefied natural gas to North American markets."
Kvisle said the pipeline company is in for "another busy year" on the regulatory front. "The outcome of regulatory proceedings could have a significant impact on results from the Alberta System and the Canadian Mainline in 2004," he said. "We were encouraged by the National Energy Board's (NEB) July 2003 decision on our mainline tolls application, but we remain concerned about the regulators' assessment of business risk inherent in our mainline and Alberta systems and the resulting low returns on equity and deemed equity thicknesses."
In December 2003, the Alberta Energy and Utilities Board (EUB) approved TransCanada's Nov. 28, 2003 application for interim tolls for 2004 on the Alberta System. Tolls will be finalized when decisions from the Generic Cost of Capital (GCOC) hearing and the hearings on both phases of the General Rate Application (GRA) have been received.
In July 2003, the NEB issued its decision on TransCanada's 2003 Mainline Tolls Application, approving all key components of the application. The rates are still considered interim pending the disposition of TransCanada's appeal to the Federal Court of Appeal regarding the NEB's Review and Variance decision. The Federal Court of Appeal is expected to hear the appeal on Feb. 16. The company's 2004 Tolls and Tariff Application for the mainline was filed Jan. 26 and includes a request for an 11% return on a 40% deemed common equity component.