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TransCanada Blames Earnings Erosion on Market

August 10, 1998
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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 in 1997.

"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 first half.

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."

Ellen Beswick

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