Canada’s leading natural gas pipeline operator suffered lower net earnings from its natural gas transmission business in the first quarter, but lower net corporate expenses still propelled TransCanada Corp. to net income of C$214 million (C44 cents/share, up from C$208 million (C43 cents/share) for the same period of 2003. TransCanada blamed lower regulated returns on its Alberta and Canadian Mainline pipe systems, which cut gas transport earnings by C$9 million to stand at C$149 million.

Earnings, however, beat financial analysts’ estimates, which expected the operator to earn C41 cents/share in the quarter. Corporate expenses were down on income tax refunds received in 1Q2004. Funds generated from operations for the first quarter 2004 were C$423 million compared to C$457 million for 1Q2003.

CEO Hal Kvisle said the company had delivered “steady” performance in the quarter, but he warned that TransCanada “faces some uncertainty around earnings from our Alberta System and Canadian Mainline as we await the outcome of regulatory hearings at the Alberta Energy and Utilities Board and the National Energy Board respectively.

“Over the longer term, our core businesses of natural gas transmission and power services remain strong, with increasing North American demand for energy supporting their growth. We continue to evaluate and act on opportunities to grow these businesses consistent with our corporate strategy and our commitment to long-term value creation, balanced against our objective of maintaining our strong financial position.

Kvisle said the company’s announcement during the quarter that it planned to acquire Gas Transmission Northwest from National Energy & Gas Transmission (NEGT) for US$1.703 billion, (pending NEGT’s bankruptcy court approval), and its “reaffirmation of our intention to play a leadership role in developing the Alaskan and Canadian portions of an Alaska Highway Pipeline project are evidence of our ongoing efforts to fulfill that commitment.”

He said he’s confident that that company will succeed in purchasing the 2.9 Bcf/d GTN pipeline, formerly named Pacific Gas Transmission, which brings gas to California from a connection with TransCanada’s BC System.

TransCanada negotiated the deal for two years, beating out at least nine other suitors, which gives it confidence it will win in any bankruptcy auction process, he said.

In an interview with NGI earlier in the week, Kvisle also said that it is a very logical pipeline system for the company to own. It already owns parts of the Northern Border and Great Lakes Gas Transmission systems, which serve the Midwest, and it owns parts of Iroquois Gas Transmission and Portland Natural Gas Transmission, which serve the Northeast. The Pacific region is the next logical choice, particularly given the likelihood that there will be more Canadian gas headed West in the next decade as the supply of imported liquefied natural gas grows along the East Coast and Gulf Coast regions.

Also on Friday, the board of directors declared a quarterly dividend of C29 cents/share for the quarter ending June 30, which will be payable on July 30.

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