“Earnings from market-based businesses are less predictable thanregulated earnings,” TransCanada PipeLines President George Watsonreminded stockholders Thursday in explaining how lowersecond-quarter earnings in marketing, gathering and processing haderased some pipeline gains.

The company had net earnings of $193.9 million for the first sixmonths of 1998, down 5.5% from the $205.2 million in the sameperiod last year. The bulk of the erosion came in this secondquarter when earnings were $91.2 million compared to $100 millionin 1997.

“Our energy transmission businesses have turned in anotherstrong performance this quarter, but the results from our marketingand gas gathering and processing businesses reflect unfavorablemarket conditions that have prevailed throughout Canada and theU.S. in the first six months of 1998,” Watson said. Since theregulated business is rate-based and TransCanada increased its ratebase this year, the returns from that sector were up 6.9% and 3.8%for six months and the second quarter respectively. Nettransmission earnings for the most recent six months were $172.4million compared to $161.3 in 1997, while earnings for the quarterwere $86.5 million, above the $83.3 million in 1997.

TransCanada increased its throughput on the Canadian Mainlinefrom 1,239 Bcf in the first six months of 1997 to 1,306 Bcf in thisfirst half.

The biggest drop came in processing which had net six monthearnings of $14.4 million this year compared to $34.7 million forthe same period in 1997. The latest quarter saw an earnings declinefrom $13.8 million in 1997 to $3.9 million in 2Q 1998.

TransCanada saw its marketing earnings squeezed as “a result oflow volatility in natural gas prices during the second quarter andextreme price volatility and oversupply in certain price marketsfor natural gas liquids and propane.” Net for marketing in thefirst half was $1.6 million compared to $9.2 million in first half1997. For the quarter those figures were minus $800,000 compared toa loss of $300,000 in 1997. The cause of the loss was “lowvolatility in natural gas prices during the second quarter andextreme price volatility and oversupply in certain markets fornatural gas liquids and propane,” the company said.

And Watson offered the rationale: “TransCanada has diversifiedinto these market-based businesses because of the opportunitiesthey offer for long-term growth and the skills they bring to ourcompany, skills that are required to manage our energy transmissionassets successfully in the new deregulated marketplace.”

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