Canadian pipeline giant TransCanada Corp. reported a 1-cent/share drop in net income from continuing operations for the third quarter to 40 cents/share compared to the same period last year but income for the first nine months of the year was up 30% to $1.64/share.

The company’s finances were negatively impacted by a regulatory ruling by the Alberta Energy and Utilities Board, which disallowed $24 million of operating costs on the Alberta pipeline system. Operating income from gas pipeline operations declined 16% to C$134 million for the quarter and 7% to C$429 million for the first nine months of the year, mainly on a drop in income on the company’s Alberta system, but also due to declines on the Canadian mainline.

The Canadian mainline’s net earnings decreased $2 million and $14 million for the three and nine months ended Sept. 30, respectively, when compared to the corresponding periods in 2003. The decrease was primarily due to a lower rate of return on common equity of 9.56% in 2004 compared to 9.79% in 2003, and a lower average investment base.

Despite the setbacks on its Canadian pipeline, TransCanada is schedule to complete its US$1.7 billion purchase, including US$0.5 billion of assumed debt, of Gas Transmission Northwest by the end of the fourth quarter. It includes the 1,350-mile former Pacific Gas Transmission system, currently named Gas Transmission Northwest, which extends from near Kingsgate, BC, on the BC-Idaho border, to a point near Malin, OR, on the Oregon-California border.

The purchase also includes a stake in the recently built 80-mile North Baja Pipeline system, which links the Southwest gas grid from a point near Ehrenberg, AZ, to markets in Baja California Norte, Mexico. The acquisition of North Baja was subject to a right of first refusal in favour of a third party, but that third party has now agreed to waive its right and TransCanada now expects to close on the Gas Transmission Northwest and North Baja purchase at the same time.

Meanwhile, several other important transactions were announced in the third quarter. “The anticipated closing of the Gas Transmission Northwest acquisition and other growth initiatives on a number of fronts — including the potential purchase of hydroelectric power assets from USGen New England, Inc. and the announced investments in wind power and LNG facilities — will strengthen our near-term financial performance and position us for long-term growth,” said CEO Hal Kvisle.

“The company’s strong balance sheet and the growing North American demand for energy provide the foundation for growth in our areas of expertise to deliver long-term, solid returns for investors.”

During a conference call, Kvisle noted that once the GTN purchase is complete the company will own pipelines essentially from wellheads in Alberta to the California border. These systems cross several regulatory jurisdictions and involve multiple tolling system that could be streamlined, he said. As a result company plans to work toward key tolling improvements on the western pipeline corridor. No expansions are planned on the former PGT mainline but new laterals to markets are possible, he said, depending on demand growth. Also mentioned was reversing flow on the North Baja pipeline due to LNG being delivered to the Energy Costa Azul LNG terminal, which is proposed by Sempra and Shell, as early as 2007.

During the third quarter, TransCanada also entered into another agreement with National Energy and Gas Transmission (NEGT) to acquire hydroelectric assets in New England with a total generating capacity of 567 MW for US$505 million. The sale will be subject to a bankruptcy court-supervised auction process and bankruptcy court approval.

In another transaction, the company announced a joint proposal with Petro-Canada to develop a $660 million liquefied natural gas (LNG) facility in Gros Cacouna, PQ. Other LNG projects are underway, said Kvisle, but nothing is ready for announcement. “We think the Northeastern U.S. is a difficult place to build LNG because of population density but it is the most attractive place…” he said, adding that the company is unlikely to engage in any LNG projects on the Gulf Coast or Pacific Coast of Mexico or Southern California.

In October, Cartier Wind Energy Inc., 50% owned by TransCanada, was awarded six projects by Hydro-Quebec Distribution to build 739.5 MW of wind energy facilities for an estimated $1.2 billion. These plants are expected to be placed into service between 2006 and 2012 and are subject to negotiation of power purchase agreements.

The company’s power division reported net earnings in third quarter of $51 million, which were up by $1 million compared the same period in 2003. Higher earnings from western operations were more than offset by lower contributions from Bruce Power and eastern operations.

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