TransCanada’s return to mainly core regulated pipeline operations, which was started well before the industry trend began in earnest over the last two years, clearly has paid off in terms of stable financial growth.

The company reported a 42% increase in net income for the third quarter to C$248 million (51 cents/share) and a 16% increase in net income for the first six months of the year to C$608 million ($1.26/share). Net income from continuing operations in the third quarter rose 13% to C$198 million or 41 cents per share compared to analysts’ estimates of 40 cents per share, according to Thomson First Call.

“In the third quarter, we continued to make progress on our key strategies, including growing our core businesses, driving for operational excellence and maintaining and utilizing our financial strength,” said CEO Hal Kvisle. “Our strong cash flow, earnings and balance sheet position us well to continue to enhance shareholder value.”

The Canadian pipeline giant embarked on a massive divestiture program in late 1999 to restore its balance sheet and focus on core pipeline operations. It proceeded to sell off more than $3.5 billion in midstream and international assets, and then in fall of 2001, the company also sold the bulk of its marketing and trading business to Mirant. By taking those actions early on, TransCanada largely avoided to tremendous turmoil that has brought down several midstream and marketing and trading operators. Mirant, which is now in Chapter 11 bankruptcy, was forced earlier this year to unload most of its Canadian marketing and trading assets to Cargill (see Daily GPI, Oct. 12, 2001; May 2, 2003).

While many other energy companies have frantically tried to unload a variety of assets to keep afloat in a tough energy marketplace, TransCanada has been on a busy shopping spree for mostly regulated assets this year. In August, it bought the remaining interest in Foothills Pipe Line from Duke for $259 million, including debt. It also is in the process of substantially increasing its ownership in Portland Natural Gas Transmission through purchases from DTE and El Paso.

But TransCanada also is planning a few non-regulated operations as well. In September, it announced plans with ConocoPhillips to build an LNG import terminal in Harpswell, ME. If approved by town residents and regulators, the LNG project would go into service in 2009. Kvisle said TransCanada is convinced that LNG will play an increasingly important role in North American gas supplies in the future.

In addition last week, TransCanada and an affiliate of Irving Oil announced plans to build an $85 million, 90 MW gas-fired cogeneration plant at the Irving Oil refinery in Saint John, NB. TransCanada will build and own the plant. Irving will provide the fuel and buy the plant’s power and heat. The project is expected to be in service in 4Q2004.

The Canadian pipeline giant also has received favorable regulatory rulings for its mainline rates, including a higher floor price for interruptible transportation, which will discourage firm transportation decontracting, an increase in its depreciation rate and the introduction of a new eastern tolling zone in southwestern Ontario, which will improve its competitive position. “This decision is an essential step towards ensuring the long-term sustainability of the mainline to the benefit of all stakeholders,” said Kvisle.

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