TransCanada CEO Doug Baldwin let investors know that this yearis just the beginning of the cost-cutting and asset shuffling atthe company. He said to expect $3 billion of the company’s $26billion in assets to be put on the auction block by the end of2001. That includes those assets that have been or will be soldthis year: Angus Chemical, which was bought by Dow Chemical in thethird quarter; the prior transfer of ownership in Northern Borderto TC Pipelines LP; and the company’s liquids marketing business,which is expected to be sold in the fourth quarter. He warned thereis still a lot of underperforming fat to be trimmed, and anotherso-far-unannounced collection of assets could go in the fourthquarter.

“Since coming to TransCanada in July, I believe we’ve madesignificant progress in completing the initiatives we’ve set out toaccomplish earlier this year. At the same time, it’s obvious moreneeds to be done and we are committed to completing that work,”said Baldwin.

“We’re not going to fire sale assets. We want to do that withdiligence and care to ensure that we get full value,” he saidduring a teleconference.

It’s not hard to guess which divisions could be due for a trimor a solid chop. Marketing posted a $1 million net loss for thefirst nine months of the year. Third quarter results show energymarketing down $1 million from 3Q98 to $3 million in net earnings.Energy processing took a $2 million net loss in the third quartercompared to a $9 million net gain in 3Q98. Processing produced $21million in net income for the first nine months compared to $27million last year. Higher net earnings from the power business havebeen more than offset by losses from the Canadian midstreambusiness. Although TransCanada holds some excellent midstreamassets in Alberta, some may no longer fit in the company without alarge chemicals operation.

Meanwhile, energy transmission is doing quite well, with $148million in net income in the third quarter and $494 million for thefirst nine months of the year, which was up from $142 million and$414 million, respectively, last year. All transmission divisionshave shown earnings growth.

Despite the company’s lagging stock price, total performance hasbeen good so far this year. Year-to-date net earnings for 1999 are$481 million or $1.03 per share compared to $437 million or $0.95per share in 1998.

Baldwin said the other aspect of the company’s strategy involvesmoving operations to geographic locations where the company has astrong presence. TransCanada started doing some of that this weekin Houston. All of the Houston gas marketing and trading positionsare being moved to Boston, Omaha or Calgary. Houston also will losethe liquids marketing operations when the sale of that division iscompleted later this year.

“Geographically we will operate in areas where we have adistinct advantage. This includes Canada and the northern tier ofthe U.S. states [and Latin America],” Baldwin said. “We’ll operatein parts of the value chain where we have expertise and can addvalue. These areas include natural gas transmission and powergeneration. The strategic and economic value of the other areas ofour business is being evaluated…… We will be focusing onimproving the quality and predictability of our earnings and wewill be doing this by focusing on fee-based rather thancommodity-based businesses.

“If an asset is not expected to return its cost of capital, itwill be removed from the portfolio. In addition, we have some verygood performing assets that no longer fit with our strategicdirection. They will also be removed from the portfolio.”

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