TC PipeLines, LP (TCLP)

Q2 2010 Earnings Call Transcript

July 28, 2010 12:00 am ET

Executives

Terry Hook – Manager, IR

Mark Zimmerman – President

Rob Jacobucci – Controller

Analysts

Michael Cerasoli – Goldman Sachs

Gabe Moreen – Banc of America

David Fleischer – Chickasaw Capital

James Jampel – HITE

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the TC Pipeline’s LP 2010 second quarter results conference call. I would now like to turn the meeting over to Mr. Terry Hook, Manager of Investor Relations. Please go ahead, Mr. Hook.

Terry Hook

Thank you, operator; and good day, everyone. I would like to welcome you to TC Pipeline’s second quarter 2010 conference call. With me today are Mark Zimmerman, President; Mr. Rob Jacobucci, Controller. We are pleased to provide you with an opportunity to discuss our second quarter results and other general developments regarding the partnership.

Before we begin, I would like to remind you that certain statements made during this conference call will be forward-looking, regarding future events and our future financial performance. Our forward-looking statements are based on our beliefs, as well as assumptions made by, and information currently available to us. These statements reflect our current views with respect to future events, and are subject to various risks, uncertainties and assumptions as discussed in detail in our 2009 10-K as well as our subsequent filings with the Securities and Exchange Commission. If one or more of these risks and uncertainties materialize, or if the underlying assumptions prove incorrect, actual results may differ materially from those described in the forward-looking statements.

Mark will begin today with the review of TC Pipeline’s recent cash distribution announcement, achievements in the quarter, and an update on the activities concerning the partnership and its general partner TransCanada Corporation. Rob will then review in detail the second quarter financial results.

Following the prepared remarks, we will ask the conference operator to coordinate your questions.

I will now turn the call over to our President, Mark Zimmerman.

Mark Zimmerman

Thanks, Jerry; and good day, everyone; and thank you for joining us today. Earlier this month, we announced our second quarter cap distribution of $0.73 per common unit or $2.92 on an annualized basis. This is the 45th consecutive quarter redistribution paid by the partnership. Looking forward, we believe TC Pipelines is well positioned to continue to deliver stable and growing cash distribution to our unit holders.

As outlined in today's news release, TC Pipelines reported a $9.1 million increase in second-quarter partnership cash flows to $46.2 million. Similarly, net income, prior to recast, increased $14 million in the second quarter of 2010 to $27.7 million. Our solid financial performance this quarter highlights the quality of our infrastructure assets, and the positive impact of the North Baja acquisition. Since this acquisition back on July 1, 2009, Northern Border has continued to enhance and diversify the partnership's earnings and cash flows.

Northern Border had an excellent quarter, and performed above our expectations. Although the second quarter is typically a shoulder season for Northern Border, it operated near full capacity. Volumes for the second quarter of 2010 were approximately 2.5 Bcf per day, compared to 1.7 Bcf per day for the same period last year. Northern Border's strong competitive position as a pipeline serving gas supplies from the WCSB, combined with the reduced supplies from other pipelines serving as market area, combined with warm temperatures, allowed Northern Border to sell most of its available capacity for the second quarter; and looking forward, Northern Border has now sold out its available capacity, true to October 2010.

Turning to Great Lakes, for the first time in over a year, Great Lakes this quarter has seen the utilization of its long-term contracts increase over utilization for the same period last year. Although challenged by the current North American gas picture, we have seen positive signs and remain optimistic about Great Lakes' long-term potential. The impact of the rate settlement on Great Lakes, which I will discuss in further detail shortly, was not material in the second quarter, and overall, is not expected to have a material impact on earnings and cash flow.

For our Northern Border and Great Lakes pipeline systems, the trend is continuing toward shorter term contracting, with legacy contracts rolling off, and sufficient transportation into the market demand centers, there is less of an incentive for customers to lock up access to these transportation paths for the long-term. However, given that the rates charged in our systems relative to the cost of the new build infrastructure are lower, we believe these systems remain a cost effective alternative for shippers to transport natural gas for consumption in the markets they serve. When this does create some uncertainty for the cash flow and earnings stream, we believe the demand for natural gas and the demand for transportation services on these systems will remain.

Now moving to Tuscarora, like North Baja, Tuscarora continues to provide secure, consistent earnings and cash flow. Both of these pipelines are situated in unique geographic locations, and their long-term contracts allow for these secure consistent earnings and cash flows from quarter to quarter, and as such are generally unaffected by shifting natural gas supply and demand fundamentals.

In summary, we believe our pipelines are critical North American infrastructure in the markets that they serve, and will continue to represent solid investments for TC Pipelines.

I would now like to turn to some of the other developments in the quarter. To begin with, we are pleased with the resolution of the Great Lakes Section 5 rate proceeding. Following extensive negotiations, a settlement was reached between Great Lakes, FERC staff, and shippers related to the Section 5 rate proceeding that was initiated by the FERC last November. This settlement was filed on May 21, 2010. On July 15, 2010, the FERC approved the settlement without modification. As approved, the settlement applies to all current and future shippers on the Great Lakes system. As I mentioned earlier, we do not expect the settlement to have a material effect on the partnership.

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