TC PipeLines, LP and its subsidiaries are collectively referred to herein as ‘‘TC PipeLines’’ or ‘‘the Partnership.’’ In this report, references to ‘‘we’’, ‘‘us’’ or ‘‘our’’ collectively refer to TC PipeLines or the Partnership. The general partner of the Partnership is TC PipeLines GP, Inc., a wholly-owned subsidiary of TransCanada.
We own a 46.45 per cent general partner interest in Great Lakes, which we acquired on February 22, 2007 from El Paso Corporation. The remaining 53.55 per cent general partner interest in Great Lakes is held by TransCanada. We own a 50 per cent general partner interest in Northern Border, including a 20 per cent interest acquired on April 6, 2006. The remaining 50 per cent general partner interest in Northern Border is held by ONEOK Partners, a publicly traded limited partnership that is controlled by ONEOK, Inc.
We also own 100 per cent of Tuscarora. The Partnership acquired a 49 per cent interest from a wholly-owned subsidiary of TransCanada in September 2000. An additional 49 per cent was acquired from Tuscarora Gas Pipeline Co., a wholly- owned subsidiary of Sierra Pacific Resources, on December 19, 2006. On December 31, 2007, the Partnership acquired the remaining two per cent general partner interest in Tuscarora, with one per cent purchased from a wholly-owned subsidiary of TransCanada and the other one per cent purchased from Tuscarora Gas Pipeline Co.
The Partnership’s general partner interests in Great Lakes, Northern Border and Tuscarora represent its only material assets at December 31, 2007. As a result, the Partnership is dependent upon Great Lakes, Northern Border and Tuscarora for all of its available cash.
Great Lakes is a Delaware limited partnership formed in 1990. Great Lakes’ operating revenue is derived from transportation of natural gas. Great Lakes was originally constructed as an operational loop of the TransCanada Mainline Northern Ontario system. Great Lakes receives natural gas from TransCanada at the Canadian border near Emerson, Manitoba and extends across Minnesota, Northern Wisconsin and Michigan, and redelivers gas to TransCanada at the Canadian border at Sault Ste. Marie, Michigan and St. Clair, Michigan.
Northern Border is a Texas general partnership formed in 1978. Northern Border’s operating revenue is derived from transportation of natural gas. Northern Border transports natural gas from the Montana-Saskatchewan border near Port of Morgan, Montana to a terminus near North Hayden, Indiana. Additionally, Northern Border transports natural gas produced in the Williston Basin of Montana and North Dakota and the Powder River Basin of Wyoming and Montana and synthetic gas produced at the Dakota Gasification plant in North Dakota.
Tuscarora is a Nevada general partnership formed in 1993. Tuscarora’s operating revenue is derived from transportation of natural gas. Tuscarora’s U.S. interstate pipeline system originates at an interconnection point with existing facilities of Gas Transmission Northwest Corporation (GTN), a wholly-owned subsidiary of TransCanada, near Malin, Oregon and runs Southeast through Northeastern California and Northwestern Nevada. The Tuscarora pipeline system terminates near Wadsworth, Nevada. Along its route, deliveries are made in Oregon, Northern California and Northwestern Nevada. Deliveries are also made directly to the local gas distribution system of Sierra Pacific Power Company (Sierra Pacific Power), a subsidiary of Sierra Pacific Resources.
Great Lakes Overview
Northern Border Overview
Key factors that impact our business are the ability of Great Lakes and Northern Border to make distributions to us and of Tuscarora to generate positive operating cash flows and our ability to maintain a strong and balanced financial position. Partnership cash flows from our investments are necessary to generate sufficient cash to make distributions to our unitholders. A strong and balanced financial position will ensure that we are able to maintain a prudent level of available cash to make distributions to our unitholders.
Key factors that impact the business of our pipeline systems are the supply of and demand for natural gas in the markets in which our pipeline systems operate; the customers of our pipeline systems and the mix of services they require; competition; and government regulation of natural gas pipelines. These factors are discussed in more detail below.
Our pipeline systems depend upon the continued availability of natural gas production and reserves in the regions we access, primarily the WCSB. Our pipeline systems provide their customers with natural gas transportation services to market demand areas. The amount of WCSB natural gas available for export is dependent upon natural gas production levels, demand for natural gas in Canada, and storage capacity for Canadian natural gas and demand for storage injection. Additional Canadian natural gas supply sources may be available in the future if new pipeline projects associated with the Mackenzie Delta in Northern Canada and the North Slope of Alaska are constructed.
Demand for natural gas transportation service on our pipeline systems is directly related to demand for natural gas in the markets served by these systems. Factors which may impact the overall demand for natural gas include weather conditions, economic conditions, government regulation, availability and price of alternative energy sources, fuel conservation measures, and technological advances in fuel economy and energy generation devices. Additionally, factors that may impact demand for transportation service on any one system include the ability and willingness of natural gas shippers to utilize one system over alternative pipelines, transportation rates, and the volume of natural gas delivered to markets from other supply sources and storage facilities.
Our pipeline systems depend upon the WCSB for the majority of the natural gas that they transport. There has been a decline in the flows out of WCSB over the last year. However, as discussed above, the impact of this decline on any given pipeline is dependent upon market conditions in the markets those pipelines serve. The decline in WCSB gas available for export did not negatively impact throughput on our pipeline systems in 2007. We cannot predict the impact of any export declines on 2008 throughput which will depend on WCSB natural gas available for export in the future and market conditions in the markets our pipeline systems serve.
The 2006-2007 winter was unusually warm in the markets served by Great Lakes. The low winter demand drove gas prices in the WCSB down and made it attractive to source gas in the supply area and move it to market instead of drawing storage gas. This increased utilization on the Great Lakes pipeline system. It also left Midwest storage levels at record highs, but in the post-Katrina environment when markets were disrupted by the hurricane, Great Lakes had sold its 2007 summer (and some winter 2006-2007) capacity on a firm basis so revenues were not adversely affected by lower than normal storage injection. Finally, with storage inventories at or near maximum, system demand was maintained late in the year by aggressively discounting to move available supply to markets.
Increased drilling and production activity in the Powder River Basin of Wyoming and Montana and the Williston Basin of Montana and North Dakota may present opportunities for Northern Border to pursue additional connections with this supply area. Future opportunities for potential additional supply include the construction of proposed coal gasification