TransCanada Announces Second Quarter Results, Board Declares Dividend of $0.32 Per Share
Posted on: Thursday, 27 July 2006, 15:00 CDT
Second Quarter 2006 Highlights:
(All financial figures are in Canadian dollars unless noted otherwise).
- Net income from continuing operations for second quarter 2006 of $244 million or $0.50 per share.
- Funds generated from operations for second quarter 2006 of $539 million.
- Dividend of $0.32 per common share declared by the Board of Directors.
TransCanada Corporation (TSX: TRP) (NYSE: TRP) today announced net income and net income from continuing operations (net earnings) for second quarter 2006 of $244 million or $0.50 per share, compared to $200 million or $0.41 per share for second quarter 2005. The increase was primarily due to significantly higher net earnings from the Energy segment and lower net expenses in Corporate, partially offset by lower net earnings from the Pipelines segment. Second quarter 2006 net earnings included a $33 million future income tax benefit ($23 million in the Energy segment and $10 million in Corporate) as a result of a reduction in Canadian federal and provincial corporate income tax rates and a $13 million after-tax gain related to the sale of the company's general partnership interest in Northern Border Partners, L.P. Second quarter 2005 net earnings included $13 million related to 2004 as a result of a decision from the National Energy Board in April 2005 on Phase II of the Canadian Mainline's 2004 Tolls and Tariff Application. Excluding these items, net earnings for second quarter 2006 increased by $11 million or $0.02 per share compared to second quarter 2005.
For the six months ended June 30, 2006, TransCanada's net earnings were $489 million or $1.00 per share compared to $432 million or $0.89 per share for the same period in 2005. In addition to the items noted above, net earnings for the six months ended June 30, 2006 include an $18 million after-tax bankruptcy settlement receipt from a former shipper on the Gas Transmission Northwest System and net earnings for the six months ended June 30, 2005 include an after-tax gain of $49 million on the sale of TC PipeLines, LP common units. Excluding all of the above noted items, net earnings for the six months ended June 30, 2006 increased by $55 million or $0.11 per share compared to the same period in 2005.
Net income for the six months ended June 30, 2006 includes $28 million or $0.06 per share from discontinued operations reflecting settlements received in the first quarter 2006 from bankruptcy claims related to TransCanada's Gas Marketing business which was divested in 2001. Net income for the six months ended June 30, 2006 totalled $517 million or $1.06 per share compared to $432 million or $0.89 per share for the same period in 2005.
Funds generated from operations of $539 million and $1,056 million for the three and six months ended June 30, 2006 increased $41 million and $138 million, respectively, when compared to the same periods in 2005.
"TransCanada's strong operating performance during the first six months of 2006 contributed to continued growth in earnings and funds generated from operations," said Hal Kvisle, president and chief executive officer.
"The increase in net earnings from our Energy business is evidence that our disciplined approach to growth and value creation is working. Our focus on acquiring low-cost, competitive power facilities and developing low risk, greenfield power projects is creating real value for our shareholders," he said. "TransCanada's Pipelines business continued to deliver solid results although net earnings declined primarily as a result of lower rates of return on common equity and lower average investment bases on the Canadian Mainline and Alberta System.
"Going forward," said Mr. Kvisle, "TransCanada remains focused on maximizing the long-term value of our existing asset base and prudently growing our portfolio of high quality, long-life energy infrastructure assets. We have an excellent portfolio of growth opportunities, with several projects, including the 550 megawatt Becancour cogeneration plant, the initial phase of the 740 megawatt Cartier Wind facilities, the Edson natural gas storage facility and the Tamazunchale pipeline in Mexico, all expected to begin commercial operations by the end of the year.
"We also continue to make solid progress on the Bruce Power restart and refurbishment project and to advance the Keystone oil pipeline and the Cacouna and Broadwater LNG facilities through the regulatory process. We remain committed to pursuing pipeline opportunities to move northern frontier natural gas to growing North American markets."
Effective June 1, 2006, TransCanada revised the composition and names of its reportable business segments to Pipelines and Energy. Pipelines is principally comprised of the company's pipelines in Canada, the United States and Mexico. Energy includes the company's power operations, natural gas storage and liquefied natural gas (LNG) businesses in Canada and the United States. These changes had no impact on consolidated net income.
Recent Developments
Pipelines
- Construction of the 125 kilometre Tamazunchale pipeline is nearing completion and on schedule to be placed in service in December 2006. The US$181 million pipeline will transport natural gas under a long-term (26 year) contract with the Mexican Comision Federal de Electricidad to an electricity generation station near Tamazunchale, San Luis Potosi, Mexico. Under the contract, the capacity of the Tamazunchale pipeline will be expanded beginning in 2009 to meet the needs of two additional proposed power plants.
- On June 30, 2006, the Gas Transmission Northwest System, TransCanada's wholly-owned interstate pipeline that serves markets in the U.S. Pacific Northwest and California, filed a rate case with the U.S. Federal Energy Regulatory Commission. The comprehensive filing requested a number of tariff changes including an increase in rates for certain services. This is the Gas Transmission Northwest System's first rate case since 1994.
- On June 26, 2006, TransCanada filed an application with the Alberta Energy and Utilities Board (EUB), seeking approval to build natural gas transmission infrastructure in northern Alberta which would serve to connect natural gas from the Mackenzie Gas Pipeline Project to the Alberta System. TransCanada is proposing construction of approximately 103 kilometres of pipeline in two separate sections in the Dickins Lake and Vardie River area at an estimated cost of $212 million. The timing of construction of the proposed infrastructure remains dependent upon the timing of the Mackenzie Gas Pipeline Project. Public hearings on the project are now anticipated to conclude in April 2007.
- On June 6, 2006, TransCanada advanced the US$2.1 billion Keystone oil pipeline project with the filing of an application with the National Energy Board (NEB) seeking approval to transfer a portion of the Canadian Mainline to the Keystone pipeline for the purpose of transporting crude oil from Alberta to refining centres in the U.S. Midwest. The transfer application is the first of two major regulatory applications required to obtain approvals necessary to construct the Canadian portion of the Keystone pipeline. The project will also require regulatory approvals from various U.S. agencies. The NEB has scheduled an oral public hearing on the application to commence on October 23, 2006.
TransCanada expects to file an application with the NEB for a certificate of public convenience and necessity to construct the required new facilities later this year once environmental assessment work is completed. TransCanada filed its Preliminary Information Package for the required new facilities with the NEB on July 10, 2006.
TransCanada also continued to consult with stakeholders along the proposed route of the Keystone pipeline in May and June 2006. Public consultations included a series of open houses relating to the proposed extension of the Keystone pipeline to Cushing, Oklahoma. TransCanada anticipates holding a binding Open Season on the proposed Cushing Extension later this year.
- Details of the natural gas contract between the State of Alaska and North Slope producers regarding the Alaska Highway Pipeline Project were made public in May 2006. The contract remains contingent on legislative approval and enactment of legislation related to State taxes on crude oil. The Alaska legislature reconvened in a special session beginning July 12, 2006 to consider the petroleum production tax legislation. TransCanada looks forward to working with the State and producers to bring Alaska natural gas to market.
- The series of transactions that will result in a subsidiary of TransCanada becoming the operator of Northern Border Pipeline Company (Northern Border) in early second quarter 2007 closed on April 6, 2006. As part of the series of transactions, TC PipeLines, LP acquired an additional 20 per cent interest in Northern Border bringing its total general partnership interest in Northern Border to 50 per cent. A subsidiary of TransCanada is the general partner of TC PipeLines, LP. TransCanada owns 13.4 per cent of the partnership's common units.
Energy
- Construction is nearing completion on the 550 megawatt (MW) Becancour cogeneration plant with successful testing and other related start-up activities completed in late second quarter 2006. The plant, near Trois-Rivieres, Quebec, is scheduled to begin commercial operations in fall 2006. The facility will supply electricity to Hydro-Quebec Distribution under a long-term contract as well as provide a source of competitively priced steam for adjacent industrial processes.
- In June, Cartier Wind began construction on the 100.5 MW Anse a Valleau wind farm, the second of the six wind farms that comprise the Cartier Wind project in the Gaspe region of Quebec. The Anse a Valleau wind farm is expected to deliver energy to the Hydro-Quebec grid by December 2007. Construction continues on the 109.5 MW Baie des Sables wind farm and remains on schedule for completion in December 2006. TransCanada has a 62 per cent interest in the Cartier Wind project which was awarded six projects by Hydro-Quebec Distribution in October 2004 representing a total of 739.5 MW.
- The Bruce A restart and refurbishment project reached a key milestone on July 5, 2006 when the Canadian Nuclear Safety Commission accepted Bruce Power's Environmental Assessment (EA), presented at a public hearing May 19, 2006. Completion of the EA enables Bruce Power to move to the next stage of restart activities. This is the first life extension undertaken on a CANDU nuclear power plant in Canada. The restart and refurbishment project, initially announced in October 2005, will return another 1,500 MW of generating capacity to Ontario, commencing in late 2009.
- Construction also continues on the Edson natural gas storage facility in Alberta. The Edson facility is expected to have a working natural gas capacity of approximately 60 petajoules and will connect to the Alberta System. Storage capacity is expected to be available commencing later this year.
- In April 2006, the Portlands Energy Centre (PEC) commenced preliminary site work in preparation for construction of a 550 MW high efficiency, combined-cycle generating station in downtown Toronto. PEC is a partnership between TransCanada and Ontario Power Generation. The partners continue to negotiate a long-term power purchase arrangement with the Ontario Power Authority.
- Hearings on the Cacouna Energy project before a joint review panel of the Canadian Environmental Assessment Agency and Quebec's Bureau d'audiences publiques sur l'environnement concluded June 15, 2006. Regulatory decisions are expected by the end of 2006. The LNG receiving terminal, designed to regasify approximately 500 million cubic feet of natural gas per day, is expected to be operational in late 2009 or early 2010. Another milestone of the project was achieved in early April with the awarding of the contract for front-end engineering and design work to an international consortium of engineering and construction firms. Cacouna Energy is a partnership between TransCanada and Petro-Canada.
- Broadwater Energy filed a Coastal Zone Management Act application with the State of New York in April 2006 relating to the proposed Broadwater LNG project in Long Island Sound. Pending regulatory approvals, Broadwater plans to begin operation in late 2010 and is designed to regasify one billion cubic feet of natural gas per day. Broadwater is a partnership between TransCanada and Shell US Gas & Power LLC.
Teleconference
TransCanada will hold a teleconference today at 2 p.m. (Mountain) / 4 p.m. (Eastern) to discuss the second quarter 2006 financial results and general developments and issues concerning the company. Analysts, members of the media and other interested parties wanting to participate should phone 1-866-898-9626 or 416-340-2216 (Toronto area) at least 10 minutes prior to the start of the teleconference. No passcode is required. A live webcast of the teleconference will also be available on TransCanada's website at www.transcanada.com.
The conference will begin with a short address by members of TransCanada's executive management, followed by a question and answer period for investment analysts. A question and answer period for members of the media will immediately follow.
A replay of the teleconference will be available two hours after the conclusion of the call until midnight (Eastern) August 3, 2006. Please call 1-800-408-3053 or 416-695-5800 (Toronto area) and enter passcode 3192148. The webcast will be archived and available for replay on www.transcanada.com.
About TransCanada
TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure. TransCanada's network of more than 41,000 kilometres (25,600 miles) of wholly-owned pipeline transports the majority of Western Canada's natural gas production to key Canadian and U.S. markets. A growing independent power producer, TransCanada owns, or has interests in, approximately 6,700 megawatts of power generation in Canada and the United States. TransCanada's common shares trade on the Toronto and New York stock exchanges under the symbol TRP.
Second Quarter 2006 Financial Highlights (unaudited) Three months ended Six months ended Operating results June 30 June 30 (millions of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------ Revenues 1,685 1,449 3,579 2,859 Net Income Continuing operations 244 200 489 432 Discontinued operations - - 28 - -------------------------------------- 244 200 517 432 -------------------------------------- -------------------------------------- Cash Flow Information Funds generated from operations(1) 539 498 1,056 918 Increase in operating working capital (91) (177) (93) (263) -------------------------------------- Net cash provided by operations 448 321 963 655 -------------------------------------- -------------------------------------- Capital expenditures 327 135 630 243 Acquisitions, net of cash acquired 358 632 358 632 Three months ended Six months ended June 30 June 30 Common Share Statistics 2006 2005 2006 2005 ------------------------------------------------------------------------ Net Income Per Share - Basic Continuing operations $ 0.50 $ 0.41 $ 1.00 $ 0.89 Discontinued operations - - 0.06 - -------------------------------------- $ 0.50 $ 0.41 $ 1.06 $ 0.89 -------------------------------------- -------------------------------------- Dividends Declared Per Share $ 0.32 $ 0.305 $ 0.64 $ 0.61 Common Shares Outstanding (millions) Average for the period - Basic 487.7 485.9 487.6 485.6 End of period 487.8 486.5 487.8 486.5 ------------------------------------------------------------------------ (1) For a complete discussion on funds generated from operations, see "Non-GAAP Measures" in Management's Discussion and Analysis of this Second Quarter 2006, Quarterly Report to Shareholders.
Management's Discussion and Analysis
Management's discussion and analysis (MD&A) dated July 27, 2006 should be read in conjunction with the accompanying unaudited consolidated financial statements of TransCanada Corporation (TransCanada or the company) for the six months ended June 30, 2006. It should also be read in conjunction with the audited consolidated financial statements and the MD&A contained in TransCanada's 2005 Annual Report for the year ended December 31, 2005. Additional information relating to TransCanada, including the company's Annual Information Form and continuous disclosure documents, is available on SEDAR at www.sedar.com under TransCanada Corporation. Amounts are stated in Canadian dollars unless otherwise indicated. Capitalized and abbreviated terms that are used but not otherwise defined herein have the meanings provided in the annual MD&A contained in TransCanada's 2005 Annual Report.
Forward-Looking Information
Certain information in this MD&A includes forward-looking statements. All forward-looking statements are based on TransCanada's beliefs and assumptions based on information available at the time the assumptions were made. Forward-looking statements relate to, among other things, anticipated financial performance, business prospects, strategies, regulatory developments, new services, market forces, commitments and technological developments. By its nature, such forward-looking information is subject to various risks and uncertainties, including those material risks discussed in the MD&A contained in TransCanada's 2005 Annual Report under "Gas Transmission - Business Risks" and "Power - Business Risks", which could cause TransCanada's actual results and experience to differ materially from the anticipated results or other expectations expressed. The material assumptions in making these forward-looking statements are disclosed in this MD&A under the heading "Outlook" and in the MD&A contained in the 2005 Annual Report under the headings "Overview and Strategic Priorities", "Gas Transmission - Opportunities and Developments", "Gas Transmission - Outlook", "Power - Opportunities and Developments" and "Power - Outlook". Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this MD&A or as otherwise stated, and TransCanada undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise.
Non-GAAP Measures
The company uses the measures "funds generated from operations" and "operating income" in its MD&A. These measures do not have any standardized meaning in generally accepted accounting principles (GAAP) and are therefore considered to be non-GAAP measures. These measures may not be comparable to similar measures presented by other entities. These measures have been used to provide readers with additional information on the company's liquidity and its ability to generate funds to finance its operations.
Funds generated from operations is comprised of net cash provided by operations before changes in operating working capital. Operating income is used in the Energy segment and is comprised of revenues plus equity income less operating expenses as shown on the consolidated income statement. See the Energy section in the MD&A for a reconciliation of operating income to net earnings.
Results of Operations
Effective June 1, 2006, TransCanada revised the composition and names of its reportable business segments to Pipelines and Energy. Pipelines is principally comprised of the company's pipelines in Canada, the United States and Mexico. Energy includes the company's power operations, natural gas storage and liquefied natural gas (LNG) businesses in Canada and the U.S. The internal organizational structure of the company has accordingly been aligned with these segments. The segmented information has been retroactively restated to reflect the changes in reportable segments. These changes had no impact on consolidated net income.
Consolidated Segment Results-at-a-Glance (unaudited) Three months ended Six months ended (millions of dollars except June 30 June 30 per share amounts) 2006 2005 2006 2005 ------------------------------------------------------------------------ Pipelines Excluding gains 134 165 291 326 Gain on sale of Northern Border Partners, L.P. interest 13 - 13 - Gain on sale of PipeLines LP units - 1 - 49 -------------------------------------- 147 166 304 375 -------------------------------------- Energy 97 41 197 73 Corporate - (7) (12) (16) -------------------------------------- Net Income Continuing operations(1) 244 200 489 432 Discontinued operations - - 28 - -------------------------------------- 244 200 517 432 -------------------------------------- -------------------------------------- Net Income Per Share Continuing operations(2) $ 0.50 $ 0.41 $ 1.00 $ 0.89 Discontinued operations - - 0.06 - -------------------------------------- Basic and Diluted $ 0.50 $ 0.41 $ 1.06 $ 0.89 -------------------------------------- -------------------------------------- Three months ended Six months ended June 30 June 30 2006 2005 2006 2005 -------------------------------------- (1) Net Income from Continuing Operations is comprised of: Excluding gains 231 199 476 383 Gains on sale of Northern Border Partners, L.P. interest and PipeLines LP units 13 1 13 49 -------------------------------------- 244 200 489 432 -------------------------------------- -------------------------------------- (2) Net Income Per Share from Continuing Operations is comprised of: Excluding gains $ 0.47 $ 0.41 $ 0.97 $ 0.79 Gains on sale of Northern Border Partners, L.P. interest and PipeLines LP units 0.03 - 0.03 0.10 -------------------------------------- $ 0.50 $ 0.41 $ 1.00 $ 0.89 -------------------------------------- --------------------------------------
TransCanada's net income and net income from continuing operations (net earnings) for second quarter 2006 were $244 million or $0.50 per share compared to $200 million or $0.41 per share for second quarter 2005. The increase of $44 million or $0.09 per share was primarily due to significantly higher net earnings from the Energy business and lower net expenses in Corporate, partially offset by lower net earnings from the Pipelines business.
The increase of $56 million in Energy's net earnings for second quarter 2006 compared to second quarter 2005 was primarily due to higher operating income from each of its existing businesses as well as a $23 million favourable impact on future income taxes arising from a reduction in Canadian federal and provincial corporate income tax rates enacted in second quarter 2006. These increases were partially offset by the loss of operating income associated with the sale of the Power LP investment in third quarter 2005.
The $7 million decrease in Corporate's net expenses in second quarter 2006 compared to second quarter 2005 was primarily due to a $10 million favourable impact on future income taxes arising from the reduction in Canadian federal and provincial corporate income tax rates in second quarter 2006. In addition, higher year-to-date interest income and other and the favourable impact of a weaker U.S. dollar were primarily offset by higher financial charges.
Pipelines' net earnings for second quarter 2006 decreased $19 million compared to second quarter 2005 mainly due to lower net earnings from the Canadian Mainline and Alberta System, as a result of lower rates of return on common equity (ROE) and lower average investment bases. In addition, Canadian Mainline's net earnings in second quarter 2005 included $13 million related to 2004 as a result of a second quarter 2005 decision from the National Energy Board (NEB) on the 2004 Tolls and Tariff Application (Phase II) dealing with capital structure. These decreases were partially offset by a $13 million after-tax gain on the sale of TransCanada's 17.5 per cent general partner interest in Northern Border Partners, L.P. to a subsidiary of ONEOK Inc. (ONEOK) in second quarter 2006.
TransCanada's net income for the six months ended June 30, 2006 was $517 million or $1.06 per share which included net income from discontinued operations of $28 million or $0.06 per share, reflecting bankruptcy settlements with Mirant Corporation and certain of its subsidiaries (Mirant) received in first quarter 2006 related to TransCanada's Gas Marketing business divested in 2001. Net income for the six months ended June 30, 2005 was $432 million or $0.89 per share.
TransCanada's net earnings for the six months ended June 30, 2006 were $489 million or $1.00 per share compared to $432 million or $0.89 per share for the same period in 2005. The increase of $57 million or $0.11 per share was primarily due to significantly higher net earnings from the Energy segment and lower net expenses in Corporate, partially offset by lower net earnings from the Pipelines segment.
The increase of $124 million in Energy's net earnings for the six months ended June 30, 2006 compared to the same period in 2005 was primarily due to higher operating income from each of its existing businesses as well as the $23 million favourable impact on future income taxes from the reduction of Canadian federal and provincial corporate income tax rates enacted in second quarter 2006. These increases were partially offset by the loss of operating income associated with the sale of the Power LP investment in third quarter 2005.
The decrease of $4 million in Corporate's net expenses for the six months ended June 30, 2006 compared to the same period in 2005 was primarily due to the $10 million favourable impact on future income taxes in second quarter 2006 from the reduction of Canadian federal and provincial corporate income tax rates, partially offset by higher income tax refunds and positive income tax adjustments recorded in the six months ended June 30, 2005. In addition, higher year-to-date interest income and other and the favourable impact of a weaker U.S. dollar were primarily offset by higher financial charges.
Excluding the $49 million gain on sale of PipeLines LP units in 2005 and the $13 million gain on sale of TransCanada's general partner interest in Northern Border Partners, L.P. in 2006, Pipelines' net earnings for the six months ended June 30, 2006 decreased $35 million compared to the same period in 2005. This decrease was primarily due to lower net earnings from the Canadian Mainline and Alberta System as a result of lower ROE and lower average investment bases in 2006 compared to 2005, the $13 million net earnings impact in second quarter 2005 related to 2004 resulting from the NEB's decision on the Canadian Mainline's 2004 Tolls and Tariff Application (Phase II) as well as lower net earnings from TransCanada's Other Pipelines. These decreases were partially offset by higher net earnings from GTN which included a $29 million ($18 million after tax) bankruptcy settlement with Mirant, a former shipper on the Gas Transmission Northwest System.
Funds generated from operations of $539 million and $1,056 million for the three and six months ended June 30, 2006 increased $41 million and $138 million, respectively, when compared to the same periods in 2005.
Pipelines
The Pipelines business generated net earnings of $147 million and $304 million for the three and six months ended June 30, 2006, respectively, compared to $166 million and $375 million for the same periods in 2005.
Pipelines Results-at-a-Glance Three months ended Six months ended (unaudited) June 30 June 30 (millions of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------ Wholly-Owned Pipelines Canadian Mainline 61 86 120 149 Alberta System 34 37 67 74 GTN 13 16 45 39 Foothills System 6 6 11 11 BC System 1 1 3 3 -------------------------------------- 115 146 246 276 -------------------------------------- Other Pipelines Great Lakes 11 11 23 25 Iroquois 3 3 7 7 PipeLines LP 3 1 4 5 Portland (2) - 4 6 Ventures LP 3 3 6 6 TQM 1 1 3 3 TransGas 2 3 5 6 Gas Pacifico/INNERGY 3 - 4 - Northern Development (1) (1) (2) (2) General, administrative, support costs and other (4) (2) (9) (6) -------------------------------------- 19 19 45 50 Gain on sale of PipeLines LP units - 1 - 49 Gain on sale of Northern Border Partners, L.P. interest 13 - 13 - -------------------------------------- 32 20 58 99 -------------------------------------- Net Earnings 147 166 304 375 -------------------------------------- --------------------------------------
Wholly-Owned Pipelines
Canadian Mainline's net earnings decreased $25 million and $29 million for the three and six months ended June 30, 2006, respectively, compared to the corresponding periods in 2005. These decreases were primarily due to a lower ROE, as determined by the NEB, of 8.88 per cent in 2006 compared to 9.46 per cent in 2005, a lower average investment base, and the positive impact of the NEB's decision on the Canadian Mainline's 2004 Tolls and Tariff Application (Phase II) in April 2005. This NEB decision included an increase in the deemed common equity ratio from 33 per cent to 36 per cent for 2004 which was also effective for 2005 under the 2005 tolls settlement with shippers. As a result, Canadian Mainline's net earnings in second quarter 2005 included $13 million related to 2004.
The Alberta System's net earnings decreased $3 million and $7 million for the three and six months ended June 30, 2006, respectively, compared to the same periods in 2005. These decreases were primarily due to a lower average investment base as well as a lower ROE, as determined by the Alberta Energy and Utilities Board (EUB), in 2006 compared to 2005. Net earnings in 2006 reflected an ROE of 8.93 per cent on deemed common equity of 35 per cent compared to an ROE of 9.50 per cent on deemed common equity of 35 per cent in 2005.
GTN's net earnings for second quarter 2006 decreased $3 million compared to second quarter 2005 which included a $2 million positive impact related to amortization of a fair value adjustment to long-term debt as a result of the purchase of GTN in late 2004. GTN's net earnings for the six months ended June 30, 2006 were $45 million, a $6 million increase over the same period in 2005. This was primarily due to a $29 million ($18 million after tax) bankruptcy settlement with Mirant in first quarter 2006. Lower transportation revenues negatively impacted net earnings by approximately $6 million after tax. In addition, the results for the six months ended June 30, 2005 included $6 million of net earnings related to amortization of the fair value adjustment to long-term debt.
Operating Statistics Six months Gas ended June 30 Transmission (unaudited) Canadian Alberta Northwest Mainline(1) System(2) System(3) 2006 2005 2006 2005 2006 2005 ------------------------------------------------------------------------ Average investment base ($ millions) 7,454 7,873 4,305 4,534 n/a n/a Delivery volumes (Bcf) Total 1,534 1,437 2,026 1,936 349 383 Average per day 8.5 7.9 11.2 10.7 1.9 2.1 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Foothills System BC System 2006 2005 2006 2005 --------------------------------------------------- Average investment base ($ millions) 654 687 207 219 Delivery volumes (Bcf) Total 500 520 156 162 Average per day 2.8 2.9 0.9 0.9 ---------------------------------------------------- ---------------------------------------------------- (1) Canadian Mainline deliveries originating at the Alberta border and in Saskatchewan for the six months ended June 30, 2006 were 1,144 Bcf (2005 -- 1,044 Bcf); average per day was 6.3 Bcf (2005 -- 5.8 Bcf). (2) Field receipt volumes for the Alberta System for the six months ended June 30, 2006 were 2,070 Bcf (2005 -- 1,979 Bcf); average per day was 11.4 Bcf (2005 -- 10.9 Bcf). (3) The Gas Transmission Northwest System operates under a fixed rate model approved by the United States Federal Energy Regulatory Commission (FERC) and, as a result, the system's current results are not dependent on average investment base.
Other Pipelines
TransCanada's proportionate share of net earnings from Other Pipelines was $32 million for the three months ended June 30, 2006 compared to $20 million for the same period in 2005. Net earnings in second quarter 2006 included a $13 million after-tax gain on the sale of TransCanada's 17.5 per cent general partner interest in Northern Border Partners, L.P. while net earnings in second quarter 2005 included a $1 million after-tax gain on sale of PipeLines LP units. Excluding these gains, net earnings for second quarter 2006 were consistent with the same quarter in 2005. Increased net earnings from Gas Pacifico/INNERGY due to natural gas curtailments experienced in 2005 and from PipeLines LP, mainly due to an additional ownership interest in Northern Border, were offset by higher support costs and lower earnings from Portland due to a provision recorded in second quarter 2006 for non-payment of contract transportation revenue from a subsidiary of Calpine Corporation that has filed for bankruptcy protection.
Net earnings for the six months ended June 30, 2006 were $58 million compared to $99 million for the corresponding period in 2005. Excluding the $13 million after-tax gain on sale of the Northern Border Partners, L.P. general partner interest recorded in 2006, and the $49 million after-tax gain on sale of PipeLines LP units recorded in 2005, net earnings for the six months ended June 30, 2006 were $5 million lower compared to the same period in 2005. Increased net earnings from Gas Pacifico/INNERGY as a result of natural gas curtailments in 2005 were more than offset by the impact of a weaker U.S. dollar in 2006, higher support costs, and lower net earnings from Portland compared to 2005.
As at June 30, 2006, TransCanada had advanced $104 million to the Aboriginal Pipeline Group with respect to the Mackenzie Gas Pipeline Project and had capitalized $10 million related to the Keystone pipeline.
Energy Energy Results-at-a-Glance (unaudited) Three months ended Six months ended June 30 June 30 (millions of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------ Bruce Power 41 13 104 43 Western Power Operations 46 28 104 58 Eastern Power Operations 43 39 92 44 Natural Gas Storage 17 3 39 11 Power LP Investment - 8 - 17 General, administrative and support costs (35) (30) (65) (63) -------------------------------------- Operating income 112 61 274 110 Financial charges (5) (3) (12) (7) Interest income and other 1 - 3 3 Income taxes (11) (17) (68) (33) -------------------------------------- Net Earnings 97 41 197 73 -------------------------------------- --------------------------------------
Energy's net earnings of $97 million in second quarter 2006 increased $56 million compared to $41 million in second quarter 2005 due to higher operating income from each of its existing businesses and the positive impact of future income tax adjustments ($23 million) resulting from a reduction in Canadian federal and provincial corporate income tax rates enacted in second quarter 2006. Partially offsetting these increases was the loss of operating income associated with the sale of the Power LP investment in third quarter 2005.
Bruce Power's contribution to operating income increased $28 million in second quarter 2006 compared to second quarter 2005, primarily due to higher generation volumes. Lower overall realized prices partially offset the positive impact of higher volumes.
Western Power Operations' operating income was $18 million higher in second quarter 2006 compared to second quarter 2005 primarily due to incremental earnings from the December 31, 2005 acquisition of the 756 megawatt (MW) Sheerness power purchase arrangement (PPA) and improved margins from higher overall realized power prices and higher market heat rates on uncontracted volumes of power sold.
Eastern Power Operations' operating income was $4 million higher in second quarter 2006 compared to second quarter 2005 primarily due to a higher overall margin on the sale of power and profits earned on natural gas purchased and resold under the OSP gas supply contracts. Partially offsetting these increases was the negative impact of a weaker U.S. dollar and an increase in the total cost of generating power primarily resulting from increased fuel costs associated with an increased dispatch of the OSP facility.
Natural Gas Storage operating income increased $14 million in second quarter 2006 compared to second quarter 2005 primarily due to higher contributions from the CrossAlta natural gas storage facility as a result of increased capacity and higher natural gas storage spreads.
Energy's net earnings for the six months ended June 30, 2006 of $197 million increased $124 million compared to $73 million for the same period in 2005. The increase was due to higher contributions from each of its existing businesses and the positive impact of reduced corporate income tax rates. Partially offsetting these increases was the loss of operating income associated with the sale of the Power LP investment in third quarter 2005.
Bruce Power
Effective October 31, 2005, TransCanada increased its interest in the Bruce A units through the formation of the Bruce A partnership. Bruce A subleases its facilities from Bruce B. TransCanada commenced proportionately consolidating its investments in Bruce A and Bruce B effective October 31, 2005. The following Bruce Power financial results reflect the operations of the full six-unit facility for both periods.
Bruce Power Results-at-a-Glance(1) (unaudited) Three months ended Six months ended June 30 June 30 (millions of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------ Bruce Power (100 per cent basis) Revenues Power 439 385 918 796 Other(2) 11 8 28 15 -------------------------------------- 450 393 946 811 -------------------------------------- Operating expenses Operations and maintenance (226) (228) (446) (433) Fuel (22) (18) (42) (37) Supplemental rent (42) (41) (85) (82) Depreciation and amortization (34) (49) (65) (97) -------------------------------------- (324) (336) (638) (649) -------------------------------------- Revenues, net of operating expenses 126 57 308 162 Financial charges under equity accounting - (17) - (34) -------------------------------------- 126 40 308 128 -------------------------------------- -------------------------------------- TransCanada's proportionate share 39 12 101 40 Adjustments 2 1 3 3 -------------------------------------- TransCanada's operating income from Bruce Power(3) 41 13 104 43 -------------------------------------- -------------------------------------- Bruce Power - Other Information Plant availability Bruce A 63% 71% Bruce B 94% 95% Combined Bruce Power 84% 71% 87% 76% Sales volumes (GWh)(4) Bruce A -- 100 per cent 2,070 4,590 Bruce B -- 100 per cent 6,630 13,250 Combined Bruce Power -- 100 per cent 8,700 7,299 17,840 15,520 TransCanada's proportionate share 3,094 2,306 6,400 4,904 Results per MWh(5) Bruce A revenues $ 58 $ 58 Bruce B revenues $ 48 $ 49 Combined Bruce Power revenues $ 51 $ 53 $ 51 $ 51 Fuel $ 2 $ 2 $ 2 $ 2 Total operating expenses(6) $ 37 $ 46 $ 35 $ 42 Percentage of output sold to spot market 39% 49% 38% 49% -------------------------------------- -------------------------------------- (1) All information in the table includes adjustments to eliminate the effects of inter-partnership transactions between Bruce A and Bruce B. (2) Includes fuel cost recoveries for Bruce A of $5 million and $11 million for the three and six months ended June 30, 2006, respectively. (3) TransCanada's consolidated equity income included $13 million and $43 million for the three and six months ended June 30, 2005, respectively, representing TransCanada's 31.6 per cent share of Bruce Power earnings. (4) Gigawatt hours. (5) Megawatt hours. (6) Net of fuel cost recoveries.
TransCanada's operating income of $41 million from its combined investment in Bruce Power increased $28 million in second quarter 2006 compared to second quarter 2005, primarily due to higher generation volumes and an increased ownership interest in the Bruce A facilities, effective October 31, 2005. Partially offsetting the increases was the negative impact of lower realized prices.
TransCanada's share of Bruce Power's generation for second quarter 2006 increased 788 GWh to 3,094 GWh compared to second quarter 2005 generation of 2,306 GWh as a result of fewer planned maintenance outage days in second quarter 2006 than in second quarter 2005 and an increased ownership interest in the Bruce A facilities. Bruce Power prices achieved during second quarter 2006 (excluding other revenues) were $51 per MWh, compared to $53 per MWh in second quarter 2005. Bruce Power's operating expenses (net of fuel cost recoveries) in second quarter 2006 decreased to $37 per MWh from $46 per MWh in second quarter 2005 primarily due to increased output in second quarter 2006.
Approximately 50 reactor days of planned maintenance outages as well as approximately 24 reactor days of unplanned outages, including an eight day extension of a planned outage, occurred on the six operating units in second quarter 2006. In second quarter 2005, Bruce Power experienced 81 reactor days of planned maintenance outages and 61 reactor days of unplanned outages. The Bruce Power units ran at a combined average availability of 84 per cent in second quarter 2006, compared to a 71 per cent average availability during second quarter 2005.
TransCanada's operating income from its combined investment in Bruce Power for the six months ended June 30, 2006 was $104 million compared to $43 million for the same period in 2005. The increase of $61 million was primarily due to higher sales volumes resulting from increased plant availability and an increased ownership interest in the Bruce A facilities.
Combined Bruce Power prices achieved for the six months ended June 30, 2006 (excluding other revenues) were $51 per MWh, equal to the same period in 2005. Bruce Power's combined operating expenses (net of fuel cost recoveries) decreased to $35 per MWh for the six months ended June 30, 2006 from $42 per MWh in 2005 primarily due to increased output in 2006. The Bruce units ran at a combined average availability of 87 per cent in the six months ended June 30, 2006 compared to 76 per cent in the same period in 2005.
The overall plant availability percentage in 2006 is still expected to be in the low 90s for the four Bruce B units and in the low 80s for the two operating Bruce A units. A planned one month maintenance outage on Bruce A Unit 3 during first quarter 2006 and a planned two month maintenance outage on Bruce A Unit 4 during second quarter 2006 were completed. The only planned maintenance outage for 2006 for Bruce B is an approximate two month outage scheduled for Unit 8 beginning in third quarter 2006.
Income for Bruce B is directly impacted by fluctuations in wholesale spot market prices for electricity. Income from both Bruce A and Bruce B units is impacted by overall plant availability, which in turn is impacted by scheduled and unscheduled maintenance. As a result of a contract with the Ontario Power Authority (OPA), for first quarter 2006, all of the output from Bruce A was sold at a fixed price of $57.37 per MWh (before recovery of fuel costs from the OPA) and sales from the Bruce B Units 5 to 8 were subject to a floor price of $45 per MWh. Both of these reference prices are adjusted annually on April 1 for inflation and other potential adjustments per the terms of the contract with OPA. Effective April 1, 2006, the Bruce A fixed price is $58.63 per MWh and the Bruce B floor price is $45.99 per MWh. To further reduce its exposure to spot market prices, Bruce B has entered into fixed price sales contracts to sell forward approximately 6,700 GWh of output for the remainder of 2006 and 6,300 GWh of output for 2007.
Bruce A's four unit, seven year capital program for the restart and refurbishment project is expected to total approximately $4.25 billion with TransCanada's share being approximately $2.125 billion. As at June 30, 2006, Bruce A had incurred $645 million with respect to the restart and refurbishment project.
Western Power Operations Western Power Operations Results-at-a-Glance (unaudited) Three months ended Six months ended June 30 June 30 (millions of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------ Revenues Power 221 151 496 315 Other(1) 38 37 102 79 -------------------------------------- 259 188 598 394 -------------------------------------- Cost of sales Power (150) (98) (340) (208) Other(2) (28) (22) (76) (50) -------------------------------------- (178) (120) (416) (258) -------------------------------------- Other costs and expenses (30) (35) (68) (68) Depreciation (5) (5) (10) (10) -------------------------------------- Operating income 46 28 104 58 -------------------------------------- -------------------------------------- (1) Includes Cancarb Thermax and natural gas sales. (2) Other cost of sales includes the cost of natural gas sold. Western Power Operations Sales Volumes (unaudited) Three months ended Six months ended June 30 June 30 (GWh) 2006 2005 2006 2005 ------------------------------------------------------------------------ Supply Generation 438 511 1,023 1,147 Purchased Sundance A & B and Sheerness PPAs 2,846 1,713 6,237 3,544 Other purchases 519 614 1,005 1,345 -------------------------------------- 3,803 2,838 8,265 6,036 -------------------------------------- -------------------------------------- Contracted vs. Spot Contracted 2,407 2,462 5,158 5,147 Spot 1,396 376 3,107 889 -------------------------------------- 3,803 2,838 8,265 6,036 -------------------------------------- --------------------------------------
Western Power Operations' operating income of $46 million in second quarter 2006 was $18 million higher compared to second quarter 2005 primarily due to incremental earnings from the December 31, 2005 acquisition of the 756 MW Sheerness PPA. Operating income was also higher due to increased margins in second quarter 2006 compared to second quarter 2005 from higher overall realized power prices and higher market heat rates on uncontracted volumes of power sold. The market heat rate is determined by dividing the average price of power per MWh by the average price of natural gas per gigajoule (GJ) for a given period. Market heat rates increased by approximately 29 per cent as a result of an approximate four per cent ($2.15 per MWh) increase in spot market power prices, while average spot market natural gas prices in Alberta decreased by approximately 18 per cent ($1.25 per GJ) in second quarter 2006 compared to the same quarter in 2005. A significant portion of power sales volumes were sold into the spot market in second quarter 2006 due to the acquisition of the Sheerness PPA on December 31, 2005. TransCanada manages the sale of its supply volumes on a portfolio basis. Depending on market conditions, TransCanada will commit a portion of this supply to long-term sales arrangements with the remaining volumes subject to spot market price volatility. This approach to portfolio management assists in minimizing costs in situations where TransCanada would otherwise have to purchase electricity in the open market to fulfill its contractual sales obligations.
Power sales revenues and power cost of sales increased in second quarter 2006 compared to second quarter 2005 primarily due to the acquisition of the Sheerness PPA, effective December 31, 2005, and higher overall realized power prices in second quarter 2006. Generation volumes of 438 GWh in second quarter 2006 decreased 73 GWh compared to second quarter 2005 primarily due to planned outages and reduced dispatch of Alberta cogeneration assets during periods of uneconomic market conditions. The Bear Creek facility is expected to return to service in third quarter 2006. Purchased power volumes and the percentage of power volumes sold into the Alberta spot market increased in second quarter 2006 compared to 2005 due to the acquisition of the Sheerness PPA. A significant portion of the Sheerness PPA purchased volumes were not sold under contract and were subject to spot market prices. As a result, approximately 37 per cent of power sales volumes were sold into the spot market in second quarter 2006 compared to 13 per cent in second quarter 2005. To reduce its exposure to spot market prices on uncontracted volumes, as at June 30, 2006, Western Power Operations had fixed price power sales contracts to sell approximately 5,900 GWh for the remainder of 2006 and approximately 7,900 GWh for 2007.
Eastern Power Operations Eastern Power Operations Results-at-a-Glance (unaudited) Three months ended Six months ended June 30 June 30 (millions of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------ Revenue Power 174 129 335 244 Other(1) 58 73 175 143 -------------------------------------- 232 202 510 387 -------------------------------------- Cost of sales Power (89) (51) (190) (113) Other(1) (53) (74) (149) (139) -------------------------------------- (142) (125) (339) (252) -------------------------------------- Other costs and expenses (40) (32) (65) (81) Depreciation (7) (6) (14) (10) -------------------------------------- Operating income 43 39 92 44 -------------------------------------- -------------------------------------- (1) Other includes natural gas. Eastern Power Operations Sales Volumes (unaudited) Three months ended Six months ended June 30 June 30 (GWh) 2006 2005 2006 2005 ------------------------------------------------------------------------ Supply Generation 949 962 1,654 1,406 Purchased 667 494 1,397 1,305 -------------------------------------- 1,616 1,456 3,051 2,711 -------------------------------------- -------------------------------------- Contracted vs. Spot Contracted 1,503 1,228 2,886 2,417 Spot 113 228 165 294 -------------------------------------- 1,616 1,456 3,051 2,711 -------------------------------------- --------------------------------------
Operating income in second quarter 2006 from Eastern Power Operations of $43 million increased $4 million compared to $39 million in second quarter 2005. The increase was primarily due to higher overall margins on the sale of power and profits earned on natural gas purchased and resold under the OSP gas supply contracts. Partially offsetting these increases was the negative impact of a weaker U.S. dollar and an increase in the total cost of generating power primarily resulting from increased fuel costs associated with an increased dispatch of the OSP facility.
Operating income for the six months ended June 30, 2006 was $92 million or $48 million higher than the $44 million earned over the same period in 2005. The increase was primarily due to incremental income from the April 1, 2005 acquisition of the TC Hydro generation assets, a $16 million pre-tax ($10 million after tax) first quarter 2005 one-time restructuring payment from OSP to its natural gas fuel suppliers, and margins earned in first quarter 2006 on transportation related to unutilized OSP natural gas fuel. Partially offsetting these increases was the negative impact of a weaker U.S. dollar.
Generation volumes in second quarter 2006 decreased 13 GWh to 949 GWh compared to second quarter 2005. Lower generation from the TC Hydro generation assets was mostly offset by increased dispatch of the OSP facility.
Power sales revenues of $174 million increased $45 million in second quarter 2006 compared to second quarter 2005 due to higher realized prices resulting from increased contract prices and increased sales volumes. Power cost of sales of $89 million was higher in second quarter 2006 compared to second quarter 2005 due to the impact of higher prices for purchased power. Purchased power volumes of 667 GWh were higher in second quarter 2006 due to increased sales volumes. Second quarter 2006 other revenue and other cost of sales of $58 million and $53 million, respectively, decreased year-over-year primarily as a result of increased generation from the OSP facility leading to a reduction in natural gas being resold. Other costs and expenses in second quarter 2006 of $40 million, which includes fuel gas consumed in generation, increased primarily from the prior year as a result of increased generation from the OSP facility.
In second quarter 2006, approximately seven per cent of power sales volumes were sold into the spot market compared to approximately 16 per cent in second quarter 2005. Eastern Power Operations is focused on selling the majority of its power under contract to wholesale, commercial and industrial customers while managing a portfolio of power supplies sourced from its own generation and wholesale power purchases. To reduce its exposure to spot market prices, as at June 30, 2006, Eastern Power Operations had entered into fixed price power sales contracts to sell approximately 2,700 GWh for the remainder of 2006 and approximately 4,400 GWh for 2007, although certain contracted volumes are dependent on customer usage levels.
Natural Gas Storage
Natural Gas Storage operating income of $17 million and $39 million for the three and six months ended June 30, 2006, increased $14 million and $28 million, respectively, compared to the same periods in 2005. The increases were primarily due to higher contributions from the CrossAlta natural gas storage facility as a result of increased capacity and higher natural gas storage spreads, and income from other contracted third party natural gas storage capacity in Alberta.
General, Administrative and Support Costs
General, administrative and support costs of $35 million and $65 million for the three and six months ended June 30, 2006 increased $5 million and $2 million, respectively, compared to the same periods in 2005. The increases were primarily due to higher business development costs. As at June 30, 2006, TransCanada had capitalized $23 million related to the Broadwater LNG project.
Power Sales Volumes and Plant Availability Power Sales Volumes Three months ended Six months ended (unaudited) June 30 June 30 (GWh) 2006 2005 2006 2005 ------------------------------------------------------------------------ Bruce Power(1) 3,094 2,306 6,400 4,904 Western Power Operations(2) 3,803 2,838 8,265 6,036 Eastern Power Operations(3) 1,616 1,456 3,051 2,711 Power LP Investment(4) - 723 - 1,420 -------------------------------------- Total 8,513 7,323 17,716 15,071 -------------------------------------- -------------------------------------- (1) Sales volumes reflect TransCanada's proportionate shareSource: MARKET WIRE
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