TC PipeLines, LP (TCP)

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TC PipeLines, LP (TCP)

Q3 2012 Earnings Call

October 26, 2012, 11:00 am ET

Executives

Lee Evans - Manager, Investor Relations

Steve Becker - President

Sandra Ryan-Robinson - Principal Financial Officer

Analysts

Jeremy Tonet - JPMorgan

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the TC PipeLines, LP 2012 Third Quarter Results. I would now like to turn the meeting over to Mr. Lee Evans, Manager, Investor Relations. Please go ahead, Mr. Evans.

Lee Evans

Thank you, operator, and good day everyone. I would like to welcome you to TC PipeLines’ third quarter 2012 conference call. I am joined today by our President, Steve Becker; Principal Financial Officer, Sandra Ryan-Robinson and Vice President and General Manager, Stuart Kampel.

Please note that a slide presentation will accompany the remarks, and is available on our website at tcpipelines.com, where it can be found in the Investor Center section, under the heading Events & Presentations.

Steve will begin today with a review of TC PipeLines’ third quarter results and provide an update on the various developments concerning the Partnership. Sandra will then proceed to review in detail our financial results for the third quarter. Steve will then return, and wrap up the conference call with some remarks or with some key takeaways. Following the prepared remarks, I will ask the conference operator to coordinate your questions.

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. All forward-looking statements are based on our beliefs, as well as assumptions made by information currently available to us.

These statements reflect the current views with respect to future events and are subject to various risks, uncertainties and assumptions as discussed in detail in our 2011 10-K as well as our subsequent filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize or if the underlying assumptions prove incorrect, actual results may differ materially from those described in the forward-looking statements.

With that, I would now like to turn the call over to Steve.

Steve Becker

Thanks Lee and good morning, everyone. As outlined in our news release this morning and starting on slide number four, TC PipeLines generated Partnership cash flow of $48 million in the third quarter. During the quarter, we paid out $43 million in cash distributions to unit holders.

The Partnership also announced its third quarter cash distribution in the amount of $0.78 per common unit. The third quarter distribution represents a 1.3% increase over the same period last year and marks the Partnership’s 54th consecutive quarterly distribution paid to our unit holders.

In terms of financial performance, five of the Partnership’s six assets generated results very similar to last year in the third quarter, with Great Lakes continuing to experience difficult market conditions due to low gas prices and bases spreads and high natural gas storage levels. These factors resulted in Great Lakes generating lower transmission revenues as a result of selling it's long haul capacity at rates lower than last year.

Overall, our partnership generated net income of 35 million in the third quarter, compared to 41 million in the same period last year. The third quarter 2012 net income is equivalent to $0.64 per common unit. Moving to slide 5, I’d now like to take a moment to discuss the developments of the partnerships, two largest assets.

As we highlighted last quarter, Great Lakes long haul summer capacity was fully contracted in the quarter at lower rates versus last year. With continued record high storage levels in Michigan and Eastern Canada, shippers are not being incentivized to recontract capacity at historical rates. In order to be able to recontract this capacity, Great Lakes had to offer capacity at rates lower than what had been contracted at in the past.

Great Lakes remain substantially contracted through the end of October, and 22% of it's long haul capacity is contracted beyond November 1, through most of the 2013. Going forward, selling capacity this winter season in the fourth quarter of 2012 and the first quarter of 2013 will be primarily dependent on weather-based factors and how much gas is withdrawn from storage. Depending on the level of sales, transmission revenues from the fourth quarter could be significantly lower relative to the same period in 2011.

As we look to storage refill season in 2013, two factors are primarily expected to influence shipper decisions to be contract on Great Lakes. First factor is that the National Energy Board in Canada is not expected to issue its final decision on the Canadian mainline tool application before late first quarter 2013. This decision will provide more tool certainty for the mainline, which is the upstream pipeline from which Great Lakes waves receives Western Canadian gas. The second factor is the weather and overall supply-demand profile as measured by natural gas pricing and storage levels. We remain cautiously optimistic that demand for Great Lakes capacity during the summer storage refill season in 2013 will return with normalized winter weather this season at transportation rates we have realized in the past.

Great Lakes current rate case settlement expires on November 1, 2013 and requires it to file for new rates on or before this date. The partnership along with TransCanada its general partner which owns the majority interest in Great Lakes is continuing to evaluate options that could possibly see changes to tariff rates and overall rate design to better reflect the current use of the system should current market conditions continue to persist.

Read the rest of this transcript for free on seekingalpha.com