TC Energy Corp (TRP) 2002 Q1 法說會逐字稿

All participants, please stand by. Your meeting is ready to begin. Good afternoon, ladies and gentlemen. Welcome to the TransCanada Pipelines Ltd. first quarter conference call. I would now like to turn this over to [David Bennetta]. Please go ahead.

Thank you very much. Good afternoon, everyone. I'd like to take this opportunity to welcome you this afternoon, including those of you joining us through the World Wide Web. We're pleased to provide the investment community, the [INAUDIBLE] and all other interested parties with an opportunity to discuss our 2002 first quarter financial results and other general issues concerning TransCanada. With me today are Harold Kvisle, Russell Girling, Executive Vice President and Chief Financial Officer and [Lee Hobs], President and Controller. Harold's going to start today with key priorities in the year ahead. Russ will follow with a more detailed review and a question and answer period will follow that. During the question and answer period, we will accept questions from the investment community first, and that will be followed by a Q&A period for the media. Before Harold goes, I'd like to remind you that certain information in this perfection is forward-looking and subject to risks and uncertainties. The results may differ from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include, among other things, the ability of TransCanada to implement its strategic initiatives and whether they will yield the expected benefits. The availability of price of energy commodities, competitive factors in the pipeline power industry sectors and prevailing economic conditions in North America. For additional information on these and other factors, see the reports filed by TransCanada with Canadian Securities Regulators and with the United States Securities and Exchange Commission. TransCanada transcends any obligation to update or revise any forward-looking statements. With that, I'll turn the call over to [INAUDIBLE].

Thank you, David. Afternoon, everyone and thank you for joining us. Hello again to most of you who joined us earlier today in person or via the Web cast of our annual meeting of shareholders. I'm pleased to report that [INAUDIBLE] started this year as we -- TransCanada demonstrated strong performance. Our earnings in the first quarter of this year increased approximately 9% to 186 million or 39 cents per share compared to first quarter 2001 net earnings of 107 million or 36 cents per share. Funds generated from continuing operations grew approximately 9% to $451 million compared to $413 million for the same period last year. Our strong balance sheet got stronger in the first quarter of this year. In a few moments, Russell Girling will provide a more detailed financial review of our first quarter results. Earlier today, our board of directors declared the 154th consecutive quarterly dividend on the company's common shares. The dividend of 25 cents per share for the quarter ending June 30th, 2002 is payable on July 31st of this year. As I said to our shareholders earlier today, in the past couple of years, TransCanada has re-emerged as a strong, financially stable company and we have set the stage for continued growth in 2002 in the years ahead. We're taking a disciplined approach to growth, an approach that is focused on real value creation. Our tough decisions and strategic moves over the past couple of years have put us ahead of many of our peers. Others are just now starting to contemplate or initiate restructuring, returns to core arenas and divestment of volatile businesses. Our strong financial position is and evaluating the growth market has prepared us to act swiftly, strongly, decisively and with the discipline that we've developed when the right opportunities present themselves. We're confident this approach will enable us to deliver earnings and growth to our investors. In this regard, we continue to execute our core strategies, although you've heard them from me before, I'll repeat that they are, number one, to establish a new regulatory framework, to grow and optimize our extensive pipeline network, to sustain the pace of profitable growth and power, to focus on operational excellence and everything we do, and finally, to maintain and selectively make use of our considerable financial strength. We're currently awaiting the National Energy Board's decision on our recent fair return application. In the NEB fair return hearing, we presented what we feel is a solid case for an after-tax return of 7 1/2% for a Canadian mainline in the years 2001 and 2002. That compares to a return of approximately 5.8% based on the formula adopted by the NEB in 1995. We expect the NEB will look at our evidence as well as that of the interveners and they'll make the decision on what is fair. We expect their decision by the middle of this year. We continue to meet with customers in our pipeline business to discuss the draft transportation services white paper which we presented to them in January. We're proposing comprehensive changes to the way TransCanada's transportation services work to keep pace with changes occurring in the gas industry. Adopting a new framework will result in enhanced flexibility in both Western and Eastern markets. Also in the first quarter, we continued our strategic efforts to connect natural gas from Northern Canada and from Alaska into TransCanada's existing pipeline systems. Our focus is on more than just the new pipelines that may be built from the north. We're also in discussions with producers, governments and other pipeline companies to design a comprehensive proposal that will present options for moving Northern natural gas to key markets across Canada and in the Northern State. Our Northern gas proposals are designed around these main elements. First, to provide the very best market options for gas from Alaska and Northern Canada as well as gas yet to be discovered in Alberta, British Columbia and Saskatchewan. Second, to maximize the use of existing infrastructure to minimize cost to the producers. And third, to ensure pipeline capacity is added quickly and economically in response to market demand in growing western supply. And that's particularly important for our existing pipeline systems downstream of Alberta. Now turning briefly to our power business, I'm pleased to say in January, TransCanada's newest generation power plant at Redwater and Carseland began new operation. Also in January, we began realizing income from our 50% interest in the 706 megawatt Sundance B Power Purchase arrangement we acquired late last year. We have already sold our 2002 entitlement to power from Sundance B And you'll recall that became available to us as a result of the Enron situation. In conclusion in both pipe and power, we're pleased with our first quarter results but we're not about to rest on our laurels. We'll continue to take advantage of our strong cash flow and strong balance sheet to invest in our core businesses. We'll grow through internal investments and we will acquire assets and businesses when the circumstances are attractive. We will at all times do this in a manner that adds shareholder value and effectively manage its risks. I'd now like to ask Russell Girling to provide you with details of the first quarter financial results. Over to to you, Russ.

Thank you, Hal. Thank you all for joining us late on this Friday afternoon. As you know, over the last two years we've transformed TransCanada into a highly powerful company. These are businesses in which we have distinct competitive advantage and proven track record of success. Looking forward, TransCanada's strong asset base, financial strength, commercial skills and deep market knowledge means we are well positioned to prosper in the future where most of the North American's energy demand will be served by natural gas. At a time when many others in our industry are being negatively impacted by a number of issues, including a weak economy, our decision to focus on infrastructure projects with stable returns from significant capital investments in our regulated and nonregulated businesses has resulted in an increase in our earnings and our cash flow. As reported earlier today, net income to common from continuing provisions operations ended March 31 was 186 million or 39 cents per share compared to $170 million or 36 cents per share for the same period last year, an increase of 9% year-over-year. The increase of $16 million or 3 cents per share is due to higher earnings from the transmission business and reduced expenses in our corporate segment. Low earnings from the power business relative to the strong results we reported in the first quarter of 2001 partially offset the results from the other two segments. I'll review the results of each segment. Overall, the transmission business generated net earnings of $163 million for the three months ended March 31st, compared to $145 million for the same period last year. The increase in net earnings was primarily due to higher contributions from the Alberta System, the Great Lakes System and the cross out storage facility. The Alberta System contributed net earnings of $50 million compared to $44 million. The results for both periods reflect the 2001, and 2002 Alberta rate settlement that required a fixed revenue requirement and $1.347 in 2002. With most costs lowering to TransCanada shareholders during the term of the agreement. That agreement provides us with the opportunity to enhance returns by managing our business more efficiently. We have made some significant progress on this front. Several initiatives undertaken in day-to-day operations of our businesses continue to drive process improvements and efficiencies that have enabled us to significantly reduce overall costs and improve our returns. Next, Great Lakes. A proportionate share of net earnings from Great Lakes for the three months ended March 31st, 2002 with $22 million compared to $15 million last year. The increase was due to TransCanada's share of a favorable ruling in great lakes related to money use tax paid in prior years. Next, I'll talk about [Alberta]. It contributed net earnings of $5 million in the first quarter and increased to $4 million compared to last year. The increase was due to higher pricing, lower operating costs and an increase in our storage capacity. Finally in transmission, a couple of comments on the Canadian mainline. The Canadian mainline contributed net earnings of $68 million in the first quarter, which was the same as last year. Net earnings for the three months ended March 31st, 2002 reflected the 2001 and 2002 toll tariff application approved in the fourth quarter of 2001 and a rate of return of common equity of 9.53%. The tolls and tariff application was based on the terms of a two-year mainline service and pricing settlement, which was broadly supported and addressed all toll and tariff matters other than cost to capital. The application essentially fixed eliminate costs for two years which provides the gain with companies with incentives to further achieve cost reductions. Higher incentive earnings in the first quarter of 2002 were offset by a decrease in the rate of return on common equity from 9.61% in 2001 to 9.53% in 2002 and a $280 million decline in the average investment base. TransCanada's return hearing concerning the costs of capital being included in the mainline tolls concluded on April 4th. The company is seeking approval of an after-tax weighted average cost of capitol capital of 7.5% effective January 1st, 2001. This compares to an [ATWAC] based on the 2001 return on equity on the NEB formula. TransCanada anticipates the NEB's decision by mid-year. No impact on the fair return application has been reflected in these financial results. Next, I all talk about power. Power continues to be a major contributor to TransCanada's earnings. The power business contributed net earnings of $40 million for the three months ended March 31st, a decrease compared to the same period last year. Total volume sold in the first quarter of 2002 were $4,551 gigawatt hours compared to 3,689 gigawatt hours last year. The quarter over quarter decrease in earnings was mainly due to lower profits resulting from a significant decrease in market prices and volatility for power in Alberta and Northwest United States as well as lower contract prices on the sales of output under the Sundance plant power purchase agreement. Higher general and administrative costs due to the continued growth of the power business also contributed to the decrease in earnings. As you may recall, in the first quarter of last year, we were able to capitalize on opportunities created by price volatility in Western Canada and pacific northwest. As we've said many times before, our outlook for power has never been based on the belief that those same conditions could be repeated. Our objective continues to be to grow our power business in a manner that contributes to stable long-term earnings and cash flow growth. That means they are benefiting from our strong balance sheet. It means fitting the desired risk profile with the focus on low cost, low volatility and longer term contracts with strong counter parties. Today, TransCanada owns or controls 2,250 megawatts of power, 245 of that is currently under construction. This is an increase of 650 megawatts or 40% from this time last year. Since mid-2001, TransCanada has completed the acquisition of the 60 megawatt Curtis Palmer facility and a 50% interest in the 706 megawatt Sundance B PPA. Estimate at the same time, we've completed construction of two new plants in Alberta. A 40 megawatt plant at Redwater included. All of these investments made positive contributions in the first quarter to net earnings. Looking ahead, we'll continue to go through a combination of acquisitions, greenfield development and further expansion of our existing facilities. Our growth will continue to be undertaken by thoroughly understanding the market fundamentals, capitalizing on opportunities as they rise and managing risks in the same manner that has resulted in power strong success today. Next, I'll talk about the corporate segment. Net expenses in the corporate segment were $17 million for the three months ended March 31st, compared to $21 million last year. Excluding a $4 million adjustment to previously reported first quarter 2001 expenses, the corporate segment's first quarter results are consistent with the same period last year. The adjustment to last year's reported amount is due to the retroactive adoption of an accounting change related to foreign currency translation, which was issued by a Canadian Institute of Charter Accountants. Lower general and administrative costs and lower preferred security charges were offset by lower interest income due to lower cash balances as a result of our investment activities. Next, a few comments on the discontinued operations. As mentioned before, we have substantially completed the sale of our internal, Canadian Midstream and gas marketing businesses. As described previously, Transcanada remains liable under certain energy contracts that relate to the divested gas marketing businesses. At March 31st, 2002, we reviewed the provision for loss and discontinued operations, including the $100 million of after-tax schemes deferred at December 31st, 2001 and remaining obligations related to the gas marketing business and concluded that the provision and the continued deferral of the gains was appropriate. As a result, there are no earnings impacts related to discontinued operations in the first quarter of 2002. Next, turning to the statement of cash flow and our balance sheet. For the first three months ended March 31st, funds generated from continuing operations for $451 million or 95 cents per share. That represents a 9% increase over the $413 million or 87 cents per share reported for the same period last year. The increase is primarily due to an increase in net income from continuing operations as previously discussed and higher regulated depreciation expense. TransCanada used a portion of its cash resources to fund capital expenditures of $117 million in the first quarter. The company also retired $92 million of term debt and reduced notes payable by $171 million. Since the beginning of 2000, TransCanada's retired or repurchased approximately $3.7 billion of term debt and preferred shares and securities. Obviously, this has had a significant impact on our consolidated balance sheet. Today, our consolidated capitalization, excluding nonrecourse debt consists of 59% term debt, 6% free preferred securities, 2% preferred shares and 33% common equity. This is a significant improvement over the year end 1999 when long-term debt was 64% of total capitalization and common equity only accounted for 26%. In summary, the company's increase in earnings and cash flow combined with its strong balance sheet in March 31st, 2002 provides TransCanada with the financial flexibility to continue to make disciplined investments in its core differences of power. Our ownership, interest and two very successful limited partnerships further enhance that ability. This is the market capitalization of $1.2 billion. The Power LP has experienced continuous growth since its inception in mid-1997. Today it owns seven power plants. TransCanada owns 35.6% of the Power LP, provides management services to the LP and we consider it a key asset in growing TransCanada's overall power business. The Power LP's balance sheet is currently underpinned by more than $600 million in partners equity with no long-term debt outstanding. This provides TransCanada with additional financial capacity and to underpin its growth strategies and power. The TC Pipelines LP is a publicly held limited partnership with a market capitalization of $425 million U.S. It was formed to acquire, own and participate in the management of U.S.-based pipeline investments. It is managed by TransCanada and holds a 30% interest in Northern Border Pipeline and 49% interest in the [INAUDIBLE] pipeline. TransCanada owns 33.4% of the LP and again it considers it a key asset in growing TransCanada's natural gas line business. The balance sheet is currently underpinned by $270 million U.S. of partner equity and has less than $15 million of long-term debt outstanding. This strong financial position like that of the Power LP, provides us with additional financial capacity to pursue our pipeline growth strategies. In closing, would I like to reiterate that TransCanada's strong asset base, commercial skills, financial strength and deep market knowledge positions us to prosper in the future where most of North America's incremental energy demand will be served by natural gas. Looking ahead, we will continue to make profitable investments in our core businesses of natural gas transmission and power. We will look, we will continue to work on establishing a new regulatory framework that makes us more competitive and allows to us earn competitive returns. We will continue to focus on operational excellence in all of our businesses, and we will continue to maintain our strong financial position. Successful execution of these strategies will result in earnings and cash flow growth in the years ahead and build value for our shareholders. That concludes my prepared remarks. I will now turn the call over to [David Mineta].

Just a reminder as we start the question and answer period. We'll first begin with questions from the investment community and follow that with questions from the media. With that, I'll turn it over to the conference coordinator.

Thank you, Mr. [Mineta]. We'll now pool for questions. If you have a question, please press one on your touch-tone telephone. If you are using a speaker phone, you may lift the hand set first and press one. Should you wish to cancel your question, please press the number sign. Please press one at this time if you do have a question. Our first question is from Karen Taylor. Please go ahead.

Thank you. Good afternoon. A few questions, if I may on the power segment. I guess the first would be whether or not there was any optimization gains during the quarter.

I'm not sure what you mean, Karen.

Trading around the assets.

I guess maybe I'm trying to read your question. Maybe I'll ask you the question. Is -- are you wondering if there's profits made in the first quarter that are not repeatable in the future?

No. It's more of I don't really consider them anomalous. I guess you talk about them as being [INAUDIBLE]. Is there any?

Well, on a continuous basis, we trade around our assets on a continuous basis and enhance the returns on all of our power assets. It's inherit in the biz that we have opportunistic earnings every month.

Right. And last year we said that was about $10 million. And we targeted that level of expectation if you will going forward. So I was just wondering if we were still within that ballpark in the first quarter on an annualized basis?

That's what I was referring to. I think what we referred to last year and over the year is there were profits generated, you know, in our trading business that were due to opportunities outside of our assets as well due to extremely strong prices and volatility that we weren't expecting to see repeated again. That was the $10 million to $15 million that we didn't think would be repeated. But I don't think we've ever forecast what our expectation is of sort of base operating income and trading profits around our assets. We'd never split that out.

So the anomalous trading, then, was there any in the quarter?

Not any dimension. It's immaterial.

Okay.

I think what is also reflected, Karen, as Russ has alluded to before, is over the last 12 months, we've been back-filled out with the coming on of Sundance B as well as Redwater which have started up operations from a physical aspect.

Okay. The earnings during the quarter from power again, were these predominantly accrual or mark-to-market?

There's essentially minimum mark-to-market. They are all accrual accounting.

Lee's just giving me a number of a pre-tax $5 million included in the profits.

I'm sorry? 5 million pre-tax?

Yes. Loss. 5 million pre-tax loss in the profit and power mark-to-market.

In the first quarter?

In the first quarter.

Okay. We talk about the Sundance B power purchase, the substantial portion of your 2002 entitlement being sold. Why don't we broaden that and look at the whole portfolio. If that's about 2200 megawatts, what percentage of that portfolio is, in fact, sold under contract in 2002, 2003 and 2004?

I can give you a number on 2002, as we've said before, it's virtually also 2002.

I'm talking now about the whole portfolio.

I'm referring to that, Karen. Essentially all of our power is sold out in the current year. Our strategy has been to sell out the current years and as we roll forward, we continue to sell the portfolio. There isn't a lot of depth in a 20-year market, so what we try to do is maintain the bulk of the power being sold in the current year and then that decline is going forward. I don't have a percentage for you for 2003, but it would be the majority of the power is sold for 2003 and then slightly less would be sold in 2004. But we haven't given anybody what those numbers are. But I think what we told you is our strategy is to continually roll forward so that as we come into the prompt year, essentially sold out before the year starts.

Okay. You probably won't give me the next question but I will ask it anyway because everybody else is disclosing it.

I haven't even calculated the numbers so I couldn't get it to you even if I had it. It's not something we focus on. What we focus on is a spread across our facilities based on, you know, the power purchase contract or long-term sale and a secure field contract on the inlet side. And, you know, in a lot of cases, the spark spread wouldn't be a very good indicator of the profitability. It's not comparable to other facilities necessarily. What we can tell you is that our facilities across the board are some of the most efficient facilities in the marketplace and their heat rates are lower than most of our competitors. But again, we don't depend on that in the current environment for our net income. We're dependent upon contractual structures.

Karen, it's Hal here. You'll note about 1,000 megawatts of our capacity is coal fired and things like that. The whole spark spread way of looking at it isn't very useful to us.

Well, you know, if you are dealing with things on a portfolio basis, I'm sure we all have copies of the PPAs, we can figure it out from, I guess I'm trying to get at some of your newer facilities are, in fact, gas-driven. Let's just address it a different way then. You've given us the total megawatt hours sold in the first quarter being 44,551 gigawatt hours.

We haven't done that in the past. We're not trying to be evasive, but I'm not sure what the value of the information is. As I said, you know what the capacity of these facilities are.

Mm-hmm.

And most of them run base load, so I think you could calculate what the output of each of the facilities is if you wanted to add it up to that number. So I think you can get there. We're not trying to be evasive. It's just not a number I've got available for you.

Okay. Your outlook for power markets in the Alberta versus the U.S./Northeast. If you could perhaps give us your expectations. You are talking for instance about lower contract prices on the Sundance A PPA. How does that all bear out in terms of your expectations for 2002?

Again, we're sold out in 2002, so these on the market are immaterial. Prices did dip in Alberta at the end of 2001. But it's since recovered in 2002. They're still not recovered to Q1, 2002 levels. We're not expecting to see those levels return either in the Northeast or Alberta or Pacific Northwest in the near future.

Let me come back to the statement that you are all sold out. So for Ocean State, which is a peaking facility, you are all sold out for the year so if power happens to spike in the cooling season in the U.S., Northeast around that facility, then I'm going to take the run rate for the first quarter in that area and assume that's where we are or have you sold it forward in anticipation of weather at potentially higher prices?

Again, Karen, we've got contracts in place. Your characterization as a peaking facility I wouldn't necessarily agree with it. It has contracts around it, as we've mentioned before. It's got a long-term gas supply contract back to the western and sediment tri basin comes right through Alberta. It's got [krpgs] that it has to deal with as well as sell power into the retail market as well as standard offer agreements. If we see changes in the pricing, we can change around that gas power relationship to take advantage of certain opportunities. So if you see anomalous things happen in the third or fourth quarter and we have the ability to take advantage of them, we will. In terms of run rate, what it's producing today is probably, you know, a run rate that you can use in the Northeast, but that's not to say that if there's an opportunity that exists out there, that we won't seek to take advantage of them by moving our contracts around.

And Karen, it's Hal. I'd point out if you go back through the quarters of last year, you'll see varying quarterly run rates out of the Northeast operations. There is some volatility there. But I think we don't expect major changes.

Okay. And the last question I have is, you know, I listen to the AGM and all of this talk on this call in particular about your financial strengths. The highlight on both of the LP structures and vehicles that you have. A lot of talk about acquisitions. So why don't we dwell on that for a moment and, you know, it sounds like you are preparing us for something, or am I just hearing the acquisition word too many times in three hours?

I think you are just hearing it too many times. We do want to signal that TransCanada is financially strong. We are and have been for a year now diligently scouring the acquisition market for good opportunities. We've moved on a lot of good opportunities and picked up a number of excellent asset positions over the past year, and will continue to do that. We could acquire a significant portfolio of assets without actually doing any corporate deals at all. There's a lot of assets based off that. Karen, we just keep working away at it, looking at many, many deals, moving on the ones we think are good. On the ones me move on we get some and we get out on others. We're happy to have that financial capability and we're not going to use it foolishly.

And, Karen, just further to that, I know that we have stressed it here and we will be very careful about any acquisition that we might take a look at, but this this current environment, we believe from a disclosure perspective, it's important to distinguish our company from our peers around us. And with respect to on-balance sheet financing, off-balance sheet financing with respect to our partnerships and essentially no debt being there, as to highlight to investors that our balance sheet is clean. We don't have accounting issues to deal with and we're not overleveraged at the current time. That's another reason for stressing it at this particular point in time, is we get continuous calls from bond holders and shareholders asking whether or not we are in a similar position to our peers and we want to make sure that people know we are absolutely not this that kind of situation at all.

Okay, thank you.v Operator: Thank you, Ms. Taylor. Our next question is from Winfried Fruehauf from national bank financial. Go ahead.

Thank you. To what period does the tax to Minnesota relate to?

It goes back to the early '90s, 1992 actually. '94 it goes back to. It's something we have been litigating for some period of time. It's gone through a couple of different appeals and finally the Minnesota Supreme Court awarded in our favor here late last year, and I guess it was January 31st of this year and therefore, we got the award and all of the funds have been collected.

So the case is now closed on that issue?

It is, yes.

What was in the first quarter of this year the impact of the new method for accounting for foreign exchange gains and losses?

I think that was outlined -- you want do take that, Lee?

Yeah, [Lee Hobs] responding. In the first quarter of 2002, there was no impact of that. The impact we felt was in the first quarter of last year, and that was a $4 million charge. In the first quarter of 2002, with the way that we had structured our capital, we, in fact, did not have a charge come through or would not have had a charge under the old accounting method.

Okay. Is [INAUDIBLE] considered a discontinued or continuing operation?

We moved that into continuing operations at the end of last year, and it sits in the other category in our transmission business currently. The current market for that asset the offering price is not in our best interest to sell that any time in the near future so we moved it back in continuing operations. Is sits in that other column. Its contribution is minimal.

Okay. Did you actually make a little bit of money or lose a little bit?

Pardon me? It made a little bit of money.

Okay, thanks. What were in the first quarter your trading and marketing gains and losses in the West and the East?

We don't split that out, Winfried.

Were they significant? Were there gains and losses?

I'm not sure what you are talking about when you talk about trading gains and losses. Last year in the first quarter, we made substantial money, trading outside of our assets and one of the, you know, one position in particular was transportation that we held going into the Pacific Northwest from Alberta, and were able to gain from that position. We didn't have any such positions this year, so we really don't have the -- those type of, what are called over and above our asset trading. And we don't split any trading around the assets. It's too difficult to do that.

I see. I was referring really to the matter because Karen had already dealt with the former.

Yeah.

And I think -- yeah, i think that solves all of my questions. Thanks very much.

Thanks, Winfried.

Thank you.

Thank you Mr. Fruehauf. Once again, if you do have a question, at this time, please press one on your touch-tone telephone. Our next question is from Maureen Howe from RBC Capital Markets. Please go ahead.

Thank you. A couple questions. I'll start with the other category of North American, you know, transmission results. Last year, we had in total for the year, a loss of $9 million albeit, there was a profit of $1 million in Q1. This year there is a profit of $5 million in Q1. I realize TransGas is in there but as you said, it's minimal. Is this a category that we're going to see material contribution from over the course of the year?

I don't think you will see a material contribution.

To the extent that something in there becomes material, I think it would be our inclination to break it out and show it to you, but at this point in time, there's [cross ought] in there, there's TransGas. There's a bunch of little things that added up to $5 million.

And if there was a driver, Maureen, as Russ mentioned, it was [Cross Delta] which has been a operation of TransCanada.

If anything sort of pokes out and needs to be broken out and we think it's material, we will break it out in that line. We are not trying to hide anything. We just didn't want a list of 100 things in there.

Mm-hmm. Again, if we look at last year, so you put CrossAlta in there, is it a category that is a big swing from a loss of $9 million to quite a positive contribution in the first quarter. So is this something that's changed signs, if you will?

Again, I think a big part of it was as Russ mentioned, Maureen, CrossAlta was up by I think close to $4 million. That category includes TransGas and Corporate G&A costs that underpinned are not the activity. So really that's what you are looking at in terms of what makes up the total. As I say, the swing in the first quarter is really backed by what happened at CrossAlta.

Is it fair to say that general costs have been constrained in that category then?

They are about the same. We try to retrain them everywhere.

They are about the same.

Okay. Moving on to the Alberta Systems results. Again, if we go back to the agreement and what it looked like when it was negotiated it was quite a drop in the revenue retirement and yet, you know, earnings for the quarter. This is just 2002 over 2001. Of course there was a big drop in 2001 as well. When you look at the earnings, on a net basis, that's great results. Can you address what, you know, what's not only offset the CIF costs and drop in revenue requirement but actually contributed?

I think what you are referring to is the drop from 1.39 billion to 1.347 billion. A good chunk of that is the tax rate changes between the years and a lowering of the investment base year-over-year. That takes care of the bulk of the drop year on year. It was intended that there was somewhat revenue neutral year to year. Then the cost savings are directly due to efficiency we've gained in our system, finding better ways to operate.

But the CIS went up as well, did it not?

I'm sorry, Maureen?

I thought there was an increase in the customer information expenses both in 20000 and 2001. I guess the amortization of them.

You are referring to the costs that historically were capitalized?

Yes.

That would be true, but I think Russ is alluding to the fact that what you are capturing now are the results of the past 15 months in terms of streamlining the business. No requirement to give back those cost savings to our customers in the current year. It's clearly allowed to us outperform on a quarter over quarter basis. What you probably will find is you will probably find we are somewhat down if you look at Q4. That is, in part, related to the reduced revenue requirement. As Russ has mentioned, it comes back to the streamlining of the business and ability to maintain those cost savings for the shareholder.

So certainly in 2001, the earnings from the Alberta System actually went up pretty sharply through the course of the year? Is that a trend that you expect will be reversed over the course of 2002?

Yeah, I think it's, you know, the number that you are seeing today are probably indicative of what we are able to achieve in that business right now.

Okay.

I think that was outlined in the annual report as well, Maureen, something comparable to last year or the run rate talked about in the first quarter is what you get to.

Okay. That's great. Thanks very much.

Thank you, Miss Howe. Our next question is from Sam Kanes from Scotia Capital Markets. Please go ahead.

In general words is your interest in the energy transmission Canada and the U.S. and specifically in the potential project in Alberta and generally?

Sam, it's Hal. Power transmission is an interesting business to us but not a real priority. When we look at the project in Alberta, we're one of the sponsors of the project we call Northern Light and it's to move excess power from Alberta down into markets in the Pacific Northwest. We were prepared to accommodate partners in it. We'd be prepared to sell out and let someone else do it. Our highest motivator is to see it get done because we've got aspirations as a major power developer in Alberta and the transmission part is is just to underpin that. So we go either way on that. We're not developing a power transmission strategy along the lines of our gas transmission, one. We're not adverse to investing in power transmission but it's not a priority for us right now.

Thanks, Hal.

Thank you.

Thank you, Mr. Kanes. Our next question is from Matthew Akman from CS First Boston.

I have one picky question left and then a bigger question. On the picky side, just wondering can you give us an update and remind where it was last year and moved into continuing. And also whether there's any earnings associated with that.

Similar to TransGas is that, as you know, we set out to sell that asset last year. We did have a buyer. The gas prices ramped up. The buyer backed out, and since that period of time, no other buyers stepped up to the table to buy it at a price that's in excess of what we would call our full value. So a gain at the end of last year moved back into continued operations from discontinued operations. Its contribution was very, very small. And it would be in, I think, in the other column on the power business. Because the reason we put it in power is because of the associated power plant that sits next to it which does have a significant contribution. So it's in that Western Operations number of $33 million. But it is insignificant.

Okay. Thanks. And I was wondering if you could just update us on your balance sheet plan specifically related to debt. Are you, you know, kind of finished with the debt repayment that was going on for last year and a half or so? And are you happy with the debt levels where they are now?

Well, I think that's a difficult question. We have applied to our regulator for a equity thickness of 40%. If you take the 7 1/2% [aswac], it's 12.5% return on 40% equity. Directionally, I think thicker equity in volatile more competitive markets is better than thinner equity. So I think directionally, we'll continue to improve our balance sheet as we move forward. What the exact optimal number is, we haven't put a pin in that. Directionally, you'll see us continuing our balance sheet. We don't need to run out and mack a significant payment on our debt at the current time. Over time, you can expect to see our balance sheet improving because we think that is the requirement of the future ahead.

It's Hal here. I had a comment on that. When a pipeline is new and you have long-term contracts from credit-worthy shippers, you might be okay with 30% equity and if that pipeline business matures and you have more and more short-term shippers, we think it's natural to move towards the thicker equity. That's really the evolution of what we've seen go on with the Canadian mainline. So we would -- we are not at all worried about repaying too much debt and ending up under-levered. That's the position that we think has other business advantages and we'll just optimize that balance.

Similar to the first quarter where we let something close to $100 million of debt mature in the first quarter. We have somewhere around $500 million in the next $400 million in the next 12 months that we have the same ability to do that with if that's what we so choose to do. We can let maturities continue to ramp down or long-term debt.

Okay. Thanks a lot for that update. That's all I had.

Thank you.

Operator: Thank you. Our next question is from Bob Hastings from Raymond James. Please go ahead.

Hi, yes. Maybe I'm showing my age here but I can remember when the pipeline used to have a 40% energy logged by the board.

Bob, I went back a lot of history and I never got back that far.

I'm really old. Different question, though, on the Northwinds. Can you give us an update on that? I noticed their website's not up and running anymore. Maybe that's just temporary.

We'll have to check on the website. Don't take any signals from that. You know, we just continue to work on both Northwinds as a conduit to get gas to Leidy and Millennium as a way to get more gas into New York City. A very difficult environment down there right now. We continue to talk to different shippers. All I can say, Bob, we're working on both projects. Don't expect to us start laying pipe in the next month on either one.

Okay.

It takes a long time to get those things to the finish line, it seems.

Okay. But nobody's beating it out at this point, either?

We don't think so. It's always possible, though, because we're talking -- the real issue is for any project to go ahead, the proponents would like to have some sort of longer-term commitment from shippers. And shippers today are very much not in a position to do that. So it's difficult for LDCs to sign longer-term contracts. Their regulators don't want them to do that. It's difficult for the merchants to do that. Just the current state of financial leverage in the industry people don't want to do it. So it's a tough time to get those forward.

Okay, thank you very much.

Thank you.

Operator: Thanks Mr. Hastings. Our next question is a follow-up question from Karen Taylor from Nesbitt Burns. Go ahead.

I had one question on the Northern Lights project. Obviously you want to move power out of Alberta, widen the market for the power that you have. Would you also then sign a long-term transportation contract for transmission services on that type of facility?

You know, we don't know. If we were an investor, if we were putting up all of the money to build Northern Light, we'd sure feel better about it if somebody else fined a contract to move the power over it. It's just a reality in order to put the financing together to build a project like that, some longer term commitments are required or desirable.

Mm-hmm.

Karen, at this stage, we're looking at Northern Lights whether it's fundamentally attractive, are the markets likely to be attractive between Alberta and the Pacific Northwest. And at all times gauging just how much surplus power there's going to be in Alberta. The fundamental attractiveness or fundamental reason we support Northern Lights is by [INAUDIBLE] to the gas business. Whether when there were no markets and limited take away, the pace of drilling activity was very slow, as the ability to export was made available by government, and as pipeline capacity was added, drilling picked up aggressively, we've argued to the Alberta Government that if producers have the right to export their power, they will be much more inclined to invest in new power gem. That will insure the long-term supply of power in Alberta and they generally agree with us on that. But as to whether or not we would take a shipping position, or if we owned it, who would take a shipping position it's too early in the development for me to answer that in a knowledgeable way.

Just with respect to the facility itself, at least from the transmission what was in my mind, the T.A. In Alberta and some of the studies that were done, it seems that they have, I'm not going to use the word discarded but at least they don't discard that as a bullet D.C. Line. They talk about it more as being an A.C. Is that a simplifying assumption from a facility's overview perspective?

I suspect the latter. I don't know that they'd have a strong preference. Sometimes they prefer the Aa.C. Line because you can put more power into it or take more off along the routing more easily.

Yep.

It all comes down to cost. If the bullet line is significantly more efficient in terms of connecting to power pools, or power hubs, I think they'd support that. I don't think they'd be fundamentally opposed to a D.C. Line?

Are you looking at that project in locational marginal pricing?

Yes.

Okay, thanks, that's it.

Thank you, Ms. Taylor. Our next question is from Linda from CIBC World Markets. Please go ahead.

Hi. Congratulations on a great quarter. Just a question for you on your strong cash flows. If for some reason no opportunities arise for to you use that cash in the next year or so, would you consider a share buyback or special dividend?

That's the ultimate fallback and we'd certainly consider that, but we don't expect that that will be the case. We're working hard on opportunities and we're hopeful, Linda, that we'd be able to come up with something that works for us.

Okay, thank you.

Thank you. Once again, if you do have a question, at this time, please press one. And we'll take our next question from Winfried Fruehauf from National Bank Financial. Please go ahead.

Thank you. In light of your interest in perhaps sponsoring a transmission line to the Pacific Northwest or California or whatever, what's your company's potential interest in the transmission facilities and/or the distribution in the event they become available?

Well, Winfried, that's a very interesting question because it's our view that Western Canada would be very well served by a single integrated electric transmission network, fully integrated with the U.S. in a cross-border sense.

Exactly.

And we don't need to own it, but we'd sure like to see that kind of an integrated efficient system develop. When we talk to people about that, to help them understand what we're talking about, we say just look at our gas network in Alberta. The gas system and how well that serves customers by allowing them to come in and go out in virtually unlimited volumes at any point in the system. And if you could only do that in electricity and Western Canada, it would really improve the efficiency of things. So we're certainly not scheming and plotting to buy BC hydro transmission services. We haven't heard they had any interest in selling it, but we think that kind of regional development would be very positive for everyone.

And might I just ask along the same vein, are you currently an official or unofficial member of that task force that is working on NRT and International RT oil in the West together with Power X and so on?

I can't tell you whether we're official or unofficial but I can tell you that we're interested and involved in those discussions.

Okay. Thanks very much.

Thanks, Winfried.

Thank you, Mr. Fruehauf. I'm showing no further questions from the phone lines. I would like to turn the meeting back over to you, sir, for any closing remarks.

You are not conference coordinator, you are not showing any questions from the media, either?

Actually, we do have a question from McGraw Hill Plants. Please go ahead.

Good afternoon. I was wondering if you might be able to comment on what sort of involvement you anticipate having in the Ontario market, which of course is opening up in a few days as the electricity market. And also whether or not you intend on responding to Hydro-Québec's request for proposals for power supply. I think it starts in '06-'07.

In the Ontario Market, we're involved under a longer term contract to the successors of Ontario Hydro. We're quite involved and interested if playing an active role in doing what we can to help out and make sure that the NPT market operator and all of those other features will work effectively. We look at a number of different power gen opportunities in Ontario. We're sobered by the fact there is substantial laid up nuclear capacity very low cost that could still come back on. So we could would be concerned about building a big merchant plant. As far as your question in Québec goes, we're certainly very aware of what Hydro-Québec has invited people to propose. And we're actively involved in looking at that.

Thank you.

Thank you, Mr. Carr. At this time, Mr. Mineta, I'm showing no further questions from the phone line.

Thanks very much. I'd like to thank all of you for participating this afternoon.