TC Energy Corp (TRP) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the TransCanada Corporation 2008 Fourth Quarter Results Conference Call. I would now like to turn the meeting over to Mr. David Moneta, Vice President of Investor Relations and Communications. Please go ahead.

Thanks, very much, and good afternoon, everyone. I'd like to take this opportunity to welcome you today. We're pleased to provide the investment community, media and other interested parties with an opportunity to discuss our 2008 Fourth Quarter financial results and other general issues concerning TransCanada. With me today are Hal Kvisle, President and Chief Executive Officer, Greg Lohnes, Executive Vice President and Chief Financial Officer, Russ G, President of Pipelines, Alex Pourbaix, President of Energy, and our Vice President and Controller, Glenn Menuz. Hal and Greg will begin today with some opening comments on our financial results and other general issues pertaining to TransCanada.

Please note that a slide presentation will accompany their remarks. A copy of that presentation is available on our website at TransCanada.com and it can be found in the investor section under the heading " Conference Calls and Presentations". Following Hal and Greg's remarks, we'll turn the call over to the conference coordinator for your questions. During the question and answer period we'll take questions from the investment community first followed by the media. In order to provide everyone with an equal opportunity to participate we ask you limit yourself to two questions. If you have any additional questions, please reenter the queue.

Before we begin, I'd like to remind you that this presentation may contain certain information that is forward-looking and is subject to important risks and uncertainties. TransCanada undertakes no obligation to update publicly or revise any forward-looking information whether as a result of new information, future events or otherwise except as required by law. And finally, I'd just like to highlight thatTransCanada uses measures such as comparable earnings, comparable earnings per shaver, funds generated from operations and operating income in this presentation. These measures do not have any standardized meeting prescribed by generally accepting Accounting Principles and they are therefor considered to be non-GAAP measures. They are also, therefor, unlikely to be comparable to similar measures presented by other entities. With that I'll now turn the call over to Hal Kvisle.

Thank you, David. Good afternoon, everyone and thank you for joining us today. I'll take a few minutes to talk about our 2008 results and recent developments in our business and I'll then turn the call over to our Chief Financial Officer, Greg Lohnes, who will review our financial results in more detail.

To start, TransCanada delivered strong financial results in 2008. Our strong financial performance was a result of solid contributions from our existing assets and growing earnings in cash flow from new developments and acquisitions. In 2008, we continued to make significant progress towards achieving our longer term objective of being the leading North American energy infrastructure company while at the same time delivering strong financial results in the current year.

As outlined in today's news release, TransCanada's net income for the year-ended December 31 was $1.4 billion or $2.53 per share. That's an increase of 10% on a per share basis. Comparable earnings for the year-ended December 31 increased to $1.3 billion or $2.25 per share, from $1.1 billion or 2.08 per share in 2007. That's an increase of 8% on a per share basis.

Funds generated from operations grew to over $3 billion in 2008, an increase of 15% over the previous year and three times as large as our funds from operations back in the year 2000 when we established a new direction for TransCanada. This strong underlying cash flow has enabled us to make significant capital investments in our pipelines and energy businesses. In 2008, we invested approximately $6.4 billion in new growth initiatives, including our acquisition of Ravenswood, together with ongoing construction activities at Keystone, Bruce Power and other projects.

Our strong 2008 financial performance has enabled our Board of Directors to increase the quarterly dividend on the companies common shares by 6% to $.38 per share. On an annualized basis this equates to $1.52 per share. This is the ninth year in a row that our Board has raised the dividend.

Turning to Pipelines. In 2008 we made very significant progress to fortify our position as the premier pipeline Company in North America. Construction of the Keystone Oil Pipeline commenced in Second Quarter 2008 with initial deliveries of oil expected to commence to Wood River in Patoka, Illinois in about 12 months time. When completed, the commercial design of the Keystone pipeline system will be approximately 1.1 million barrels per day.

The Keystone system will deliver crude oil from Hardesty, Alberta to refining centers in and around Patoka and Wood River, Illinois, to Cushing, Oklahoma and to the US Gulf Coast - the largest refining market in North America. Keystone has secured long term commitments for approximately 910,000-barrels per day for an average term of approximately 18 years. The commitments represent 83% of the commercial design of the Keystone system.

With these strong long term commitments from our shippers, we are now proceeding with additional regulatory applications in Canada and the United States for approvals to construct and operate an expansion of the pipeline system to the 1.1 million-barrel per day commercial design. The Keystone pipeline system is currently expected to require a capital investment of approximately $12 billion. TransCanada has agreed to increase its equity ownership in the Keystone partnerships to 79.99% from 50%. Conoco Phillips equity ownership will be reduced to 20.01%. Certain parties who have agreed to make volume commitments to the Keystone pipeline system expansion have the option to acquire up to a combined 15% equity ownership in the Keystone partnerships. If those options are exercised, TransCanada's equity ownership would be reduced to 64.99%.

On the gas side, in November, ANR's latest storage enhancement project was placed in service in Michigan. The Cold Springs number one facility added 14 Bcf of storage and 200 million cubic feet per day withdrawal capacity, increasing ANR's total storage capacity to 250 Bcf. This project was delivered under budget and service was provided on schedule. It will help meet energy demand in the Northeast United States, the Midwest US, and Eastern Canada. For TransCanada, that means our total storage capacity has risen to 370 Bcf, solidifying our companies position as one of the largest providers of natural gas storage in North America.

Here in Alberta, in October, we received approval from the Alberta Utilities Commission for a permit to construction the $925 million North Central corridor expansion, which comprises a 300-kilo meter large diameter natural gas pipeline and associated facilities on the northern section of the Alberta system. The North center corridor construction is under way today and is expected to be fully in service in 2010.

In 2008, TransCanada filed an application with the National Energy Board to establish federal jurisdiction over the Alberta system. The National Energy Board held an oral hearing commencing in November 2008, with a decision expected in the First Quarter of 2009. Federal regulations would enable the Alberta system to extend across provincial borders, providing integrated service to Alberta and British Columbia producers and consumers and to northern gas producers.

This morning, we announced the successful result of TransCanada's recently concluded binding open season process for gas transmission for the Motney shale play located in northeast BC. Shippers have committed to firm gas transportation contracts on our proposed ground birch pipeline that will serve the Motney Play. Volumes associated with these commitments have reached 1.1 Bcf a day by 2014. These volumes will further strengthen our gas pipeline franchise both in western Canada as well as our mainline and US gas pipelines that move gas from western Canada to markets throughout the continent. The $250 million ground birch pipeline will be approximately 77-kilo meters in length and is expected to commence service in the Fourth Quarter of 2010.

TransCanada is currently finalizing details associated with a binding open season and pipeline extension project to service the Horn River shale play located further North in Northeast BC. The Horn River project is expected to commence operations in early 2011.

Turning now to the US gas business, in September TransCanada acquired Bison Pipeline LLC from Northern Border. The acquisition included all work completed on the Bison pipeline project to that date. It is a proposed 480-kilo meter pipeline from the Powder River Basin in Wyoming to the Northern Border system in North Dakota. The Bison Pipeline project has shipping commitments for 405 million cubic feet per day, and is planned to be in service in Fourth Quarter 2010. Bison will provide TransCanada with the direct pipeline connection to the Rockies natural gas Basin area and will further extend our North American reach.

With an eye to longer term initiatives, in December 2008, the Alaska Commissioner of Revenue and Natural Resources issued the Alaska Gas Line Inducement Act License to TransCanada. TransCanada has committed under AGIA to advance the Alaska pipeline project through an open season and subsequent FERC certification. TransCanada has commenced the engineering environmental field and commercial work and expects to conclude an open season by the middle of 2010.

Our pipeline strategy is simple. We will use the tools we have in place now to maximize the value of our existing asset base. We will grow our footprint through extensions and expansions of our system, penetrating deeper into the marketplace and deeper into supplybasins. We will successfully execute the capacity addition initiatives that we have under way today and we will continue to build a high quality platform of new opportunities that will benefit both TransCanada and its customers in the years ahead.

I'd now like to turn to Energy and our accomplishments there in 2008. 2008 was another year of growth and strong financial performance in our Energy business. We remain focused on pursuing quality opportunities in power and in natural gas storage. In November, Bruce Power announced it expects to extend the operating life of Bruce A Units 3 & 4. The success of a complex maintenance program on Unit 3's fuel channels is expected to extend the operating life of Unit 3 through 2010. Without this program, Unit 3 was facing end of life in 2009. In addition, the results of a recently completed boiler inspection on Bruce A Unit 4 is expected to extend the operating life of that unit to 2015. Bruce Power continues to advance its work on Units 1 & 2 which are currently under refurbishment and it is expected these units will be placed into service in 2010.

In August, you'll recall, TransCanada acquired the 24, 080-megawatt Ravenswood generating station located in New York City for a purchase price of US $2.9 billion. We expect the New York City power capacity market to strengthen in the next few years. Ravenswood is a premier generating facility that plays an integral role supplying power to the New York City market providing TransCanada with a significant value creating opportunity.

Also in Energy, the 110-megawatt Carlton Wind Farm, the third of six phases of the Cartier Wind Project in Quebec was placed in service on November 22, 2008. In addition, TransCanada commenced construction work on the Kibby Wind power project in Maine with Commissioning of the first phases anticipated in late 2009. The Portland's Energy Center, 550-megawatt power plant, is nearing the completion of construction in downtown Toronto. Portland's is expected to be placed in service ahead of schedule and on budget in the First Quarter of 2009. Construction of the 680-megawatt Halton Hills generating station is approximately 50% complete and is anticipated to be in service in the third quarter of 2010. We expect to commence construction of the 575-megawatt coolage generating station in Arizona in the Summer of 2009. That facility is expected to be in service in 2011.

These long term power purchase arrangements will provide TransCanada with stable, predictable earnings and cash flow. Our focus on developing low risk Greenfield projects has been a staple of our power growth strategy and we're very proud of the significant number of large scale power generating facilities that we brought into service in recent years.

With over $18 billion of committed capital projects coming into service in the next three years, TransCanada's capital program will continue to be executed with discipline, to deliver superior returns to our shareholders. Our large program of attractive low risk projects is characterized by highly contracted, long term revenue streams with minimal commodity price exposure. We will continue to maximize the full life value of our pipeline and energy infrastructure assets and commercial positions through excellent operations and commercial management. Our financial performance in 2008 demonstrates our ability to generate significant earnings and cash flow even in these uncertain economic times. We look forward to great accomplishments in 2009 and thereafter. I'll now turn the call over to Greg Lohnes.

Thanks, Hal, and good afternoon, everyone. As Hal mentioned, earlier today we released our Fourth Quarter results. Net income for the Fourth Quarter was $277 million or $0.47 per share compared to $377 million or $0.70 per share for the same period last year. Fourth Quarter 2008 net income included $6 million of net unrealized gains resulting from the changes in fair value of proprietary natural gas storage inventory and forward contracts. Fourth Quarter 2007 net income included positive income tax reassessments and adjustments of $56 million as well as a $14 million gain on the sale of land and $10 million of net unrealized gains resulting from the change in fair value of proprietary natural gas storage inventory and forward contracts.

Excluding these items, comparable earnings were $271 million or $0.46 per share in the Fourth Quarter 2008 compared to $297 million or $0.55 per share for the same period last year. The quarter-over-quarter decrease is primarily due to increased net expenses from corporate, partially resulting from a net unrealized loss due to the change in fair value of certain interest rate contracts which I'll discuss in more detail in a few minutes. Without the impact of this one non-cash item, earnings for the quarter were generally in line with expectations.

For the year-ended December 31, 2008, TransCanada's net earnings were $1.4 billion or $2.53 per share compared to $1.2 billion or $2.31 per share for 2007. In addition to the items previously noted, net earnings for 2008 and 2007 include a number of specific non-comparable items. They are highlighted on this slide and additional information on each is included in our Fourth Quarter news release. Excluding these items, comparable earnings for the year-ended December 31, 2008, were $1.3 billion or $2.25 per share, an increase of $179 million or $0.17 per share. This represents an 8% increase on a per share basis when compared to 2007. We are pleased with these results particularly in light of the additional common equity that we issued during the year to fund our capital growth program.

I note that the $1.3 billion incomparable earnings is a 16% increase over comparable earnings in 2007. The year-over-year increases are due to significantly higher net earnings from both the pipeline and energy segments. I will briefly review the Fourth Quarter results for each of our business areas beginning with pipelines.

The pipelines business generated net income and comparable earnings of $210 million during the Fourth Quarter 2008, an increase of $8 million over the same period in 2007. Pipelines comparable earnings for the year-ended December 31, 2008, were $740 million, or an 8% increase compared to $686 million in 2007. Of note, ANR's net income for 2008 increased $28 million primarily due to increased revenues from new growth projects and a full year of earnings when compared to the partial year in 2007.

Next some comments on Energy. Energy generated comparable earnings of $147 million in the Fourth Quarter 2008 - a $43 million increase compared to $104 million in the same period last year. Comparable earnings for 2008 were $641 million, a $182 million increase or 40% compared to 2007. Increase in western Power's operating income for the Fourth Quarter and year-ended December 31, 2008, were primarily due to increased margins from the Alberta Power portfolio resulting from higher overall realized power prices on both contracted and uncontracted volumes of power sold in Alberta.

Eastern Power's operating income in the Fourth Quarter was $73 million, an increase of $7 million compared to the Fourth Quarter last year. Eastern Power's operating income of $338 million for 2008 increased $83 million compared to $255 million in 2007, due to the increased water flows from the TC hydrogenerating assets and higher realized prices in New England.

Finally in Power, TransCanada's combined operating income from its investment in Bruce Power of $50 million in the Fourth Quarter increased $7 million compared to Fourth Quarter 2007. TransCanada's combined operating income from its investment in Bruce Power for 2008 was $201 million, a $34 million increase over 2007. The quarter-over-quarter and year-over-year increase was primarily due to higher revenues resulting from higher realized prices. At December 31, 2008, Bruce A had incurred $2.6 billion for the refurbishment and restart of Units 1 & 2, and approximately $200 million for the refurbishment of Units 3 & 4. As Hal noted earlier, Bruce Power announced it expects to extend the operating life of Bruce A Units 3 & 4 until 2011 and 2016 respectively.

Turning now to corporate. Comparable expenses from corporate in the Fourth Quarter 2008 were $86 million compared to $9 million in the same period last year. Comparable expenses for 2008 were $102 million compared to $45 million in 2007. The increase in comparable expense was primarily due to a net unrealized after-tax loss of $39 million resulting from the Company entering into various contracts to fix the interest rate on certain LIBOR floating rate exposures.

As these contracts are not eligible for hedge accounting treatment, they are recorded to the Income Statement at their fair value using year-end interest rates, since LIBOR interest rates dropped to historic low levels late in the quarter, this change in fair value resulted in an unrealized loss. In addition, corporate results were also impacted by higher financial charges from financing the companies 2008 capital program and higher losses from the change in fair value of derivatives used to manage the companies exposure to foreign exchange rate fluctuations which are partially offset by increased capitalization of interest to finance a larger capital spending program.

If you back out the $39 million after-tax loss in this quarters results, the other significant change is related to losses in 2008 due to unprecedented foreign exchange movement. Adjusting for these two items, you're left with approximately $20-$25 million in core corporate costs in the Fourth Quarter. Generally speaking, Canadian dollar weakness results in higher interest expense associated with US dollar debt. This is largely offset by translation of US dollar income earned in the pipeline and energy business segments.

Turning to the cash flow statement. Funds generated from operations were $712 million in the Fourth Quarter compared to $741 million in the same period in 2007. Funds generated from operations for 2008 were $3 billion, a $400 million increase or 15% compared to $2.6 billion in 2007. Capital expenditures and acquisitions in 2008 of approximately $6.4 billion related primarily to a number of growth opportunities including the Keystone pipeline system, the Ravenswood Generating Station, Bruce Power, Portland's Energy Center, Halton Hills and the Cartier Wind Project.

TransCanada's financial position remains sound. At the end of December our Balance Sheet consisted of 53% debt which included our proportion at share of joint venture debt, 4% junior subordinated notes, 1% preferred shares and 42% common equity. I would note that our debt on this slide is calculated net of cash. In late Fourth Quarter 2008, the TransCanada Board of Directors approved an increase in the discount on the issuance of common shares from Treasury under TransCanada's dividend reinvestment and share repurchase plan from 2-3%, for the common share dividend payable January 30, 2009.

On December 5, 2008, TransCanada completed a public offering of common shares. Gross proceeds from the common share offering and the overallotment option totaled approximately $1.2 billion. In addition, during the Fourth Quarter of 2008, a subsidiary of TransCanada closed a new US $1 billion committed bank facility for Keystone. The facility will support a new commercial paper program dedicated to funding expenditures for the Keystone pipeline system. In January 2009, the Company issued US $750 million of 1.25% and US $1.25 billion of 7.625% senior unsecured notes maturing on January 15, 2019 and January 15, 2039 respectively.

Global financial Markets remain volatile, however our liquidity position remains sound. Our highly predictable cash flow from operations, significant cash balances on hand, as well as total committed revolving bank lines of $3.2 billion means we are well positioned to fund our 2009 capital program. That concludes my prepared remarks. I'll now turn the call back to David for the question and answer period.

Thanks, Greg. Just before I turn it back to the conference coordinator, just a reminder that we'll take questions from the investment community first, followed by questions from the media and with that I'll turn it over to the conference coordinator.

Thank you. (Operator Instructions). The first question is from Carl Kirst of BMO Capital Markets. Please go ahead.

Good afternoon, everybody. Greg, can I start with kind of going back to some of the comments you made with respect to corporate? I actually didn't catch everything and just given that that was primarily where the delta to consensus was just want to make sure I understand the moving parts. You said normally you would expect the core to be kind of in a loss of $20-$25 million range excluding interest and FX exchange rates. Did I hear that correctly?

Yes, that's correct.

And the $39 million of LIBOR hedges, is this any way connected with the $2 billion of January issuance here, now that that US issuance is done, are we sort of protected from an economic standpoint meaning even if rates were to decline from here, you ultimately get it back in the coupon? How should we think of the $0.07 if you will as an ongoing drag, maybe that's a better way to ask it.

Well first of all the $0.07 is a lost opportunity cost where we went out and fixed LIBOR at what were historic low LIBOR rates and if we waited another month, LIBOR declined dramatically in an unprecedented fashion and locked in at a lower rate rather than the rate we locked in at. That would have been an opportunity cost, so we locked in at a rate of approximately 3.4% and fixed our rate of interest at what we viewed as historic low rates on an average term of about three and a half years so these positions continue to exist. LIBOR dropped to a historic low rate so we were required for accounting purposes to mark the difference in the opportunity cost from that 3.4 average rate we had down to the rate at the end of the year. So what happened was with that dramatic move down, we had to put a mark in place so a 20 basis point move down in the contract that you would put into fix a rate at the end of the year as opposed to the contract we had would result in approximately a $5 million change pre-tax.

So we saw 190 basis point move down, so since those positions remain, and will flow through the Income Statement going forward, there is a potential for a change moving forward going through the Income Statement. I would again emphasize it's nearly a change in the mark or the opportunity cost. Rates at the end of the quarter in our view were at extreme lows so we would expect there to be more likelihood of a move up than a move down in these rates. In fact if we were at the end of the quarter today, we've had about a $5 million move back in these positions.

Greg, as we try and sort of track that through the rest of the quarter, should we be using three-month LIBOR or what should be the rate that we should be looking at or is there kind of OTC swap market or something that you're marking these derivatives against?

Well, actually, Carl what we have to mark them against is a similar contract, so we would have a variety of contracts which result in that 3.5% average contract life. So if you were to go out to a financial institution today and we have a three year contract and at the end of the First Quarter, you needed to mark that, you would need to know what the rate would be for a similar contract which the bank would enter into with you on that date.

Fair enough. So it's not just necessarily the absolute LIBOR number? That's very helpful. And second question I'll get back in queue. With respect to the possibility of Horn River still being negotiated, Motney, great to see you have it. Dollar wise it is a little bit smaller than we were expecting which isn't necessarily a bad thing in this market. Horn River should we think of it roughly in the same type of dollar magnitude or is Horn River potentially going to be much larger in the billion dollar range?

I think initially, right now, to bring in the initial volumes on the, from Ground Birch to the Motney play, it's 70-kilometers of pipe, so that's the $250 million that you see. As the volumes ramp up, we could see a bit more capital, both on the BC side of the border and on the Alberta side of the border depending on what else is going on the Alberts side but I don't expect that will be that material. With respect to Horn River, I think it's really dependent on how quickly it ramps up. Certainly, if we achieve the volume expectations that have been talked about in our non-binding open season, over a period of time I think you could see a number that looks like that billion dollar kind of level but that will take some time for us to work into a volume like that. Initially the volumes will come on quite modest and we'll build our way into the larger size if in fact those volumes materialize over time. It certainly has the potential of being that kind of investment magnitude but out of the gate, I wouldn't expect the numbers to be more in line with what we're seeing in ground birch or maybe just a little bit more than that.

Thanks, everybody.

Thanks, Carl.

Thank you. The next question is from Linda Ezergailis of TD Newcrest.

Thank you. We've seen a little bit of progress in the opening of the Capital Markets since your Investor Day and I'm looking at your funding future growth finance plan from your Investor Day and I seem to recall about $800 million of drip, you've since increased your discount on your drip so I'm wondering if perhaps your expectations for drip contributions to your financing needs over the next couple of years has increased and I'm also wondering how we might notionally think of allocating that $2 billion debt offering earlier in January to either your Balance Sheet capacity or your incremental funding requirements.

So, with regard to the drip, we had seen a bit of a drop off in participation in our drip program move the discount out. We're now seeing participation back in the 30-35% range that we had seen before, so we would be back in line with those numbers, however we have an increased number of shares so it would be slightly higher.

With regard to how the $2 billion impacts our growth plan, if you recall that slide, there were several buckets, the significant cash flow that we have which as you know was increasing over the next few years as we bring on our projects, then the next bucket was the drip as you identified it and then we had a place there for Balance Sheet financing with just the capacity that we obtain on our Balance Sheet as equity increases and as we have additional retained earnings and we leverage the Balance Sheet pretty much 60/40 so that is capacity on the Balance Sheet that still requires us to borrow those funds.

And then there was a shortfall, and we said that we had to fund that shortfall with a combination of debt in either some form of subordinated capital or common shares. We went out and did the $1.2 billion of common shares first and then we went out and funded the $2 billion, so we provided significant funding for that shortfall in our growth projects. The two pieces that remain over this period are our maturity profile which is $1 billion in 09 and 400 million in the next two years following that as well as that capacity on the Balance Sheet.

So your outlook other than making progress on executing your financing plan, that slide would not have changed substantially?

Well, the $3.5-$4 billion gap that we said needed to be funded in November, a significant portion of that has now been completed and we've established for the marketplace that TransCanada has access to equity and debt and has established significant liquidity to fund or pre-fund the plans we have for the next three years.

Okay, so that's a progress update, not a discrete shift in the finance plan. That's great.

The other piece which I mentioned in the call was the Keystone loan facility which we'll fund up to a billion dollars of the financing needs of the US portion of Keystone. We've issued about $220 million of CP under that program to date and our interest funding costs are south of 2%.

Okay, that's great. Just a follow-up question on your cash flows. I see that in the quarter, there was just under $200 million of decrease in operating working capital and I'm just wondering if you can explain what was going on there. I know that line item bounces around quarter to quarter but is that something that might reverse over the next year or is that a higher working capital requirement associated with your growing business activities?

Linda, it's Glenn Menuz. There's nothing specific in there as with most times. That represents a lot of timing but in addition it also reflects the growth we have in the operations so we've got a growing working capital base mainly because of the growth in our revenues and just operations in general but combine that with the timing that's basically what's going on there.

Thank you.

Thank you.

The next question is from Matthew Akman of Macquarie.

Thanks very much. Alex, could you just update us on what you're seeing in New York capacity Markets vis-a-vis Ravenswood?

We planned, Matthew, when we acquired Ravenswood, in order to meet the financial model, we were looking at expecting to achieve somewhere in the range of $5 a kilowatt month in 2009 probably increasing up towards $10 and 2010 and with what we're seeing in the market we're still on track for those levels.

Okay, thank you for that, and in terms of there's been some movement in auctions on the regional greenhouse gas initiative that affect New York. Is that, are the costs for CO2 in line with your expectation or are there any surprises there?

No, I think generally what we saw was what we were expecting.

Okay, thank you. And then I don't know if this question is for Russ or Greg but it deals with the earnings in the pipeline segment which were up year-over-year but at the same time, my question is about the depreciation levels there. The depreciation level you booked in the pipeline segment was down considerably year-over-year and quarter-over-quarter, about $30 million quarter-over-quarter, so I'm just wondering what caused that significant drop in depreciation in the pipeline segment.

Matthew, it's Glenn here. I think a lot of that just has to do with the depreciation levels that were reflected in our Alberta system and Canadian mainline toll settlements and that's basically what you're seeing there, as well as some differences in rate bases as it declines in the main line but mainly just due to the depreciation levels that were in the settlements.

So in the pipeline segment, how should we interpret that, that cash flows are fairly, earnings are up but cash flows are sort of steady?

Yes, I would say so.

And is that depreciation level you booked in Q4 a good run rate or is that sort of an anomaly in Q4?

I don't think it's anything anomalous. It would be attached to the rates that we negotiated in our settlement so for the main line that's in place for through 2011 so I'd say they are good sort of reflective run rates attached to whatever the rate base is over the next couple of years.

Yes, as Russ said there's nothing unusual in those numbers.

Okay, can I just ask one clean up question for Greg? Can I just clarify for 09 are you looking for a quarterly run rate in corporate of around $20-$25 million?

Yes, I think that's a pretty good run rate. As the year goes on and we spend capital, you see some ramp up in capitalized interest that's generally offset by the higher financing costs that we incur as we complete our projects.

Okay, thanks very much for taking my questions.

Thanks, Matthew.

Thank you. The next question is from Robert Kwan of RBC Capital Markets.

Thank you. Just one quick housekeeping, for Greg, in terms of the Credit Facility you have outstanding you mentioned that none are drawn. Can you tell me how much CP those facilities are back stopping right now?

I think on the Keystone facility, it's $220 million and then on the TransCanada facility, we continue to reduce that now that we've funded and we're sitting currently at about $840 million.

Okay so across the three facilities, the way to think of it is $3.3 minus about the billion that you have outstanding?

I think the way we look at it is you still have the entire facility available to you. We've dedicated it to back stop these CP programs so that if we were not active in the CP market, we could then drawdown on the facility but you're right. There is sort of a net position there.

Okay, great. And then just my other question, with the activity and the slowdown we're seeing in the oil sands and projects being delayed, can you just comment what you're seeing with respect to your shippers and the Keystone project in particular, the Keystone XL?

Well, I think that as we've said over the last couple of months is our shippers are keen on getting that pipeline built as quickly as we can.

On the production side, the production is dedicated to the Keystone pipeline is either on stream today or will be on stream by sort of mid 2011 and at the refining end, those refiners are either ready to take that crude supply today or they will be ready to take it by sort of mid 2011 and so as we've talked through with them schedule optimization to minimize capital costs and those kinds of things, they've indicated to us or they continue to indicate to us that sort of a mid to end 2011 start time for the Keystone XL portion is very important to them.

And I guess, Russ, to the extent obviously a lot of things are changing, to the extent that one or two shippers do come back to you and ask for delay in whatever portion, can you talk or give some color as to the dynamic in terms of your thought process in balancing those shippers against some of the other shippers in line and timing and do you have that flexibility or is it all-or-none you have to forge ahead?

I think it's more of the latter is that we need to build the pipeline to meet the needs of all of the customers, the majority of them I guess are indicating to us currently that they want to complete this pipeline. We aren't getting any pushback at all from any of our customers so we haven't had any discussions with any of them indicating they want us to slowdown at all, so we're on track to meet that currently.

Robert, it's Hal here. I'd just add to that that at the end of October in this very same Conference Call we were asked the question about whether we would be prepared to slowdown the expansion of Keystone and I replied at that time that we're always willing to talk to our shippers and if there were major shippers that wanted to slowdown we would certainly talk to them about that and the reaction to that from our major shippers was immediate. They all called us and said what are you guys talking about on the Conference Call slowing down? We don't want you to slowdown. We have significant volumes that are coming on from projects that are currently starting up and those volumes have to get to the Gulf Coast because other refining centers can't process that kind of crude in those quantities, so there was a very clear message that people wanted this large diameter line built to the Gulf Coast. We said fine, we're happy to carry on with that and that's our plan today.

So when you look at those, the macropicture as well, Robert, the slowdown has resulted in somewhat of a decrease in forecasted crude oil volume production in say 2012, 2013, 2014 by 300,000-, 400,000-, 500,000-barrels a day but at the same time you've seen a delay in those projects associated with upgraders and so the actual production of bitumen is higher in 2011, 2012, 2013, by about 300,000-barrels a day than originally forecast and the only place to put that 300,000-barrels a day of extra bitumen is into the Gulf Coast, so even on top of our contracted volumes, we're having a number of shippers come to us that we hadn't talked to before that had thought that they would be able to upgrade their crudes and potentially move them to other markets, are now looking at the Gulf Coast as the most logical outlet for that additional 300,000-barrels a day of bitumen, so on top of our existing shippers we have inbound calls on additional movements of the Gulf Coast.

Thanks.

Just before you go, if I could just finish the liquidity picture, as I mentioned earlier with the debt issue we just did and the fact that CP is ramping down, we have over $1.8 billion Canadian and $700 million US of cash in the system right now.

Thanks, Greg.

Thank you. The next question is from Andrew Fairbanks of Merrill Lynch.

Thank you, good afternoon guys. Just another question on Ravenswood, with the Hess tolling agreement ending in 2008, how would you see the economics of the plant change as you marketed the power output yourself on that component?

I mean, I think that it's a good point. The Hess agreement we certainly didn't think it represented sort of a good run rate going forward. That being said, we've always been pretty clear, Ravenswood is going to be in a bit of a trough in 2009, improving in 2010 and in very good shape in 2011 and we continue to expect the same seasonality Q2 and Q3 will always be the good quarters just because of the seasonality of the demand and the capacity Markets. I don't know, did that help?

Yes, I think that's helpful, thanks.

Okay. Thanks, Andrew.

Thank you. The next question is from Faisal Khan of Citigroup.

This is actually Barry Klein. You guys touched briefly on Bruce. I just wanted to know I guess how much you've spent and how much you have left to spend on the 1 & 2 restarts and 3 & 4, and also what are the components that you have to spend on for the ones that are out of service now?

I think Greg had mentioned that we've spent to the end of the year it was $2.6 on 1 & 2 and $200 million on 3 & 4. One comment I would say with the life extension that we have announced with respect to Units 3 & 4, I think it would be a fair bet that we will be probably significantly deferring the large portion of the capital we were originally intending to spend on 3 & 4 for the next two or three years. We came out quite some time ago with a range of $3.1-$3.4 and I think I'd indicated that something of a range of around plus or minus 10% at the time we came out with that. I think we're generally still tracking in line with that.

What are the actual components that you have left to spend out of that remaining half a billion to a billion?

Yes, it's a pretty, there's obviously lots of parts. I think what I could say generally and what we're quite happy about is that we are almost completely through what we would describe as the first of a kind type of activities at 1 & 2 and by that, I'm talking about removing/replacing the steam generators. We are almost completely through removing the pressure tubes and colandrea tubes on both units 1 & 2 and I think I've spoken about that in the past where Duncan has all of those, the pressure tubes and colandrea tubes are inradiated and hence, have to be removed, reduced and stored robotically and that was by far the most challenging aspect of the restart with those tubes now almost being completely removed, the remainder of the retube work is really just human labor and pulling tubes into the reactor vessel, finishing the joints, and then the rest of it is primarily, we call it balance of plant, but what that is, that's a lot of pulling wires, reconditioning valves, testing systems. We anticipate that we will be loading fuel into the first of the reactors in Q4 of this year.

Okay, thanks a lot.

And it's Hal here. Just for clarity I'd point out that the $3.4 billion that Alex talked about is 100% dollars for the project. Our share is 50% of that.

Okay.

Thanks.

Thank you. The next question is from Andrew Kuske of Credit Suisse. Please go ahead.

Hi, good afternoon. This is Bob on behalf of Andrew. First off regarding Keystone, with oil hovering around the $40 range and seeing some oil sands project deferrals, when do you see the 15% shipper option on Keystone to be exercised and are you seeing demand for that?

I understand your question. Yes, first one was when, and the second one was if. Is that correct? I couldn't hear your question, is that correct? Yes, when the 15% shipper option would be exercised and if you had seen demand from shippers on that? Yes, the process is currently under way where we have opened up the data room to those shippers that have the option so that they can do their due diligence around it. We expect to conclude that process some time hears in the First Quarter and by the end of the First Quarter will have to have exercised or not exercised that option position, so I can't really speculate on whether they will or won't exercise the option but I can tell you the process is ongoing and we'll have an answer by the end of the First Quarter.

Okay, and secondly regarding Keystone again, can you update us on costs regarding Keystone as well as some of your projects, if regarding labor and materials if you've locked and loaded 100% for Keystone and if not are you considering terming that out right now?

On the base Keystone, a lot of the costs have been locked in on the first phase of the project, which gets us through to Wood River. For the section through to Cushing and then further what we call the Keystone XL portions which would be building from Alberta again right through to I guess the corner of Illinois and South Dakota, those portions haven't been locked in yet and I would say that the current time we're reviewing as to whether or not this is the appropriate time to lock in. Certainly we've seen a decrease in steel prices and other material prices. Labor prices haven't moved yet but we expect that they will start to move so we would think that over the next few months would be the appropriate time to start locking in our costs for those sections of the pipeline.

Okay, thank you. And regarding the wind farms, have you guys seen any cost reductions as well in say turbines due to project cancellations by some utilities?

Yes. We have quite significantly, especially in respect of gray market turbines that would have been acquired by developers who had very aggressive growth plans so we're definitely seeing the gray market opening up with pretty significant price decreases and I think we're starting to see some of those price decreases from the actual manufacturers.

Okay, thank you very much.

Thank you.

Thank you. The next question is from Brian Beargie of Legal & General Investment Management. Please go ahead.

As far as the Keystone CP, is there an intention to term that out at some point?

Yes. I think during construction, it just doesn't make sense to put a specific financing in place for Keystone itself so we'll continue to roll the CP and use that market and as the project comes into operation we'll look to put permanent financing in place potentially at the Keystone level.

Why wouldn't you do it now with credit markets opening up and that way you take out the I guess the concern that the CP Markets freeze up again like they did last year?

Well first of all, we have the underlying line so if the credit, the CP market froze up as you call it, we could draw on those lines. I would note that during the entire 2008 liquidity crisis, we were able to access the CP market and we never drew down on our lines during that period so we continue to see demand for TransCanada commercial paper and have seen it throughout that period. Construction risk is something that a marketplace is not willing to take on right now and if you could get financing including construction risk it's very expensive and we're comfortable with the construction risk. That's our business and we think that we're further ahead than to hang on to that exposure and once we're through that, then to look at financing that would be at more attractive rates.

Okay, and just to kind of follow on a question I think from the BMO Analyst about the funding needs for 2009, I don't have the benefit of having the slide you were referencing about the Analyst meeting but am I correct in saying that it's about a $1 billion gap this year that you might come to the Capital Markets for?

Yes, we do continue to have as I said some refinancing but there are a number of factors at play and one of them being the option that Russ just talked about with the shippers on Keystone, a 15% would amount to about $1.8 billion over the life of the project, so that would reduce Capital Expenditures. We need to see the results of that as we move forward.

Just conservatively speaking, if we kind of exclude that, if we exclude potential asset sales, things like that, is $1 billion about the right number?

I think that it's in the ballpark. Some of that maturity has already been repaid.

Okay, and the last thing is just as far as I guess your goal to improve the rating, I know it's kind of a silly thing to pick on especially when we're talking about such a small number but obviously in these credit markets, with your substantial CapEx needs, you're increasing the dividend here when you could be using that cash and albeit a small amount of cash but cash that could be used to be reducing debt and hopefully gets you up to that higher credit rating sooner rather than later.

Well, as you say, what we do as a management team is we grow long term earnings and cash flow and we've got that list of projects that are 100% contracted and are coming on stream. We've got Portland's Energy Center coming on ahead of schedule and on budget here this year, significant projects coming on into 2010. We've got the delay in the CapEx on the Bruce 3 & 4, so we have a clear line of sight to growing cash flows and that then gives our Board the opportunity to look at increasing the dividend. When we increase the dividend, what we look at is not only the sustainability of that level of dividend but the sustainability of the level of increase and we take that into account as we look out at our plans and our Board was comfortable with the increase.

Thank you.

It's Hal here. I'd just add that we receive very strong signals from our shareholders that they place significant value on the dividend and on our ability to grow that dividend over time, and we react to that.

Just a comment. Obviously, you've made promises to your bondholders as well as your debt holders and obviously just making sure that those things are weighing appropriately and especially in this credit market which is very unprecedented.

Yes, I appreciate that comment and I agree with it. We are very aware on both fronts.

Thanks.

Thank you.

Thank you. The next question is from Pierre Lacroix from Desjardin Securities.

Yes, thank you. Would like to just have some kind of an outlook for the spot market on the energy front in Alberta as well as your fixed price book that you have right now in 2009 as opposed to the trend that you saw in 2008.

Sure. Sorry, specifically in Alberta?

Yes.

Okay, I think I would say that over the last sort of four or five months, we've probably seen 2009 price per megawatt hour trend down, probably in the range of about I don't know, sort of $4-$6 give or take. Now interestingly, gas prices have gone down more or sort of relatively more but we've seen spark spreads expand a little bit, so we're right now probably sort of in the 55%-60% sold range in 2009 in that part of the business.

And this 55%-60%, you come through this price I guess in late 2008 or over the last year and a half or so?

Sorry, sort of our decline in our forward view, how quickly has it occurred?

No, when did you lock in.

Oh, I'm sorry. We have not just been locking in. We have been locking in as the year went along, so a fair amount of the forward sales were just done ratably over the year.

Okay, that's great. Thank you very much.

Okay.

Thank you.

Thank you. The next question is from Bob Hastings of Canaccord. Please go ahead.

Thank you. Just to continue on that and clarify your Alberta Power pricing under contract, Russ, would you say that your average price that you've locked in today is higher or lower than what you averaged last year?

I would say that it's probably in terms of achieved price, it's probably a little bit higher. We obviously have some forward sales from previous periods but it's not bad. Sorry, I should say it's pretty similar.

Okay, so you think sort of a similar price for 2009 for the contracted portion wouldn't get me too far out of whack?

No, I think it's pretty close. Might be down $2 or $3 maybe.

Okay, and how would that be in the East merchant?

The East I would say the downturn has been more significant in terms of dollars per megawatt hour. On the other hand we are much more contracted in that part of the world. If you think about our New England portfolio, we are probably sort of close to 95% forward sold in that portfolio at prices that are far exceeding presently prevailing prices in the market. Ravenswood, since we really just took control from a commercial perspective on the first of January, we're probably about 15%-20% forward sold for 2009 and so it's pretty early days for Ravenswood, and Ravenswood obviously is a lot different that we would see a lot more of its margin coming from the capacity market than necessarily from the energy market.

Right, okay, thank you. And to clarify on the pipeline, sorry, on the gas storage business, you just added a lot more storage, you're very large now. Can you maybe give us a little bit of color around what you're seeing for that market going forward?

Well, I think, Bob, first of all, it's Hal here, the storage we added most recently was part of our ANR regulated business, so Russ, maybe you want to comment on what we see in ANR.

As Alex commented as well on the non-regulated side, forward spreads have widened so we're seeing sort of increased interest in our storage and potential new projects that we have in reserve to move to market if in fact those spreads widen far enough for a long enough period of time that people are willing to commit for new capacity, but with respect to profitability in our existing storage business, basically we're charging the maximum rates for that capacity today, so the change in the market doesn't really have an impact one way or another on our revenues unless we can increase the volume of capacity that we're selling so that's been our focus in the regulated side of the business is to increase the amount of capacity we have available for sale and so you see the impact of that next year as we start to utilize that storage that we brought on this year.

You mean 2009?

2009, correct.

Bob, it's Alex. Just to follow on that, in the Alberta storage, the unregulated storage, we've actually seen as Russ indicated similarly in the US, we've seen a pretty significant strengthening of basis, the winter/summer storage spread, so to the point where we've actually taken pretty significant advantage of that and we're probably in the range of 80%-90% forward sold over the upcoming storage season.

So that would imply a better year in 2009 than 2008 in Alberta?

I think directionally, with all of the gives and takes, I would say probably you could look at a similar year.

Okay, and Russ one of the things about the storage in the US was that it allows you to do other more innovative things, it wasn't just the storage play but how you could link in some tools and add some extra value.

That's correct and certainly we're seeing that storage play an important role as we see new volumes come on in a number of these shale plays. We're seeing utilization on like the Eastern leg of ANR for example, increase quite substantially and one of the product offerings that we have vis-a-vis our competition is that we can combine those transportation offerings with storage offerings as well, and that's both attractive to the supply side and the market side downstream from our storage locations.

So that's starting to play positively in 2009?

Yes.

And Bob, it's Hal. When we acquired ANR, the Southeast leg was significantly underutilized one, and we had half a dozen different ideas as to how we might increase utilization of that Southeast leg. One that we weren't particularly focused on was the rapid emergence of things like the Hainesville shale play which is turning out to be potentially very positive for that leg so it's been good.

That's great. One last clean up question was on the pipeline side in Alberta, how much of the gain that you got from the regulatory approval was really applicable to the Fourth Quarter - $1 million or $2?

I'm guessing you could probably divide it by four quarters and you'd get sort of the run rate, because we didn't get that settlement approved until the Fourth Quarter so we booked sort of all that incentive gains if you will over the whole year in the Fourth Quarter.

Okay. That's what I figured. Thank you very much.

Thanks, Bob.

Thank you. The next question is from Steven Paget of First Energy.

Good afternoon, everyone. Just a question on gas pipelines. In the western half of North America, could you comment please on prospects for development of Palomar, Sunstone and Pathfinder at this current time?

Well, they will be dependent I guess upon what happens in the current environment with respect to drilling in the various Rockies Basin. The Bison project as we mentioned earlier in the Conference Call will move forward and the capacity of that is about 400 million cubic feet a day currently and there's a 24-inch design. What we're looking at right now is different ways by which we can up size the size of that pipe to a 30-inch pipe which will be able to increase the capacity to about a billion cubic feet a day and if we're able to do that, that will give us the ability to expand further into the basin at some point in time in the future if that demand materializes for the pipeline at a very very economical cost, so Bison will move forward and the Pathfinder project will meld into Bison if we're able to up size the pipe as one project so essentially you could think of Bison in that scenario as being a pre-build for a larger Pathfinder project if demand materializes.

Similarly in terms of projects going West, there's a certain amount of pull from the marketplace which will underpin those projects but again they will be dependent on the productivity of the Rockies Basins to be able to come back and contract for a gas supply, so there's a fair bit of uncertainty right now with low gas prices and the reduction in drilling budgets and where those will take place and the construction that's actually currently under way, like our Bison project for example, which will alleviate some of the pressure, the basis pressure that exists in that basin today. So there's a number of factors that have to unfold and we've tried to position ourselves for step-up options if you will as the producers bring new gas online, so the way our plan kind of works is our first 500 million cubic feet a day is the Bison project and then we can expand it by about 500 million cubic feet a day to add the Pathfinder project and then the Sunstone project going West has sort of two phases as well, there are two different sizes, we can size a minimal expansion of the Northwest pipeline system to about 500 million cubic feet a day to accommodate that build and if the demand is such we need a billion cubic feet a day, we can up size it to about a billion cubic feet a day so that you can see we have sort of a market offering if you will anywhere between 500 million and 2 billion cubic feet a day, in 500 million cubic feet a day increments to meet sort of supply growth as the region develops.

Okay. Did Anadarko have the option to take an equity interest in Bison and have they made a decision on that?

Currently, that's still, again there is potential for that to occur down the road, but it's something that has probably been put less than sort of front and center given the changes in the environment that we've experienced over the last two or three months in terms of commodity prices.

Okay, thank you.

Thanks, Steven.

Thank you. (Operator Instructions). The next question is from Carl Kirst of BMO Capital. Please go ahead.

Just a few quick clean ups if I could. I don't want to pars the words too much here but looking at Bruce A 1 & 2 units coming back on in 2010, I felt that was kind of an early 2010 event and there seems to be no qualifiers as far as time in 2010, is that still roughly the case or how should we think of that right now?

I think in terms of getting 1 & 2 back, we've seen it for a long time as a 2010 event and I'd like to think that we'll have one of those units on by the middle of the year with the other to follow a few months after.

Okay, so basically mid year?

Yes.

And then again understanding the project development queue here but there were two very large FERC filings in late December that caught my eye on the electric transmission side. What was rumored to be about $3 billion each, and just looking to get a little bit better feeling for what you're seeing there, if this has any type of connection to my understanding is that the US stimulus than being debated right now has about $10 billion for transmission upgrades. Just trying to get a better sense for what's going on there.

Sure, those are actually projects that I would call those a little bit more in the range of long range projects. We've been working on high voltage DC projects in the western grid, probably for about five or six years now and one of the preliminary stages is determining shipper support and that's why we have made those filings to FERC, but I certainly don't see those as being any significant expenditure of capital in the very short-term unless we get a very strong response from shippers, but to your point, I think this could very much be part of a stimulus. Certainly it's within the area of the projects that I think the government was looking at, and both of those projects are focused on moving renewable resources from the Montana and Wyoming region down toward the California and desert Southwest so I think they may have some attractiveness from the renewable perspective too but I wouldn't expect to see us committing a substantial amount of capital in the next couple years to those.

So this is basically just the ongoing slow simmer of the last five to six years, it's not necessarily correlated with the stimulus Bill?

No, no.

That's exactly correct, Carl and it's Hal. I just observed a lot of this rapid stimulus planning and discussion going on at the political levels is going to be a bit more challenging to proceed with than some commentators seem to think, because we know that there's several years of regulatory and commercial arrangements that need to come into place before we could ever go ahead with those kind of projects, and that's just overwhelmingly true of all of this infrastructure stuff so it will be interesting to see just how determined they are to go ahead quickly.

Great. And I'm sorry, last clarification, just going back to the interest rate hedge impact, did that show up in the financial charges in the corporate line or was that in the interest income and other?

It's Glenn. Excuse me. I'm just checking but I believe that is in the financial charges line.

Okay, thank you.

Yes, that's correct.

Thank you.

Thank you. I'd like to turn the meeting back to Mr. Moneta.

Just before we close, I would make the offer, obviously if there are media on the call that do have questions, we would be happy to take those before we close it off.

Certainly. The first question is from Carrie Tait of the National Post. Please go ahead.

Hi, I just want to clarify something really quickly. In Q3 you mentioned you may consider delaying the Keystone expansion and then you said today your customers called and said no, no, no, don't and so does that put the expansion back to mid 2012 or 2012?

Carrie, the expansion was never off the original schedule. It was always scheduled for sort of mid 2012 and there's always plus or minus a few months around those things, these are big projects but yes, that still remains the schedule that we're on.

I think that probably mid 2012 to end 2012 as Hal said it's a large scale project and we would expect to be finished in that last half of 2012 is our current plan.

Who were the customers who reacted to the comments that you may or you may be interested if your customers wanted to delay, who called you and said no, no, no, please don't do that.

We've never disclosed that kind of stuff.

Okay, that's all. Thanks.

Thanks, Carrie.

Thank you. There are no further questions registered at this time. I would now like to turn the call back to Mr. Moneta.

Great. Thanks, very much, and I'd like to say we thank all of you for taking the time today to listen into this call. We appreciate your interest in TransCanada and we look forward to talking to you soon. Bye-bye for now.