TC Energy Corp (TRP) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TransCanada Corporation 2011 Second Quarter Results Conference Call. I would now like to turn the meeting over to Mr. David Moneta, Vice President of Investor Relations and Corporate Communications. Please go ahead, Mr. Moneta.

Thanks very much and good afternoon, everyone. I'd like to welcome you to TransCanada's 2011 Second Quarter Conference Call. With me today are Russ Girling, President and Chief Executive Officer; Don Marchand, Executive Vice President and Chief Financial Officer; Greg Lohnes, President, Natural Gas Pipelines; Glenn Menuz, Vice President and Controller; and also, I'd just highlight that Alex Pourbaix, President, Energy and Oil Pipelines is with us as well, but he's calling in from a remote location. Russ and Don 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 the presentation is available on our website at TransCanada.com and it can be found in the Investor section under the heading Events and Presentations.

Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. And 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 that you limit yourself to two questions. If you have additional questions, please reenter the queue.

Also, we ask that you focus your questions on our industry, our corporate strategy, recent developments, and key elements of our financial performance. If you have detailed questions relating to some of our smaller operations or your detailed financial models, Terry, Lee and I would be pleased to discuss them with you following the call.

Before Russ begins, I'd like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by TransCanada with Canadian securities regulators and with the US Securities and Exchange Commission.

And finally, I'd also like to point out that, during this presentation, we'll refer to measures such as comparable earnings; comparable earnings per share; earnings before interest, taxes, depreciation, and amortization, or EBITDA; comparable EBITDA; and funds generated from operations. These and certain other comparable measures do not have any standardized meaning under GAAP and are therefore considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented by other entities. These measures are used to provide you with additional information on TransCanada's operating performance, liquidity, and its ability to generate funds to finance its operations.

With that, I'll now turn the call over to Russ.

Thank you, David, and good afternoon, everyone, and thank you very much for joining us today.

I'm pleased to tell you that we had a very strong second quarter. Comparable earnings were up 30% compared to the same period last year to CAD357 million, or CAD0.51 a share. That increase was primarily due to the contributions from CAD10 billion worth of assets that recently began operating, along with ongoing solid performance from our base core businesses.

Similar to what I said at the Annual General Meeting about our Q1 results, I think our Q2 results demonstrate that our strategy is working and we continue to deliver energy safely, reliably and responsibly, growing our earnings, cash flow, dividends through disciplined reinvestment of our free cash flow into our three core businesses.

We remain very focused on completing and bringing into service the many projects that we currently have underway. And most recently, in mid-June, the Company's Guadalajara pipeline began shipping natural gas in Mexico. In May TransCanada's Coolidge generating station began producing power in Arizona under a 20-year power purchase agreement with the local utility. And earlier in 2011 and in 2010, the Company brought into service the first and second phases of the Keystone oil pipeline; the Bison and Groundbirch natural gas pipelines; Maine's largest wind project, the Kibby Wind Project, the Halton Hills generating station in Ontario, and the North Central Corridor gas pipeline in Northern Alberta.

As we look forward, TransCanada is focused on completing the Bruce Power restart program in Ontario, the Cartier wind project in Quebec, and additional extensions and expansions of the Alberta system to capture growing shale gas supplies, and the Keystone expansion to the US Gulf Coast.

As we've said before, all of our projects are either regulated or underpinned by long-term contracts and, therefore, they're expected to generate predictable, long-term, sustainable earnings and cash flow as they begin operations.

Turning now to the highlights of the quarter. On all measures, this quarter was strong when compared to the second quarter of 2010. Net income applicable to common shares for the second quarter was CAD353 million or CAD0.50 per share, versus the CAD285 million or CAD0.41 per share last year, which is an increase of about 22% on a per-share basis.

Comparable EBITDA was CAD1.1 billion, which was an increase of 23%. Funds generated from operations were CAD892 million. And again, TransCanada today, the Board of Directors declared a quarterly dividend of CAD0.42 per common share for the quarter ending September 30th, 2011.

I'd like to move to some highlights now on the progress we've made over the quarter on a number of our strategic initiatives, and I'd start with Keystone. And much has been said in recent weeks about the integrity of the Keystone pipeline and I'd like to spend a couple of moments just setting the record straight on that front.

So, to be clear, there have been no incidents -- I'd say, just to repeat that, there's been no incidents with the Keystone pipeline in the ground. For anyone to state that the pipeline itself has spilled or ruptured is factually incorrect. It is correct to say that there's been a dozen or so leaks above ground at our pump stations. And except for some overspray, which was missed in two incidents, the oil didn't leave our property. The majority of those incidents involved small amounts of oil measured in gallons and not in barrels.

What we've done is we've built a 2,100 mile long pipeline. And to put it in context, almost three times as long as the Trans-Alaska oil pipeline. And like any large project, there are always bugs to work out and we work through those start-up issues as we always do.

For the last number of weeks we've been modifying fittings at our pump stations to make them safer and stronger. And as we do that, available capacity on the Keystone pipeline is being reduced by 20% in July and August. That work, however, should be complete by the end of the summer and we should be able to ramp back up to full capacity at that point in time.

On the regulatory front, the regulatory review of the Keystone pipeline is progressing. The 45-day public comment period for the project's Supplemental Draft Environmental Impact Statement concluded on June the 6th. The conclusion of the Supplemental Draft, similar to the conclusion of the Draft Environmental Impact Statement last year, was that the Keystone XL pipeline is needed and that it would have limited environmental impact.

The US State Department is in the process of reviewing and processing the comments received and announced last week it will release the Final Environmental Impact Statement in mid-August. That will be followed by a 90-day period to determine if the construction of Keystone XL is in the national interest of the United States. The Department of State reiterated in its statement that it expects to make a final decision on the Presidential Permit for the project by the end of this year.

Just to remind you, the Keystone/US Gulf Coast expansion will play an important role in enhancing the energy security of the United States by replacing crude oil supplies from sources like Venezuela, the Middle East and Mexico with secure and stable supply from both US domestic sources and Canadian crude oil.

The Keystone expansion will create thousands of jobs and inject billions into the American economy that needs private sector investment and job creation. We very much believe this project is in the national interest of the United States and we expect to receive a Presidential Permit by the end of 2011 and, as such, we are preparing to begin construction early in the new year.

We expect to invest CAD7 billion in the project. And in total economic stimulus south of the border is calculated to be somewhere in the neighborhood of CAD20 billion. We've procured all the pipeline and equipment and we are ready to commence construction, as I said, as soon as we receive our permits.

We have agreements with the four largest unions in the United States, the pipefitters and the welders and the many other skilled laborers that we will need to build this pipeline. Negotiations are currently underway with the landowners to use parts of their land for the right-of-way, for the pipeline right-of-way. We have reached voluntary agreements with over 82% of the landowners along the pipeline route. In Nebraska we've reached agreement, voluntary agreement, with 90% of the landowners and 95% of the landowners in the Sand Hills area of Nebraska. So, I'd say that we are truly shovel ready. Our construction plans are in place for early 2012 and we're very anxious to get moving forward with this project.

Moving over to the natural gas side, we continue to leverage our ability to transport gas to growing markets from all of the major North American basins. And that has allowed us to be successful in attracting new volumes across our system. And I'll talk a little bit more in a moment about the additional contracted volumes in BC and Marcellus. But, I'd remind you that by connecting new supply, which is our focus, we increase our throughput, improve our competitiveness and ensure that our 57,000 kilometers of natural gas pipeline infrastructure remains attractive.

Just taking a look at our gas pipeline operation in Mexico, the 207-kilometer Guadalajara pipeline began shipping natural gas in mid-June. That CAD360 million project has the capacity to transport 500 million cubic feet a day from Manzanillo to a nearby power plant, and 320 million cubic feet a day to the Pemex-owned national pipeline system near Guadalajara, which is Mexico's second largest city. 100% of that capacity is subscribed by CFE, which is Mexico's electric utility, under a 25-year ship-of-pay agreement.

Back in Canada, TransCanada is preparing a comprehensive rate application for the Canadian Mainline that is expected to be submitted to the National Energy Board by September 1st, addressing tolls for 2012 and 2013. The application will include changes to improve the competitiveness of TransCanada's regulated natural gas transportation infrastructure and the Western Canadian Sedimentary Basin.

Again, I'd remind you that the Mainline remains a very important component of the North American gas delivery system. Total deliveries averaged 5.9 billion cubic feet a day for the first six months of this year, making it the largest long-haul gas transportation system on the continent.

Receipts from the Western Canadian Sedimentary Basin continue to make up the majority of the volumes, averaging 3.6 billion cubic feet a day for the first half of the year and peaking at 5.4 billion cubic feet a day this past winter. Growing Western Canadian Sedimentary Basin supply and more requests for additional eastern capacity should lead to increased Mainline volumes in the years ahead.

Successful open seasons for the Mainline concluded over the past 12 months, resulted in contractual agreement to ship a total of approximately 350 million cubic feet a day of Marcellus shale gas to eastern markets. Gas deliveries from Niagara to Toronto are expected to begin at a rate of about 230 million cubic feet a day in November of 2012, increasing to 350 million cubic feet a day in November of 2013. There's ongoing shipper interest for additional capacity in the eastern part of the Mainline and requests for additional contracts are expected over time.

TransCanada continues to do advanced further pipeline development in BC and Alberta to transport new natural gas supplies to market. In addition to Horn River and Groundbirch, we have filed several applications with the National Energy Board seeking approval to expand the Alberta system accommodate requests for additional pipeline service throughout the northwest portion of the Western Sedimentary Basin. To date, the National Energy Board has approved pipeline projects with a total capital cost of about CAD500 million. Further pipeline projects with a total capital cost of approximately CAD700 million are currently before the National Energy Board for approval.

Successful open seasons with Western Canadian producers have resulted in significant new contracts for both Montney and Horn River shale formations. Today, we have firm commitments to move 2.9 billion cubic feet a day from Northeast British Columbia and Northeast Alberta by 2014. Further requests to connect significant additional volumes to the Alberta system in the northwest portion of the basin have also been received.

Now, moving to the energy side. On the energy side the Company's business the focus remains on increasing availability and increasing capacity, and we are doing this with our Ravenswood, Halton Hills and Bruce assets. We expect our focus on capacity and availability to continue to lead improvement in revenues across our generation fleet.

New builds will further add earnings and cash flow. The 575 megawatt, CAD550 million Coolidge generation station began producing power in early May. All of the energy and capacity produced at Coolidge is sold under a 20-year power purchase agreement with the Salt River Project, which is a local Arizona utility.

And our Bruce restart program is on track and continues to progress. Bruce received regulatory approval in late June from the Canadian Nuclear Safety Commission to begin loading fuel into Unit 2 at the Bruce A generating station. And fuel loading into Unit 2 was completed in July and a transition from construction to commissioning continues.

Plant commissioning will accelerate in the third quarter of 2011 and Bruce expects to achieve first synchronization of Unit 2 to the electric grid by the end of 2011, with full commercial operation expected to occur in the first quarter of 2012. Fuel loading into Unit 1 is expected to begin in the third quarter of 2011, with first synchronization of the generator during the first quarter of 2012. Unit 1 should be fully operational by the third quarter of 2012.

TransCanada's share of the total capital cost of Bruce is expected to be approximately CAD2.4 billion. CAD2.1 billion was invested in the project as of June 30th, 2011. Once restarted, Units 1 and 2 will produce approximately 1,500 megawatts of emissionless, cost-effective, safe and reliable nuclear energy for the power -- nuclear power for the resident of Ontario. And just to remind you, TransCanada owns 49% of Bruce A.

Moving to New York, the July spot price for capacity sales in Zone J dropped substantially compared to previous months due to the New York Independent System Operators; in our view, a process of not treating price determination appropriately for new power -- for a new power plant that recently began operating in the market.

TransCanada believes the price drop was caused by the NYISO taking actions under their tariffs that contravene prior Federal Energy Regulatory Commission orders associated with capacity pricing. As a result, TransCanada and other parties have filed a series of complaints with the FERC urging the regulator to look into this matter and to make a ruling. TransCanada expects that this will negatively impact our revenues in July by approximately CAD5 million to CAD10 million and, as well, we're expecting that we'll see a similar result in August. The outcome of the complaints and any potential long-term impact in the Ravenswood operations will not be known until those complaints are adjudicated.

So, to conclude, I'd tell you that our strategy is working. Quarterly earnings were up 30% over the second quarter of last year. We are realizing the positive financial benefits of the projects we've started operating in the past year, and we will continue to focus on completing the remaining projects that make up our current capital growth program.

Over the remainder of the year, TransCanada will continue preparing the final steps of the regulatory process for Keystone XL. We'll be developing and filing a rate application to the Canadian Mainline and moving toward the commissioning stage of Bruce A.

In the longer term, our three core businesses continue to generate significant and attractive opportunities for investment and we will be disciplined about picking only the very best of those opportunities to invest in. We will remain diligent about our financial health and we will live within the constraints of our cash flow, our debt capacity and our ability to build shareholder value through portfolio management.

Our focus is on creating long-term shareholder value through stable and steady growth of cash flow, earnings and dividends. This is what we're doing every day and will continue to do every day into the future.

I'll now turn the call over to Don Marchand who will provide some additional details on our second quarter financial results. Don?

Thanks, Russ, and good afternoon, everyone. Before I expand on the details of our second quarter, I'd like to draw your attention to a few core messages.

First, TransCanada's diverse set of high-quality infrastructure assets generated solid cash flow and significantly higher comparable earnings year over year.

Second, we continue to successfully advance our unprecedented capital program that will further contribute to earnings, cash flow and dividend growth in the future. With the Coolidge generating station and the Guadalajara natural gas pipeline entering commercial service in the second quarter, we have now completed and brought into service approximately CAD10 billion of assets over the past year.

And third, we are well positioned to fund the remainder of our current capital program without issuing additional common equity. Earlier in the quarter we closed a USD605 million asset sale to our sponsor at MLP, TC PipeLines. The proceeds from this drop down effectively completed our funding needs for 2011.

TransCanada believes it has the capacity to fund its existing capital program through internally generated cash flow, continued access to capital markets, and liquidity underpinned by in excess of CAD4 billion of committed credit facilities. The Company's financial flexibility is further bolstered by opportunities for portfolio management, including an ongoing role for TC PipeLines, LP.

I would now like to take the next few minutes to elaborate on these messages and on our second quarter 2011 results.

Comparable earnings in the second quarter were CAD357 million, or CAD0.51 per share, compared to CAD275 million, or CAD0.40 per share in 2010, an increase of 28% on a per-share basis.

Incremental earnings from recently commissioned assets, combined with improved results from many of our existing core businesses, contributed to the significant increase in second quarter 2011; more specifically, the startup of Keystone phases 1 and 2, Halton Hills, Bison, Coolidge, Groundbirch, Guadalajara, and the second phase of Kibby Wind, higher volumes and prices realized at Bruce A, higher return on equity on a thicker equity component for the Alberta system, and higher contributions from U.S. Power and ANR all contributed to quarter-over-quarter improvement.

These increases were partially offset by higher interest expense, lower power prices realized in western power, and lower volumes and prices at Bruce B.

I will now briefly review the business segment results at the EBITDA level. The Natural Gas Pipelines business generated comparable EBITDA of CAD711 million in the second quarter compared to CAD696 million in the same period last year. The increase reflects incremental EBITDA from Bison, Groundbirch and Guadalajara; a higher equity return on a thicker equity component for the Alberta system; and higher transportation and storage revenues from ANR.

In Oil Pipelines, Keystone generated CAD153 million of EBITDA in the second quarter. Curtailments on the system in May and June have little impact on EBITDA as Keystone was able to meet most of its shipping commitments. In July and August, Keystone's available capacity will be reduced by approximately 20% to allow for further maintenance work. Despite these curtailments, Keystone is expected to generate approximately CAD580 million of EBITDA in 2011.

Turning to Energy, comparable EBITDA was CAD290 million in the second quarter compared to CAD254 million for the same period last year. The CAD36 million increase was primarily due to new earnings from Halton Hills in Ontario, Coolidge in Arizona and the second phase of Kibby Wind in Maine, increased generation volumes and higher prices at Bruce A, and a net increase in capacity revenues, primarily due to a higher availability factor at Ravenswood. This was partially offset by lower realized power prices in Alberta and lower plant availability and lower realized power prices at Bruce B.

TransCanada continues to record revenues and costs under the Sundance A power purchase arrangement and in the second quarter recognized CAD12 million in comparable EBITDA.

The binding arbitration process is underway to resolve the dispute arising out of TransAlta Corporation's claims of force majeure and economic destruction. The arbitration panel has directed that the matter proceed as a single arbitration, with both claims to be heard and decided together in a hearing expected in March and April of 2012. Assuming the hearing concludes within the time allotted, we expect to receive a decision in mid-2012. As the limited information received to date does not support TransAlta's claims, TransCanada continues to record revenues and costs under the PPA as though this event was a normal plant outage.

Now, turning to the other income statement items on slide 24.

Comparable interest expense in the second quarter was CAD236 million compared to CAD187 million last year. The CAD49 million increase reflects decreased capitalized interest related primarily to Keystone and Halton Hills, and incremental interest expense on new debt issues of USD1.25 billion in June 2010, and USD1 billion in September 2010.

These increases were partially offset by realized gains in 2011 compared to losses in 2010 from derivatives used to manage the Company's exposure to rising interest rates, the positive impact of a weaker US dollar on US-dollar-denominated interest expense, and Canadian-dollar-denominated debt maturities in 2010 and 2011.

In the second quarter, CAD68 million of interest was capitalized to assets under construction, compared to CAD143 million for the same period in 2010. (Inaudible) interest has decreased as new projects have been placed into service, somewhat offsetting the impact of higher EBITDA associated with these new assets.

Comparable interest income in Other for second quarter 2011 improved CAD44 million to CAD26 million of income from an expense of CAD18 million in 2010. The increase reflects realized gains on derivatives used to manage the net exposure to foreign exchange fluctuations on US dollar income in 2011 versus losses on derivatives in the translation of US dollar working capital in 2010.

Comparable income taxes of CAD140 million in second quarter 2011 were CAD80 million higher than second quarter 2010, primarily due to higher pretax earnings in 2011 and higher positive income tax adjustments in 2010.

Moving on to cash flow and capital expenditures on slide 25. Cash flow was very strong in the quarter for many of the reasons already discussed in my review of EBITDA.

Funds generated from operations of CAD892 million decreased slightly from the CAD935 million in the prior year. The decrease was primarily due to the second quarter 2010 income tax benefit generated from bonus depreciation for US tax purposes on Keystone phase 1. Excluding this item from second quarter 2010, funds generated from operations in second quarter 2011 increased over the prior year.

Capital expenditures were CAD655 million in second quarter 2011, principally related to Keystone, the Bruce A Units 1 and 2 refurbishment and restart, and Alberta system expansions. For the year, we expect to spend approximately CAD3.5 billion on capital projects.

Now, looking at slide 26, our liquidity and access to capital remains solid. At the end of second quarter our consolidated balance sheet consisted of 44% common equity, 4% preferred shares, 2% junior subordinated notes, and 50% debt net of cash.

At June 30 we had just under CAD500 million of cash on hand, along with CAD3.8 billion of committed and undrawn revolving bank lines. For two commercial paper programs remain well supported by the market and continue to provide a flexible and attractive source of short-term funds.

In the quarter, our dividend reinvestment program generated CAD109 million of common equity. As mentioned last quarter, commencing with dividends declared April 28th, 2011 and payable at the end of July, common shares purchased with reinvested cash dividends under TransCanada's dividend reinvestment and share purchase plan will no longer be satisfied with shares issued from treasury to discount, but rather will be acquired on the TSX at 100% of the weighted average purchase price. This will serve to reduce future dilution of earnings and is reflective of the strength of our financial position to the successful advancement of our construction program and the various attractive alternatives available to TransCanada to finance our current growth portfolio.

As noted, we are pleased to complete the drop down to our sponsored MLP, TC PipeLines, and proceeds from the USD605 million asset sale effectively completed our funding needs for 2011. TC PipeLines successfully financed the transaction through public offerings of common units and debt which closed in the second quarter.

So in closing, TransCanada produced another very strong quarter, with comparable earnings per share 28% higher than second quarter 2010. We have now completed and placed into service approximately CAD10 billion of assets over the past year. Looking forward, we will remain focused on completing the remaining projects that are part of our current capital program. To date, we have invested over CAD4 billion in these projects and are well positioned to fund the remainder through 2012 and 2013 without any additional common equity.

Finally, in 2014 and beyond we expect to generate significant discretionary cash flow that can be used to continue to grow the dividends, invest in accretive growth opportunities and further enhance our financial strength and flexibility.

That's the end of my prepared remarks. I'll now turn the call back over to David for the Q&A.

Thanks very much, Don. Just before I turn the call back over to the conference coordinator, just a reminder that we will take questions from the financial community first. And once we've completed that, we'd be happy to open it up to the media. And with that, I'll turn it back to the conference coordinator.

(Operator instructions.) Juan Plessis, Canaccord Genuity.

Thank you. In regard to Ravenswood, I know you mentioned that the New York ICAP spot auction prices dropped somewhat dramatically for July. And I see now that August has closed at a price similar to July. Just wanted some clarification. Did you say that in July the reduction had an impact on net income of CAD5 million to CAD10 million?

It's on revenue. It's between CAD5 million and CAD10 million. Part of our capacity is sold forward on a monthly basis. So, the number that we're working with right now is between CAD5 million and CAD10 million per month of a revenue drop.

Okay. Thanks for that. And I noticed that the outlook for availability on Bruce B has come down from the high 80% to mid-80%. Can you tell us the reason behind that change?

Sure, Juan. It's Alex. How are you doing?

Very well, thank you.

So, just with respect to Bruce, that's really going forward, we're just looking at -- we have a 20-day outage. Oh, sorry. Were you talking about 2011 or 2012?

2011.

Yes. So, in 2011 we have a 20-day outage that commenced on July 22nd that we have to deal with a transformer issue on Unit 6. And originally, we anticipated we'd probably be doing that in 2012. We just moved it up a bit.

Carl Kirst, BMO Capital.

Thanks. Good afternoon, everybody. Maybe go back to the New York market for a second. And I just want to make sure I better understand kind of what exactly is going on here as far as what the ISO did and maybe what the timeframe of adjudication is, because I would assume if what they did basically stands, I mean, what's kind of impacted the stock market is also going to impact the monthly and then the block market as well, which I guess would have an outsized impact more than just the CAD5 million or CAD10 million. I just want to get a little bit understanding of what happened.

I'll give it a shot and then I'll maybe pass it on to Alex who understands the details better. But essentially, Carl, there's rules that are put in place there that sort of govern how people bid into this -- the capacity in this market. And market-side participants have certain restrictions in terms of how they bid in their capacity. And new entrants like Astoria 2, which is fully contracted to a buy-side participant in the marketplace, under the rules is required to bid that capacity into the pool at 75% of the cost of new entrants or what they call [cone] prices.

It appears that, for whatever reason, the New York Independent System Operator under its tariff has granted them an exception from bidding in at that minimum bid floor price and allowed them to bid in at some lower number, which has resulted in the capacity market price falling.

Our view is that the only way that those exemptions can be allowed is to the extent that the actual cost of that new power coming in the market is less than the market price. It's clear that this power looks just like anything else from our filings. You'd see that it's the -- that the power itself is sold to -- from the seller to the buy side at somewhere in between CAD$15 and CAD$20 a kilowatt month, yet the capacity is being bid in the marketplace at something well under that level, which we believe contravenes the -- both the rules and the spirit of the market, what we call the market-side mitigation rules.

I don't know, Alex, if you want to add to that?

Yes. No, I think that described it well, Russ. The only thing I would add is that, as Russ said, when the FERC developed the rules for the New York capacity market they expressly realized that both suppliers and buyers could exert market power, and they put in place these buyer-side market power mitigation rules.

And I -- certainly from our perspective, it is very, very clear that under any interpretation of those buyer-side market power mitigation rules you could not have come up with capacity prices that were posted by the New York ISO. So, we and a number of other market participants have filed a complaint. Preliminary responses, I think, are due on August 3rd. And we would expect and hope that FERC will deal with this quite promptly.

Okay. I appreciate that color. One other question, maybe flipping over to XL, and hopefully we'll be having some good news here in a few short weeks. But, as perhaps attention starts turning to timeframe of XL, I guess from here as you guys start to go into the construction season in early 2012, is this a -- are we kind of in a situation where we can perhaps still meet like a second quarter 2013 type of timeframe if we throw additional dollars at it and accelerate where we can? And is that then dependent, because of I guess the 75% cost sharing with shippers, are we in sort of now a negotiating mode with shippers to kind of figure out what the right timeframe is for getting XL online? I just want to better understand the mechanics there.

We will negotiate with our shippers what's the most reasonable and safest timeframe to construct this project. As you know, we could probably throw some more resources on it and accelerate it a bit, but not a whole bunch. I mean, these things take the time that they take to get done correctly.

Our current plan is to bring -- as we complete the Cushing to Gulf Coast section sometime towards the end of 2012, and at the same time, in parallel, we'll start construction of the section from Hardesty to Steel City. That process will probably take more like about 18 months to construct under a fairly favorable scenario. So, we would hope that sort of by mid-2013 we would have that section of the pipeline done and be able to sort of bring it altogether and for operations in mid-2013.

But certainly, we'll be discussing that with our shippers. As you point out, they pay the lion's share of these costs. And if -- to the extent that there are any additional costs associated with accelerating, we'll have to get their concurrence that that's the right thing to do. But as you know, for the most part, the biggest pieces of cost here are the steel and the pumps and the labor. And the bulk of that stuff has all been nailed down already in terms of cost.

So, in any event, I wouldn't see the cost migrating up, even if we were to press a little bit harder on timeframe. But, my gut feel right now says that we're going to be on the same timeframe schedule that we've always been on and I think middle of 2013 is still a reasonable estimate.

Ted Durbin, Goldman Sachs.

Yes. If I could just stay on the Keystone XL question, it sounds like you've locked in some more of your labor contracts. Can you talk a little bit more about the fixed price variable, what kind of risk sharing you might have with your actual contractors, and then that implications -- then does that flow through then to your shippers if you do have some either upside or downside on the costs, your labor contracts?

Sure. Russ --

Go ahead, Alex.

Sure. I think unlike base Keystone, we're in a situation where we've been able to substantially lock down the price on a far greater percentage of those contracts. Much, much more of our construction contracts this time around are -- it's priced turnkey. And then, going forward, you'll recall that the -- in the event that there were any cost overruns, the sharing is 75% our shippers and 25% TransCanada. So, we have significantly more certainty as to where we're going to come out on capital on this project. And as Russ said, we have already purchased the lion's share of all of the line pipe and the other equipment required for the facilities.

Okay. Thank you. And then, if I can then shift over just on the gas pipeline side. It sounds like you've had some incremental success in signing up some of your customers in the Horn River and the Montney. I'm just wondering if there's kind of a read-through then to your plans for what you'll do with the Mainline. In other words, do you have a little bit more negotiating power with your shippers now because they do have this extra demand there? Then, as you go in on the Mainline -- I'm just trying to see if there's a connection there.

Well, I think there -- It's Greg Lohnes speaking. I think there is a connection. The WCSB has significant shale reserves. They're cost effective. There are areas, particularly in the deep basin, that have a large liquid component. So, they are competitive with other parts of North America. So, we are seeing a ramp up in volumes. Against that, we see a decline in conventional supply and increased demand in Alberta. So, when we put that altogether, we do think we will see some increased volumes moving on the Mainline.

As we saw this winter, we peaked out well over 5 Bcf early in the year and we're averaging about 3.5 Bcf for the year. So, this is a very significant piece of infrastructure. A movement of a few hundred one way or another is not really the issue. The issue is we have a significant piece of infrastructure here that's essential for the marketplace. I think the marketplace recognizes that.

And as we go forward, we'll do our filing in September. We'll put our model out there and we'll continue to negotiate with our shippers to try and find a place where we remain competitive in the longer-term going forward. And with that competitiveness, that will drive more expansion in Western Canada and continue the growth of the basin. So, our target is to align with the market, to align with the producers in order to have a competitive basin, not just a competitive pipeline, and continue the growth in Western Canada.

Paul Lechem, CIBC.

Thank you. Good afternoon. Just filling on the gas pipeline side, we've seen some new pipes coming to the US the Ruby pipeline and the potential for the reversal on REX. I was just wondering if you can give us some thoughts about what that might mean for your various gas pipelines across the system.

Sure. We've been anticipating Ruby coming into service for some period of time and understand that it now has. So, our expectation is Ruby has a contract with PG&E, so there will be a certain volume that will move into (inaudible). And that will have some impact on GTN. We'll also see impacts that vary from time to time, depending on what the hydro level is the Northwest. It's a little higher this year, so that has a potential to impact some volume.

But, we still see GTN and with the pricing of Western Canadian Supply, as we look at the cost of transportation on Ruby and the various alternatives that the marketplace has, that there'll be significant volume from Western Canada continuing to move on GTN and that GTN will remain a competitive path. We would expect to see potentially something like 250 million a day backed up that might be moving down the Mainline for some period of time.

You'll recall GTN is under long-term contracts, so we do have some contractual certainty there. And we continue to talk to our shippers about an appropriate tolling structure for GTN in order to maintain the competitiveness of that pipeline and the returns from that pipeline.

Thank you. Just on a different topic, I see in your write-up that you've sold off the interest in the Zephyr project. I was just wondering, can you give us anymore insights on that and can you maybe talk a little bit about any other transmission opportunities that you might be looking at or your thoughts about transmission in general and what's out there?

Sure. It's Alex here. We had obviously been working on Zephyr for some time with our shippers. I think it was probably about a year ago that we had decided that it would not make a lot of sense to go ahead with significant permitting activities on Zephyr in the absence of more certainty coming from particularly California with respect to demand of California utilities for renewable, long-term renewable contracts.

Our shippers, as part of our deal, had the option to acquire the project in the event that we chose not to go ahead. They exercised that option and hence the announcement you saw from us. We do continue to look at some transmission opportunities within the Company, but I think it would be fair to say that, for the time being, all of those are at a fairly preliminary level.

Andrew Kuske, Credit Suisse.

Thank you. Good afternoon. I guess my first question, whether it's to Alex or to Don, it's more nitpicky on just the Western and Eastern Canadian power costs. The plant and operating costs increased fairly substantially looking at Q2 this year versus last. Is that just a function of the Coolidge and Halton Hills coming online?

Yes, it's Glenn here. Yes, in the West primarily it's Coolidge and, as you say, Holton Hills both coming online. Otherwise, things are fairly normal there.

And then, just on a broader context, looking at Ontario and the situation at Oakville, I guess an easy way for the government to really settle this with you is to just give you an opportunity to build another power plant of a similar size within the province. Do you see a likelihood for winning, say in Cambridge or other areas in Ontario, for another similar type PPA?

I think that's an obvious option that would be open to the government. I mean, just to sort of restate the obvious on this, the government purported to terminate or repudiate a contract that didn't have a right of termination. So, we are very confident of our position that we hold with respect to the Oakville PPA. There's a number of ways that the government can satisfy their obligations to TransCanada. And it would be fair to say that we continue to have quite a significant dialogue with the government on how we're going to ultimately resolve this issue.

And then, finally, Alex, do you see any prospects for really developing a transmission business? And then -- I ask the question in part just with FERC order 1000 coming out, do you think that's helpful to TransCanada's cause in potentially building up a transmission business in the US, or is it not has helpful?

I think I would just sort of say more generally -- we have seen -- we think that our pipeline business in Canada and the US has a lot of parallels to the transmission business. And a lot of the skills that we have as a pipeline company are very transferable to the transmission business.

I think what I would say, my experience after several years of examining the opportunities on the transmission side, is that it's proven to us to be a very difficult business for a non-incumbent to break into. And I think from that perspective we're going to be very measured and we're going to be very cautious about what kind of -- if any opportunities we pursue in the short to medium term on the transmission side.

Robert Kwan, RBC Capital Markets.

Great. Thank you. Just on the Mainline toll situation, you talked about a different structure. I was just wondering if you can elaborate on that. And I know you probably don't want to get into specific numbers, but maybe is it possible to get a comparison to what you proposed late last year?

Yes. I guess we're still working on the application. As you know, the NEB ordered that we file by September 1. We've responded that we will file as complete an application as we can by September 1. There's some numbers that fallout from our own internal processes, which will lag that. But, we were heartened that the NEB was anxious to move this matter forward quickly and we're anxious to stick with their timeline. And we think that our filing will be complete enough that we can stick with those timelines.

I think the filing -- the goal of the filing, of course, would be to have stable competitive tolls for the Mainline going forward. And a number of the matters that we've brought forward initially would be March of 2010 in a proposal to industry. And then again in our filing in December where, as you're aware, we had filed for a number of changes, some support from the producer's side and some concessions on the market side around different rate structures and toll design. And then, went forward again early in the spring to try and get resolution with the parties that were not on site with that filing.

Those matters that we talked about in those three situations I think are relatively consistent to the discussions in the filing that we'll have with the NEB with respect to the production end of things, as well as the market end.

Okay, that's great. And then -- and this might be for Don. You talked with the LP drop down that your funding's done for '11. Can you talk about what you see as your equity funding GAAP for '12 and '13? And then, you talked as well about portfolio management. Just wondering the status of Coolidge and your outlook for Arizona. And if there is nothing, does that mean that that would be an asset that you might look to sell based on what you might have said historically around Arizona?

We'll start with the funding for the next couple of years. Just big picture, we see our needs in '12 and '13 in terms of the markets about CAD3.25 billion of new capital right now and about a CAD1.9 billion of refinancing of maturities. So, something in that CAD5 billion area. That won't be all senior debt. We'll look to a mixture of various instruments. And in terms of a raw equity GAAP number, I don't have that. A lot of this is just driven by cash flow coverage metrics with the credit ratings.

To the extent we do need subordinated capital, it'll be a mix of further LP drop downs, potentially preferred shares, hybrid securities and outright asset sales. So, we'll see how we progress on that in terms of the mix and how the relative cost of those various alternatives is.

So, it's -- the simple answer is it'll be a blend of that. And I don't have a raw dollar figure what our equity GAAP would be on a book basis. But, we don't see any need for issuing any additional common equity in that pure form going forward.

In terms of specific asset sales, and Coolidge specifically, we do have aspirations in the desert southwest down the road. That is a beachhead for us. We see that as a growth market into the future. We haven't earmarked anything specific at this point in time to get out the door right now. So, that's -- in terms of assets we might sell into the LP, that would be obviously US -- mature US gas pipelines, preferably contracted up. You've seen us move portions of (inaudible) and the GTN. They would obviously be candidates to look at for more on that front there.

But, other than that, we continue to go through the portfolio and see what is of value to specific markets at any point in time. So, Coolidge has not been specifically targeted for disposal and we -- again, we don't see that going forward here.

(Operator instructions.) Steven Paget, FirstEnergy.

Good afternoon. Could you comment on where you are in the next process or the NGL extraction rates?

Yes, Steven, it's Greg. We continue to work forward, as you know, coming out of the AEC process and into the NEB process. We had an obligation to move the next project forward to the regulator. We're working on that application right now. We are out talking to production side in the industry about that.

As you know, there will have to be changes in commercial arrangements once NEX -- if and when NEX is approved, in how extraction of the liquids takes place and who the ultimate customer of the extraction and the marketers are. So, those are issues that are before the industry right now and we're certainly talking to people about that. But, that application is being moved forward. I don't have a date for you on filing, but we're working hard on that.

So, do you expect that there might be a filing followed by a discussion and then a decision, maybe even by late 2012, or is that too soon?

I don't have a specific timeframe in place, but I would say that that's realistic.

Juan Plessis, Canaccord Genuity.

Thank you. Just getting back to the New York capacity market, there's another 2,500 megawatts of capacity in Zone J that's awaiting a decision from the New York ISO, an exemption from bidding in at 75% of cone. Just wondering if you could tell us if the New York ISO has already begun that process or has it -- has this been put on hold pending a decision from the FERC filings?

I'll have to get back to you on that one, Juan. I haven't checked up on that recently. I'll talk to our people and we'll get back to you.

Okay, thanks. And just one more question, a housekeeping question. There was a counterparty settlement at ANR. How much was that in the quarter?

Not very much, just a few million dollars, a couple million dollars.

Steven Paget, FirstEnergy.

My question is about the possibility that the Indian Point nuclear reactor might get shut down. If that -- if it doesn't get a permit to go continue operating, could that be positive for Ravenswood?

Steven, it's Alex. It would be very positive for Ravenswood. And as you can imagine, there's a lot of opinions on both sides of the ledger on the relicensing of Indian Point, but it is certainly a hotly discussed issue. And given its proximity to the large population center of New York, I expect there'll be a pretty strong debate on it. But, in the event it was -- it did not -- was not allowed to be relicensed, it would have a very significant impact on capacity.

Thank you. We'll now take questions from the media. (Operator instructions.) Justin Amoa, Argus Media.

Hi. Thanks for taking my call. Just wondering what second quarter throughputs were on Keystone relative to current throughputs on the system?

In Q1 I think we were averaging about 345,000 barrels a day and we're in that same range. It might be a tiny bit below, maybe around 335,000 - 340,000 for Q2.

Okay. And current throughputs with the 20% reduction, are they below that 335,000 or are they still around that level?

No, that 100,000 reduction is off full contract levels. So, it could be significantly different.

Dina O'Meara, Calgary Herald.

Thank you for taking my question. I actually have two. The first one is you said your current plan is to complete the Cushing to Gulf Coast leg of the Keystone XL extension once you get the permit. If you do not get the Presidential Permit, would you continue with the plan to build that leg?

No, it's all -- Dina, it's all part of one applications, is -- Keystone XL is permitted as one project. So, if we didn't get the permit for the whole, we wouldn't have the authority to build that section. And I think as we've said before, building that section standalone is not an economic proposition, so we wouldn't move forward with that section standalone.

Okay. My second question is unrelated to Keystone. It has to do with the PPA on the Sundance units. Today, TransAlta said that they were disappointed that the arbitration hearings were taking so long and the decision was going to come up -- they expect the decision to be out mid-year 2012, as you said. But, they also said that they would be -- that discussions were taking place outside of those hearings with stakeholders. Are you in discussions with TransAlta informally or formally?

Yes. Russ, do you want me to answer that?

Yes, go ahead.

Is this Alex?

We obviously have a very longstanding relationship with TransAlta, both in relation to the PPAs and a lot of other business that we do in Canada. So, we are more than willing to engage in discussions with them as to the resolution of this issue.

I think the view to this point is that it would probably make more sense to go a little further down the path of the arbitration. Both parties can get a little more information as to the other party's case and that would probably make discussions a little more fruitful sometime down the road.

So, does that mean that you're not in discussions with them now?

Oh, well, I mean we do have discussions with them on and off on a regular basis. And so, yes, we have had some discussions with respect to the ultimate resolution of this claim, but I don't think that those discussions are -- in any way could be suggested to be driving to an imminent resolution of this dispute.

(Operator instructions.) Samantha Santa Maria, Platts.

Thank you. I see here in your statement that the Bison pipeline is an important part of your earnings this quarter. With the rupture -- and I know that you're just awaiting (inaudible) approval to restart. Do you have any sense of what some sort of earnings impacts that the rupture has caused? If you don't have specifics, I'm just looking for some sort of sense of if it's had any -- or if it's had any impact or will it have any impact to your earnings.

We -- first of all, we're working with the regulator, as you say, with respect to Bison and the restart of Bison. The top priority is the safety of the pipeline before we get it restarted. So, that's what our focus is on right now.

With regard to any impact, we don't expect there to be a material impact in any way from the Bison revenue side. And there'll be some additional capital costs resulting from the work that we're doing right now. The pipeline has been welded up for a restart and we are working with the regulator on other integrity work to make sure that we can put the pipeline back into safe operation as soon as practical.

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

Great. Thanks very much and thanks to all of you for participating this afternoon. I know it's been a busy day for you. We appreciate your interest in TransCanada and look forward to talking to you soon. Bye for now.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.