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Executives

Terry Hook – Manager, IR

Russ Girling – Chairman and CEO

Mark Zimmerman – President

Rob Jacobucci – Principal Financial Officer and Controller

Analysts

Michael Cerasoli – Goldman Sachs

John Tysseland – Citigroup

Ron Londe – Wells Fargo

TC PipeLines, LP (TCLP) Q4 2009 Earnings Call Transcript February 18, 2010 12:00 PM ET

Operator

Good day, ladies and gentlemen and welcome to TC PipeLines, LP 2009 Fourth Quarter Results Conference Call. I will now turn the meeting over to Mr. Terry Hook, manager Investor Relations. Please go ahead, Mr. Hook.

Terry Hook

Thank you, operator and good day, everyone. Welcome to our fourth quarter 2009 conference call. We're pleased to provide you with an opportunity to discuss our achievements for the quarter and the year and other general developments regarding TC PipeLines. With me today are Mr. Russ Girling, Chief Executive Officer who is joining us via telephone from another location, Mr. Mark Zimmerman, President and Mr. Rob Jacobucci, Controller.

Before we begin, I'd like to remind you that certain statements made during this conference call will be forward-looking regarding future events and our future financial performance. All forward-looking statements are based upon our beliefs as well as assumptions made by and information currently available to us. These statements reflect our current views with respect to future events and are certain to various risks, uncertainties and assumptions as discussed in detail in our 2008 10-K as well as all subsequent filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize or if the underlying assumptions prove incorrect actual results may differ materially from those described in the forward-looking statements.

Russ will begin today with a review of TC PipeLines accomplishments in 2009, the recent cash distribution announcement, the 2009 results and an update on the activities concerning the partnership and its general partner, TransCanada Corporation. Following that, Mark will provide some further details regarding our investments during the fourth quarter. And finally, Rob will review our fourth quarter financial results. After that, we'll be pleased to take your questions.

I'll now turn the call over to our Chairman and CEO, Russ Girling.

Russ Girling

Thank you, Terry and good day, everyone and thank you very much for joining us today. And I trust everyone who can hear me, okay. I'm actually in Vancouver today and have the opportunity to take in a couple of Olympic events.

I'd like to start off today with a quick review of our 2009 key accomplishments that allow the partnership to continue to diversify and prove the long-term stability of and to grow our cash flows. The North Baja Pipeline was acquired from TransCanada Corporation mid-year and at the same time the general partner reset its incentive distribution rates.

Following this transaction, we increased cash distributions paid to our unit holders and late in the year, we issued $190 million of common equity units to the public to revise the long-term financing for the acquisition and reposition the partnership for further growth.

TC PipeLines remains focused and is well positioned to continue to deliver stable and growing cash distributions to our unit holders. Despite a very difficult year of increased competition and lower natural gas volumes available for transport, TC PipeLines still generated relatively strong earnings and cash flow.

Last month, we announced our fourth quarter cash distribution of $0.73 per common unit or 2.92 on an annualized basis. This quarterly cash distribution is equal to the third quarter 2009 distribution and represents a 3.5% increase from the fourth quarter of 2008 distribution of $70.5. This is the 43rd consecutive quarterly distribution paid by our partnership.

As outlined in today's news release, the partnership cash flow for the year ended December 31 was $150.2 million, an increase of $6.7 million or 5% compared to 2008. Our annual partnership cash flows gave us significant coverage relative to the distributions that we paid to our unit holders.

Cash distributions paid to unit holders in 2009 increased to $117 million compared to $108.6 million in the prior year. Net income prior to recast for the year ended December 31 was $98.7 million compared to $107.7 million in 2008.

Earnings from Great Lakes and Tuscarora remained very strong in 2009 and both were slightly ahead of the previous year. North Baja acquired on July 1 contributed net income of $11.6 million or $0.27 per common unit during our six months of ownership. This acquisition has enhanced and diversified the earnings and cash flows from our portfolio of pipeline investments.

Now, turning to Northern Border, as expected lower system utilization and throughput volumes continue to reduce our transmission revenues. For 2009, net income from Northern Border was $16.9 million lower than the same period in 2008, excluding the $8.1 million one-time gain on the sale of the Bison Pipeline LLC recorded in the third quarter of 2008.

Rob will expand on our fourth quarter earnings and cash flows later in the call, but now I'd like to take a few minutes to update you on some of the developments and opportunities at the TransCanada sponsorship level that will have a positive input on the throughput levels, earnings and growth prospects for the partnership.

As I've mentioned in previous calls, TransCanada continues to develop and advance pipeline projects to connect new conventional and unconventional natural gas supplied to its expansive network of pipelines throughout North America. Of major importance to TC PipeLines is the construction of the 30-inch Bison Pipeline out of the U.S. Rockies. And secondly, the extension of TransCanada's Alberta system into two major shale place, the Horn River and Montney plays in northeastern British Columbia.

Developing in the Bison natural gas pipeline continues on schedule for the fourth quarter of 2010 as an in service date. In December of 2009, the FERC issues, a final environmental impact statement and the project is in the final stages of the regulatory approval process. TransCanada expects to commence construction in May 2010. The 302-mile Bison Pipeline will bring gas from the Powder River Basin in Wyoming and interconnect with the northern river pipeline.

With initial contracted capacity of million feet per day, Bison had the potential to expand up to approximately 1 billion cubic feet a day as volumes in the Rockies grow. Northern Border has executed downstream projects with Bison shippers from Port of Morgan, Montana to Ventura, Iowa in the Northern Border system that are contingent upon the completion of the Bison project. These ten year contracts for approximately 400 million cubic feet a day will diversify Northern Border's natural gas supply, strengthen its contract portfolio and provide another transportation solution for shipper exporting natural gas supply from the U.S. Rockies basin.

In addition to the Bison project, TransCanada continues to advance two pipelines in northeastern British Columbia, expected to connect approximately 1.6 billion cubic feet per day of new shale gas under development in the Montney and Horn River plays. It is important to note that TransCanada also has expressions of interest from producers for another 1 million cubic feet a day of transportation service from these shale plays beyond the 1.6 billion cubic feet of day of committed volumes received to date for a total interest of about 2.6 billion cubic feet per day.

Groundbirch first pipeline is a short 40-mile extension of the TransCanada Alberta system into northeast British Columbia. It is expected to connect natural gas supply primarily from the Montney shale gas region into existing infrastructure in northwest Alberta. The Groundbirch Pipeline is backed by secured firm transportation agreements that are expected to reach 1.1 billion cubic feet a day by 2014.

In November 2009, the national energy board concluded a public hearing process and a decision is expected in the first quarter of 2010. Following approval, construction of the Groundbirch Pipeline is expected to begin in the summer with completion anticipated in November of 2010.

Earlier in 2009, TransCanada filed a project description with the National Energy Board to construction the Horn River natural gas pipeline which is also a minor extension of the TransCanada Alberta system into northeast British Columbia serving the Horn River shale play.

During the fourth quarter, contractual commitments for this pipeline increased from 378 million cubic feet per day to 503 million cubic feet per day by 2014. As a result of recently announced new -- recently announced new natural gas processing facility which will be constructed in that region.

As part of the Horn River extension, TransCanada has entered into -- excuse me, as part of the Horn River expansion, TransCanada entered into an agreement in November 2009 to acquire the ACUA pipeline from the Encana Corporation. An application for the National Energy Board approval to construct and operate Horn River including the acquisition of the ACUA pipeline is expected to be filed in the first quarter of 2010.

Subject to regulatory approval, the Horn River project is anticipated to commence operations in the second quarter of 2012. We remain optimistic of volumes produced and exported out of the Western Canadian Sedimentary Basin will stabilize in the near term and start to increase over time as the potential of the Horn River and Montney shale plays are developed and brought on stream. From a geologic perspective, there is every indication that the Canadian shale plays can grow and perform at least as well as any in North America.

As I close off this morning, I'd like to reiterate that the partnership remains well positioned for growth. In addition to the previously mentioned supply initiatives, the tie in growing production from the U.S. Rockies and northeast British Columbia, TransCanada continues to advance its $22 billion capital spending program as evidenced by recent drop-downs in Baja and the resetting of the IDRs. TC PipeLines can play an important role in the ongoing financing TransCanada's capital program in the years to come.

So that's the end of my prepared remarks and I'll turn the call over to Mark to review our fourth quarter 2009 activities.

Mark Zimmerman

Thanks, Russ and good day everyone. To start with, we remain pleased with the operational performance of the partnership's investments in 2009, especially in light of the challenging environment over the course of the year.

I would like to take this opportunity to highlight the performance of our national gas pipeline investments and share our thoughts on the future. To begin with, the North Baja pipeline acquired on July 1 from TransCanada has performed to our expectations in every way. It is a high quality asset within our portfolio, offering geographic and supply diversity, stable earnings and solid cash flow.

During our six-month period of ownership, it has contributed $15.1 million of EBITDA, which is in line with the expectations we set out when we announced the acquisition back in May. As indicated in the past, North Baja operates under long-term contracts and as of January 31, 2009, in excess of 100% of its physical capacity was contracted on a firm basis for an average remaining term of 16.7 years. It has bidirectional nature in that and it has the capacity to accept receipts at both ends of its system and as a result is contracted for more than 100% of its capacity.

Specifically, 79% of the design capacity is contracted for self-bound receipts and 64% of the design capacity is contracted for northbound receipts. As noted in the third quarter, because of the common control, North Baja is presented in our financial statements as if it was always owned by TC PipeLines.

In other words, the partnership's historical financial information has been recast to include North Baja's results for all periods presented on a consolidated basis.

Moving to Tuscarora, it continues to deliver consistent stable earnings and cash flow for the partnership. As you know, Tuscarora operates under long-term contracts and had 98% of its designed capacity, contracted for the fourth quarter of 2009 consistent with the same period last year. Taken together, the earnings and cash flow generated by North Baja and Tuscarora are generally unaffected by shifting natural gas market fundamentals because of their unique locations and the secure profile of their long-term contracts.

Now turning to Northern Border and Great Lakes. Both investments continue to perform relatively well, especially when considering the decline in gas flows out of the Western Canadian Sedimentary Basin, a somewhat mild early winter, a gas oversupply situation and high storage levels.

In the fourth quarter, lower operating expenses more than offset Great Lakes reduced revenues, resulting from reduced throughput volumes. Great Lakes throughput in the fourth quarter of 2009 averaged 1757 million cubic feet a day, or approximately 180 million cubic feet a day, lower than the same period last year.

At January 1 – pardon me, January 31, 2010, Great Lakes had 89% of its average design cast capacity contracted on a firm basis and a weighted average remaining life of firm transport contracts of two years.

As we noted in our 8-K filing in November, Great Lakes had approximately 830,000 dekatherms per day of long haul capacity under contract expiring on October 31, 2010 with its largest shipper TransCanada.

On November 3, 2009, Great Lakes and TransCanada renewed contracts for one year for 470,000 dekatherms per day of capacity, some at a slight discount and agreed that Great Lakes would provide other transportation services. The remaining approximate 360,000 dekatherms per day of capacity will expire on October 31, 2010.

Great Lakes has posted this expiring capacity and is actively marketing to the shipper community. If this trend in non-renewal continues as expected, increased seasonality and volatility of revenues could result for Great Lakes. However, one potential mitigating factor is that Great Lakes, remains a very competitive transportation route for WCSB producers to Eastern Canada and to the northeast U.S.

In addition, on November 19, 2009, the FERC issued an order instituting an investigation pursuant to section 5 of the Natural Gas Act. The FERC alleged, based on a review of certain historical information that Great Lakes revenues might exceed Great Lakes actual cost of service and its rates, therefore, may be unjust and unreasonable.

On February 4, 2010, Great Lakes filed a cost and revenue study in response to the November 19 order. The study indicates the rates on Great Lakes systems support the current rates as a result of the changed transportation environment since 2008. A hearing in the rate proceeding is now scheduled for early August 2010 and an additional decision by the administrative law judge is expected in the fall. In the interim, Great Lakes will work with FERC and will continue to work towards a settlement and it is hopeful that a reasonable outcome can be achieved.

Now turning to Northern Border. As we have experienced for all of 2009, prevailing market conditions and competitive factors in North America such as demand for WCSB gas and increased supply delivered to Eastern U.S. markets by new infrastructure, including the Rockies Express Pipeline or REX has continued to impact the value of Northern Border's transportation and its ability to market available capacity.

With the completion and placing into service of phase two of REX in late June, we have seen transportation values improve to our venture at delivery point which leads some of the market over supply. However, the transportation value to Chicago had declined as increased supply, due to the new pipeline infrastructure had pushed alternative supply into the Chicago market and further east.

Late in November the next phase of REX extending further East to Clarington, Ohio was expected to help mitigate some of the oversupply at delivery points downstream in Chicago. However, there were some start-up operational issues of phase three, so we did not see differentials firm up at that time.

In addition, with very high gas storage inventory levels in North America going into the winter season combined with an initially mild winter weather, requests for additional heating transportation was reduced in the fourth quarter. However, as we enter the first quarter, we have witnessed the return of normal winter weather and excess storage levels seem to be dissipating.

While we are not out of the woods yet, we are optimistic about the future for Northern Border, given new volumes entering the system from the Bison project, the potential of addition Canadian supply, the return to more normalized weather and increases in demand for natural gas.

Northern Border's average contract capacity compared to design capacity for the year ended December 31, 2009 was 68%. Some of this capacity was sold at a discount to maximize overall revenue on the Port of Morgan, Montana to Ventura and Harper, Iowa portions of the pipeline.

As of January 31, 2010, Northern Border has long-term firm transportation contracts for 69% of its design capacity in the first quarter of 2010, decreasing to 36% beginning in the second quarter of 2010 following contract maturities.

The weighted average remaining contract life at January 31, 2010 was 1.9 years. In addition, as mentioned earlier by Russ, the Bison Pipeline project will result in new volumes flowing onto the Northern Border system in late 2010. As well, other development initiatives at the TransCanada level will connect promising new Canadian shale gas plays into the Alberta hub through their Alberta system, which should also bode well for new supply requiring transportation on our systems in the near and midterm.

With a strong balance sheet and ongoing solid cash flows from our quality investments, we continue to pursue additional growth opportunities for the long-term benefit of our unit holders. Following the acquisition in Northern Border and the restructuring of the general partner IDRs, we are increasingly encouraged for the potential to continue to grow over the near and long-term.

The potential to continue to grow the partnership through further asset drop-downs from our corporate sponsor TransCanada remains. As Russ mentioned, TransCanada is in the mix of executing a large capital program in both its pipeline and energy businesses. To partially finance this growth, TransCanada is considering further asset sales from their considerable portfolio of qualifying assets. This could provide us with additional opportunities to grow while still providing TransCanada the ability to maintain a strategic interest in the asset.

That concludes my prepared remarks and I would now like to turn the call over to Rob Jacobucci for a more detailed discussion on our fourth quarter financial results.

Rob Jacobucci

Thanks, Mark and good day everyone. Partnership cash flows increased $8.7 million to $40.1 million for fourth quarter 2009 compared to $31.4 million for the same period last year. The increase was primarily due to cash flows provided by North Baja operating activities of $7.2 million in addition to the $2.6 million of favorable impact of lower distributions to the general partner resulting from the IDR restructuring on July 1 of 2009.

The partnership paid distributions of $30.7 million in fourth quarter 2009, an increase of $2.9 million compared to the same period in the prior year due to an increase in a number of common units outstanding and an increase in quarterly per common unit distribution amounts.

While we have increased our distributions to unit holders, our partnership cash flows to distributions coverage ratio remains strong. As you know, on July 1, 2009, the partnership acquired North Baja from a wholly owned subsidiary of TransCanada Corporation. The acquisition of North Baja from TransCanada was accounted for as a transaction under common control, similar to a pulling of interests whereby the partnership's historical financial information was recast to include the net income of North Baja for all periods presented, which included income which did not occur to the partnership's, general partner interest or to the partnership's common units, but rather accrued to North Baja's former parent.

As a result, the partnership uses the non-GAAP financial measure net income prior to recast as a financial performance measure. Net income prior to recast excludes North Baja's net income for periods prior to the date on which the partnership acquired North Baja.

The partnership's net income prior to recast decreased by $1.7 million to $24.9 million in fourth quarter 2009, compared to the same period in 2008. The $5.4 million contribution to net income from North Baja in fourth quarter 2009 partially offset the lower equity income from Northern Border.

I will now turn to a discussion on net income from each of our pipeline investments. Equity income from Northern Border declined $8.4 million to 8.8 million in fourth quarter 2009, compared to the same period in 2008. That decrease was primarily due to lower transmission revenues resulting from reductions in contracted capacity. This was partially offset by lower operating expenses and lower financial charges due to lower interest rates and lower average outstanding debt balances.

Net income prior to recast from other pipes, which includes results from North Baja and Tuscarora increased $5.9 million to 9.5 million in fourth quarter 2009 compared to the same period in 2008. This increase was primarily due to the acquisition of northern Baja, which contributed $5.4 million per net income or $0.12 per common unit in fourth quarter 2009.

Equity income from Great Lakes increased 0.6 million to 13.5 million in fourth quarter 2009 compared to the same period in 2008. The increase in equity income was primarily due to decreased operating expenses relating to lower pipeline integrity expenditures, partially offset by decreased short-term firm transportation revenues.

On November 18, 2009 the partnership completed a public offering a 5 million common units at $38 per common unit for gross proceeds of $190 million and net proceeds of $181.7 million after unit issuance costs. In connection with the public offering, TC PipeLines GP Inc. contributed $3.8 million to the partnership to maintain its 2% general partner interest.

Net proceeds were used to repay long-term debt outstanding on the partnerships revolving credit facility. The additional units issued under this offering had the impact of diluting the net income per common unit calculation for the fourth quarter by approximately $0.03 per share. We continue to maintain a prudent approach to cash flow management directing our free cash flow to maintaining appropriate debt levels, investing in ongoing operations, growing distributions to unit holders and positioning for further growth opportunities.

That concludes my comments on the fourth quarter 2009 financial results. I'll now turn the call back to Terry.

Terry Hook

Thanks, Rob. Now, at this time we'll open the call to questions. Operator, please go ahead.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Michael Cerasoli from Goldman Sachs. Please go ahead. Please stand by. Mr. Cerasoli, please go ahead.

Michael Cerasoli – Goldman Sachs

Yes. Can you hear me now?

Mark Zimmerman

Yes. Yeah. Michael. How are you?

Michael Cerasoli – Goldman Sachs

Okay. Great. Just a couple of quick questions on Northern Border. Can you just give us some more insight and as to the split between the weather impact, the REX impact and just anything else that's going on with volumes on Northern Border?

Mark Zimmerman

Yeah. It's -- I'd be hesitant to give you percentages impact as it relates to those. I think the key was what we had seen in Northern Border happening in the fourth quarter was multifold, if you will. Historically, winter demand in Northern Border has been very good for us both at Ventura and the Chicago market. As we came into the fall this year, we did see REX delivering volumes of Rockies production in the Chicago market. We did see additional shale production coming up into the Midwest and when that was combined with the high storage levels. We did see a reduced demand for our transportation or volume flows into the Chicago area, which resulted in more gas being transported and delivered into the Ventura market.

So I mean all of that really contributed to compression around the differentials between the pricing hubs and I think that was exacerbated by the mild winter weather that we had seen in November and the first half of December. I would observe that the last half in this December, but more importantly as we get into the first quarter here that with the return of winter weather, that we are starting to see things come back into more traditional sort of results that one might expect. And I think a contributing factor is we're also seeing some of that excess storage being drawn down.

So really haven't answered your question in terms of a percentage split from those, but we have seen things improve. I guess I might also mention as well, in my prepared remarks, I had indicated that we were expecting with REX phase three coming into service at the end of November that was going to be supported on the differentials. But as you know, there was some operational problems, which they have recently resolved. So we really didn't see the impact from that moving the gas further on in November, December as well, which again exacerbated the environment that we found ourselves in.

Michael Cerasoli – Goldman Sachs

Okay. When you're talking about -- when you think about Bison, can you give us some timing on the remaining approvals that you guys need?

Mark Zimmerman

So in terms of Bison, I guess for clarity, it is a TransCanada project and they have received their FERC environmental assessments in December. And I think they're progressing now to get all the permits in place and move that thing forward. I think the expectation is they'll actually be starting to put shovels in the ground to proceed with that project as we move into the late spring here. We have no indication at this point to my understanding that there is any hiccup's that they're finding with respect to that.

Michael Cerasoli – Goldman Sachs

Okay. And then potential opportunities to transport to Bakken and gas, is that something that could also supplement volumes on Northern Border?

Mark Zimmerman

I think there -- they always would be. I know there is a lot of activity both on the oil and gas side, on the Bakken and shale plays, it is a very exciting area. Geographically, it is close to the existing infrastructure and I think historically Northern Border has provided one of the better net backs for Alberta and WCSB producers generally. As it relates to the opportunities, I would observe that's probably more of a medium term sort of opportunity for us in that there's nothing currently that we're advancing with respect to construction or application, but the potential does reside there.

Michael Cerasoli – Goldman Sachs

Okay. And just my final question, this is kind of switching gears on the potential dropdowns from TransCanada. Can you just give us an update on your expected, just expect -- I guess your forecast, what you guys are thinking internally on that front?

Mark Zimmerman

It's an interesting question. one of the dynamics that we see here and I think we kind of had a joint session with TransCanada back in November with a number of institutions with TransCanada's IR day, they have a very large program that they're right in the midst of. They had met and obtained most of their -- well, all of their financing needs for 2009 and arguably for initially here in 2010.

That being said, as you can expect, there is an additional requirement for 2010 and they are looking at all the options they have in front of them. As it relates to timing, I think it's multi-faceted. It goes to what sort of competitive cross capital the LP has relative to other options they may have in front of them.

It also is a key factor here that, we've reloaded our debt capacity with that equity issue and have positioned ourselves that we're ready to go should the need arise. So I think we're making sure that we're doing all we can on our front and when that opportunity comes up, that we're able to move and move quickly and efficiently to capitalize on it.

Michael Cerasoli – Goldman Sachs

Great. That's it for me. And congratulations to Canada on their first home gold.

Mark Zimmerman

Thank you.

Operator

Thank you. Your next question is from John Tysseland from Citigroup. Please go ahead.

John Tysseland – Citigroup

Hi, guys. just I guess more of a macro question and your view. When you look at Canadian volumes coming into the U.S. how do you see that materializing over the course of the next couple of years, specifically do you think we've bottomed in 2000 and do you think we've bottomed in 2010 and then kind of start to show some potential increases over the course of the next couple of years? And then also, secondarily to that, if you look at the development of horn river volumes and the Montney volumes, is there any preference which pipeline those volumes could head toward, Northern Border, Great Lakes or some competing pipes and how you see that kind of evolving, I guess, further down the road?

Mark Zimmerman

No. A very good question, John and thanks for that. As it relates to the WCSB, you are bang on, our expectation here is that we have seen the WCSB likely bottom out in terms of overall production here and the expectation will be that it will continue to go on rebound.

I think as we had seen in the last part of '08 and then going into '09, the low commodity environment, especially when we had the NYMEX and AECO down in the two three [ph] ordered level, we really didn't have the economics in place to encourage that continued exploration and development.

We are seeing bright signs on the horizon between the Alberta government looking at royalty reviews, putting incentives on the gas side to encourage that development to occur. We're seeing increasing optimism out of many of the producers in the Canadian shale plays and their enthusiasm on the economics of these shale plays relative to many of the others that they're also involved in the lower 48.

So I think, all in we are hopeful that we're turning a corner here and going forward. We'll get back to more normalized production levels that we've seen historically. As it relates to the shale plays with or the northeast BC and Alberta shale plays, I guess my observation in terms of preference of pipe would be that it would be the same sort of decision that producers will go through with their existing conventional production.

Generally, speaking, many of these producers want to get into the, to the ecosystem or the kniff pricing point and that's what the extensions TransCanada's providing will allow them to do. From there, it's really a big pool of gas that they're going to be able to choose the wealth that provides them the best net back to market, if you will and our premise has always been that Northern Border specifically has been one of the more attractive net backs provided to producers in terms of production going to market.

In addition, Great Lakes has always been an attractive economic route into eastern Canada and the U.S. northeast for WCSB production relative to other alternatives that they have out there. So net, I think the key is as we see the basin recover, we may very well see ourselves getting back to more historical volume flows, I think, than what we've come through in the last year, year and a half. Russ, is there anything you'd like to add to that given the broader TransCanada perspective?

Russ Girling

I think that covered it, Mark. I think the key is 2010, we are -- we expect sort of a continued sort of decline in -- an effect from reduction in drilling at the end of 2008, the end of 2009, but we'd expect that to start to recover, sort of into the end of 2010 and into 2011 and then as we move on from there, we'll see the -- the Montney and horn river productions volumes start to pick up.

Those developments are sort of under way in the infrastructure being put in place. Pretty confident that the contracted volumes we've been able to put in place will show up and they'll actually be greater than that based on the interest level that we've seen today.

John Tysseland – Citigroup

Thanks, guys. That definitely helps. And then I guess in kind of a corollary to that, what is your -- is your -- what is your view in terms of over the next couple of years Canada turning into more of a supply push once these horn river, I mean once these -- some of these shale plays come online versus what I think we -- you could categorize today as being more demand pulled predominantly in the winter months on some of these pipes? Are you comfortable or I guess, optimistic that you start to get more of that supply push as some of those, some of those shale plays come online in the future?

Mark Zimmerman

Very good question, John. I guess my observation on supply push versus a demand pull, there is a good chunk of existing capacity leaving the basin right now. I think we will need to see production get back to where we were kind of in the '06, '07 sort of time frame, such that much of that available capacity is utilized and then I think it's at that point that you'll have more gas on gas competition to leave the basin and getting back into that supply push dynamic.

In terms of the market pull, I think we've also had a bit of an impact over the last year and a half in the sense of the economic downturn and just overall reduced demand. We are also hopeful as the economy turns around here and as we see increased pull coming from the power generation sector that we could see an overall increase in North American demand generally which I think will also be helpful to optimize the value of our transportation systems.

So I do think there are some bright spots that are starting to appear now for us and we're hopeful that as we get through '10 and into '11, we really see things turning around.

John Tysseland – Citigroup

Great. Thanks, guys.

Russ Girling

Thanks. John.

Mark Zimmerman

Thanks. John.

Operator

Thank you. (Operator Instructions) Our next question is from Ron Londe from Wells Fargo. Please go ahead.

Ron Londe – Wells Fargo

Thanks. Just -- can you give us a feel for what you might normally have been able to see on average throughput in the Northern Border system in the fourth quarter if some of those factors that you mentioned had been more of a normal environment?

Mark Zimmerman

Absolutely, Ron. And I think, when you would see if we kind of looked back on more of a historical trend, Northern Border tends to be a little over a 2 Bcf a day system and then telescoping down Ventura and Harper to 1.8 Bcf a day and then 1 Bcf a day into Chicago itself.

And historically what we usually would find is somewhat in November, but absolutely in kind of the December to the March time frame, much of that capacity being fully utilized. As you can imagine, this fluctuates kind of on a daily basis, but on average, in the fourth quarter, rather than being around that 2.3 Bcf a day sort of volume level, we've seen it down at 1.6.

So it was quite a substantial decline from what we've enjoyed in previous years. Our expectation, again, though, is as things turn around and as we connect alternative supply from other basins that’s we would expect utilization of that to come back into what we historically witnessed.

Ron Londe – Wells Fargo

And so from the standpoint of 2011, could you see at some point in, during that period with the Bison production ramping up and coming on that you could get to a 2.7 in a normal environment?

Mark Zimmerman

No. It would probably be 2.3 and really it's more restricted by the design capacity. So that Bison production will come on and will interconnect with the Northern Border system and enhance the contracts will kick in for transportation to Ventura.

That being said, it's utilizing existing capacity, but in the event we found ourselves in the supply push environment, the overall system would be limited to 2.3. So that Bison gas would really be displacing WCSB gas or would be in competition with WCSB gas for the Ventura market.

To the extent we see the Rockies basin rebound and additional volumes supporting further expansions on Bison, depending upon the size of those, it would be in that event that one would have to look at increasing the overall capacity and where we would have a step change incremental amount coming on.

Ron Londe – Wells Fargo

Okay. Thanks.

Mark Zimmerman

Thanks a lot.

Operator

Thank you. (Operator Instructions) We have no further questions at this time. I'd like to bring it back over to Mr. Hook. Please go ahead.

Terry Hook

Just like to thank everyone one for joining into our call today and taking the time to listen into our fourth quarter story. We appreciate your interest in TC PipeLines and look forward to talking to you soon. Bye for now. Thank you.

Operator

Thank you. The conference is now ended. Please disconnect your lines at this time. We thank you for your participation.

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Source: TC PipeLines, LP Q4 2009 Earnings Call Transcript
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