INVESTMENTS IN UNCONSOLIDATED AFFILIATES

6 Months Ended

Jun. 30, 2012

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

NOTE 3                 INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Great Lakes, Northern Border, GTN and Bison are regulated by the Federal Energy Regulatory Commission (FERC) and are operated by TransCanada. We use the equity method of accounting for our interests in our equity investees.

	Ownership			Equity Earnings from Unconsolidated Affiliates								Investments in Unconsolidated Affiliates
	Interest at			Three months				Six months
(unaudited)	June 30,			ended June 30,				ended June 30,				June 30,		December 31,
(millions of dollars)	2012			2012		2011		2012		2011		2012		2011
Great Lakes		46.45	%		8		17		17		35		683		686
Northern Border (a)		50	%		16		16		36		37		521		536
GTN (b)		25	%		4		2		10		2		222		225
Bison (b)		25	%		3		2		6		2		160		163
					31		37		69		76		1,586		1,610

(a)   Equity earnings from Northern Border is net of the 12-year amortization of a $10 million transaction fee paid to the operator of Northern Border at the time of the Partnership’s additional 20 percent interest acquisition in April 2006.

(b)   25 percent interests in each of GTN and Bison were acquired in May 2011.

Great Lakes

The Partnership made an equity contribution to Great Lakes of $4 million in the first quarter of 2012. This amount represents the Partnership’s 46.45 percent share of a $9 million cash call from Great Lakes to make a scheduled debt repayment.

The Partnership recorded no undistributed earnings from Great Lakes for the six months ended June 30, 2012 and 2011.

The summarized financial information for Great Lakes is as follows:

(unaudited)
(millions of dollars)	June 30, 2012		December 31, 2011
ASSETS
Current assets		62		65
Plant, property and equipment, net		812		826
Other assets		1		1
		875		892
Liabilities and Partners’ Equity
Current liabilities		27		30
Long-term debt, including current maturities		364		373
Partners’ equity		484		489
		875		892

(unaudited)	Three months ended June 30,						Six months ended June 30,
(millions of dollars)	2012			2011			2012			2011
Transmission revenues		48			63			97			133
Operating expenses		(16	)		(16	)		(31	)		(30	)
Depreciation		(8	)		(8	)		(16	)		(16	)
Financial charges and other		(7	)		(8	)		(14	)		(15	)
Michigan business tax		-			5			-			3
Net income		17			36			36			75

Northern Border

The Partnership recorded no undistributed earnings from Northern Border for the six months ended June 30, 2012 and 2011.

The summarized financial information for Northern Border is as follows:

(unaudited)	June 30,			December 31,
(millions of dollars)	2012			2011
ASSETS
Cash and cash equivalents		30			33
Other current assets		33			35
Plant, property and equipment, net		1,248			1,267
Other assets		31			31
		1,342			1,366
Liabilities and Partners' Equity
Current liabilities		47			48
Deferred credits and other		15			13
Long-term debt, including current maturities		478			473
Partners' equity
Partners' capital		805			835
Accumulated other comprehensive loss		(3	)		(3	)
		1,342			1,366

(unaudited)	Three months ended  June 30,						Six months ended June 30,
(millions of dollars)	2012			2011			2012			2011
Transmission revenues		73			73			154			153
Operating expenses		(18	)		(19	)		(36	)		(36	)
Depreciation		(16	)		(16	)		(32	)		(31	)
Financial charges and other		(7	)		(5	)		(13	)		(11	)
Net income		32			33			73			75

GTN

On May 3, 2011, the Partnership acquired a 25 percent interest in GTN from a subsidiary of TransCanada. The acquisition was accounted for as a transaction between entities under common control, whereby the equity investment in GTN was recorded at TransCanada’s carrying value. See Note 4 for additional disclosure regarding the Acquisitions.

In November 2011, the FERC approved a Stipulation and Agreement of Settlement for GTN (GTN Settlement) with shippers and regulators regarding rates and terms and conditions of service without modification, effective January 1, 2012. The GTN Settlement includes a moratorium on the filing of future rate proceedings until December 31, 2015. Following the expiration of the moratorium, GTN must file a rate case such that the new rates will be effective January 1, 2016.

The Partnership recorded no undistributed earnings from GTN for the six months ended June 30, 2012 and recorded undistributed earnings of $2 million from May 3, 2011, date of acquisition, to June 30, 2011.

The summarized financial information for GTN is as follows:

(unaudited)	June 30,		December 31,
(millions of dollars)	2012		2011
ASSETS
Current assets		65		55
Plant, property and equipment, net		1,186		1,207
Other assets		1		1
		1,252		1,263
Liabilities and Members' Equity
Current liabilities		21		18
Deferred credits and other		20		20
Long-term debt, including current maturities		325		325
Members' capital		886		900
		1,252		1,263

(unaudited)	Three months ended June 30,						Six months ended June 30,
(millions of dollars)	2012			2011(a)			2012			2011(a)
Transmission revenues		48			33			100			33
Operating expenses		(13	)		(9	)		(24	)		(9	)
Depreciation		(14	)		(6	)		(27	)		(6	)
Financial charges and other		(4	)		(6	)		(9	)		(6	)
Net income		17			12			40			12

(a)   25 percent interest in GTN was acquired in May 2011.

Bison

On May 3, 2011, the Partnership acquired a 25 percent interest in Bison from a subsidiary of TransCanada. The acquisition was accounted for as a transaction between entities under common control, whereby the equity investment in Bison was recorded at TransCanada’s carrying value. See Note 4 for additional disclosure regarding the Acquisitions.

The Partnership recorded no undistributed earnings from Bison for the six months ended June 30, 2012 and recorded undistributed earnings of $2 million from May 3, 2011, date of acquisition, to June 30, 2011.

The summarized financial information for Bison is as follows:

(unaudited)	June 30,		December 31,
(millions of dollars)	2012		2011
ASSETS
Current assets		7		10
Plant, property and equipment, net		652		658
		659		668
Liabilities and Members' Equity
Current liabilities		18		17
Members' capital		641		651
		659		668

(unaudited)	Three months ended June 30,						Six months ended June 30,
(millions of dollars)	2012			2011(a)			2012			2011(a)
Transmission revenues		20			14			40			14
Operating expenses		(4	)		(3	)		(7	)		(3	)
Depreciation		(5	)		(3	)		(10	)		(3	)
Net income		11			8			23			8

(a)   25 percent interest in Bison was acquired in May 2011.