** **

**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

** **

**FORM 10-Q**

** **

**[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**Forthe quarterly period**endedSeptember 30, 2007

 

**or**

** **

**[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**Forthe Transition period from _________ to _________**

** **

**CommissionFile Number:  000-26091**

** **

**TC PipeLines, LP**

**(Exactname of registrant as specified in its charter)**

** **

| **Delaware**                                               | ** **   | **52-2135448**                               |
|------------------------------------------------------------|--------------|----------------------------------------------|
| **(State or other jurisdiction of  incorporation**         | ** **   | **(I.R.S.  Employer Identification Number)** |
| **or organization)**                                       | ** **   | ** **                                   |
| ** **                                                 | ** **   | ** **                                   |
| **110 Turnpike Road, Suite 203**                           | ** **   | ** **                                   |
| **Westborough, Massachusetts**                             | ** **   | **01581**                                    |
| **(Address of principal executive  offices)**              | ** **   | **(Zip  code)**                              |
| ** **                                                 | ** **   | ** **                                   |
| ** **                                                 | 508-871-7046 | ** **                                   |
| (Registrant’s telephone  number, including area code) |
|                                                            |              |                                              |  |  |

** **

**Indicate by check mark if theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.**

**Yes [X]        No[  ]**

** **

**Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerate filer” in Rule 12b-2 of the Exchange Act.**
| **Large accelerated filer   [X]** | **Accelerated  filer   [  ]** | **Non-accelerated  filer     [  ]** |
|--------------------------------------------------|---------------------------------------------------|--------------------------------------------------------------|

** **

**Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).**

**Yes [  ]        No[X]**

** **

**As of November 2, 2007, there were34,856,086 of the registrant’s common units outstanding.**

 

1

 

**TCPIPELINES, LP**

 
|                   |                                                                                                            | Page No. |
|------------------------|-----------------------------------------------------------------------------------------------------------------|----------|
| **TABLE  OF CONTENTS** |                                                                                                            |
|                   |                                                                                                            |     |
| **PART I**             | **FINANCIAL INFORMATION**                                                                                       |     |
|                   |                                                                                                            |     |
| Item 1.                | Financial Statements                                                                                            |     |
|                   |                                                                                                            |     |
|                   | Consolidated Statement of Income  – Three and nine months ended September 30, 2007 and 2006                | 3        |
|                   |                                                                                                            |     |
|                   | Consolidated Statement of  Comprehensive Income – Three and nine months ended September 30, 2007 and  2006 | 3        |
|                   |                                                                                                            |     |
|                   | Consolidated Balance Sheet –  September 30, 2007 and December 31, 2006                                     | 4        |
|                   |                                                                                                            |     |
|                   | Consolidated Statement of  Cash Flows – Nine months ended September 30, 2007 and 2006                      | 5        |
|                   |                                                                                                            |     |
|                   | Consolidated Statement of  Changes in Partners’ Equity – Nine months ended September 30, 2007         | 6        |
|                   |                                                                                                            |     |
|                   | Notes to  Consolidated Financial Statements                                                                     | 7        |
|                   |                                                                                                            |     |
| Item 2.                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                     | 16       |
|                   |                                                                                                            |     |
|                   | Results of  Operations of TC PipeLines, LP                                                                      | 17       |
|                   |                                                                                                            |     |
|                   | Liquidity and  Capital Resources of TC PipeLines, LP                                                            | 35       |
|                   |                                                                                                            |     |
|                   | Liquidity and  Capital Resources of our Pipeline Assets                                                         | 40       |
|                   |                                                                                                            |     |
| Item 3.                | Quantitative  and Qualitative Disclosures About Market Risk                                                     | 44       |
|                   |                                                                                                            |     |
| Item 4.                | Controls and Procedures                                                                                         | 46       |
|                   |                                                                                                            |     |
| **PART II**            | **OTHER INFORMATION**                                                                                           |     |
|                   |                                                                                                            |     |
| Item 1A.               | Risk Factors                                                                                                    | 47       |
|                   |                                                                                                            |     |
| Item 6.                | Exhibits                                                                                                        | 48       |

 

**Allamounts are stated in United States dollars unless otherwise indicated.**

 

2

**PARTI.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

** **

**TC PipeLines, LP**

 

**Consolidated Statement ofIncome**

 

| *(unaudited)*                                                   |       | Three months ended September 30 |   | Nine months ended September 30 |       |
|-----------------------------------------------------------------|------------|---------------------------------|--------|--------------------------------|------------|
| *(millions  of dollars except per unit amounts)*                | ** ** | **2007**                        |   | 2006                           | ** ** | **2007** |   | 2006 |   |
|                                                            |       |                            |   |                           |       |   |   |   |   |
| Equity income from  investment in Great Lakes (Note 2)          | ** ** | **14.2**                        |   | -                              | ** ** | **34.3** |   | - |   |
| Equity income from  investment in Northern Border (Note 3) | ** ** | **16.2**                        |   | 16.6                           | ** ** | **44.3** |   | 40.1 |   |
| Equity income from  investment in Tuscarora (Note 4)            |       | -                               |   | 1.3                            |       | - |   | 4.9 |   |
| Transmission revenues                                           | ** ** | **6.7**                         |   | -                              | ** ** | **20.3** |   | - |   |
| Operations, maintenance  and administrative expenses            | ** ** | **(2.2)**                       |   | (0.5)                          | ** ** | **(6.4)** |   | (1.8) |   |
| Depreciation                                                    | ** ** | **(1.6)**                       |   | -                              | ** ** | **(4.7)** |   | - |   |
| Financial charges, net  and other                               | ** ** | **(8.7)**                       |   | (5.4)                          | ** ** | **(25.5)** |   | (9.8) |   |
| **Net  income**                                                 | ** ** | **24.6**                        |   | 12.0                           | ** ** | **62.3** |   | 33.4 |   |
|                                                            |       |                            |   |                           |       |   |   |   |   |
| **Net  income allocation**                                      |       |                            |   |                           |       |   |   |   |   |
| Common units                                                    | ** ** | **22.4**                        |   | 11.3                           | ** ** | **57.0** |   | 31.3 |   |
| General partner                                                 | ** ** | **2.2**                         |   | 0.7                            | ** ** | **5.3** |   | 2.1 |   |
| ** **                                                      |       | **24.6**                        |   | 12.0                           | ** ** | **62.3** |   | 33.4 |   |
|                                                            |       |                            |   |                           |       |   |   |   |   |
| **Net income  per common unit (Note 6)**                        | ** ** | **$0.64**                       |   | $0.65                          | ** ** | **$1.81** |   | $1.79 |   |
|                                                            |       |                            |   |                           |       |   |   |   |   |
| **Weighted  average common units outstanding (millions)**       | ** ** | **34.9**                        |   | 17.5                           | ** ** | **31.5** |   | 17.5 |   |
|                                                            |       |                            |   |                           |       |   |   |   |   |
| **Common  units outstanding, end of the period (millions)**     | ** ** | **34.9**                        |   | 17.5                           | ** ** | **34.9** |   | 17.5 |   |

** **

** **

**Consolidated Statement ofComprehensive Income**

 

 

| *(unaudited)*                                                            |       | Three months ended September 30 |       | Nine months ended September 30 |   |
|--------------------------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|--------|
| *(millions  of dollars)*                                                 | ** ** | **2007**                        | ** ** | 2006                           |   | **2007** | ** ** | 2006 |   |
| ** **                                                               | ** ** | ** **                      | ** ** |                           |   | ** ** | ** ** |   |   |
| Net income                                                               | ** ** | **24.6**                        | ** ** | 12.0                           |   | **62.3** | ** ** | 33.4 |   |
| Other comprehensive  income                                              | ** ** | ** **                      | ** ** |                           |   | ** ** | ** ** |   |   |
| Change associated with current period hedging transactions (Note 10)     |       | **(7.0)**                       | ** ** | -                              |   | **(2.3)** | ** ** | - |   |
| Change associated with current period hedging transactions of  investees |       | **(0.5)**                       | ** ** | (0.2)                          |   | **(0.9)** | ** ** | (0.5) |   |
| **Total  comprehensive income**                                          | ** ** | **17.1**                        | ** ** | 11.8                           |   | **59.1** | ** ** | 32.9 |   |

 

Seeaccompanying notes to the consolidated financial statements.

 

3

**PART I. FINANCIAL INFORMATION (Continued)**

**ITEM 1. FINANCIAL STATEMENTS (Continued)**

** **

**TC PipeLines, LP**

 

**Consolidated Balance Sheet**

 
| *(unaudited)*                                                                                        | ** ** | ** **             |       |              |   |
|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|--------|
| *(millions  of dollars)*                                                                             | ** ** | **September 30, 2007** |       | December 31, 2006 |   |
| **ASSETS**                                                                                           | ** ** | ** **             | ** ** |              |   |
| Current Assets                                                                                       | ** ** | ** **             | ** ** |              |   |
| Cash and short-term investments                                                                      | ** ** | **14.2**               |       | 4.0               |   |
| Accounts receivable and other                                                                        | ** ** | **4.9**                |       | 2.5               |   |
|                                                                                                 | ** ** | **19.1**               |       | 6.5               |   |
| Investment in Great Lakes  (Note 2)                                                                  | ** ** | **726.7**              |       | -                 |   |
| Investment in Northern  Border (Note 3)                                                              | ** ** | **549.6**              |       | 561.2             |   |
| Plant, property and equipment (net of $60.1 million  accumulated depreciation, 2006 - $55.4 million) | ** ** | **126.7**              |       | 127.0             |   |
| Goodwill                                                                                             | ** ** | **79.1**               |       | 79.2              |   |
| Other assets                                                                                         | ** ** | **3.0**                |       | 3.9               |   |
|                                                                                                 | ** ** | **1,504.2**            |       | 777.8             |   |
|                                                                                                 | ** ** | ** **             |       |              |   |
| **LIABILITIES  AND PARTNERS’ EQUITY**                                                           | ** ** | ** **             |       |              |   |
| Current Liabilities                                                                                  | ** ** | ** **             |       |              |   |
| Accounts payable                                                                                     | ** ** | **3.9**                |       | 3.3               |   |
| Accrued interest                                                                                     | ** ** | **4.5**                |       | 1.3               |   |
| Current portion of long-term debt (Note 5)                                                           | ** ** | **4.7**                |       | 4.7               |   |
|                                                                                                 | ** ** | **13.1**               |       | 9.3               |   |
| Long-term debt (Note 5)                                                                              | ** ** | **581.0**              |       | 463.4             |   |
|                                                                                                 | ** ** | **594.1**              |       | 472.7             |   |
| Non-controlling interests                                                                            | ** ** | **1.4**                |       | 1.2               |   |
| Partners’ Equity (Note 7)                                                                       | ** ** | ** **             |       |              |   |
| Common units                                                                                         | ** ** | **891.0**              |       | 295.6             |   |
| General partner                                                                                      | ** ** | **19.1**               |       | 6.5               |   |
| Accumulated other comprehensive income                                                               | ** ** | **(1.4)**              |       | 1.8               |   |
|                                                                                                 | ** ** | **908.7**              |       | 303.9             |   |
|                                                                                                 | ** ** | **1,504.2**            |       | 777.8             |   |

 

Subsequentevents (Note 11)

 

Seeaccompanying notes to the consolidated financial statements.

 

4

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

**Consolidated Statement ofCash Flows**

** **

| *(unaudited)*                                             |       | Nine months  ended September 30 |   |
|-----------------------------------------------------------|------------|---------------------------------|--------|
| *(millions of  dollars)*                                  | ** ** | **2007**                        |   | 2006 |   |
|                                                      |       |                            |   |   |   |
| **CASH GENERATED FROM  OPERATIONS**                       |       |                            |   |   |   |
| Net income                                                | ** ** | **62.3**                        |   | 33.4 |   |
| Depreciation                                              | ** ** | **4.7**                         |   | - |   |
| Amortization of other assets                              | ** ** | **0.3**                         |   | 0.2 |   |
| Non-controlling interests                                 | ** ** | **0.2**                         |   | - |   |
| Decrease in operating working capital                     | ** ** | **0.7**                         |   | 4.5 |   |
|                                                      |       | **68.2**                        |   | 38.1 |   |
|                                                      |       |                            |   |   |   |
| **INVESTING ACTIVITIES**                                  |       |                            |   |   |   |
| Return of capital from Great Lakes                        | ** ** | **6.7**                         |   | - |   |
| Return of capital from Northern  Border                   | ** ** | **18.2**                        |   | 16.0 |   |
| Return of capital from Tuscarora                          |       | -                               |   | 1.3 |   |
| Investment in Great Lakes (Note 2)                        | ** ** | **(733.0)**                     |   | - |   |
| Investment in Northern Border (Note  3)                   | ** ** | **(7.5)**                       |   | (311.1) |   |
| Capital expenditures                                      | ** ** | **(4.4)**                       |   | - |   |
| Other assets                                              | ** ** | **(1.3)**                       |   | (0.9) |   |
|                                                      |       | **(721.3)**                     |   | (294.7) |   |
|                                                      |       |                            |   |   |   |
| **FINANCING ACTIVITIES**                                  |       |                            |   |   |   |
| Distributions paid                                        | ** ** | **(61.3)**                      |   | (32.2) |   |
| Equity issuances, net (Note 8)                            | ** ** | **607.0**                       |   | - |   |
| Long-term debt issued (Note 5)                            | ** ** | **152.5**                       |   | 310.0 |   |
| Long-term debt repaid (Note 5)                            | ** ** | **(34.9)**                      |   | (16.5) |   |
|                                                      |       | **663.3**                       |   | 261.3 |   |
|                                                      |       |                            |   |   |   |
| **Increase in cash and  short-term investments**          | ** ** | **10.2**                        |   | 4.7 |   |
| **Cash and short-term  investments, beginning of period** | ** ** | **4.0**                         |   | 2.3 |   |
|                                                      |       |                            |   |   |   |
| **Cash and short-term  investments, end of period**       | ** ** | **14.2**                        |   | 7.0 |   |
|                                                      |       |                            |   |   |   |
| Interest payments made                                    | ** ** | **21.5**                        |   | 5.3 |   |

 

See accompanying notes to theconsolidated financial statements.

 

5

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

**Consolidated Statement ofChanges in Partners’ Equity**

 

| *(unaudited)*                                   |       | **Common Units** |       | **General  Partner** |       | **Accumulated  Other  Comprehensive  Income** |       | **Partners’ Equity** |       |
|-------------------------------------------------|------------|------------------|------------|----------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
|                                            |       | *(millions*      |       | *(millions*          |       | *(millions*                                   |       | *(millions*               |       | *(millions* |   | *(millions* |   |
|                                            |       | *of units)*      |       | *of dollars)*        |       | *of dollars)*                                 |       | *of dollars)*             |       | *of units)* |   | *of dollars)* |   |
|                                            |       |             |       |                 |       |                                          |       |                      |       |   |   |   |   |
| Partners’ equity at  December 31, 2006     |       | 17.5             |       | 295.6                |       | 6.5                                           |       | 1.8                       |       | 17.5 |   | 303.9 |   |
| Net income                                      |       | -                |       | 57.0                 |       | 5.3                                           |       | -                         |       | - |   | 62.3 |   |
| Equity issuances                                |       | 17.4             |       | 594.4                |       | 12.6                                          |       | -                         |       | 17.4 |   | 607.0 |   |
| Distributions paid                              |       | -                |       | (56.0)               |       | (5.3)                                         |       | -                         |       | - |   | (61.3) |   |
| Other comprehensive  income                     |       | -                |       | -                    |       | -                                             |       | (3.2)                     |       | - |   | (3.2) |   |
| **Partners’ equity at September 30, 2007** | ** ** | **34.9**         | ** ** | **891.0**            | ** ** | **19.1**                                      | ** ** | **(1.4)**                 | ** ** | **34.9** | ** ** | **908.7** | ** ** |

 

See accompanying notes to the consolidatedfinancial statements.

 

6

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

**Note 1****                                    Organizationand Basis of Presentation**

TC PipeLines, LP, and itssubsidiary limited partnerships, TC GL Intermediate Limited Partnership, TC PipeLinesIntermediate Limited Partnership and TC Tuscarora Intermediate LimitedPartnership, all Delaware limited partnerships, are collectively referred toherein as TC PipeLines or the Partnership. TC PipeLines was formed byTransCanada PipeLines Limited, a subsidiary of TransCanada Corporation(collectively referred to herein as TransCanada), to acquire, own andparticipate in the management of United States (U.S.)-based pipeline assets.

 

TC PipeLines is managedby its general partner, TC PipeLines GP, Inc. (TC PipeLines GP), an indirectwholly-owned subsidiary of TransCanada. The general partner provides certainadministrative services for the Partnership and is reimbursed for its costs andexpenses. In addition to its aggregate 2 per cent general partner interest inTC PipeLines, LP and its subsidiary limited partnerships on a combined basis,the general partner owns 2,035,106 common units, representing an effective 7.7per cent ownership interest in the Partnership at September 30, 2007.

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States of America (U.S. GAAP) requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities as at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. Although management believes these estimates arereasonable, actual results could differ from these estimates. Amounts arestated in U.S. dollars.

 

In the opinion ofmanagement, these consolidated financial statements have been properly preparedwithin reasonable limits of materiality and include all adjustments (consistingof normal recurring accruals) necessary to present fairly the results ofoperations for the three and nine months ended September 30, 2007 and 2006, thefinancial position as at September 30, 2007 and December 31, 2006, cash flowsfor the nine months ended September 30, 2007 and 2006, and statement ofpartners’ equity as at September 30, 2007.

 

The results of operationsfor the three and nine months ended September 30, 2007 and 2006 are notnecessarily indicative of the results that may be expected for a full fiscalyear. The interim financial statements should be read in conjunction with thePartnership’s financial statements and notes included in TC PipeLines’ annualreport on Form 10-K for the year ended December 31, 2006.

 

**Note 2****                                    Investmentin Great Lakes Gas Transmission Limited Partnership**

On February 22, 2007, thePartnership acquired a 46.45 per cent interest in Great Lakes Gas TransmissionLimited Partnership (Great Lakes). Great Lakes is a Delaware limitedpartnership which owns a 2,115-mile interstate natural gas pipeline system thattransports natural gas for delivery to customers in the Midwestern andNortheastern U.S. and Eastern Canada. The Partnership uses the equity method ofaccounting for its interest in Great Lakes. Great Lakes is regulated by theFederal Energy Regulatory Commission (FERC).

 

TransCanada, whichpreviously held a 50 per cent interest in Great Lakes, acquired the other 3.55per cent interest concurrent with the Partnership’s acquisition of itsinterest. A wholly-owned subsidiary of TransCanada became the operator of GreatLakes.

 

The following tables set out summarized financial information of GreatLakes:

 

7

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

**SummarizedGreat Lakes Income Statement**

| *(unaudited)*                                        | ** ** | Three months ended  September 30 | ** ** | For the period February 23  to September 30 | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------------|------------|
| *(millions  of dollars)*                             | ** ** | **2007**                         | ** ** | **2007**                                    | ** ** |
| Transmission revenues                                | ** ** | **65.6**                         |       | 162.2                                       |       |
| Operations, maintenance  and administrative expenses | ** ** | **(12.6)**                       |       | (34.0)                                      |       |
| Depreciation                                         | ** ** | **(14.5)**                       |       | (34.9)                                      |       |
| Financial charges, net  and other                    | ** ** | **(8.1)**                        |       | (19.5)                                      |       |
| Net income                                           | ** ** | **30.4**                         |       | 73.8                                        |       |

 

8

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

**SummarizedGreat Lakes Balance Sheet**

| *(unaudited)*                                 | ** ** | **September 30,** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|
| *(millions  of dollars)*                      | ** ** | **2007**          | ** ** |
| **Assets**                                    | ** ** | ** **        | ** ** |
| Cash and cash equivalents                     | ** ** | **48.4**          | ** ** |
| Other current assets                          | ** ** | **44.6**          | ** ** |
| Plant, property and  equipment, net           | ** ** | **972.5**         | ** ** |
| Other assets                                  | ** ** | **2.7**           | ** ** |
| ** **                                    | ** ** | **1,068.2**       | ** ** |
| **Liabilities  and Partners’ Equity**    | ** ** | ** **        | ** ** |
| Current liabilities                           | ** ** | **40.1**          | ** ** |
| Deferred credits                              | ** ** | **0.4**           | ** ** |
| Long-term debt, including  current maturities | ** ** | **450.0**         | ** ** |
| Partners’ capital                        | ** ** | **577.7**         | ** ** |
| ** **                                    | ** ** | **1,068.2**       | ** ** |

 

**Note 3****                                    Investmentin Northern Border Pipeline Company**

The Partnership owns a 50per cent general partner interest in Northern Border Pipeline Company (NorthernBorder), a Texas general partnership which owns a 1,249-mile U.S. interstatepipeline system that transports natural gas from the Montana-Saskatchewanborder to markets in the Midwestern U.S. The other 50 per cent partnershipinterest in Northern Border is held by ONEOK Partners, LP (ONEOK), a publiclytraded limited partnership. The Northern Border system was operated by ONEOKPartners GP, LLC (ONEOK Partners GP), a wholly-owned subsidiary of ONEOK, Inc.during the three months ended March 31, 2007. Effective April 1, 2007, awholly-owned subsidiary of TransCanada became the operator of Northern Border.Northern Border is regulated by the FERC.

 

On April 6, 2006, thePartnership, which previously owned a 30 per cent general partner interest inNorthern Border, acquired an additional 20 per cent general partnershipinterest in Northern Border. TC PipeLines’ equity income from its investment inNorthern Border includes 30 per cent of the net income of Northern Border up toApril 6, 2006 and 50 per cent thereafter. The Partnership continues to use theequity method of accounting for its 50 per cent investment in Northern Border.

 

ThePartnership made an equity contribution of $7.5 million for a cash call issuedby Northern Border in the nine months ended September 30, 2007 which was usedto make debt repayments.

 

The following tables set out summarized financial information ofNorthern Border:

 

**SummarizedNorthern Border Income Statement**

| *(unaudited)*                                        |       | Three months ended September 30 |   | Nine months ended September 30 |       |
|------------------------------------------------------|------------|---------------------------------|--------|--------------------------------|------------|
| *(millions  of dollars)*                             | ** ** | **2007**                        |   | 2006                           | ** ** | **2007** |   | 2006 |   |
| Transmission revenues                                | ** ** | **79.6**                        |   | 80.3                           | ** ** | **228.0** |   | 231.5 |   |
| Operations, maintenance  and administrative expenses | ** ** | **(21.6)**                      |   | (22.0)                         | ** ** | **(61.7)** |   | (60.1) |   |
| Depreciation                                         | ** ** | **(15.1)**                      |   | (14.6)                         | ** ** | **(45.6)** |   | (44.0) |   |
| Financial charges, net  and other                    | ** ** | **(10.2)**                      |   | (10.0)                         | ** ** | **(30.9)** |   | (31.0) |   |
| Net income                                           | ** ** | **32.7**                        |   | 33.7                           | ** ** | **89.8** |   | 96.4 |   |

 

9

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

**SummarizedNorthern Border Balance Sheet**

| *(unaudited)*                                                   | ** ** | **September 30,** |   | December 31, |   |
|-----------------------------------------------------------------|------------|-------------------|--------|--------------|--------|
| *(millions  of dollars)*                                        | ** ** | **2007**          |   | 2006         |   |
| **Assets**                                                      |       |              |   |         |   |
| Cash and cash equivalents                                       | ** ** | **22.3**          |   | 11.0         |   |
| Other current assets                                            | ** ** | **34.6**          |   | 35.5         |   |
| Plant, property and  equipment, net                             | ** ** | **1,439.6**       |   | 1,475.7      |   |
| Other assets                                                    | ** ** | **24.2**          |   | 22.5         |   |
| ** **                                                      |       | **1,520.7**       |   | 1,544.7      |   |
| **Liabilities  and Partners’ Equity**                      |       |              |   |         |   |
| Current liabilities                                             | ** ** | **51.6**          |   | 47.7         |   |
| Deferred credits and  other                                     | ** ** | **6.7**           |   | 2.1          |   |
| Long-term debt, including  current maturities and notes payable | ** ** | **609.3**         |   | 619.8        |   |
| Partners’ equity                                           |       |              |   |         |   |
| Partners’ capital                                          | ** ** | **853.9**         |   | 874.1        |   |
| Accumulated other comprehensive income                          | ** ** | **(0.8)**         |   | 1.0          |   |
| ** **                                                      |       | **1,520.7**       |   | 1,544.7      |   |

 

**Note 4****                                    Investmentin Tuscarora Gas Transmission Company**

The Partnership owns orcontrols a 99 per cent general partner interest in Tuscarora Gas TransmissionCompany (Tuscarora), a Nevada general partnership. Tuscarora owns a 240-mileU.S. interstate pipeline system that transports natural gas from Oregon, whereit interconnects with facilities of Gas Transmission Northwest Corporation, awholly-owned subsidiary of TransCanada, to northern Nevada. The other generalpartner interests in Tuscarora are held one per cent by Sierra PacificResources (with the associated vote being controlled by the Partnership) andone per cent by TransCanada. Tuscarora is regulated by the FERC.

 

On December 19, 2006, thePartnership acquired an additional 49 per cent general partner interest inTuscarora. Prior to the acquisition, the Partnership used the equity method ofaccounting for its investment in Tuscarora. Subsequent to the acquisition, thePartnership used the consolidation method of accounting for its investment inTuscarora. In connection with this transaction, an indirect wholly-ownedsubsidiary of TransCanada became the operator of Tuscarora.

 

The following tables setout summarized financial information of Tuscarora:

 

**Summarized Tuscarora Income Statement**

| *(unaudited)*                                        | ** ** | Three months ended September 30 | ** ** | Nine months ended September 30 |       |
|------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| *(millions  of dollars)*                             | ** ** | **2007**                        |       | 2006                           | ** ** | **2007** |   | 2006 |   |
| Transmission revenues                                | ** ** | **6.7**                         |       | 6.7                            | ** ** | **20.3** |   | 22.6 |   |
| Operations, maintenance  and administrative expenses | ** ** | **(1.2)**                       |       | (1.0)                          | ** ** | **(3.7)** |   | (3.4) |   |
| Depreciation                                         | ** ** | **(1.6)**                       |       | (1.6)                          | ** ** | **(4.7)** |   | (4.7) |   |
| Financial charges, net  and other                    | ** ** | **(1.0)**                       |       | (1.2)                          | ** ** | **(3.4)** |   | (3.9) |   |
| Net income                                           | ** ** | **2.9**                         |       | 2.9                            | ** ** | **8.5** |   | 10.6 |   |

 

10

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 
| **Summarized  Tuscarora Balance Sheet**       |       |              |       |         |   |
|-----------------------------------------------|------------|-------------------|------------|--------------|--------|
| *(unaudited)*                                 | ** ** | **September 30,** | ** ** | December 31, |   |
| *(millions  of dollars)*                      | ** ** | **2007**          | ** ** | 2006         |   |
| **Assets**                                    | ** ** | ** **        |       |         |   |
| Cash and cash equivalents                     | ** ** | **10.1**          |       | 2.2          |   |
| Other current assets                          | ** ** | **2.5**           |       | 2.5          |   |
| Plant, property and  equipment, net           | ** ** | **126.7**         |       | 127.0        |   |
| Other assets                                  | ** ** | **1.2**           |       | 1.2          |   |
| ** **                                    | ** ** | **140.5**         |       | 132.9        |   |
| **Liabilities  and Partners’ Equity**    | ** ** | ** **        |       |         |   |
| Current liabilities                           | ** ** | **3.9**           |       | 2.4          |   |
| Long-term debt, including  current maturities | ** ** | **68.7**          |       | 71.1         |   |
| Partners’ equity                         | ** ** | ** **        |       |         |   |
| Partners’ capital                        | ** ** | **67.9**          |       | 59.3         |   |
| Accumulated other comprehensive income        | ** ** | **-**             |       | 0.1          |   |
|                                          | ** ** | **140.5**         |       | 132.9        |   |

 

**Note 5****                                    CreditFacilities and Long-Term Debt**

On February 22, 2007, theSenior Credit Facility was amended and restated in connection with the GreatLakes acquisition. The amount available under the Senior Credit Facilityincreased from $410 million to $950 million, consisting of a $700 millionsenior term loan and a $250 million senior revolving credit facility, with $194million of the senior term loan available being terminated upon closing of theGreat Lakes acquisition.

 

The Partnership had $517million and $397 million outstanding under the Senior Credit Facility atSeptember 30, 2007 and December 31, 2006, respectively. The interest rate onthe Senior Credit Facility averaged 5.97 per cent and 6.02 per cent for thethree and nine months ended September 30, 2007, respectively. After hedgingactivity, the interest rate incurred on the Senior Credit Facility averaged5.66 per cent and 5.81 per cent for the three and nine months ended September30, 2007, respectively. At September 30, 2007 and December 31, 2006, theinterest rates were 6.16 per cent and 6.07 per cent, respectively.

 

The Partnership hadSeries A Senior Secured Notes, Series B Senior Secured Notes and Series CSecured Notes in the amounts of $56.2 million, $5.7 million and $6.8 millionoutstanding at September 30, 2007 related to Tuscarora, while at December 31,2006 the Partnership had Series A Senior Secured Notes, Series B Senior SecuredNotes and Series C Secured Notes in the amounts of $57.9 million, $6.0 millionand $7.2 million, respectively. The Series A Senior Secured Notes bear interest at 7.13 per cent and mature in 2010.The Series B Senior Secured Notes bear interest at 7.99 per cent andmature in 2010. The Series C Senior Secured Notes bear interest at 6.89 percent and are due in 2012.

 

Annual maturities of thelong-term debt are as follows: 2007 - $4.7 million; 2008 - $4.6 million; 2009 -$4.4 million; 2010 - $53.5 million; 2011 - $517.8 million; and, thereafter -$3.1 million.

 

**Note 6****                                    NetIncome per Common Unit**

Net income per commonunit is computed by dividing net income, after deduction of the general partner’sallocation, by the weighted average number of common units outstanding. Thegeneral partner’s allocation is equal to an amount based upon the generalpartner’s two per cent interest, adjusted to reflect an amount equal toincentive distributions. Net income per common unit was determined as follows:

 

11

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

| *(unaudited)*                                           | ** ** | Three months ended September 30 | ** ** | Nine months ended September 30 |       |
|---------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| *(millions  of dollars except per unit amounts)*        | ** ** | **2007**                        |       | 2006                           | ** ** | **2007** |   | 2006 |   |
| Net income                                              | ** ** | **24.6**                        |       | 12.0                           | ** ** | **62.3** |   | 33.4 |   |
| Net income allocated to  general partner                |       |                            |       |                           |       |   |   |   |   |
| General partner interest                                | ** ** | **(0.4)**                       |       | (0.3)                          | ** ** | **(1.2)** |   | (0.7) |   |
| Incentive distribution income allocation                | ** ** | **(1.8)**                       |       | (0.4)                          | ** ** | **(4.1)** |   | (1.4) |   |
| ** **                                              |       | **(2.2)**                       |       | (0.7)                          | ** ** | **(5.3)** |   | (2.1) |   |
| Net income allocable to  common units                   | ** ** | **22.4**                        |       | 11.3                           | ** ** | **57.0** |   | 31.3 |   |
| Weighted average common  units outstanding *(millions)* | ** ** | **34.9**                        |       | 17.5                           | ** ** | **31.5** |   | 17.5 |   |
| Net income per common  unit                             | ** ** | **$0.64**                       |       | $0.65                          | ** ** | **$1.81** |   | $1.79 |   |

 

**Note 7****                                    Partners’Equity**

Partners’ capitalconsists of 34,856,086 common units representing an aggregate 98 per cent limitedpartner interest in the Partnership (including 2,035,106 common units held bythe general partner and 8,678,045 common units held by TransCan Northern Ltd.,an indirect wholly-owned subsidiary of TransCanada) and an aggregate two percent general partner interest. In aggregate, the general partner’s interestsrepresent an effective 7.7 per cent ownership in the Partnership at September30, 2007 (December 31, 2006 – 13.4 per cent).

 

**Note 8****                                    Acquisition**

On February 22, 2007, thePartnership acquired a 46.45 per cent general partnership interest in GreatLakes from El Paso Corporation (El Paso). The total purchase price was $942million, subject to certain closing adjustments, and included the indirectassumption of approximately $209 million of debt. The acquisition was partiallyfinanced through a private placement of 17,356,086 common units at $34.57 percommon unit for gross proceeds of $600 million which closed concurrently withthe acquisition. TransCan Northern Ltd. purchased 8,678,045 of the 17,356,086common units issued for gross proceeds of $300 million. In addition, TCPipeLines GP maintained its two per cent general partner interest in thePartnership by contributing $12.6 million to the Partnership in connection withthe equity private placement. The Partnership funded the balance of the totalconsideration with a draw on its senior credit facility, which was amended andrestated in connection with the acquisition.

 

The acquisition wasaccounted for using the purchase method of accounting. The purchase price wasallocated on a preliminary basis using an estimate of fair value of the netassets at the date of acquisition. The difference between the purchase priceand the estimated fair value of net assets of approximately $457 million, beinggoodwill, was recorded as part of the Partnership’s investment in Great Lakes.

 

Great Lakes’ business is subject to rate regulation based on historicalcosts which do not change with market conditions or change of ownership.Accordingly, upon acquisition, the assets and liabilities of Great Lakes weredetermined to have a fair value equal to the rate regulated historical costs. Nointangibles other than goodwill were identified in the acquisition.

 

TransCanada, whichpreviously held a 50 per cent interest in Great Lakes, acquired the other 3.55per cent interest simultaneously with the Partnership’s acquisition of itsinterest. In connection with these transactions, a wholly-owned subsidiary ofTransCanada became the operator of Great Lakes.

 

12

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

The following Partnershippro forma financial information for the nine months ended September 30, 2007and 2006 has been prepared as if the acquisition occurred at the beginning ofthe respective periods:

 

13

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Continued)**

** **

**TCPipeLines, LP**

 

| *(unaudited)*                                    |       | Nine months ended September 30 |   |
|--------------------------------------------------|------------|--------------------------------|--------|
| *(millions  of dollars except per unit amounts)* | ** ** | **2007**                       |   | 2006 |   |
|                                             |       |                           |   |   |   |
| Equity income from  investment in Great Lakes    | ** ** | **44.9**                       |   | 42.0 |   |
| Net income                                       | ** ** | **71.8**                       |   | 69.5 |   |
| Net income per common  unit                      | ** ** | **$1.88**                      |   | $1.88 |   |

 

**Note 9****                                    RelatedParty Transactions**

The Partnership does nothave any employees. The management and operating functions are provided by thegeneral partner. The general partner does not receive a management fee or othercompensation in connection with its management of the Partnership. The Partnershipreimburses the general partner for all costs of services provided, includingthe costs of employee, officer and director compensation and benefits, and allother expenses necessary or appropriate to the conduct of the business of, andallocable to the Partnership. Such costs include (i) overhead costs (such asoffice space and equipment) and (ii) out-of-pocket expenses related to theprovision of such services. The Partnership Agreement provides that the generalpartner will determine the costs that are allocable to the Partnership in anyreasonable manner determined by the general partner in its sole discretion.Total costs charged to the Partnership by the general partner were $1.4 millionand $0.9 million for the nine months ended September 30, 2007 and 2006,respectively. Total costs charged to the Partnership by the general partnerwere $0.5 million and $0.4 million for the three months ended September 30,2007 and 2006, respectively.

 

TransCanada NorthernBorder Inc. (TransCanada Northern Border), a wholly-owned subsidiary ofTransCanada formerly named TransCan Northwest Border Ltd., became the operatorof Great Lakes through TransCanada’s acquisition of Great Lakes GasTransmission Company, the operator of the Great Lakes facilities, on February22, 2007. TransCanada and its affiliates provide operating services such aslegal, tax, treasury, human resources, other administrative functions, andincur other costs on Great Lakes’ behalf. These include, but are not limitedto, employee benefit costs, property and liability insurance costs, andtransition costs. Total costs charged to Great Lakes by TransCanada and itsaffiliates were approximately $5.2 million and $22.2 million for the threemonths ended September 30, 2007 and for the period from February 23, 2007 toSeptember 30, 2007, respectively, of which $2.4 million and $10.3 million areincluded in the Partnership’s equity income from Great Lakes during the sameperiods.

 

Great Lakes earns transportation revenues fromTransCanada and its affiliates under fixed priced contracts with remainingterms ranging from one to eleven years. Great Lakes earned $32.4 million and$81.5 million of transportation revenues under these contracts for the threemonths ended September 30, 2007 and for the period February 23, 2007 toSeptember 30, 2007, respectively. These amounts represent 49.8 per cent and50.3 per cent of total revenues earned by Great Lakes for the three monthsended September 30, 2007 and for the period February 23, 2007 to September 30,2007, respectively, of which $15.1 million and $37.9 million are included inthe Partnership’s equity income from Great Lakes during the same periods.

 

TransCanada Northern Border became the operatorof Northern Border effective April 1, 2007. The officers of TransCanadaNorthern Border are now the equivalent of Northern Border’s officers.TransCanada and its affiliates provide operating services such as legal, tax,treasury, human resources, other administrative functions, and incur othercosts on Northern Border’s behalf. These include, but are not limited to,employee benefit costs, property and liability insurance costs, and transitioncosts. Total costs charged to Northern Border by TransCanada and its affiliateswere approximately $7.4 million and $14.9 million for the three and nine months

 

14

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM1.  FINANCIAL STATEMENTS (Concluded)**

** **

**TCPipeLines, LP**

 

ended September 30, 2007, respectively, of which$3.7 million and $7.5 million are included in the Partnership’s equity incomefrom Northern Border during the same periods.

 

On April 6, 2006, the Partnership acquired anadditional 20 per cent general partnership interest in Northern Border. As partof this transaction, the Partnership paid a $10 million transaction fee toTransCanada Northern Border related to the assumption of operatorship. This feehas been recorded as part of the Partnership’s investment in Northern Borderand is being amortized over the term of the related operating agreementpartially offsetting equity income.

 

On December 19, 2006, thePartnership acquired an additional 49 per cent general partner interest inTuscarora. In connection with this transaction, TransCanada NorthernBorder became the operator of Tuscarora. TransCanada and its affiliates provideoperating services such as legal, tax, treasury, human resources, otheradministrative functions, and incur other costs on Tuscarora’s behalf. Theseinclude, but are not limited to, employee benefit costs, and property andliability insurance costs. Total costs charged to Tuscarora by TransCanada andits affiliates were $0.8 million and $1.7 million for the three and nine monthsended September 30, 2007.

 

InMay 2007, the Partnership reimbursed TransCanada $2.8 million for third partycosts related to the Partnership’s acquisition of its interest in Great Lakesin February 2007. In September 2007, the Partnership reimbursed TransCanada$1.2 million for a working capital adjustment related to the Partnership’sacquisition of its interest in Great Lakes in February 2007.

 

**Note 10****                             DerivativeFinancial Instruments**

At September 30, 2007,the fair value of the interest rate swaps and options accounted for as hedgeswas negative $0.7 million. The fair value of interest rate swaps and optionshas been calculated using period-end market rates. The notional amount hedgedwas $400 million. The interest rate swaps and options are structured such thatthe cash flows match those of the Senior Credit Facility from March 12, 2007through to maturity dates of May 22, 2009 and December 12, 2011.

 

**Note 11****                             SubsequentEvents**

On October 18, 2007, thePartnership announced its third quarter cash distribution in the amount of$0.66 per unit, payable on November 14, 2007, to unitholders of record onOctober 31, 2007. The cash distribution represents an increase over theprevious quarter of $0.005 per unit, or $0.02 per unit per annum, to anindicated annual cash distribution of $2.64 per unit. 

 

15

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**

** **

**TCPipeLines, LP**

** **

**Cautionary Statement RegardingForward-Looking Information**

A number of statements made by TC PipeLines, LP in this quarterlyreport are forward-looking and relate to, among other things, anticipatedfinancial performance, business prospects, strategies, market forces andcommitments. Much of this information appears in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” found herein. Allforward-looking statements are based on the Partnership’s current beliefs aswell as assumptions made by and information currently available to thePartnership. These statements reflect the Partnership’s current views withrespect to future events. The Partnership assumes no obligation to update anysuch forward-looking statements to reflect events or circumstances occurringafter the date hereof. Words such as “anticipate”, “believe”, “estimate”, “expect”,“plan”, “intend”, “forecast”, and similar expressions, identify forward-lookingstatements. Readers are cautioned not to place undue reliance on thisforward-looking information, which is as of the date of this Form 10-Q. Thesestatements reflect the Partnership’s current views with respect to futureevents and are subject to various risks, uncertainties and assumptionsincluding:

 

•                                          the Partnership’s46.45 per cent general partner interest in Great Lakes and 50 per cent generalpartner interest in Northern Border represent its most significant assets. As aresult, the Partnership is dependent upon Great Lakes and Northern Border forthe majority of its available cash;

 

•                                          regulatorydecisions, particularly those of the FERC;

 

•                                          the ability ofGreat Lakes and Northern Border to recontract their capacity and thetransportation rates at which that capacity is contracted;

 

•                                          the Alberta(Canada) government’s decision to implement a new royalty regime effectiveJanuary 2009 may affect the volume of Canadian natural gas available forexport;

 

•                                          the failure ofa shipper on one of the pipelines in which the Partnership has an interest toperform its contractual obligations;

 

•                                          theavailability of and demand for Western Canadian natural gas for import into theU.S.;

 

•                                          the amount ofstorage capacity in Western Canada and overall strong demand for storageinjection; and

 

•                                          prevailingeconomic conditions, particularly conditions of the capital and equity markets.

 

These and other risks are discussed in the Partnership’s filings withthe Securities and Exchange Commission (SEC), including under Item 1A, “RiskFactors,” in the Partnership’s annual report on Form 10-K for the year endedDecember 31, 2006 and Item 1A, “Risk Factors” in the Partnership’s quarterlyreport on Form 10-Q for the quarter ended March 31, 2007. By its nature, suchforward-looking information is subject to various risks and uncertainties,which could cause TC PipeLines’ actual results and experience to differ materiallyfrom the anticipated results or other expectations expressed in this quarterlyreport.

 

16

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

**Resultsof Operations of TC PipeLines, LP**

 

*Thegeneral partner interests in Great Lakes Gas Transmission Limited Partnership(Great Lakes), Northern Border Pipeline Company (Northern Border) and TuscaroraGas Transmission Company (Tuscarora) (together “our pipeline assets”) were ouronly material sources of income; therefore, our results of operations wereinfluenced by and reflect the same factors that influenced the financialresults of our pipeline assets.*

 

The following discussions of the financial condition and results ofoperations of TC PipeLines, LP, Great Lakes, Northern Border and Tuscarorashould be read in conjunction with the financial statements and notes theretoof the Partnership included elsewhere in this report (see Item 1. FinancialStatements).

 

***Overview***

TC PipeLines, LP is aDelaware limited partnership formed in 1998. TC PipeLines was formed byTransCanada PipeLines Limited, a subsidiary of TransCanada Corporation(collectively referred to herein as TransCanada), to acquire, own andparticipate in the management of United States (U.S.)-based pipeline assets. TCPipeLines, LP and its subsidiary limited partnerships, TC GL IntermediateLimited Partnership, TC PipeLines Intermediate Limited Partnership, and TCTuscarora Intermediate Limited Partnership, are collectively referred to hereinas “TC PipeLines” or “the Partnership.” In this report, references to “we”, “us”or “our” collectively refer to TC PipeLines or the Partnership. The generalpartner of the Partnership is TC PipeLines GP, Inc., an indirect wholly-ownedsubsidiary of TransCanada. Our strategic focus is on delivering stable,sustainable cash distributions to our unitholders and to find opportunities toincrease cash distributions while maintaining a low risk profile.

 

We own a 46.45 per centinterest in Great Lakes, which we acquired on February 22, 2007 from El PasoCorporation. The other 53.55 per cent interest in Great Lakes is held byTransCanada.

 

We own a 50 per centinterest in Northern Border including a 20 per cent interest acquired on April6, 2006. The other 50 per cent interest in Northern Border is held by ONEOKPartners, L.P. (ONEOK), a publicly traded limited partnership. At September 30,2007, each partner held a 50 percent voting interest on the ManagementCommittee of Northern Border.

 

We also own or control a99 per cent interest in Tuscarora. In September 2000, we acquired a 49 per centinterest from TCPL Tuscarora Ltd., an indirect wholly-owned subsidiary ofTransCanada, which continues to hold a one per cent general partner interest inTuscarora. The Partnership purchased its other interest in Tuscarora fromTuscarora Gas Pipeline Co., a wholly-owned subsidiary of Sierra PacificResources, on December 19, 2006.

 

***Businessof Great Lakes***

Great Lakes owns a 2,115-mile U.S. interstate pipelinesystem which receives natural gas from TransCanada at the Canadian border nearEmerson, Manitoba and extends across Minnesota, Northern Wisconsin andMichigan, and redelivers gas to TransCanada at the international border atSault Ste. Marie, Michigan and St. Clair, Michigan. Great Lakes provides itsshippers access to markets along its pipeline system through over 60 receiptand delivery interconnections with multiple pipelines and distributioncompanies, and access to over 30 Michigan storage fields.

 

The major policies of Great Lakes are established bythe Management Committee of Great Lakes, which currently consists of fourappointed members, two of whom are designated by us and two of whom aredesignated by TransCanada. All decisions by the Management Committee requireunanimous consent. For the day 

 

17

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TC PipeLines, LP**

 

to day management of Great Lakes’ business, theManagement Committee established an Executive Committee currently consisting oftwo appointed members: one Partnership Committee Member and one TransCanadaCommittee Member, who also serves as the Great Lakes President.

 

18

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

TransCanada Northern Border Inc. (TransCanada NorthernBorder), a wholly-owned subsidiary of TransCanada formerly named TransCanNorthwest Border Ltd., became the operator of Great Lakes through TransCanada’sacquisition of Great Lakes Gas Transmission Company, the operator of the GreatLakes facilities, on February 22, 2007. TransCanada and its affiliates provideoperating services such as legal, tax, treasury, human resources, otheradministrative functions, and incur other costs on Great Lakes’ behalf. Theseinclude, but are not limited to, employee benefit costs, property and liabilityinsurance costs, and transition costs. Total costs charged to Great Lakes byTransCanada and its affiliates were approximately $5.2 million and $22.2million for the three months ended September 30, 2007 and for the periodFebruary 23, 2007 to September 30, 2007, respectively, of which $2.4 millionand $10.3 million are included in the Partnership’s equity income from GreatLakes during the same periods.

 

Great Lakes earns transportation revenues fromTransCanada and its affiliates under fixed priced contracts with remainingterms ranging from one to eleven years. Great Lakes earned $32.4 million and$81.5 million of transportation revenues under these contracts for the threemonths ended September 30, 2007 and for the period February 23, 2007 toSeptember 30, 2007, respectively. These amounts represent 49.8 per cent and50.3 per cent of total revenues earned by Great Lakes for the three monthsended September 30, 2007 and for the period February 23, 2007 to September 30,2007, respectively, of which $15.1 million and $37.9 million are included inthe Partnership’s equity income from Great Lakes during the same periods.

 

***Business of Northern Border***

Northern Bordertransports natural gas along 1,249 miles of pipeline with a design capacity ofapproximately 2.4 Bcf/d that extends from the Montana-Saskatchewan border to aterminus near North Hayden, Indiana. Northern Border’s transportation networkprovides pipeline access to the Midwestern U.S. primarily from natural gasreserves in the Western Canada Sedimentary Basin, which is located in theCanadian provinces of Alberta, British Columbia and Saskatchewan. TheManagement Committee of Northern Border Pipeline consists of four members. TCPipeLines and ONEOK each designate two members of the Management Committee andeach have 50 per cent of the voting power of the Management Committee.

 

TransCanadaNorthern Border Inc. became the operator of Northern Border effective April 1,2007. The officers of TransCanada Northern Border are now the equivalent ofNorthern Border’s officers. TransCanada and its affiliates provide operatingservices such as legal, tax, treasury, human resources, other administrativefunctions, and incur other costs on Northern Border’s behalf. These include,but are not limited to, employee benefit costs, property and liabilityinsurance costs, and transition costs. Total costs charged to Northern Borderby TransCanada and its affiliates were approximately $7.4 million and $14.9million for the three and six months ended September 30, 2007, respectively, ofwhich $3.7 million and $7.5 million are included in the Partnership’s equityincome from Northern Border during the same periods.

 

#### ***Businessof Tuscarora***

Tuscaroraowns a 240-mile U.S. interstate pipeline system that originates at aninterconnection point with facilities of Gas Transmission NorthwestCorporation, a wholly-owned subsidiary of TransCanada, near Malin, Oregon andruns southeast through northeastern California and northwestern Nevada.

 

OnDecember 19, 2006, the Partnership acquired an additional 49 per cent generalpartner interest in Tuscarora. Upon the acquisition, TC PipeLines began toconsolidate its interest in Tuscarora, as the Partnership owns or controls 99per cent. In connection with this transaction, TransCanada NorthernBorder became the operator of Tuscarora. TransCanada and its

 

19

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TC PipeLines, LP**

 

affiliates provideoperating services such as legal, tax, treasury, human resources, otheradministrative functions, and incur other costs on Tuscarora’s behalf. Theseinclude, but are not limited to, employee benefit costs, and property andliability insurance costs. Total costs charged to Tuscarora by TransCanada andits affiliates were $0.8 million and $1.7 million for the three and nine monthsended September 30, 2007.

 

20

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

***RecentDevelopments***

*Acquisition –*OnFebruary 22, 2007, the Partnership acquired a 46.45 per cent generalpartnership interest in Great Lakes from El Paso Corporation. The totalpurchase price was $942 million, subject to certain closing adjustments, andincluded the indirect assumption of approximately $209 million of debt. Theacquisition was partially financed through a private placement of 17,356,086common units at $34.57 per common unit for gross proceeds of $600 million whichclosed concurrently with the acquisition. TransCan Northern Ltd. purchased8,678,045 of the 17,356,086 common units issued for gross proceeds of $300million. In addition, TC PipeLines GP maintained its two per cent generalpartner interest in the Partnership by contributing $12.6 million to thePartnership in connection with the private equity placement. The Partnershipfunded the balance of the total consideration with a draw on its senior creditfacility, which was amended and restated in connection with this transaction.

 

TransCanada, whichpreviously held a 50 per cent interest in Great Lakes, acquired the other 3.55per cent interest simultaneously with the Partnership’s acquisition of itsinterest. In connection with these transactions, a wholly-owned subsidiary ofTransCanada also became the operator of Great Lakes.

 

Inthe second quarter of 2007, an additional $3.0 million related to the GreatLakes acquisition was paid, consisting primarily of a $2.8 millionreimbursement of acquisition fees to a wholly-owned subsidiary of TransCanada. In September 2007, the Partnership reimbursedTransCanada $1.2 million for a working capital adjustment related to thePartnership’s acquisition of its interest in Great Lakes.

 

***GreatLakes – Significant Developments in 2007***

*Michigan Business Tax*–In the third quarter of 2007, Michigan announced a replacement for the MichiganSingle Business Tax (“SBT”). The new tax, Michigan Business Tax, willcommence January 1, 2008 and is an income tax at the partnershiplevel. This is expected to increase Great Lakes’ Michigan taxes (net of aproperty tax credit) by approximately $1 to $2 million per annum beginning in2008. In September 2007, Great Lakes eliminated its deferred SBT amountsconsistent with the elimination of the SBT tax. This resulted in anincrease of $1.6 million to Great Lakes’ net income in the third quarter of2007.

 

***NorthernBorder – Significant Developments in 2007***

*Rate Case–*In accordancewith the provisions of the settlement of Northern Border’s 2005 rate case,overall rates were reduced, compared with rates prior to the filing, byapproximately five per cent beginning January 1, 2007. Additional informationabout Northern Border’s regulatory proceedings is included in this report under“Regulatory Developments”.

 

*Amendedand Restated Credit Facility**–***On April 27, 2007, Northern Borderentered into a $250 million five-year revolving credit agreement with certainfinancial institutions. Additionalinformation about Northern Border’s new credit agreement is included in thisreport under “Debt and Credit Facilities of Northern Border”.

 

***AccountingPolicies and Estimates***

TC PipeLines accounts forits investments in both Great Lakes and Northern Border using the equity methodof accounting. The equity method of accounting is appropriate where theinvestor does not control an investee, but rather is able to exercisesignificant influence over the operating and financial policies of an investee.TC PipeLines is able to exercise significant influence over its investments inGreat Lakes and Northern Border because of its ownership interests and itsrepresentation on Great Lakes and Northern 

 

21

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TC PipeLines, LP**

 

Border managementcommittees.

 

The preparation offinancial statements in accordance with U.S. GAAP requires us to make estimatesand assumptions with respect to values or conditions which cannot be known withcertainty that affect the reported amount of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financialstatements. These estimates and assumptions also affect the reported amounts ofrevenue and expenses during the reporting period. Although we believe theseestimates are reasonable, actual results could differ from our estimates.

 

22

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

There have been nomaterial changes to the Partnership’s accounting policies or estimates duringthe nine months ended September 30, 2007.

 

***RecentAccounting Pronouncements***

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157), whichestablishes a framework for measuring fair value and requires additionaldisclosures about fair value measurements. SFAS No. 157 is effective for ourfiscal year beginning January 1, 2008. The effect of adopting SFAS No. 157 isnot expected to be material to our results of operations or financial position.

 

In February 2007, theFASB issued SFAS No. 159 “The Fair Value Option for Financial Assets andFinancial Liabilities - Including an Amendment of FASB Statement No. 115,”which permits entities to choose to measure selected financial assets andfinancial liabilities at fair value. The fair value option established by SFASNo. 159 permits all entities to choose to measure eligible items at fair valueat specified election dates. A business entity shall report unrealized gainsand losses in earnings, on items for which the fair value option has beenelected, at each subsequent reporting date. SFAS No. 159 is effective for ourfiscal year beginning January 1, 2008. The effect of adopting SFAS No. 159 isnot expected to be material to our results of operations or financial position.

 

***KnownTrends and Uncertainties***

*Supply***–** We continue to see a decline in Canadian natural gasavailable for export as compared to the same period last year. Due to favorablemarket conditions in the markets our pipeline assets serve, the decline inCanadian supply available for export has not negatively impacted our pipelineassets’ throughput in 2007. We expect the decline in Canadian gas supplyavailable for export to continue due to declining production and rising demandin Alberta primarily due to natural gas consumption associated with thedevelopment and production of oil sand reserves. A reduction in the amount ofavailable supply for export will continue to be a negative development for allU.S. pipelines that import natural gas from Canada, but the impact on ourpipeline assets will depend upon competitive factors and prevailing marketconditions.

 

*Competition –*Supplycompetition from other natural gas sources can impact demand for transportationon our pipeline assets. We anticipate further growth in supplies from the RockyMountain region will create additional supply in the markets Great Lakes andNorthern Border serve. The Rockies Express Pipeline, a 1,679-mile pipelinesystem from Rio Blanco County, Colorado to Monroe County, Ohio, will increasesupply competition in Midwestern markets. The western segment of the RockiesExpress Pipeline, from Colorado to Missouri, is anticipated to be placed inservice by early 2008, and initially is expected to add more supply competitionin markets served by Northern Border. The eastern segment of the RockiesExpress Pipeline, from Missouri to Ohio, is expected to be placed in service byJune 2009, and is anticipated to transport natural gas further east,potentially mitigating excess supply in the Midwest market region. Theadditional supply moving towards eastern markets may provide opportunities forGreat Lakes to market its eastern zone capacity, for storage injection andwithdrawal, which has historically gone underutilized.

 

*Great Lakes –*For the period from March 1, 2007 to September 30, 2007, Great Lakes’ averagecontracted capacity compared to Great Lakes’ design capacity was 100 per cent.As of September 30, 2007, all available capacity is contracted on a firm basisfor the remainder of 2007. Great Lakes’ average contracted capacities atSeptember 30, 2007 compared to design capacity are 100 per cent and 91 per centfor the first and second quarter of 2008, respectively.

 

23

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TC PipeLines, LP**

 

*Northern Border –*Long term rates were reduced and short-term seasonal rates were implementedeffective January 1, 2007 as a result of Northern Border’s rate casesettlement, discussed under “Regulatory Developments” in this report. Revenuesfor the year 2007 are expected to be comparable to 2006 primarily due to theimplementation of seasonal rates and favorable contracting experience for 2007.Northern Border’s average contracted capacity was 96 per cent and 97 per centof design capacity for the nine months ended September 30, 2007 and 2006,respectively. At September 30, 2007, substantially all of Northern Border’sdesign capacity was contracted on a firm basis for the fourth quarter of 2007and first 

 

24

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

quarter of 2008. As ofSeptember 30, 2007, Northern Border has approximately 980 MMcf/d or 41 per centof design capacity uncontracted beginning in the second quarter of 2008.Prevailing market conditions and competitive factors in North America,including the Rockies Express Pipeline, will continue to impact the value ofNorthern Border’s transportation and its ability to market this availablecapacity. Northern Border expects to continue to discount transportationcapacity as needed to optimize revenue.

 

***RegulatoryDevelopments***

InMay 2005, the FERC issued a policy statement permitting the inclusion of anincome tax allowance in the rates for partnership interests held by partnerswith an actual or potential income tax liability. On December 16, 2005, theFERC issued an order (the “December16 Order”) in its firstcase-specific review of the income tax allowance issue, reaffirming its taxallowance policy and directing the pipeline to provide certain evidencenecessary to determine the income tax allowance. The FERC’s policy and theDecember 16 Order were appealed to the D.C. Circuit Court and rehearingrequests were filed with respect to the December 16 Order. On May 29,2007, the United States Court of Appeals for the D.C. Circuit issued a decisiondenying the petitions for review and upholding FERC’s income tax allowancepolicy. Great Lakes, Northern Border and Tuscarora currently recover an incometax allowance in their respective rates.

 

The settlement ofNorthern Border’s 2005 rate case was approved by the FERC in November 2006. Thesettlement established maximum long-term mileage-based rates and charges fortransportation on Northern Border’s system. Beginning January 1, 2007, overallrates were reduced, compared with rates prior to the filing, by approximatelyfive per cent. The settlement also provided for seasonal rates for short-termtransportation services. Seasonal maximum rates vary on a monthly basis fromapproximately $0.54 per decatherm (dth) to approximately $0.29 per dth for thefull transportation route from Port of Morgan, Montana to the Chicago area.

 

On August 7, 2006, theFERC approved a settlement reached by Tuscarora, Public Utilities Commission ofNevada and its firm shippers. The settlement resulted in a firm transportationrate of $0.40/dth per day beginning June 1, 2006. This is a 17 per centreduction to the previous rate of $0.4811/dth per day, or an approximate $5million reduction in Tuscarora’s annual revenues. In addition, thesettlement results in a moratorium on all rate actions before the FERC by anyparty to the settlement for a period of 48 months to May 31, 2010, includingrate actions related to expansion projects where Tuscarora proposes to pricethe expansion at the settlement rate.

 

Additional informationabout these regulatory proceedings is included in our annual report on Form10-K for the year ended December 31, 2006.

 

***ThirdQuarter 2007 Compared with Third Quarter 2006***

The Partnership reportedthird quarter 2007 net income of $24.6 million, an increase of $12.6 million or105 per cent, compared to net income of $12.0 million for the same quarter lastyear. The increase was primarily due to equity income from the Partnership’sinvestment in Great Lakes, offset slightly by increased financial chargesincurred by the Partnership.

 

Equity income from thePartnership’s investment in Great Lakes contributed $14.2 million for the threemonths ended September 30, 2007. The Partnership’s share of Great Lakes’revenue was $30.5 million which was offset by operations, maintenance andadministrative expenses and depreciation of $12.6 million and financialcharges, net and other of $3.7 million for the same period.

 

25

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TC PipeLines, LP**

 

Equity income fromNorthern Border was $16.2 million in the third quarter of 2007, a decrease of$0.4 million or 2 per cent, compared to $16.6 million for the same period lastyear. The decrease in equity income was primarily due to decreased revenue anddecreased other income, offset by decreased operations, maintenance andadministrative expenses.

 

26

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

Northern Border’soperating revenue decreased $0.7 million, or 1 per cent, for the three monthsended September 30, 2007 compared with operating revenue, net of the provisionfor rate refunds, for the same period last year primarily due to the following:

•                  decreasedrevenue of $1.6 million primarily related to the reduction of long-term rateseffective January 1, 2007 and an increase in volumes sold at a discount; and

•                  decreasedrevenue of $0.5 million related to decreased demand for other transportationservices; offset by

•                  areduction to net revenue of $1.5 million in the third quarter of 2006 due to anincrease in Northern Border’s provision for billings subject to refund relatedto revenue recorded in the second quarter of 2006. The increase in NorthernBorder’s provision for billings subject to refund was made to reflect the filedsettlement of its rate case.

 

Effective May 1, 2006,Northern Border’s revenues were collected subject to possible refunds uponfinal FERC orders. Based on the settlement of the 2005 rate case, NorthernBorder made refunds to its customers in the fourth quarter of 2006. Additionalinformation about the settlement of the 2005 rate case is included in thisreport under “Regulatory Developments”.

 

Northern Border’soperations, maintenance and administrative expenses decreased $0.4 million, or2 per cent, for the three months ended September 30, 2007 compared with thesame period last year primarily due to the following:

•                  decreasedtaxes other than income of $0.5 million; and

•                  decreasedexpense of $1.1 million related to the net under recovery of the compressorusage surcharge; offset by

•                  increasedelectric compression charges of $0.6 million primarily related to increasedusage and electric rates; and

•                  increasedexpense of $0.4 million related to a credit to expense during the third quarterof 2006 for Northern Border’s 2005 rate case.

 

The remaining decrease inNorthern Border’s net income of $0.7 million for the three months endedSeptember 30, 2007 compared with the same period last year was due to increaseddepreciation expense and financial charges, net and other.

 

With the acquisition ofan additional 49 per cent general partner interest in Tuscarora on December 19,2006, the Partnership now consolidates its interest in Tuscarora. Tuscarora’scontribution to the Partnership’s net income increased $1.5 million in thethird quarter of 2007 compared to the same period in the prior year due to theacquisition of the additional 49 per cent general partner interest. ThePartnership reported transmission revenues of $6.7 million and depreciationexpense of $1.6 million for the third quarter of 2007 related to itsconsolidation of Tuscarora’s operations.

 

The Partnership’soperations, maintenance and administrative expenses of $2.2 million in thethird quarter of 2007 increased $1.7 million compared to $0.5 million for thesame period in 2006. The third quarter of 2007 includes $1.2 million related tothe consolidation of Tuscarora operations. Excluding the $1.2 million ofexpenses related to Tuscarora, the Partnership’s general and administrativeexpenses increased $0.5 million to $1.0 million in the third quarter of 2007from $0.5 million in the same period in 2006. $0.1 million of this increaserelates to increased salary expenses with the remaining increase due to timingof expenses incurred relative to the same period last year.

 

Financial charges were$8.7 million in the third quarter of 2007, an increase of $3.3 million,compared to $5.4 million for the same period last year due to higher averagedebt outstanding and the consolidation of Tuscarora operations 

 

27

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TC PipeLines, LP**

 

which included $1.0million of financial charges. The higher average debt outstanding was theresult of additional financing in 2006 and 2007 for acquisitions.

 

28

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

***NineMonths Ended September 30, 2007 Compared with Nine Months Ended September 30,2006***

Net income increased$28.9 million, or 87 per cent, to $62.3 million in the first nine months of2007, compared to $33.4 million for the same period in 2006. The increase wasdue to equity income from the Partnership’s interest in Great Lakes, anincrease in equity income from Northern Border and an increase to Tuscarora’scontribution to the Partnership’s net income resulting from the Partnership’sadditional general partner interests in these pipelines, partially offset byincreased financial charges incurred by the Partnership and lower NorthernBorder and Tuscarora net income.

 

Equity income from thePartnership’s investment in Great Lakes contributed $34.3 million for theperiod February 23, 2007 to September 30, 2007. The Partnership’s share ofGreat Lakes’ revenue was $75.3 million for the period February 23, 2007 toSeptember 30, 2007, which was offset by operations, maintenance andadministrative expenses and depreciation of $32.0 million and financialcharges, net and other of $9.0 million for the same period.

 

Equity income from thePartnership’s investment in Northern Border increased $4.2 million, or 10 percent, to $44.3 million in the first nine months of 2007, compared to $40.1million for the same period in 2006. The increase in equity income fromNorthern Border was due to the Partnership’s additional 20 per cent generalpartner interest which contributed $7.0 million in equity income, partiallyoffset by a reduction in Northern Border’s net income due primarily todecreased revenue and increased operations, maintenance and administrativeexpenses.

 

Northern Border’soperating revenue decreased $3.5 million, or 2 per cent, for the nine monthsended September 30, 2007 compared with operating revenue, net of the provisionfor rate refunds, for the same period last year due to the following:

•                  decreasedrevenue of $6.4 million primarily related to the reduction of long-term rateseffective January 1, 2007 and an increase in volumes sold at a discount; offsetby

•                  additionalrevenue of $2.0 million due to contracts related to the Chicago III ExpansionProject; and

•                  increasedrevenue of $0.9 million related to increased demand for other transportationservices.

 

Effective May 1, 2006,Northern Border’s revenues were collected subject to possible refunds uponfinal FERC orders. Based on the settlement of the 2005 rate case, NorthernBorder made refunds to its customers in the fourth quarter of 2006. Additionalinformation about the settlement of the 2005 rate case is included in thisreport under “Regulatory Developments”.

 

Northern Border’soperations, maintenance and administrative expenses increased $1.6 million, or3 per cent, for the nine months ended September 30, 2007 compared with the sameperiod last year primarily due to the following:

•                  acharge during the second quarter of 2007 of $2.3 million for payment by us toONEOK Partners over a five year period, as agreed to in a transition servicesagreement between ONEOK Partners GP and TransCanada Northern Border, related tothe reimbursement for shared equipment and furnishings acquired by ONEOKPartners previously used to support Northern Border’s operations; and

•                  increasedelectric compression charges of $1.7 million primarily related to the ChicagoIII Expansion Project and increased usage and electric rates; offset by

•                  decreasedexpense of $1.2 million related to taxes other than income; and

 

29

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION**

**AND RESULTS OF OPERATIONS(Continued)**

** **

**TC PipeLines, LP**

 

•                  decreasedexpense of $1.4 million related to the net under recovery of the compressorusage surcharge.

 

The remaining decrease inNorthern Border’s net income of $1.5 million for the nine months endedSeptember 30, 2007 compared with the same period last year was due to increaseddepreciation expense, partially offset by decreased financial charges, net andother.

 

Tuscarora’s contributionto the Partnership’s net income increased $3.5 million for the nine monthsended September 30, 2007 compared to the same period in the prior year dueprimarily to the acquisition of an additional 49 per cent general partnerinterest on December 19, 2006. The Partnership reported transmission revenuesof $20.3 million and depreciation expense of $4.7 million for the nine monthsended September 30, 2007 related to its consolidation of the Tuscaroraoperations. Tuscarora’s revenues were lower in nine months ended September 30,2007 compared to the same period in 2006 due to a reduced firm transportationrate as a result of its rate settlement.

 

30

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

The Partnership’soperations, maintenance and administrative expenses of $6.4 million for thenine months ended September 30, 2007 increased $4.6 million compared to $1.8million for the same period in 2006. The nine months ended September 30, 2007includes $3.7 million related to the consolidation of Tuscarora operations.Excluding the $3.7 million of expenses related to Tuscarora, the Partnership’sgeneral and administrative expenses increased $0.9 million to $2.7 million forthe nine months ended September 30, 2007 from $1.8 million in the same periodin 2006. $0.5 million of this increase relates to increased salary expenseswith the remaining increase due to timing of expenses incurred relative to thesame period last year.

 

Financial charges were$25.5 million for the nine months ended September 30, 2007, an increase of$15.7 million, compared to $9.8 million for the same period last year due tohigher average debt outstanding and the consolidation of Tuscarora operationswhich included $3.4 million of net financial charges. The higher average debtoutstanding was the result of additional financing in 2006 and 2007 foracquisitions.

 

***PartnershipCash Flows***

To supplement our financial statements, we have disclosed “Partnershipcash flows” and have itemized the cash distributions received from our originalgeneral partner interests, the increase in cash distributions due to 2006 and2007 acquisitions, cash flows from Tuscarora’s operating activities andPartnership costs.  We have presentedthis additional information to enhance an investor’s understanding of the waythat management analyzes the Partnership’s financial performance. Thesegregation of the cash distributions received before and after the impact of2006 and 2007 acquisitions provides a comparison of the Partnership’s cashflows for the three and nine months ended September 30, 2007 and 2006. Thepresentation of this additional information is not meant to be considered inisolation or as a substitute for results prepared in accordance with GAAP.

 

| *(unaudited)*                                                                                                       |       | Three months ended September 30 |   | Nine months ended September 30 |       |
|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|--------|--------------------------------|------------|
| *(millions of dollars)*                                                                                             | ** ** | **2007**                        |   | 2006                           | ** ** | **2007** |   | 2006 |   |
| Cash distributions from original 30% general partner interest in  Northern Border                                   |       | **8.9**                         |   | 11.0                           |       | **37.5** |   | 39.1 |   |
| Cash distributions from original 49% general partner interest in  Tuscarora                                         |       | **-**                           |   | 1.8                            |       | **-** |   | 6.2 |   |
| ** **                                                                                                          |       | **8.9**                         |   | 12.8                           | ** ** | **37.5** |   | 45.3 |   |
| Increase in cash distributions due to the acquisition of a 46.45%  general partner interest in Great Lakes in 2007  |       | **17.4**                        |   | -                              |       | **41.0** |   | - |   |
| Increase in cash distributions due to the acquisition of a 20% general  partner interest in Northern Border in 2006 |       | **5.9**                         |   | 7.3                            |       | **25.0** |   | 17.0 |   |
| Total cash distributions  received (a)                                                                              | ** ** | **32.2**                        |   | 20.1                           | ** ** | **103.5** |   | 62.3 |   |
| Cash flows from  Tuscarora’s operating activities (b)                                                          | ** ** | **6.2**                         |   | -                              | ** ** | **14.8** |   | - |   |
| Partnership costs (c)                                                                                               | ** ** | **(8.7)**                       |   | (5.9)                          | ** ** | **(24.8)** |   | (11.6) |   |
| Partnership cash flows (c)                                                                                          | ** ** | **29.7**                        |   | 14.2                           | ** ** | **93.5** |   | 50.7 |   |

 

31

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

 

(a) Reconciliation of non-GAAP financialmeasure:  Cash distributions received isa non-GAAP financial measure which is the sum of equity income from investmentin Great Lakes, equity income from investment in Northern Border, return ofcapital from Great Lakes, return of capital from Northern Border, equity incomein excess of distributions received and up until December 19, 2006, equityincome from investment in Tuscarora and return of capital from Tuscarora. It isprovided as a supplement to results reported in accordance with GAAP.  Management believes that this is a meaningfulmeasure to assist investors in evaluating the levels of cash distributions fromthe Partnership’s investments. Below is a reconciliation of Cash distributionsreceived to GAAP financial measures:

 

|                                               |       | Three months ended September 30 |       | Nine months ended September 30 |       |
|----------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| *(millions  of dollars)*                           | ** ** | **2007**                        |       | 2006                           | ** ** | **2007** |   | 2006 |   |
| Equity  income from investment in Great Lakes      | ** ** | **14.2**                        | ** ** | -                              |       | **34.3** | ** ** | - |   |
| Equity  income from investment in Northern Border  | ** ** | **16.2**                        | ** ** | 16.6                           |       | **44.3** | ** ** | 40.1 |   |
| Equity  income from investment in Tuscarora        | ** ** | **-**                           | ** ** | 1.3                            |       | **-** | ** ** | 4.9 |   |
| Return  of capital from Great Lakes                | ** ** | **3.2**                         | ** ** | -                              |       | **6.7** | ** ** | - |   |
| Return  of capital from Northern Border            |       | -                               | ** ** | 1.7                            |       | **18.2** | ** ** | 16.0 |   |
| Return  of capital from Tuscarora                  | ** ** | **-**                           | ** ** | 0.5                            |       | **-** | ** ** | 1.3 |   |
| Equity  income in excess of distributions received | ** ** | **(1.4)**                       | ** ** | -                              |       | **-** | ** ** | - |   |
| Total  cash distributions received                 | ** ** | **32.2**                        | ** ** | 20.1                           |       | **103.5** | ** ** | 62.3 |   |

 

(b) Effective December 19, 2006, thePartnership began consolidating Tuscarora’s operations upon acquisition of anadditional 49 per cent general partner interest. The cash flows fromTuscarora’s operating activities is the GAAP measure cash generated fromoperations reported in Tuscarora’s financial statements.

 

|                                                   |       | Three months ended September 30 |       | Nine months ended September 30 |       |
|--------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| *(millions  of dollars)*                               | ** ** | **2007**                        |       | 2006                           | ** ** | **2007** |   | 2006 |   |
| Tuscarora  net income                                  | ** ** | **2.9**                         | ** ** | 2.9                            |       | **8.5** | ** ** | 10.6 |   |
| Add:  Depreciation and amortization                    | ** ** | **1.6**                         | ** ** | 1.6                            |       | **4.7** | ** ** | 4.7 |   |
| Changes in operating assets and liabilities            | ** ** | **1.7**                         | ** ** | 1.2                            |       | **1.6** | ** ** | 1.6 |   |
| Cash  flows from Tuscarora’s operating activities | ** ** | **6.2**                         | ** ** | 5.7                            |       | **14.8** | ** ** | 16.9 |   |

 

(c) Reconciliation of non-GAAP financialmeasure:  Partnership cash flows is anon-GAAP financial measure which is the sum of cash distributions received andcash flows from Tuscarora’s operating activities less Partnership costs. Weexclude Tuscarora’s costs from Partnership costs so that investors may evaluateour costs independent of costs directly attributable to our investments.Management believes that this is a useful measure to assist investors inevaluating the Partnership’s cash flow from its operating activities. Areconciliation of Partnership costs is summarized below:

 

|                                                                                      |       | Three months ended September 30 |       | Nine months ended September 30 |       |
|-------------------------------------------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| *(millions  of dollars)*                                                                  | ** ** | **2007**                        |       | 2006                           | ** ** | **2007** |   | 2006 |   |
| Operations,  maintenance and administrative expenses                                      | ** ** | **2.2**                         | ** ** | 0.5                            |       | **6.4** | ** ** | 1.8 |   |
| Financial  charges, net and other                                                         | ** ** | **8.7**                         | ** ** | 5.4                            |       | **25.5** | ** ** | 9.8 |   |
| Less:                                                                                     | ** ** | ** **                      | ** ** |                           |       | ** ** | ** ** |   |   |
| Operations, maintenance and administrative  expenses and financial charges from Tuscarora | ** ** | **(2.2)**                       | ** ** | -                              |       | **(7.1)** | ** ** | - |   |
| Partnership  costs                                                                        | ** ** | **8.7**                         | ** ** | 5.9                            |       | **24.8** | ** ** | 11.6 |   |

 

32

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

***Third Quarter 2007***

Partnership cash flows for the quarter ended September 30, 2007 were$29.7 million, an increase of $15.5 million, compared to $14.2 million forthe same period last year. Cash flows from Tuscarora’s operating activitieswere $6.2 million for the three months ended September 30, 2007.  The Partnership incurred financing and othercosts of $8.7 million in the three months ended September 30, 2007 compared to$5.9 million in the same period last year. Total cash distributions receivedincreased $12.1 million to $32.2 million for the nine months ended September30, 2007 from $20.1 million for the same period in the prior year primarily dueto cash distributions received from Great Lakes.

 

The acquisition of a46.45 per cent general partner interest in Great Lakes on February 22, 2007contributed $17.4 million to cash distributions received in the three monthsended September 30, 2007. This was the second cash distribution received by thePartnership from Great Lakes.

 

Total cash distributionsof $14.8 million were received from Northern Border during the third quarter of2007, of which $5.9 million was due to the acquisition of an additional 20 percent general partner interest in Northern Border.  The remaining $8.9 million of cash distributionsreceived from Northern Border related to the Partnership’s original 30 per centgeneral partner interest.  Total cashdistributions received from Northern Border during the third quarter of 2007decreased by $3.5 million compared to the same period in the prior year.

 

Cash balances ofTuscarora are consolidated by the Partnership effective December 19, 2006 andas a result, the Partnership ceased reporting distributions from Tuscaroraafter that date. Distributions from Tuscarora for the three months endedSeptember 30, 2006 were $1.8 million. In 2007, Tuscarora’s available operatingcash flow has been used to finance the compressor station expansion project inLikely, California and to repay debt.

 

Partnership costs of $8.7 million for the quarter ended September 30,2007 compared to $5.9 million in the same period in 2006 increased mainly dueto increased financial charges on higher outstanding debt balances tofinance the 2006 and 2007 acquisitions.

 

***Nine Months Ended September 30, 2007***

Partnership cash flows for the nine months ended September 30, 2007 were$93.5 million, an increase of $42.8 million, compared to $50.7 million forthe same period last year. Cash flows from Tuscarora’s operating activitieswere $14.8 million for the nine months ended September 30, 2007.  The Partnership incurred financing and othercosts of $24.8 million in the nine months ended September 30, 2007 compared to$11.6 million in the same period last year. Total cash distributions receivedincreased $41.2 million to $103.5 million for the nine months ended September30, 2007 from $62.3 million for the same period in the prior year primarily dueto cash distributions received from Great Lakes and the Partnership’sadditional 20 per cent general partner interest in Northern Border.

 

The acquisition of a 46.45per cent general partner interest in Great Lakes on February 22, 2007contributed $41.0 million of cash distributions received in the nine monthsended September 30, 2007. Two cash distributions have been received by thePartnership from Great Lakes.

 

Total cash distributionsof $62.5 million were received from Northern Border during the nine monthsended September 30, 2007, of which $25.0 million was due to the acquisition ofan additional 20 per cent general partner interest in Northern Border.  The remaining $37.5 million of cashdistributions received from Northern Border related to the Partnership’soriginal 30 per

 

33

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

cent general partnerinterest.  Total cash distributionsreceived from Northern Border during the nine months ended September 30, 2007increased by $6.4 million compared to the same period in the prior year.

 

Cash balances ofTuscarora are consolidated by the Partnership effective December 19, 2006 andas a result, the Partnership ceased reporting distributions from Tuscaroraafter that date. Distributions from Tuscarora for the nine months endedSeptember 30, 2006 were $6.2 million. In 2007, Tuscarora’s available cash flowhas been used to finance the compressor station expansion project in Likely,California and to repay debt. 

 

34

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

Partnership costs of $24.8 million for the nine months ended September30, 2007 compared to $11.6 million in the same period in 2006 increased mainlydue to increased financial charges on higher outstanding debt balancesto finance the 2006 and 2007 acquisitions.

 

**Liquidityand Capital Resources of TC PipeLines, LP**

** **

***CashDistribution Policy of TC PipeLines, LP***

The Partnership has madedistributions of Available Cash (as defined in the Partnership Agreement) inthe following manner:

•                  First,98 per cent to the common units, pro rata, and two per cent to the generalpartner, until there is distributed for each outstanding common unit an amountequal to the minimum quarterly distribution for that quarter; and

•                  Thereafter,in a manner whereby the general partner has rights (referred to as incentivedistribution rights) to receive increasing percentages of excess quarterly cashdistributions over specified cash distribution thresholds calculated asfollows:

 

Additional Available Cashfrom Operating Surplus (as defined in the Partnership Agreement) for thatquarter will be distributed among the unitholders and the general partner (asincentive distribution) in the following manner:

•                  First,85 per cent to all units, pro rata, and 15 per cent to the general partner,until each unitholder has received a total of $0.5275 for that quarter;

•                  Second,75 per cent to all units, pro rata, and 25 per cent to the general partner,until each unitholder has received a total of $0.6900 for that quarter; and

•                  Thereafter,50 per cent to all units, pro rata, and 50 per cent to the general partner.

 

The distribution to thegeneral partner described above, other than in its capacity as a holder of2,035,106 units that are in excess of its aggregate two per cent generalpartner interest, represents the incentive distribution rights.

 

***2007Third Quarter Cash Distribution***

On October 18, 2007, theBoard of Directors of the general partner declared the Partnership’s 2007 thirdquarter cash distribution. The third quarter cash distribution is payable onNovember 14, 2007 to unitholders of record as of October 31, 2007. The totalcash distribution of $25.3 million will be paid in the following manner: $23.0million to common unitholders (including $1.3 million to the general partner asholder of 2,035,106 common units and $5.7 million to TransCan Northern Ltd., anindirect wholly-owned subsidiary of TransCanada, as holder of 8,678,045 commonunits), $1.8 million to the general partner as holder of the incentivedistribution rights, and $0.5 million to the general partner in respect of itstwo per cent general partner interest.

 

***CashFlows from Operating Activities***

Cash flows provided byoperating activities increased $30.1 million, or 79 per cent, to $68.2 millionfor the nine months ended September 30, 2007, compared to $38.1 million for thesame period in 2006. The increase was primarily due to $41.0 million of cashdistributions received from Great Lakes of which $34.3 million were classifiedas cash flows provided by operating activities, $9.9 million of higheroperating cash flows due to the additional ownership interest in Tuscarora,$4.2 million of higher cash distributions received classified as cash flowsprovided by operating activities from Northern Border, partially offset by$12.3 million of higher interest payments related to higher debt and $3.8million of operating working capital differences. The increase in cashdistributions from Northern Border was primarily due to the

 

35

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

Partnership’s acquisitionof an additional 20 per cent general partner interest. The cash distributionsreceived from Northern Border of $62.5 million and $56.1 million for the ninemonths ended September 30, 2007 and 2006, respectively, include $44.3 millionand $40.1 million classified as distributions in cash flows provided byoperating activities in the nine months ended September 30, 2007 and 2006,respectively.

 

36

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

*** ***

***CashFlows from Investing Activities***

Cash used in investingactivities was $721.3 million and $294.7 million for the nine months endedSeptember 30, 2007 and 2006, respectively. On February 22, 2007, thePartnership acquired a 46.45 per cent interest in Great Lakes from El PasoCorporation for $733.0 million in cash, subject to certain closing adjustments.In April 2006, the Partnership incurred costs of $297 million plus $10 millionin a transaction fee payable to a subsidiary of TransCanada for the acquisitionof an additional 20 per cent general partnership interest in Northern Border.The Partnership made equity contributions of $7.5 million and $3.1 millionduring the nine months ended September 30, 2007 and 2006, respectively, forcash calls issued by Northern Border.

 

$6.7 million of the cashdistributions received from Great Lakes were classified as return of capitalfor the nine months ended September 30, 2007. $18.2 million and $16.0 millionof the cash distributions received from Northern Border were classified asreturn of capital for the nine months ended September 30, 2007 and 2006,respectively. $nil and $1.3 million of the cash distributions received fromTuscarora were classified as return of capital for the nine months endedSeptember 30, 2007 and 2006, respectively. Distributions received during thenine months ended September 30, 2007 are based on the equity investmentfinancial results from Great Lakes and Northern Border for the nine monthsended June 30, 2007.

 

Tuscarora made capitalexpenditures of $4.4 million in the nine months ended September 30, 2007related to the compressor station expansion project in Likely, California.

 

***CashFlows from Financing Activities***

Cash flows provided byfinancing activities were $663.3 million and $261.3 million for the nine monthsended September 30, 2007 and 2006, respectively. The acquisition of a 46.45 percent general partner interest in Great Lakes was partially financed through aprivate placement of 17,356,086 common units at $34.57 per common unit forgross proceeds of $600 million. In addition, TC PipeLines GP maintained its twoper cent general partner interest in the Partnership by contributing $12.6million to the Partnership in connection with the private equity placement. ThePartnership funded the balance of the total consideration with a draw on itssenior credit facility, which was amended and restated in connection with thistransaction. The Partnership incurred $1.2 million of costs associated with theamended senior credit facility. The Partnership drew $126 million under the seniorcredit facility and borrowed $26.5 million under its revolving creditfacility.  The Partnership repaid $34.9million of the outstanding balance on its revolving credit facility and seniornotes.

 

For the nine months endedSeptember 30, 2007, the Partnership paid $61.3 million in cash distributions inthe following manner:  $56.0 million tocommon unitholders (including $3.9 million to the general partner as holder of2,035,106 common units and $11.3 million to TransCan Northern Ltd., an indirectwholly-owned subsidiary of TransCanada, as holder of 8,678,045 common units),$4.1 million to the general partner as holder of the incentive distributionrights, and $1.2 million to the general partner in respect of its two per centgeneral partner interest.

 

***ContractualObligations***

The following tablesummarizes TC PipeLines’ contractual obligations related to long-term debt,operating leases and other long-term obligations as of September 30, 2007:

 

37

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

|                                             |   | Payments Due by Period |   |
|--------------------------------------------------|--------|------------------------|--------|
| *(millions of dollars)*                          |   | Total                  |   | Less Than  1 Year |   | 1-3 Years |   | 4-5 Years |   | After 5  Years |   |
|                                             |   |                   |   |   |   |   |   |   |   |   |   |
| Senior Credit Facility                           |   | 517.0                  |   | - |   | - |   | 517.0 |   | - |   |
| Series A Senior Notes due  2010                  |   | 56.2                   |   | 3.3 |   | 6.2 |   | 46.7 |   | - |   |
| Series B Senior Notes due  2010                  |   | 5.7                    |   | 0.5 |   | 1.1 |   | 4.1 |   | - |   |
| Series C Senior Notes due  2012                  |   | 6.8                    |   | 0.9 |   | 1.6 |   | 1.6 |   | 2.7 |   |
| Interest payments on  Senior Credit Facility (1) |   | 118.0                  |   | 27.3 |   | 55.6 |   | 35.1 |   | - |   |
| Interest payments on  Senior Notes               |   | 15.9                   |   | 4.9 |   | 8.7 |   | 2.3 |   | - |   |
| Operating Leases                                 |   | 0.1                    |   | 0.1 |   | - |   | - |   | - |   |
| Commitments (2)                                  |   | 0.1                    |   | 0.1 |   | - |   | - |   | - |   |
| Total                                            |   | $                      | 719.8  |   | $ | 37.1 |   | $ | 73.2 |   | $ | 606.8 |   | $ | 2.7 |   |
|                                                  |        |                        |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(1) Interest payments on Senior Credit Facilityinclude the hedging effect of the derivative financial instruments placed on$400 million of the outstanding debt.

 

(2) Commitments relate to Tuscarora’s contractwith a third party for maintenance services on certain components of its pipeline-relatedequipment.  The contract expires inNovember 2007.

 

On February 22, 2007, theSenior Credit Facility was amended and restated in connection with the GreatLakes acquisition. The amount available under the Senior Credit Facilityincreased from $410 million to $950 million, consisting of a $700 millionsenior term loan and a $250 million senior revolving credit facility, with $194million of the senior term loan available being terminated upon closing of theGreat Lakes acquisition.

 

All amounts outstandingunder the Senior Credit Facility will be due and payable on December 12, 2011,subject to two one-year extension options. Borrowings under the SeniorCredit Facility will bear interest based, at the Partnership’s election, on theLondon Interbank Offered Rate (LIBOR) or the lenders’ base rate plus, in eithercase, an applicable margin. A facility fee is payable by the Partnershipbased on the principal amount of the senior revolving credit facilitycommitment of $250 million.

 

The Partnership had $517million and $397 million outstanding under the Senior Credit Facility atSeptember 30, 2007 and December 31, 2006, respectively. The interest rate onthe Senior Credit Facility averaged 5.97 per cent and 6.02 per cent for thethree and nine months ended September 30, 2007, respectively. After hedgingactivity, the interest rate incurred on the Senior Credit Facility averaged5.66 per cent and 5.81 per cent for the three and nine months ended September30, 2007, respectively. At September 30, 2007 and December 31, 2006, theinterest rates were 6.16 per cent and 6.07 per cent, respectively.

 

The Partnership hasentered into interest rate swaps and options to limit the variability of theinterest rate on $400 million of variable-rate borrowings during the periodfrom March 12, 2007 through to maturity dates of May 22, 2009 and December 12,2011. The Partnership has designated the interest rate swaps and options ascash flow hedges. At September 30, 2007, the fair value of the interest rateswaps and options accounted for as hedges was negative $0.7 million.  The fair value of interest rate swaps hasbeen calculated using period-end market rates.

 

The Partnership hadSeries A Senior Secured Notes, Series B Senior Secured Notes and Series CSecured Notes in the amounts of $56.2 million, $5.7 million and $6.8 millionoutstanding at September 30, 2007 related to Tuscarora, while

 

38

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

at December 31, 2006 thePartnership had Series A Senior Secured Notes, Series B Senior Secured Notesand Series C Secured Notes in the amounts of $57.9 million, $6.0 million and$7.2 million, respectively. The Series A Senior Secured Notes bear interest at 7.13 per cent and mature in2010.  The Series B Senior SecuredNotes bear interest at 7.99 per cent and mature in 2010.  The Series C Senior Secured Notes bearinterest at 6.89 per cent and are due in 2012. 

 

39

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

The Partnership was incompliance with all financial covenants as of September 30, 2007.

 

***Capital Requirements***

On April 30, 2007,Partnership made a contribution of $7.5 million to Northern Border,representing the Partnership’s 50 per cent share of a $15.0 million cash callissued by Northern Border. The funds were used by Northern Border to repayindebtedness.

 

During the nine monthsended September 30, 2007, Tuscarora incurred $4.4 million of capitalexpenditures related to its compressor station expansion in Likely,California.  These capital expenditureswere funded with operating cash flows.

 

To the extent we have anyadditional capital requirements with respect to our pipeline assets or makeacquisitions during the remainder of 2007, we expect to fund these requirementswith operating cash flows, debt and/or equity.

** **

**Liquidityand Capital Resources of our Pipeline Assets**

*As a result of the Partnership’sequity investments in both Great Lakes and Northern Border, the followingdiscusses the liquidity and capital resources of our respective pipelineassets.*

* *

Great Lakes’ and NorthernBorder’s principal sources of liquidity include cash generated from operatingactivities and debt financing. Great Lakes and Northern Border fund theiroperating expenses, debt service and cash distributions to their partnersprimarily with operating cash flow. Capital resources for maintenance andgrowth expenditures are funded by a variety of sources, including cashgenerated from operating activities, borrowings under credit agreements (in thecase of Northern Border), issuance of senior notes and/or equity contributionsfrom their partners. Northern Border’s and Great Lakes’ ability to access thecapital markets to issue debt securities under reasonable terms depends ontheir respective financial condition, credit ratings (in the case of NorthernBorder) and market conditions. Northern Border and Great Lakes believe thattheir ability to obtain financing and their history of consistent cash flowfrom operating activities provide a solid foundation to meet their short-termand long-term liquidity and capital resource requirements.

*** ***

***Debtof Great Lakes***

The following tablesummarizes Great Lakes’ debt outstanding as of September 30, 2007:

 

|                                        |   |   |   | Payments Due by Period |   |
|---------------------------------------------|--------|--------|--------|------------------------|--------|
| *(millions of dollars)*                     |   | Total  |   | Less than 1  year      |   | Long-term  portion |   |
|                                        |   |   |   |                   |   |   |   |
| 8.74% series Senior Notes  due 2007 to 2011 |   | 50.0   |   | 10.0                   |   | 40.0 |   |
| 9.09% series Senior Notes  due 2012 to 2021 |   | 100.0  |   | -                      |   | 100.0 |   |
| 6.73% series Senior Notes  due 2009 to 2018 |   | 90.0   |   | -                      |   | 90.0 |   |
| 6.95% series Senior Notes  due 2019 to 2028 |   | 110.0  |   | -                      |   | 110.0 |   |
| 8.08% series Senior Notes  due 2021 to 2030 |   | 100.0  |   | -                      |   | 100.0 |   |
| Total                                       |   | $      | 450.0  |                   | $      | 10.0 |   | $ | 440.0 |   |
|                                             |        |        |        |                        |        |  |  |  |  |  |

*** ***

Great Lakes is requiredto comply with certain financial, operational and legal covenants.  Underthe most restricted covenants in the Senior Note Agreements, approximately$242.0 million of Great Lakes’ partners’ capital is restricted as todistributions as of September 30, 2007.  In addition, Great Lakes isrequired to maintain a minimum consolidated tangible net worth of 

 

40

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

$175 million.  AtSeptember 30, 2007, Great Lakes was in compliance with all of its financialcovenants.

 

41

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Continued)**

** **

**TCPipeLines, LP**

 

***Debtand Credit Facilities of Northern Border***

The following tablesummarizes Northern Border’s debt and credit facilities outstanding as ofSeptember 30, 2007:

 

|                               |   |   |   | Payments Due by Period |   |
|------------------------------------|--------|--------|--------|------------------------|--------|
| *(millions of dollars)*            |   | Total  |   | Less than 1  year      |   | Long-term  portion |   |
|                               |   |   |   |                   |   |   |   |   |   |   |
| $250 million credit  agreement (a) |   | 160.0  |   |                   | -      |   |   | 160.0 |   |   |
| 7.75% senior notes due  2009       |   | 200.0  |   |                   | -      |   |   | 200.0 |   |   |
| 7.50% senior notes due  2021       |   | 250.0  |   |                   | -      |   |   | 250.0 |   |   |
| Total                              |   | $      | 610.0  |                   |   | $ | - |   |   | $ | 610.0 |   |   |
|                                    |        |        |        |                        |        |  |  |  |  |  |  |  |  |

 

(a) Northern Border is required to pay a facility fee of 0.05% on theprincipal commitment amount of its credit agreement.

 

On April 27, 2007,Northern Border entered into a $250 million amended and restated revolvingcredit agreement (the “2007 Credit Agreement”) with certain financialinstitutions. The 2007 Credit Agreement wasused to refinance the outstanding indebtedness under Northern Border’s $175million revolving credit agreement dated as of May 16, 2005 and was used torepay all of the $150 million of its 6.25 per cent Senior Notes due May 1,2007. The 2007 Credit Agreement can also be used to finance permittedacquisitions, pay related fees and expenses, issue letters of credit andprovide for ongoing working capital needs and for other general businesspurposes, including capital expenditures.

 

NorthernBorder may, at its option, so long as no default or event of default hasoccurred and is continuing, elect to increase the capacity under its 2007Credit Agreement by an aggregate amount not to exceed $100 million, providedthat lenders are willing to commit additional amounts. At Northern Border’soption, the interest rate on the outstanding borrowings may be the lenders’base rate or LIBOR plus a spread that is based on Northern Border’s long-termunsecured credit ratings. The 2007 Credit Agreement permits Northern Border tospecify the portion of the borrowings to be covered by specific interest rateoptions and to specify the interest rate period. Northern Border is required topay a facility fee of 0.05 per cent based on the principal amount of thecommitment of $250 million. The term of the agreement is five years, withoptions for two one-year extensions.  AtSeptember 30, 2007, amounts outstanding under the 2007 Credit Agreement were$160 million at an average interest rate of 5.71 per cent.

 

Under the 2007 CreditAgreement, Northern Border is required to comply with certain financial,operational and legal covenants. Upon any breach of these covenants, amountsoutstanding under the 2007 Credit Agreement may become immediately due andpayable.  At September 30, 2007, NorthernBorder was in compliance with all of its financial covenants.

 

In August 2007, Northern Border entered into a zero cost interest ratecollar agreement (the “Collar Agreement”) to limit the variability of theinterest rate on $140 million of variable-rate borrowings during the periodfrom October 30, 2007 through October 30, 2009. Northern Border has designated the Collar Agreement as a cash flowhedge.  At September 30, 2007, NorthernBorder’s balance sheet reflected an unrealized loss of approximately $0.6million with a corresponding decrease to accumulated other comprehensive income(loss) related to the changes in fair value of the Collar Agreement sinceinception.

 

***CashDistribution Policies of Great Lakes and Northern Border***

Great Lakes’ and NorthernBorder’s respective management committees determine the amount and timing oftheir cash distributions to partners. The amount of

 

42

 

**PARTI.  FINANCIAL INFORMATION (Continued)**

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION**

**ANDRESULTS OF OPERATIONS (Concluded)**

** **

**TCPipeLines, LP**

 

cash distributions isbased on available cash flow as determined by a prescribed formula. Therespective management committees have also defined certain minimum requirementsin establishing the timing and amounts of required capital contributions.

 

43

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

** **

**TC PipeLines, LP**

 

**TCPipeLines is**exposedto market risk through changes in interest rates. The Partnership does not haveany material foreign exchange risks. TC PipeLines’ interest rate exposureresults from its Senior Credit Facility, which is subject to variability inLIBOR interest rates. At September 30, 2007, TC PipeLines had $517 millionoutstanding on its Senior Credit Facility. If LIBOR interest rates change byone per cent compared to the rates in effect as of September 30, 2007, thePartnership’s interest expense for the nine months ended September 30, 2007would have changed by $0.9 million net of hedging activity.This amount has been determined byconsidering the impact of the hypothetical interest rates on variable rateborrowings outstanding as of September 30, 2007.

** **

In accordance with SFASNo. 133, “Accounting for Derivative Instruments and Hedging Activities,” werecord financial instruments on the balance sheet as assets and liabilitiesbased on fair value. We estimate the fair value of financial instruments usingavailable market information and appropriate valuation techniques. Changes infinancial instruments’ fair value are recognized in earnings unless theinstrument qualifies as a hedge under SFAS No. 133 and meets specific hedgeaccounting criteria. Qualifying financial instruments’ gains and losses mayoffset the hedged items’ related results in earnings for a fair value hedge orbe deferred in accumulated other comprehensive income for a cash flow hedge.

 

**ThePartnership uses**derivatives to assist in managingits exposure to interest rate risk. The fair value of interest rate derivativeshas been calculated using period-end market rates. At September 30, 2007, thefair value of the Partnership’s interest rate swaps accounted for as hedges wasnegative $0.7 million. The notional amount hedged was $400 million. Theinterest rate swaps are structured such that the cash flows match those of theSenior Credit Facility from March 12, 2007 through to maturity dates of May 22,2009 and December 12, 2011.

** **

Northern Border utilizesboth fixed- and variable-rate debt and is exposed to market risk due to thefloating interest rates under its 2007 Credit Agreement. Northern Borderregularly assesses the impact of interest rate fluctuations on future cashflows and evaluates hedging opportunities to mitigate its interest rate risk.Northern Border maintains a significant portion of its debt at fixed rates toreduce its sensitivity to interest rate fluctuations. As of September 30, 2007,74 per cent of Northern Border’s outstanding debt was at fixed rates. Ifinterest rates hypothetically increased one per cent on Northern Border’svariable-rate borrowings outstanding of $160 million at September 30, 2007, itsannual interest expense would increase by approximately $1.6 million.

 

In August 2007, NorthernBorder entered into a Collar Agreement to limit the variability of the interestrate on $140 million of variable-rate borrowings during the period from October30, 2007 through October 30, 2009.

 

Great Lakes and Tuscarorautilize fixed-rate debt; therefore, they are not exposed to market risk due tofloating interest rates.

 

The Partnership is alsoinfluenced by the same factors that influence our pipeline assets. None of ourpipeline assets own any of the natural gas they transport; therefore, they donot assume any of the related natural gas commodity price risk.

 

The state of Minnesota currently requiresGreat Lakes to pay use tax on the value of the shipper provided compressor fuelburned in its Minnesota compressor engines.  Great Lakes is subject toprimarily commodity price volatility and some volume volatility in determiningthe amount of use tax

 

44

 

**PART I.  FINANCIAL INFORMATION (Continued)**

**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK****(Concluded)**

** **

**TC PipeLines, LP**

 

owed.  If natural gas prices changed by$1 per mmbtu, Great Lakes’ annual use tax expense would change by approximately$750 million.

 

45

 

**PART I.  FINANCIAL INFORMATION (Concluded)**

**ITEM4.  CONTROLS AND PROCEDURES**

** **

** **

**TC PipeLines, LP**

 

**Evaluation of Disclosure Controlsand Procedures**

Based on their evaluationof the Partnership’s disclosure controls and procedures as of the end of theperiod covered by this quarterly report, the Principal Executive Officer andPrincipal Financial Officer of the general partner of the Partnership haveconcluded that the Partnership’s disclosure controls and procedures wereeffective in ensuring that the information required to be disclosed by thePartnership in the reports that it files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms and that informationrequired to be disclosed by the Partnership in the reports that the Partnershipfiles or submits under the Exchange Act is accumulated and communicated to themanagement of the general partner of the Partnership, including the PrincipalExecutive Officer and Principal Financial Officer, as appropriate to allowtimely decisions regarding required disclosure.

 

**Changes in Internal Control overFinancial Reporting**

There were no changes inthe Partnership’s internal control over financial reporting during the mostrecent fiscal quarter that have materially affected, or are reasonably likelyto materially affect, the Partnership’s internal control over financialreporting.

 

**Acquisition of Tuscarora**

On December 19, 2006, the Partnership acquired an additional 49 percent interest in Tuscarora, increasing the Partnership’s interest in Tuscarorato 98 per cent. As at September 30, 2007, the Partnership has substantiallycompleted integrating Tuscarora’s transactions into the Partnership’s existinginternal controls over financial reporting.

 

46

 

**PARTII.  OTHER INFORMATION**

**ITEM 1A.  RISK FACTORS**

** **

** **

**TC PipeLines, LP**

 

The following new or modified risk factor should be read in conjunctionwith the risk factors disclosed in Part I,Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year endedDecember 31, 2006 and Part II, Item 1A, “Risk Factors” in our quarterly reporton Form 10-Q for the first quarter of 2007:

** **

**RisksInherent in Our Business**

 

***Our pipeline assets’ operations are subject to operational hazards andunforeseen interruptions, which could adversely affect their business and forwhich they may not be adequately insured.***

 

Our pipeline assets’ operations are subject to all of the risks andhazards typically associated with the operation of a natural gas transportationpipeline system. Operating risks include, but are not limited to, leaks,pipeline ruptures, the breakdown or failure of equipment or processes, and theperformance of pipeline facilities below expected levels of capacity andefficiency. Other operational hazards and unforeseen interruptions include adverseweather conditions, accidents, the collision of equipment with our pipelineassets’ facilities (which may occur if a third party were to perform excavationor construction work near our pipeline assets’ facilities), and catastrophicevents such as explosions, fires, earthquakes, floods or other similar eventsbeyond our control. It is also possible that our pipeline assets’infrastructure facilities could be direct targets or indirect casualties of anact of terrorism. A casualty occurrence might result in injury or loss of life,extensive property damage or environmental damage. Liabilities incurred, andinterruptions to the operation of our pipeline assets, for short or extendeddurations, caused by such an event, could reduce revenues generated by them andincrease expenses, thereby impairing their ability to meet their obligations.Insurance proceeds may not be adequate to cover all liabilities or expensesincurred or revenues lost.

 

47

 

**PART II.  OTHER INFORMATION (Continued)**

**ITEM6.  EXHIBITS**

** **

**TC PipeLines, LP**

 
| No.    | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *4.1   | Registration Rights  Agreement between TC PipeLines, LP, TransCan Northern Ltd., Kayne Anderson  MLP Investment Company, Kayne Anderson Energy Total Return Fund, Inc., Kayne  Anderson MLP Fund, L.P., Kayne Anderson Capital Income Partners (QP), L.P.,  Strome MLP Fund, LP, Royal Bank of Canada, Tortoise Energy Infrastructure  Corporation, Tortoise Energy Capital Corporation, Tortoise North American  Energy Corporation, GPS Income Fund LP, GPS High Yield Equities Fund, HFR  RVAGPS Master Trust, GPS New Equity Fund LP, TPG-Axon Partners, LP, Lehman  Brothers Inc., Structured Finance Americas, LLC, The Cushing MLP Opportunity  Fund I, LP, Swank MLP Convergence Fund, LP, and Citigroup Global Markets,  Inc. dated February 22, 2007 (Exhibit 4.1 to TC PipeLines, LP’s Form 8-K  filed February 23, 2007). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.1  | Transportation Service  Agreement FT4760 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated November 30, 2006. (Exhibit 10.1 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.2  | Transportation Service  Agreement FT4761 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated November 4, 2004. (Exhibit 10.2 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.3  | Transportation Service  Agreement FT4762 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated November 4, 2004. (Exhibit 10.3 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.4  | Transportation Service  Agreement FT4763 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated November 4, 2004. (Exhibit 10.4 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.5  | Transportation Service  Agreement FT4764 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated November 30, 2006. (Exhibit 10.5 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.6  | Transportation Service  Agreement FT5840 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated December 1, 2005. (Exhibit 10.6 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.7  | Transportation Service  Agreement FT5841 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated December 1, 2005. (Exhibit 10.7 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.8  | Transportation Service  Agreement FT5842 between Great Lakes Gas Transmission Limited Partnership and  TransCanada PipeLines Limited, dated November 30, 2006. (Exhibit 10.8 to TC  PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *10.9  | Amended and Restated  Agreement of Limited Partnership of Great Lakes Gas Transmission Limited  Partnership between TransCanada GL, Inc., TC GL Intermediate Limited  Partnership and Great Lakes Gas Transmission Company, dated February 22,  2007. (Exhibit 10.9 to TC PipeLines, LP’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

48

 

**PART II.  OTHER INFORMATION (Continued)**

**ITEM 6.  EXHIBITS (Continued)**

** **

**TC PipeLines, LP**

 
| *10.10 | Operating Agreement  between Great Lakes Gas Transmission Limited Partnership and Great Lakes Gas                       |
|--------|-------------------------------------------------------------------------------------------------------------------------|
|   | Transmission Company,  dated April 5, 1990. (Exhibit 10.10 to TC PipeLines, LP’s Form 10-Q filed  April 30, 2007). |

 

49

 

**PARTII.  OTHER INFORMATION (Continued)**

**ITEM6.  EXHIBITS (Continued)**

** **

**TCPipeLines, LP**

 
| *10.11 | First Amended and Restated General Partnership Agreement of Northern Border Pipeline Company dated April 6, 2006, by and between Northern Border Intermediate Limited Partnership and TC Pipelines Intermediate Limited Partnership (Exhibit 3.1 to Northern Border Pipeline Company’s Form 8-K filed April 12, 2006 (File No. 333-87753)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *10.12 | Revolving Credit Agreement, dated as of April 27, 2007, among Northern Border Pipeline Company, the lenders from time to time party thereto, SunTrust Bank, as Administrative Agent, Wachovia Bank National Association, as Syndication Agent, BMO Capital Markets, Citibank, N.A. and Mizuho Corporate Bank, LTD., as Co-Documentation Agents, JP Morgan Chase Bank, N.A. and Export Development Canada, as Managing Agents and Wachovia Capital Markets, LLC and SunTrust Capital Markets, Inc., as Co-Lead Arrangers and Book Managers. (Exhibit 10.1 to Northern Border Pipeline Company’s Form 10-Q filed April 30, 2007).                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *10.13 | Amended and Restated  Revolving Credit and Term Loan Agreement among TC PipeLines, LP, the lenders  from time to time party thereto, SunTrust Bank as Administrative Agent, UBS  Securities LLC and Royal Bank of Canada, as Co-Documentation Agents, BMO  Capital Markets Financing Inc. and the Royal Bank of Scotland PLC, as  Co-Syndication Agents, Deutsche Bank AG New York Branch and the Bank of  Tokyo-Mitsubishi UFJ, Ltd., as Managing Agents, and SunTrust Capital Markets,  Inc. as Arranger and Book Manager, dated February 13, 2007 (Exhibit 10.1 to  TC PipeLines, LP’s Form 8-K filed February 15, 2007).                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *10.14 | Subordinated Loan  Agreement between TC PipeLines, LP and TransCanada PipeLines Limited, dated  February 13, 2007 (Exhibit 10.2 to TC PipeLines, LP’s Form 8-K filed February  15, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *10.15 | Subordination and  Intercreditor Agreement among TransCanada PipeLines Limited, TC PipeLines,  LP, and SunTrust Bank, as Administrative Agent, dated February 13, 2007  (Exhibit 10.3 to TC PipeLines, LP’s Form 8-K filed February 15, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *10.16 | Common Unit Purchase Agreement  by and among TC PipeLines, LP and TransCan Northern Ltd., Kayne Anderson MLP  Investment Company, Kayne Anderson Energy Total Return Fund, Inc., Kayne  Anderson MLP Fund, L.P., Kayne Anderson Capital Income Partners (QP), L.P.,  Strome MLP Fund, LP, Royal Bank of Canada, Tortoise Energy Infrastructure  Corporation, Tortoise Energy Capital Corporation, Tortoise North American  Energy Corporation, GPS Income Fund LP, GPS High Yield Equities Fund, HFR  RVAGPS Master Trust, GPS New Equity Fund LP, TPG-Axon Partners, LP, Lehman  Brothers Inc., Structured Finance Americas, LLC, The Cushing MLP Opportunity  Fund I, LP, Swank MLP Convergence Fund, LP, and Citigroup Global Markets,  Inc. dated February 22, 2007 (Exhibit 10.1 to TC PipeLines, LP’s Form 8-K  filed February 23, 2007). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| *23.1  | Consent of Independent  Registered Public Accounting Firm (Exhibit 23.1 to TC PipeLines, LP’s Form  10-Q filed April 30, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.1   | Certification of  Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.2   | Certification of  Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 32.1   | Certification of  Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

50

 

**PART II.  OTHER INFORMATION (Concluded)**

**ITEM 6.  EXHIBITS (Concluded)**

** **

**TC PipeLines, LP**

 
| 32.2   | Certification of  Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002.                                                          |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                               |
| *99.1  | Consolidated Balance  Sheets of TC PipeLines GP, Inc. as of December 31, 2006 and 2005. (Exhibit  99.1 to TC PipeLines, LP’s Form 10-Q filed April 30, 2007). |

 

* Indicates exhibits incorporated by reference.

 

51

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities and Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                                           | **TC PipeLines, LP**              |
|------------------------------------------------|-----------------------------------|
|                                           | (a Delaware Limited  Partnership) |
|                                           |                              |   |
|                                           | By:                               |       TC  PipeLines GP, Inc., its general partner |
|                                           |                              |   |
|                                           |                              |   |
|                                           | By:                               |   | /s/ Russell K. Girling |   |
| Date:    November  2, 2007 |                              | Russell K. Girling |
|                                           |                              | Chairman, Chief  Executive Officer and Director |
|                                           |                              | TC PipeLines GP, Inc.  (Principal Executive Officer) |
|                                           |                              |   |
|                                           |                              |   |
|                                           | By:                               |   | /s/ Amy W. Leong |   |
| Date:    November  2, 2007 |                              | Amy W. Leong |
|                                           |                              | Controller |
|                                           |                              | TC PipeLines GP, Inc. (Principal Financial Officer) |

 

52