<PAGE>

                                                                    EXHIBIT 99.1

                              TC PIPELINES GP, INC.

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of TC PipeLines GP, Inc., General Partner of TC
PipeLines, LP:

We have audited the accompanying consolidated balance sheets of TC PipeLines GP,
Inc, (a Delaware corporation) as of December 31, 2002 and 2001. These
consolidated balance sheets are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated balance sheets
based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the balance sheets
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheets. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated balance sheets referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2002 and 2001 in conformity with accounting principles generally
accepted in the United States of America.




/s/ KPMG LLP
-------------------------
Chartered Accountants
Calgary, Canada
March 7,  2003


                                       1
<PAGE>

                              TC PIPELINES GP, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31 (MILLIONS OF DOLLARS)                                       2002             2001
-----------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>
ASSETS
Current Assets
   Cash                                                                 20.5             17.5
   Current tax recoverable                                               0.5              0.3
                                                             ----------------------------------
                                                                        21.0             17.8
                                                             ----------------------------------

Investment in Northern Border Pipeline                                 242.9            250.1
Investment in Tuscarora                                                 36.7             29.3
Deferred Amounts                                                         -                0.1
                                                             ----------------------------------
                                                                       300.6            297.3
                                                             ----------------------------------
                                                             ----------------------------------

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
   Accounts payable                                                      0.5              0.4
   Accrued interest                                                      -                0.1
   Due to affiliates                                                     0.2              0.4
                                                             ----------------------------------
                                                                         0.7              0.9
                                                             ----------------------------------

Long-Term Debt                                                          11.5             21.5
Deferred Income Tax                                                     15.7             12.1
Minority Interest                                                      227.2            221.4

Stockholder's Equity
   Common stock ($0.01 par value; 1,000 shares authorized;
      100 shares issued)                                                 -                -
   Additional paid-in capital                                           43.2             43.2
   Due from affiliate                                                    -              (13.7)
   Retained earnings                                                     1.9             11.4
   Other comprehensive income                                            0.4              0.5
                                                             ----------------------------------
                                                                        45.5             41.4
                                                             ----------------------------------
                                                                       300.6            297.3
                                                             ----------------------------------
                                                             ----------------------------------
</TABLE>

The accompanying notes are an integral part of this consolidated balance sheet.


                                       2
<PAGE>

                              TC PIPELINES GP, INC.

NOTES TO CONSOLIDATED BALANCE SHEET

NOTE 1      ORGANIZATION

TC PipeLines GP, Inc. (the GP), a Delaware corporation, was formed by
TransCanada PipeLines Limited in December 1998 to become the general partner
of TC PipeLines, LP (the LP), a Delaware limited partnership. The GP and the
LP are collectively referred to herein as the Company. The GP is an indirect
wholly owned subsidiary of TransCanada PipeLines Limited, which is a subsidiary
of TransCanada Corporation (TransCanada).

The GP holds a 2% general partner interest in the LP and also owns 1,872,871
subordinated units and 936,435 common units, representing an effective 15.7%
limited partner interest in the LP. By virtue of the GP's performance of all
management and operating functions required for the LP pursuant to the
Agreement of Limited Partnership of TC PipeLines, LP (Partnership Agreement),
the GP has control of the operating and financial policies of the LP.

The LP is a publicly traded partnership. Common units of the LP are listed on
the Nasdaq Stock Market and are quoted for trading under the symbol "TCLP". The
LP owns a 30% general partner interest in Northern Border Pipeline Company
(Northern Border Pipeline) and a 49% interest in Tuscarora Gas Transmission
Company (Tuscarora). Northern Border Pipeline owns a 1,249-mile United States
interstate pipeline system that transports natural gas from the
Montana-Saskatchewan border to markets in the midwestern United States.
Tuscarora owns a 240-mile United States interstate pipeline system that
transports natural gas from Oregon, where it interconnects with facilities of
PG&E National Energy Group, Gas Transmission Northwest, to northern Nevada.

NOTE 2    SIGNIFICANT ACCOUNTING POLICIES

a)   BASIS OF PRESENTATION AND USE OF ESTIMATES

     The accompanying consolidated balance sheets and related notes present the
     consolidated financial position of the Company as of December 31, 2002 and
     2001. The preparation of consolidated financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements. Although management believes these estimates
     are reasonable, actual results could differ from these estimates. Amounts
     are stated in United States dollars.

b)   PRINCIPLES OF CONSOLIDATION

     The consolidated balance sheets include the accounts of the GP and the LP.
     The GP controls the operations of the LP through its 2% general partner
     interest. All significant intercompany transactions and accounts have been
     eliminated on consolidation.

     The Company uses the equity method of accounting for its investments in
     Northern Border Pipeline and Tuscarora, over which it is able to exercise
     significant influence. Other comprehensive income recorded by the Company
     arises through its equity investments in Northern Border Pipeline and
     Tuscarora and relates to cash flow hedges transacted by Northern Border
     Pipeline and Tuscarora.

c)   CASH AND CASH EQUIVALENTS

     Cash equivalents consist of highly liquid investments with original
     maturities of three months or less. The carrying amount of cash and cash
     equivalents approximates fair value because of the short maturity of these
     investments.

d)   INCOME TAXES

     The Company follows the liability method of accounting for income taxes in
     accordance with Statement of Financial Accounting Standards No. 109
     "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred income
     taxes are recorded based upon differences between the financial reporting
     and tax basis of assets and liabilities and are measured using the enacted
     tax rates and laws that will be in effect when the underlying assets are
     received and liabilities settled.


                                       3
<PAGE>

                              TC PIPELINES GP, INC.

NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)

NOTE 3    INVESTMENT IN NORTHERN BORDER PIPELINE COMPANY

The Company owns a 30% general partner interest in Northern Border Pipeline. The
remaining 70% partnership interest in Northern Border Pipeline is held by
Northern Border Partners, L.P., a publicly traded limited partnership. The
Northern Border pipeline system is operated by Northern Plains Natural Gas
Company, a wholly owned subsidiary of Enron Corp. Northern Border Pipeline is
regulated by the Federal Energy Regulatory Commission (FERC).

Undistributed earnings of Northern Border Pipeline amounted to $1.3 million and
$8.4 million for the years ended December 31, 2002 and 2001, respectively. The
following sets out summarized balance sheet information for Northern Border
Pipeline as at December 31, 2002 and 2001.

<TABLE>
<CAPTION>
December 31 (MILLIONS OF DOLLARS)                                      2002           2001
-------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
NORTHERN BORDER PIPELINE BALANCE SHEET
Assets
Cash and cash equivalents                                              25.4           11.0
Other current assets                                                   40.8           36.3
Plant, property and equipment, net                                  1,636.0        1,685.7
Other assets                                                           37.8           18.9
                                                              -----------------------------
                                                                    1,740.0        1,751.9
                                                              -----------------------------
                                                              -----------------------------
Liabilities and Partners' Equity
Current liabilities                                                   130.9          399.0
Reserves and deferred credits                                          15.4            5.6
Long-term debt                                                        783.9          513.7
Partners' equity
   Partners' capital                                                  803.0          824.4
   Accumulated other comprehensive income                               6.8            9.2
                                                              -----------------------------
                                                                    1,740.0        1,751.9
                                                              -----------------------------
                                                              -----------------------------
</TABLE>

NOTE 4    INVESTMENT IN TUSCARORA GAS TRANSMISSION COMPANY

The Company owns a 49% general partner interest in Tuscarora. The remaining 50%
and 1% interests in Tuscarora are indirectly held by Sierra Pacific Resources
Company and TransCanada, respectively. The Tuscarora pipeline system is operated
by Tuscarora Gas Operating Company, a wholly owned subsidiary of Sierra Pacific
Resources. Tuscarora is regulated by the FERC.

Undistributed earnings of Tuscarora amounted to $0.8 million and $0.9 million
for the years ended December 31, 2002 and 2001, respectively. The following sets
out summarized balance sheet information for Tuscarora as at December 31, 2002
and 2001.


                                       4
<PAGE>

                              TC PIPELINES GP, INC.

NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)

<TABLE>
<CAPTION>
December 31 (MILLIONS OF DOLLARS)                                 2002           2001
----------------------------------------------------------------------------------------
<S>                                                              <C>            <C>
TUSCARORA BALANCE SHEET
Assets
Cash and cash equivalents                                          0.6            1.1
Other current assets                                               4.3            2.1
Plant, property and equipment, net                               148.4          121.3
Other assets                                                       1.2            1.6
                                                              --------------------------
                                                                 154.5          126.1
                                                              --------------------------
                                                              --------------------------

Liabilities and Partners' Equity
Current liabilities                                                14.6           7.7
Long-term debt                                                     85.3          80.0
Partners' equity
  Partners' capital                                                54.2          37.9
   Accumulated other comprehensive income                           0.4           0.5
                                                              --------------------------
                                                                  154.5         126.1
                                                              --------------------------
                                                              --------------------------
</TABLE>

NOTE 5    INCOME TAXES

Future income tax liabilities of $15.7 million for 2002 ($12.1 million for 2001)
arise from the Company's investments having higher book basis than tax basis.

NOTE 6    CREDIT FACILITIES AND LONG-TERM DEBT

On September 30, 2002, the Company renewed its credit facility (Revolving Credit
Facility) with Bank One, NA, as administrative agent of the credit facility
under which the Company may borrow up to an aggregate principal amount of $20.0
million. Loans under the Revolving Credit Facility bear interest at a floating
rate. The Revolving Credit Facility matures on July 31, 2004. Amounts borrowed
may be repaid in part or in full prior to that time without penalty. The
Revolving Credit Facility may be used to finance capital expenditures and for
other general purposes. At December 31, 2002 and 2001, the Company had
borrowings outstanding under the Revolving Credit Facility of $11.5 million and
$21.5 million, respectively. The fair value of the Revolving Credit Facility
approximates its carrying value because the interest rate is a floating rate.
The interest rate on the Revolving Credit Facility at December 31, 2002 and 2001
was 2.7% and 3.0%, respectively.

On May 28, 2003, the Company renewed its $40.0 million unsecured two-year
revolving credit facility (TransCanada Credit Facility), with TransCanada
PipeLine USA Ltd., an affiliate of the Company. The TransCanada Credit Facility
bears interest at London Interbank Offered Rate plus 1.25%. The purpose of the
TransCanada Credit Facility is to provide borrowings to fund capital
expenditures, to fund capital contributions to Northern Border Pipeline,
Tuscarora and any other entity in which the Company directly or indirectly
acquires an interest, to fund working capital and for other


                                       5
<PAGE>

                              TC PIPELINES GP, INC.

NOTES TO CONSOLIDATED BALANCE SHEET (CONCLUDED)

general business purposes, including temporary funding of cash distributions to
partners of the LP, if necessary. At December 31, 2002 and 2001, the Company had
no amount outstanding under the TransCanada Credit Facility.

NOTE 7    STOCKHOLDER'S EQUITY

A wholly owned subsidiary of TransCanada holds 100 common shares representing
100% of the issued common stock of the Company. As required by Securities and
Exchange Commission Regulation S-B, Rule 310(f), amounts due from an affiliate
of the general partner have been deducted from stockholder's equity.

NOTE 8    RELATED PARTY TRANSACTIONS

The Company does not have any employees. The management and operating functions
are provided by TransCanada. TransCanada does not receive a management fee or
other compensation in connection with its management of the Company. The Company
reimburses TransCanada for all costs of services provided, including the costs
of employee, officer and director compensation and benefits, and all other
expenses necessary or appropriate to the conduct of the business of, and
allocable to, the Company. Total costs reimbursed to TransCanada were
approximately $0.5 million for the years ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>
December 31 (MILLIONS OF DOLLARS)                                      2002           2001
--------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>
DUE TO AFFILIATES
TransCan Northern Ltd.                                                  0.2              -
TransCanada PipeLine USA Ltd.                                             -            0.4
                                                             -------------------------------
                                                                        0.2            0.4
                                                             -------------------------------
                                                             -------------------------------
DUE FROM AFFILIATE
TransCan Northern Ltd.                                                    -           13.7
                                                             -------------------------------
                                                             -------------------------------
</TABLE>


                                       6