** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended March 31, 2007**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe Transition period from                   to                   **

**Commission FileNumber:  000-26091**

**TC PipeLines, LP**

(Exact name of registrantas 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)**

**Indicateby check mark if the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.**

**Yes**x                    No o

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerate filer” in Rule12b-2 of the Exchange Act.**

**Largeaccelerated filer**x                                   Acceleratedfiler o                                     Non-acceleratedfiler o

**Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).**

**Yes**o                    No x

**As ofApril 30, 2007, there were 34,856,086 of the registrant’s common unitsoutstanding.**

 

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**TC PIPELINES, LP**

**TABLE OF CONTENTS**
|                  | ** ** | ** **                                                                                           | ** ** | ** ** | ** ** |
|------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **PART I**       | ** ** | **FINANCIAL INFORMATION**                                                                            |       |       |       |
| ** **       | ** ** | ** **                                                                                           |       |       |       |
| Item 1.          |       | Financial Statements                                                                                 |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Consolidated Statement of Income — Three months ended  March 31, 2007 and 2006                  |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Consolidated Statement of Comprehensive Income — Three  months ended March 31, 2007 and 2006    |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Consolidated  Balance Sheet — March 31, 2007 and December 31, 2006                              |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Consolidated Statement of Cash Flows — Three months  ended March 31, 2007 and 2006              |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Consolidated Statement of Changes in Partners’ Equity  — Three months ended March 31, 2007 |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Notes to Consolidated Financial Statements                                                           |       |       |       |
|             |       |                                                                                                 |       |       |       |
| Item 2.          |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations          |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Results of Operations of TC PipeLines, LP                                                            |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Liquidity and Capital Resources of TC PipeLines, LP                                                  |       |       |       |
|             |       |                                                                                                 |       |       |       |
|             |       | Liquidity and Capital Resources of our Pipeline Assets                                               |       |       |       |
|             |       |                                                                                                 |       |       |       |
| Item 3.          |       | Quantitative  and Qualitative Disclosures About Market Risk                                          |       |       |       |
|             |       |                                                                                                 |       |       |       |
| Item 4.          |       | Controls and  Procedures                                                                             |       |       |       |
|             |       |                                                                                                 |       |       |       |
| **PART II** | ** ** | **OTHER INFORMATION**                                                                                |       |       |       |
| ** **       | ** ** | ** **                                                                                           |       |       |       |
| Item 1A.         |       | Risk Factors                                                                                         |       |       |       |
|             |       |                                                                                                 |       |       |       |
| Item 6.          |       | Exhibits                                                                                             |       |       |       |

 

**All amounts are stated in United States dollarsunless otherwise indicated.**

2

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**PARTI.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

**TC PipeLines, LP**

**Consolidated Statement ofIncome**
| **(unaudited)**                                                                 | ** ** | **Three months ended March 31** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(millions of dollars except per unit amounts)** | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                                            |       |                                                |       |   |   |
| Equity income from  investment in Great Lakes (Note 2)                          | ** ** | **7.0**                                             |       | — |   |
| Equity income from  investment in Northern Border (Note 3)                      | ** ** | **17.8**                                            |       | 11.2 |   |
| Equity income from  investment in Tuscarora (Note 4)                            | ** ** | **—**                                          |       | 2.0 |   |
| Transmission revenues                                                           | ** ** | **6.9**                                             |       | — |   |
| Operations, maintenance  and administrative expenses                            | ** ** | **(2.0**                                            | **)**      | (0.6 | ) |
| Depreciation                                                                    | ** ** | **(1.6**                                            | **)**      | — |   |
| Financial charges, net  and other                                               | ** ** | **(8.1**                                            | **)**      | (0.2 | ) |
| **Net income**                                                                  | ** ** | **20.0**                                            |       | 12.4 |   |
|                                                                            |       |                                                |       |   |   |
| **Net income allocation**                                                       | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Common units                                                                    | ** ** | **17.9**                                            |       | 11.7 |   |
| General partner                                                                 | ** ** | **2.1**                                             |       | 0.7 |   |
|                                                                            | ** ** | **20.0**                                            |       | 12.4 |   |
|                                                                            |       |                                                |       |   |   |
| **Net income per common unit  (Note 6)**                                        | ** ** | **$**                                               | **0.73**   |   | $ | 0.67 |   |
|                                                                            |       |                                                |       |   |   |
| **Weighted average units outstanding  (millions)**                              | ** ** | **24.6**                                            |       | 17.5 |   |
|                                                                            |       |                                                |       |   |   |
| **Units outstanding at the end of the period  (millions)**                      | ** ** | **34.9**                                            |       | 17.5 |   |
|                                                                                 |            |                                                     |            |  |  |  |  |

 

**Consolidated Statement ofComprehensive Income**
| **(unaudited)**                                                          | ** ** | **Three months ended March 31** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(millions of dollars)**                                      | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                                     |       |                                                |       |   |   |
| Net income                                                               | ** ** | **20.0**                                            |       | 12.4 |   |
| Other comprehensive  income                                              |       |                                                |       |   |   |
| Change  associated with current period hedging transactions (Note 10)    | ** ** | **(1.2**                                            | **)**      | — |   |
| Change  associated with current period hedging transactions of investees | ** ** | **(0.3**                                            | **)**      | (0.1 | ) |
| **Total comprehensive income**                                           | ** ** | **18.5**                                            |       | 12.3 |   |

 

See accompanying notes tothe consolidated financial statements.

3

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**Consolidated Balance Sheet**
| **(unaudited)**                            | ** ** | ** **                   | ** ** | ** **                      | ** ** |
|--------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **(millions of dollars)**        | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
| **ASSETS**                                 | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Current Assets                             |       |                         |       |                            |       |
| Cash and short-term investments            | ** ** | **9.2**                      |       | 4.0                             |       |
| Accounts receivable and other              | ** ** | **3.4**                      |       | 2.5                             |       |
|                                       | ** ** | **12.6**                     |       | 6.5                             |       |
| Investment in  Great Lakes (Note 2)        | ** ** | **740.7**                    | ** ** | **—**                      | ** ** |
| Investment in  Northern Border (Note 3)    | ** ** | **556.6**                    |       | 561.2                           |       |
| Plant, property  and equipment             | ** ** | **126.0**                    |       | 127.0                           |       |
| Goodwill                                   | ** ** | **79.1**                     |       | 79.2                            |       |
| Other assets                               | ** ** | **3.6**                      |       | 3.9                             |       |
|                                       | ** ** | **1,518.6**                  |       | 777.8                           |       |
|                                       |       |                         |       |                            |       |
| **LIABILITIES  AND PARTNERS’ EQUITY** | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Current  Liabilities                       |       |                         |       |                            |       |
| Accounts payable                           | ** ** | **3.0**                      |       | 3.3                             |       |
| Accrued interest                           | ** ** | **3.9**                      |       | 1.3                             |       |
| Current portion of long-term debt (Note 5) | ** ** | **4.7**                      |       | 4.7                             |       |
|                                       | ** ** | **11.6**                     |       | 9.3                             |       |
| Long-term debt  (Note 5)                   | ** ** | **587.4**                    |       | 463.4                           |       |
|                                       | ** ** | **599.0**                    |       | 472.7                           |       |
| Non-controlling  interests                 | ** ** | **1.2**                      |       | 1.2                             |       |
| Partners’ Equity  (Note 7)            |       |                         |       |                            |       |
| Common units                               | ** ** | **897.7**                    |       | 295.6                           |       |
| General partner                            | ** ** | **20.4**                     |       | 6.5                             |       |
| Accumulated other comprehensive income     | ** ** | **0.3**                      |       | 1.8                             |       |
|                                       | ** ** | **918.4**                    |       | 303.9                           |       |
|                                       | ** ** | **1,518.6**                  |       | 777.8                           |       |

 

Subsequent events (Note11)

See accompanying notes tothe consolidated financial statements.

4

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**Consolidated Statement ofCash Flows**
| **(unaudited)**                                             | ** ** | **Three months ended March 31** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(millions of dollars)**                         | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                        |       |                                                |       |   |   |
| **CASH GENERATED FROM OPERATIONS**                          |       |                                                |       |   |   |
| Net income                                                  | ** ** | **20.0**                                            |       | 12.4 |   |
| Depreciation                                                | ** ** | **1.6**                                             |       | — |   |
| Amortization of other  assets                               | ** ** | **0.1**                                             |       | — |   |
| Equity income in excess  of distributions received          | ** ** | **(7.0**                                            | **)**      | — |   |
| Decrease/(increase) in  operating working capital           | ** ** | **1.0**                                             |       | (0.1 | ) |
|                                                        | ** ** | **15.7**                                            |       | 12.3 |   |
|                                                        |       |                                                |       |   |   |
| **INVESTING ACTIVITIES**                                    |       |                                                |       |   |   |
| Return of capital from  Northern Border                     | ** ** | **4.4**                                             |       | 2.3 |   |
| Return of capital from  Tuscarora                           | ** ** | —                                              |       | 0.2 |   |
| Investment in Great  Lakes (Note 2)                         | ** ** | **(733.3**                                          | **)**      | — |   |
| Investment in Northern  Border (Note 3)                     | ** ** | —                                              |       | (4.6 | ) |
| Investment in Tuscarora  (Note 4)                           | ** ** | **0.1**                                             |       | — |   |
| Capital expenditures                                        | ** ** | **(0.6**                                            | **)**      | — |   |
| Other assets                                                | ** ** | **(1.1**                                            | **)**      | — |   |
|                                                        | ** ** | **(730.5**                                          | **)**      | (2.1 | ) |
|                                                        |       |                                                |       |   |   |
| **FINANCING ACTIVITIES**                                    |       |                                                |       |   |   |
| Distributions paid                                          | ** ** | **(11.3**                                           | **)**      | (10.7 | ) |
| Equity issuances (Note  8)                                  | ** ** | **607.3**                                           |       | — |   |
| Long-term debt issued  (Note 5)                             | ** ** | **133.0**                                           |       | — |   |
| Long-term debt repaid  (Note 5)                             | ** ** | **(9.0**                                            | **)**      | — |   |
|                                                        | ** ** | **720.0**                                           |       | (10.7 | ) |
|                                                        |       |                                                |       |   |   |
| **Increase/(decrease) in cash and  short-term investments** | ** ** | **5.2**                                             |       | (0.5 | ) |
| **Cash and short-term  investments, beginning of period**   | ** ** | **4.0**                                             |       | 2.3 |   |
|                                                        |       |                                                |       |   |   |
| **Cash and short-term  investments, end of period**         | ** ** | **9.2**                                             |       | 1.8 |   |
|                                                        |       |                                                |       |   |   |
| Interest payments made                                      | ** ** | **5.6**                                             |       | 0.2 |   |

 

See accompanying notes tothe consolidated financial statements

5

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**Consolidated Statement ofChanges in Partners’ Equity**
| ** **                                   | ** ** | ** **            | ** ** | ** **           | ** ** | ** **           | ** ** | **Accumulated**                | ** ** | ** **         | ** ** | ** **           | ** ** |
|----------------------------------------------|------------|-----------------------|------------|----------------------|------------|----------------------|------------|--------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                   | ** ** | ** **            | ** ** | ** **           | ** ** | ** **           | ** ** | **Other**                      | ** ** | ** **         | ** ** | ** **           | ** ** |
| ** **                                   | ** ** | ** **            | ** ** | ** **           | ** ** | **General**          | ** ** | **Comprehensive**              | ** ** | ** **         | ** ** | ** **           | ** ** |
| **(unaudited)**                              | ** ** | **Common Units** | ** ** | **Partner**          | ** ** | **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                                   |       | —                |       | 17.9                 |       | 2.1                  |       | —                         |       | —             |       | 20.0                 |       |
| Equity issuances                             |       | 17.4                  |       | 594.7                |       | 12.6                 |       | —                         |       | 17.4               |       | 607.3                |       |
| Distributions  paid                          |       | —                |       | (10.5                | )          | (0.8                 | )          | —                         |       | —             |       | (11.3                | )          |
| Other  comprehensive income                  |       | —                |       | —               |       | —               |       | (1.5                           | )          | —             |       | (1.5                 | )          |
| **Partners’ equity at March 31,  2007** | ** ** | **34.9**              | ** ** | **897.7**            | ** ** | **20.4**             | ** ** | **0.3**                        | ** ** | **34.9**           | ** ** | **918.4**            | ** ** |

 

See accompanying notes tothe consolidated financial statements.

6

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**Note 1    Organization and Basis of Presentation**

TC PipeLines, LP, and itssubsidiary limited partnerships, TC PipeLines Intermediate Limited Partnership,TC Tuscarora Intermediate Limited Partnership and TC GL Intermediate LimitedPartnership, all Delaware limited partnerships, are collectively referred toherein as TC PipeLines or the Partnership. TC PipeLines was formed by TransCanada PipeLines Limited, a subsidiaryof TransCanada Corporation (collectively referred to herein as TransCanada), toacquire, own and participate in the management of United States (U.S.)-basedpipeline assets.

 TC PipeLines is managed by its generalpartner, TC PipeLines GP, Inc. (TC PipeLines GP), an indirect wholly-ownedsubsidiary of TransCanada.  The generalpartner provides certain administrative services for the Partnership and isreimbursed for its costs and expenses. In addition to its aggregate 2 per cent general partner interest in TCPipeLines, LP and its subsidiary limited partnership on a combined basis, thegeneral partner owns 2,035,106 common units, representing an effective 7.7 percent limited partner interest in the Partnership at March 31, 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.  Althoughmanagement believes these estimates are reasonable, actual results could differfrom these estimates.  Amounts are statedin 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 months ended March 31, 2007 and 2006, the financialposition as at March 31, 2007 and December 31, 2006, cash flows for the threemonths ended March 31, 2007 and 2006, and statement of partners’ equity atMarch 31, 2007.

The results of operationsfor the three months ended March 31, 2007 and 2006 are not necessarilyindicative of the results that may be expected for a full fiscal year.  The interim financial statements should beread in conjunction with the Partnership’s financial statements and notesincluded in TC PipeLines’ annual report on Form 10-K for the year endedDecember 31, 2006.

##### **Note2    Investment in Great Lakes GasTransmission Limited Partnership**

On February 22, 2007, thePartnership acquired a 46.45 per cent interest in Great Lakes Gas TransmissionLimited Partnership (Great Lakes).  GreatLakes is a Delaware limited partnership which owns an interstate natural gaspipeline system that transports natural gas for delivery to customers in theMidwestern and northeastern U.S. and eastern Canada.  The Partnership uses the equity method ofaccounting for its interest in Great Lakes. Great Lakes is regulated by the Federal 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 ofTransCanada became the operator of Great Lakes.

**Thefollowing tables set out summarized financial information of Great Lakes:**

7

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**Summarized Great Lakes IncomeStatement**
| ** **                                           | ** ** | **For the period from**          | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------|------------|
| **(unaudited)**                                      | ** ** | **February 23 to March 31** | ** ** |
| **(millions of dollars)**                  | ** ** | **2007**                                        | ** ** |
| Transmission  revenues                               | ** ** | **30.4**                                        | ** ** |
| Operations,  maintenance and administrative expenses | ** ** | **(6.1**                                        | **)**      |
| Depreciation                                         | ** ** | **(5.9**                                        | **)**      |
| Financial  charges, net and other                    | ** ** | **(3.4**                                        | **)**      |
| Net income                                           | ** ** | **15.0**                                        | ** ** |

 

8

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**Summarized Great Lakes Balance Sheet**
| **(unaudited)**                               | ** ** | **March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|
| **(millions of dollars)**           | ** ** | **2007**           | ** ** |
| **Assets**                                    |       |               |       |
| Cash and cash  equivalents                    | ** ** | **69.1**           | ** ** |
| Other current  assets                         | ** ** | **39.5**           | ** ** |
| Plant, property  and equipment, net           | ** ** | **995.1**          | ** ** |
| Other assets                                  | ** ** | **2.0**            | ** ** |
|                                          | ** ** | **1,105.7**        | ** ** |
| **Liabilities  and Partners’ Equity**    |       |               |       |
| Current  liabilities                          | ** ** | **46.0**           | ** ** |
| Deferred credits                              | ** ** | **0.6**            | ** ** |
| Long-term debt,  including current maturities | ** ** | **450.0**          | ** ** |
| Partners’  capital                       | ** ** | **609.1**          | ** ** |
|                                          | ** ** | **1,105.7**        | ** ** |

 

##### **Note3    Investment in Northern BorderPipeline 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 partnership interest in Northern Border is held byONEOK Partners, LP (ONEOK), a publicly traded limited partnership.  The Northern Border system was operated byONEOK Partners GP, LLC (ONEOK Partners GP), a wholly-owned subsidiary of ONEOKduring the three months ended March 31, 2007. Effective April 1, 2007, a wholly-owned subsidiary of TransCanada becamethe 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.  ThePartnership uses the equity method of accounting for its investment in NorthernBorder.  TC PipeLines’ equity income forthe three months ended March 31, 2007 and 2006 includes 30 per cent of the netincome of Northern Border up to April 6, 2006 and 50 per cent thereafter.

**Thefollowing tables set out summarized financial information of Northern Border:**

**SummarizedNorthern Border Income Statement**
| **(unaudited)**            | ** ** | **Three months ended March 31** | ** ** |
|----------------------------|------------|---------------------------------|------------|
| **(millions of  dollars)** | ** ** | **2007**                        | ** ** | **2006** | ** ** |
| Operating revenue          |       | **79.6**                        |       | 79.8 |   |
| Costs and expenses         |       | **(17.8**                       | **)**      | (17.5 | ) |
| Depreciation               |       | **(15.3**                       | **)**      | (14.6 | ) |
| Interest expense           |       | **(10.8**                       | **)**      | (10.7 | ) |
| Other income, net          |       | **0.4**                         |       | 0.4 |   |
| Net income                 |       | **36.1**                        |       | 37.4 |   |

 

9

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**Summarized Northern Border BalanceSheet**
| **(unaudited)**                                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(millions of dollars)**                             | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **Assets**                                                      |       |               |       |                  |       |
| Cash and cash  equivalents                                      | ** ** | **23.0**           |       | 11.0                  |       |
| Other current  assets                                           | ** ** | **31.6**           |       | 35.5                  |       |
| Plant, property  and equipment, net                             | ** ** | **1,461.5**        |       | 1,475.7               |       |
| Other assets                                                    | ** ** | **23.4**           |       | 22.5                  |       |
|                                                            | ** ** | **1,539.5**        |       | 1,544.7               |       |
| **Liabilities  and Partners’ Equity**                      |       |               |       |                  |       |
| Current  liabilities                                            | ** ** | **48.3**           |       | 47.7                  |       |
| Reserves and  deferred credits                                  | ** ** | **2.7**            |       | 2.1                   |       |
| Long-term debt,  including current maturities and notes payable | ** ** | **622.3**          |       | 619.8                 |       |
| Partners’ equity                                           |       |               |       |                  |       |
| Partners’ capital                                          | ** ** | **865.7**          |       | 874.1                 |       |
| Accumulated other comprehensive income                          | ** ** | **0.5**            |       | 1.0                   |       |
|                                                            | ** ** | **1,539.5**        |       | 1,544.7               |       |

 

##### **Note4    Investment in Tuscarora GasTransmission 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-mile U.S. interstatepipeline system that transports natural gas from Oregon, where it interconnectswith facilities of Gas Transmission Northwest Corporation, a wholly-ownedsubsidiary of TransCanada, to northern Nevada. The other general partner interests in Tuscarora are held one per centby Sierra Pacific Resources (with the associated vote being controlled by thePartnership) and one 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, thePartnership used the equity method of accounting for its investment inTuscarora.  Subsequent to theacquisition, the Partnership used the consolidation method of accounting forits investment in Tuscarora.  Inconnection with this transaction, an indirect wholly-owned subsidiary ofTransCanada became the operator of Tuscarora.

The following tables setout summarized financial information of Tuscarora:

**SummarizedTuscarora Income Statement**
| **(unaudited)**                                      | ** ** | **Three months ended March 31** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(millions of dollars)**                  | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Transmission  revenues                               | ** ** | **6.9**                                             |       | 8.3 |   |
| Operations,  maintenance and administrative expenses | ** ** | **(1.2**                                            | **)**      | (1.2 | ) |
| Depreciation                                         | ** ** | **(1.6**                                            | **)**      | (1.6 | ) |
| Financial  charges, net and other                    | ** ** | **(1.2**                                            | **)**      | (1.3 | ) |
| Net income                                           | ** ** | **2.9**                                             |       | 4.2 |   |

 

10

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**Summarized Tuscarora Balance Sheet**
| **(unaudited)**                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(millions of dollars)**           | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **Assets**                                    |       |               |       |                  |       |
| Cash and cash  equivalents                    | ** ** | **6.7**            |       | 2.2                   |       |
| Other current  assets                         | ** ** | **2.5**            |       | 2.5                   |       |
| Plant, property  and equipment, net           | ** ** | **126.0**          |       | 127.0                 |       |
| Other assets                                  | ** ** | **1.2**            |       | 1.2                   |       |
|                                          | ** ** | **136.4**          |       | 132.9                 |       |
| **Liabilities  and Partners’ Equity**    |       |               |       |                  |       |
| Current  liabilities                          | ** ** | **3.0**            |       | 2.4                   |       |
| Long-term debt,  including current maturities | ** ** | **71.1**           |       | 71.1                  |       |
| Partners’ equity                         |       |               |       |                  |       |
| Partners’ capital                        | ** ** | **62.2**           |       | 59.3                  |       |
| Accumulated other comprehensive income        | ** ** | **0.1**            |       | 0.1                   |       |
|                                          | ** ** | **136.4**          |       | 132.9                 |       |

 

##### **Note5    Credit Facilities and Long-Term Debt**

On February 22, 2007, theSenior Credit Facility was amended and restated in connection with the GreatLakes acquisition.  The amount availableunder the Senior Credit Facility increased from $410 million to $950 million,consisting of a $700 million senior term loan and a $250 million seniorrevolving credit facility, with $194 million of the senior term loan availablebeing terminated upon closing of the Great Lakes acquisition.

The Partnership had $521million and $397 million outstanding under the Senior Credit Facility at March31, 2007 and December 31, 2006, respectively. The interest rate on the Senior Credit Facility averaged 6.12 per centand 6.16 per cent for the three months ended March 31, 2007 and December 31,2006, respectively. At March 31, 2007 and December 31, 2006, the interest ratewas 6.07 per cent.

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 - $521.8 million; and, thereafter -$3.1 million.

**Note 6    Net Income 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.  The general partner’s allocation is equal toan amount based upon the general partner’s two per cent interest, adjusted toreflect an amount equal to incentive distributions.  Net income per common unit was determined asfollows:
| **(unaudited)**                                                                 | ** ** | **Three months ended March 31** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(millions of dollars except per unit amounts)** | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Net income                                                                      | ** ** | **20.0**                                            |       | 12.4 |   |
| Net income  allocated to general partner                                        |       |                                                |       |   |   |
| General partner interest                                                        | ** ** | **(0.4**                                            | **)**      | (0.2 | ) |
| Incentive distribution income allocation                                        | ** ** | **(1.7**                                            | **)**      | (0.5 | ) |
|                                                                            | ** ** | **(2.1**                                            | **)**      | (0.7 | ) |
| Net income  allocable to common units                                           | ** ** | **17.9**                                            |       | 11.7 |   |
| Weighted average  units outstanding *(millions)*                                | ** ** | **24.6**                                            |       | 17.5 |   |
| Net income per common  unit                                                     | ** ** | **$**                                               | **0.73**   |   | $ | 0.67 |   |
|                                                                                 |            |                                                     |            |  |  |  |  |

 

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**Note 7    Partners’Equity**

Partners’ capitalconsists of 34,856,086 common units representing an aggregate 98 per centlimited partner interest in the Partnership (which number includes 2,035,106common units held by the general partner and 8,678,045 common units held byTransCan Northern Ltd., an indirect wholly-owned subsidiary of TransCanada) andan aggregate two per cent general partner interest.  In aggregate, the general partner’s interestsrepresent an effective 7.7 per cent ownership in the Partnership at March 31,2007 (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 $942 million, subject to certain closingadjustments, and included the indirect assumption of approximately $209 millionof 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.  ThePartnership funded the balance of the total consideration with a draw on itssenior credit facility, which was amended and restated in connection with theacquisition.

The acquisition wasaccounted for using the purchase method of accounting.  The purchase price was allocated on apreliminary basis using an estimate of fair value of the net assets at the dateof acquisition.  The difference betweenthe purchase price and the estimated fair value of net assets of approximately$457 million, being goodwill, was recorded as part of the Partnership’sinvestment in Great Lakes.

Great Lakes’ business issubject to rate regulation based on historical costs which do not change withmarket conditions or change of ownership.  Accordingly, upon acquisition,the assets and liabilities of Great Lakes were determined to have a fair valueequal to the rate regulated historical costs. No intangibles other than goodwill were identified in the acquisition.

TransCanada, which previouslyheld a 50 per cent interest in Great Lakes, acquired the other 3.55 per centinterest simultaneously with the Partnership’s acquisition of itsinterest.  In connection with thesetransactions, a wholly-owned subsidiary of TransCanada became the operator ofGreat Lakes.

The following Partnershippro forma financial information for the three months ended March 31, 2007 and2006 has been prepared as if the acquisition occurred at the beginning of therespective periods:
| **(unaudited)**                                                                 | ** ** | **Three months ended March 31** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(millions of dollars except per unit amounts)** | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                                            |       |                                                |       |   |   |
| Equity income  from investment in Great Lakes                                   | ** ** | **17.5**                                            |       | 15.1 |   |
| Net income                                                                      | ** ** | **28.6**                                            |       | 25.7 |   |
| Net income per unit                                                             | ** ** | **$**                                               | **0.81**   |   | $ | 0.70 |   |
|                                                                                 |            |                                                     |            |  |  |  |  |

 

**NOTE 9                 RELATEDPARTY TRANSACTIONS**

The Partnership does nothave any employees.  The management andoperating functions are provided by the general partner.  The general partner does not receive amanagement fee or other compensation in connection with its management of thePartnership.  The Partnership reimbursesthe general partner

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for all costs of servicesprovided, including the costs of employee, officer and director compensationand benefits, and all other expenses necessary or appropriate to the conduct ofthe business of, and allocable to the Partnership.  Such costs include (i) overhead costs (suchas office space and equipment) and (ii) out-of-pocket expenses related to theprovision of such services.  ThePartnership Agreement provides that the general partner will determine thecosts that are allocable to the Partnership in any reasonable manner determinedby the general partner in its sole discretion. Total costs reimbursed to the general partner by the Partnership were$0.4 million and $0.3 million for the three months ended March 31, 2007 and 2006,respectively.

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TransCanada became theoperator of Great Lakes through its acquisition of Great Lakes Gas TransmissionCompany, the operator of the Great Lakes facilities, on February 22, 2007.   TransCanada provides operating services suchas legal, tax, treasury, human resources, other administrative functions, andincurs other costs on Great Lakes’ behalf. These include, but are not limited to, employee benefit costs, propertyand liability insurance costs, and transition costs.  Total costs reimbursed to TransCanada byGreat Lakes were approximately $4.1 million for the period from February 22,2007 to March 31, 2007, of which $1.9 million is included in the Partnership’sequity income from Great Lakes during that same period.

Great Lakes earns transportation revenues fromTransCanada under fixed priced contracts with remaining terms ranging from oneto five years.  Great Lakes earned $12.9million of transportation revenues under these contracts during the periodFebruary 22, 2007 to March 31, 2007.  This amount represented 42.4 per cent of totalrevenues earned by Great Lakes for the period from February 22, 2007 to March31, 2007, of which $6.0 million is included in the Partnership’s equity incomefrom Great Lakes during that same period.

TransCanada Northern Border Inc. (TransCanada Northern Border), a wholly-owned subsidiary of TransCanada formerly named TransCan Northwest Border Ltd. became the operator of Northern Border effective April 1, 2007. The officers of TransCanada Northern Border are now the equivalent of Northern Border’s officers.  TransCanada Northern Border will provide operating services such as legal, tax, treasury, human resources, other administrative functions, and incur other costs on Northern Border’s behalf.  These include, but are not limited to, employee benefit costs, property and liability insurance costs, and transition costs.

On April 6, 2006, the Partnership acquired an additional 20 per centgeneral partnership interest in Northern Border.  As part of this transaction, the Partnershippaid a $10 million transaction fee to TransCanada Northern Border.  This fee has been recorded as part of thePartnership’s investment in Northern Border and is being amortized over theterm of the related operating agreement.

On December 19, 2006, thePartnership acquired an additional 49 per cent general partner interest inTuscarora.  In connection with thistransaction, TransCanada Northern Border became the operator ofTuscarora.  TransCanada Northern Borderwill provide operating services such as legal, tax, treasury, human resources,other administrative functions, and incur other costs on Tuscarora’sbehalf.  These include, but are notlimited to, employee benefit costs, property and liability insurance costs, andtransition costs.  Total costs reimbursedto TransCanada Northern Border by Tuscarora were $0.2 million for the threemonths ended March 31, 2007.

InApril 2007, the Partnership agreed to reimburse TransCanada for approximately$3 million of third party costs related to the Partnership’s acquisition of itsinterest in Great Lakes in February 2007.

**Note 10  Financial Instruments**

At March 31, 2006, thefair value of the interest rate swaps accounted for as hedges was $0.4million.  The fair value of interest ratederivatives has been calculated using period-end market rates.  The notional amount hedged was $300million.  The interest rate swaps arestructured such that the cash flows match those of the Senior Credit Facilityfrom March 12, 2007 to December 12, 2011.

**Note 11  Subsequent Events**

On April 9, 2007,Northern Border informed the Partnership that a contribution of $7.5 million ispayable on April 30, 2007, representing the Partnership’s 50 per cent share ofa $15 million cash call issued by Northern Border.  The funds will be used by Northern Border torepay indebtedness.

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On April 18, 2007, thePartnership announced its first quarter cash distribution in the amount of$0.65 per unit, payable on May 15, 2007, to unitholders of record on April 30,2007.  The cash distribution represents aquarterly increase of $0.05 per unit, or $0.20 per unit per annum, to anindicated annual cash distribution of $2.60 per unit.

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**Cautionary Statement RegardingForward-Looking Information**

# A number of statements made by TC PipeLines in this quarterlyreport are forward-looking and relate to, among other things, anticipatedfinancial performance, business prospects, strategies, market forces andcommitments.  Much of this informationappears in “Management’s Discussion and Analysis of Financial Condition andResults 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 reflectthe Partnership’s current views with respect to future events.  The Partnership assumes no obligation toupdate any such forward-looking statements to reflect events or circumstancesoccurring after the date hereof.  Wordssuch as “anticipate”, “believe”, “estimate”, “expect”, “plan”, “intend”, “forecast”,and similar expressions, identify forward-looking statements.  Readers are cautioned not to place unduereliance on this forward-looking information, which is as of the date of thisForm 10-Q.  These statements reflect thePartnership’s current views with respect to future events and are subject tovarious risks, uncertainties and assumptions including:

·                                          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 a result, the Partnership is dependentupon Great Lakes and Northern Border for the majority of its available cash;

·                                          regulatorydecisions, particularly those of the FERC;

·                                 the ability of Great Lakes and Northern Border to recontract itscapacity and the transportation rates at which that capacity is contracted;

·                                 developments in pending FERC proceedings that impact the abilityof Great Lakes, Northern Border and Tuscarora to recover income taxes in theirrates;

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

·                                 the availability of and demand for Western Canadian natural gasfor import into the U.S.;

·                                          the amount of storagecapacity in Western Canada and overall strong demand for storage injection; and

·              prevailing economic conditions, particularly conditionsof the capital and equity markets;

# and other risks are discussed in the Partnership’sfilings with the Securities and Exchange Commission (SEC), including under Item1A, “Risk Factors,” in the Partnership’s annual report on Form 10-K for theyear ended December 31, 2006.  By itsnature, such forward-looking information is subject to various risks anduncertainties, which could cause TC PipeLines’ actual results and experience todiffer materially from the anticipated results or other expectations expressedin this quarterly report.

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**Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

**Results of 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 wasformed in 1998 as a Delaware limited partnership.  TC PipeLines and its subsidiary limitedpartnerships, TC PipeLines Intermediate Limited Partnership, TC TuscaroraIntermediate Limited Partnership, and TC GL Intermediate Limited Partnershipare collectively referred to herein as “TC PipeLines” or “the Partnership.”   In this report, references to “we”, “us” or “our”collectively refer to TC PipeLines or the Partnership.  TC PipeLines GP, Inc., an indirectwholly-owned subsidiary of TransCanada, is the general partner of thePartnership.

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 centinterest in Great Lakes is held by TransCanada.

We own a 50 per centinterest in Northern Border including 20 per cent acquired on April 6,2006.  The other 50 per cent interest inNorthern Border is held by ONEOK Partners, L.P. (ONEOK), a publicly tradedlimited partnership.  At March 31, 2007,each partner held 50 percent voting interest on the Management Committee ofNorthern Border.

We also own or control 99per cent interest in Tuscarora.  InSeptember 2000, we acquired a 49 per cent interest from TCPL Tuscarora Ltd., anindirect wholly-own subsidiary of TransCanada, which continues to hold a oneper cent general partner interest in Tuscarora. The Partnership purchased its other interest in Tuscarora from TuscaroraGas Pipeline Co., a wholly-owned subsidiary of Sierra Pacific Resources, onDecember 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 its shippers access tomarkets along its pipeline system through over 60 receipt and delivery interconnections with multiple pipelines and distribution companies, andaccess to over 30 Michigan storage fields.

The major policies of Great Lakes are established bythe Management Committee, which consists of six members, three of whom aredesignated by us and three of whom are designated by TransCanada.  All decisions by the Management Committeerequire unanimous consent.  An ExecutiveCommittee consists of three members:  onePartnership Committee Member, one TransCanada Committee Member and the GreatLakes’ President, a non-voting member. The Executive Committee has all of the powers of the ManagementCommittee in the management of Great Lakes’ business.

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TransCanada became the operator of Great Lakes throughits acquisition of Great Lakes Gas Transmission Company, the operator of theGreat Lakes facilities, on February 22, 2007. TransCanada provides operating services such as legal, tax, treasury,human resources, other administrative functions, and incurs other costs onGreat Lakes’ behalf.  These include, butare not limited to, employee benefit costs, property and liability insurancecosts, and transition costs.  Total costsreimbursed to TransCanada by Great Lakes were approximately $4.1 million forthe period from February 22, 2007 to March 31, 2007, of which $1.9 million isincluded in the Partnership’s equity income from Great Lakes during that sameperiod.

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Great Lakes earns transportation revenues fromTransCanada under fixed priced contracts with remaining terms ranging from oneto five years.  Great Lakes earned $12.9million of transportation revenues under these contracts during the periodFebruary 22, 2007 to March 31, 2007. This amount represented 42.4 per cent of total revenues earned by GreatLakes for the period from February 22, 2007 to March 31, 2007, of which $6.0million is included in the Partnership’s equity income from Great Lakes duringthat same period.

***Business of Northern Border***

Northern Borderowns a 1,249-mile U.S. interstate pipeline system that transports natural gasfrom the Montana-Saskatchewan border to a terminus near North Hayden,Indiana.  Northern Border’stransportation network provides pipeline access to the Midwestern U.S.primarily from natural gas reserves in the Western Canada Sedimentary Basin,which is located in the Canadian provinces of Alberta, British Columbia andSaskatchewan.  The management committeeof Northern Border Pipeline consists of four members.  TC PipeLines and ONEOK each designate twomembers of the management committee and each have 50 per cent of the votingpower of the management committee.

TransCanada Northern Border Inc. (TransCanada Northern Border), awholly-owned subsidiary of TransCanada formerly named TransCan Northwest BorderLtd. became the operator of Northern Border effective April 1, 2007. Theofficers of TransCanada Northern Border are now the equivalent of NorthernBorder’s officers. TransCanada Northern Border will provide operating servicessuch as legal, tax, treasury, human resources, other administrative functions,and incur other costs on Northern Border’s behalf.  These include, but are not limited to,employee benefit costs, property and liability insurance costs, and transitioncosts.

***Business of Tuscarora***

Tuscarora owns a 240-mile U.S. interstate pipeline system that originatesat an interconnection point with facilities of GTN, a wholly-owned subsidiaryof TransCanada, near Malin, Oregon and runs southeast through northeasternCalifornia and northwestern Nevada.

On December 19, 2006, thePartnership acquired an additional 49 per cent general partner interest inTuscarora.  Upon the acquisition, TCPipeLines began to consolidate its interest in Tuscarora, as the Partnership ownsor controls 99 per cent.  In connectionwith this transaction, TransCanada Northern Border became the operatorof Tuscarora.  TransCanada NorthernBorder will provide operating services such as legal, tax, treasury, humanresources, other administrative functions, and incur other costs on NorthernBorder’s behalf.  These include, but arenot limited to, employee benefit costs, property and liability insurance costs,and transition costs.

***RecentDevelopments***

*Acquisition—*On February 22, 2007, the Partnership acquired a 46.45 percent general partnership interest in Great Lakes from El Paso Corporation.  The total purchase price was $942 million,subject to certain closing adjustments, and included the indirect assumption ofapproximately $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. purchased 8,678,045 of the 17,356,086 common unitsissued for gross proceeds of $300 million. In addition, TC PipeLines GP maintained its two per cent general partnerinterest in the Partnership by contributing $12.6 million to the Partnership inconnection with the private equity placement. The Partnership funded the balance of the total consideration with adraw on its senior credit facility, which was amended and restated inconnection with this transaction.

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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 thesetransactions, a wholly-owned subsidiary of TransCanada also became the operatorof Great Lakes.

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***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 5 per cent beginning January 1, 2007.  Additional information about Northern Border’sregulatory proceedings is included in this report under “RegulatoryDevelopments”.

*Amendedand Restated Credit Facility**—***On April 27, 2007, Northern Borderentered into a $250 million five-year revolving credit agreement with certainfinancial institutions.  Additional information about NorthernBorder’s new credit agreement is included in this report under “Debt and CreditFacilities of Northern Border”.

***AccountingPolicies and Estimates***

TC PipeLinesaccounts for its investments in both Great Lakes and Northern Border using theequity method of accounting, as detailed in notes 2 and 3 to the Partnership’sfinancial statements included elsewhere in this report.  The equity method of accounting isappropriate where the investor does not control an investee, but rather is ableto exercise significant influence over the operating and financial policies ofan investee.  TC PipeLines is able toexercise significant influence over its investments in Great Lakes and NorthernBorder because of its representation on their management committees.

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 andassumptions also affect the reported amounts of revenue and expenses during thereporting period.  Although we believethese estimates are reasonable, actual results could differ from our estimates.

There have been nochanges to the Partnership’s accounting policies or critical accountingestimates during the three months ended March 31, 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 our fiscal year beginning January 1,2008.  We are currently reviewing theapplicability of SFAS No. 157 to our results of operations and financialposition.

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 in earnings at each subsequent reporting date. SFAS No. 159 iseffective for our fiscal year beginning January 1, 2008.  We are currently reviewing the applicabilityof SFAS No. 159 to our results of operations and financial position.

***KnownTrends and Uncertainties***

*Supply***—**We estimate that Canadian natural gas available forexport declined by approximately 600 MMcf/d for the three months ended March31, 2007 as compared to the same period last year, as production in the WesternCanada Sedimentary Basin declined by approximately 300 MMcf/d and Canadiandemand increased by approximately 300 MMcf/d. Some industry analysts continue to predict a total decline in Canadiangas supply available for export by as much 

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as one Bcf/d over thenext year due to declining production and rising demand in Alberta due tonatural gas consumption associated with the development and production of oilsand reserves.  A reduction in the amountof available supply for export is a negative development for all U.S. pipelinesthat import natural gas from Canada, but the impact on our pipeline assets willdepend upon competitive factors and prevailing market conditions.

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*Demand —*TheEnergy Information Administration projects U.S. demand for natural gas in 2007to increase by approximately three per cent as compared to 2006.  Projections from the National Oceanic andAtmospheric Administration of a decrease in cooling degree days due to thereturn of normal temperatures this summer coupled with higher heating degreedays due to a colder winter in 2007 as compared to 2006 imply a decrease innatural gas consumption from the electric power generation sector and anincrease in residential natural gas demand.

Supply competition fromother natural gas sources can adversely impact demand for transportation on ourpipeline assets.  Recent growth insupplies available from the Rocky Mountain and Texas regions has led to excesssupply in the markets we serve.  TheRockies Express Pipeline, a proposed 1,663 mile pipeline system from Rio BlancoCounty, Colorado to Monroe County, Ohio, may also increase supply competitionin Midwestern markets.  The westernsegment of the Rockies Express Pipeline, from Colorado to Missouri, isanticipated to be placed in service by 2008, and initially is expected to addmore supply competition in markets served by Northern Border.  The eastern segment of the Rockies ExpressPipeline, from Missouri to Ohio, is expected to be placed in service by 2009,and is anticipated to transport natural gas further east, potentiallymitigating any excess supply in Northern Border’s market region.  Also, ongoing pipeline projects to movegrowing East Texas production to markets in the eastern U.S. may reverse thetrend of this incremental production flowing into the markets Northern Borderserves.

*Northern Border —*Northern Border expects revenues for 2007 to be lower as compared to 2006 dueto the reduction in long-term rates starting January 1, 2007, resulting fromthe rate case settlement discussed under “Regulatory Developments” in thissection.  In addition, revenue may bemore variable in 2007 due to the implementation of seasonal rates included inNorthern Border’s tariff.  NorthernBorder’s average contracted capacity was 103 per cent and 104 per cent ofdesign capacity for the three months ended March, 31, 2007 and 2006,respectively. At March 31, 2007, approximately 76 per cent, 74 per cent and 72per cent of Northern Border’s design capacity was contracted on a firm basisfor the second, third and fourth quarters, respectively.  Northern Border expects to continue todiscount transportation capacity as needed to optimize revenue.  Discounting levels in 2007 may vary fromdiscounting levels in 2006 depending on market conditions and availablecapacity.

*Great Lakes —*For March 2007, Great Lakes’ average contracted capacity compared to GreatLakes’ summer design peak day was 113 per cent. As of March 31, 2007,approximately 97 per cent of the summer design peak day capacity is contractedon a firm basis for the remainder of 2007.

***Regulatory Developments***

The settlement ofNorthern Border’s 2005 rate case was approved by the FERC in November2006.   The settlement establishedmaximum long-term mileage-based rates and charges for transportation onNorthern Border’s system. Beginning January 1, 2007, overall rates werereduced, compared with rates prior to the filing, by approximately five percent.  The settlement also provided forseasonal rates for short-term transportation services.  Seasonal maximum rates vary on a monthlybasis from approximately $0.54 per Dth to approximately $0.29 per Dth for thefull transportation route from Port of Morgan, Montana to the Chicago area.

On August 7, 2006,the FERC approved a settlement reached by Tuscarora, Public UtilitiesCommission of Nevada and its firm shippers. The settlement resulted in a firm transportation rate of $0.40/decathermper day (dth-day) beginning June 1, 2006.  This is a 17 per cent reductionto the previous rate of $0.4811/dth-day, or an approximate $5 million reductionin Tuscarora’s annual revenues.  In addition, the settlement results in amoratorium on all rate 

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actions before theFERC by any party to the settlement for a period of 48 months to May 31, 2010,including rate actions related to expansion projects where Tuscarora proposesto price the expansion at the settlement rate.

Additionalinformation about these regulatory proceedings is included in our annual reporton Form 10-K for the year ended December 31, 2006.

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***FirstQuarter 2007 Compared with First Quarter 2006***

The Partnership reportedfirst quarter 2007 net income of $20.0 million, an increase of $7.6 million, or61 per cent, compared to net income of $12.4 million for the same quarter lastyear.  The increase was primarily due toincreased equity income from the Partnership’s investment in Northern Borderand the equity income from the Partnership’s investment in Great Lakes, offsetby increased financial charges.

Equity income from thePartnership’s investment in Great Lakes contributed $7.0 million for the periodFebruary 23, 2007 to March 31, 2007.  ThePartnership’s share of Great Lakes’ revenue was $14.1 million which was offsetby operating expenses of $5.5 million and net interest expense of $1.6 million.

Equity income fromNorthern Border was $17.8 million in the first quarter of 2007, an increase of$6.6 million or 59 per cent, compared to $11.2 million for the same period lastyear. The increase in equity income was primarily due to the additional 20 percent general partner interest which provided an incremental $7.0 million in equityincome for the first quarter; however, Northern Border’s net income for thefirst quarter of 2007 was $1.3 million lower (an approximate $0.4 millionreduction to the Partnership’s net income) when compared to the same periodlast year.  The reduction in NorthernBorder’s net income for the first quarter is primarily due to increasedoperations and maintenance expenses and decreased operating revenues:

Northern Border’soperating revenue decreased $0.2 million for the three months ended March 31,2007 compared with the same period last year due to the following:

·                  $1.5million increase in revenue due to contracts related to the Chicago IIIExpansion Project; and

·                  $1.0million increase in revenue related to increased demand for othertransportation services; offset by

·                  $2.7million decrease in revenue primarily related to an increase in volumes sold ata discount and the reduction of long-term rates effective January 1, 2007 as aresult of the FERC rate settlement.

Northern Border’soperations and maintenance expense increased $1.0 million for the three monthsended March 31, 2007 compared with the same period last year due to thefollowing:

·                  increasedelectric compression charges of $0.5 million primarily related to the ChicagoIII Expansion project;

·                  increasedexpense of $0.3 million related to the over recovery of the compressor usagesurcharge; and

·                  increasedgeneral and administrative expenses of $0.2 million primarily related toincreased expenses of Northern Border’s operator and its affiliatesattributable to Northern Border’s operations.

These decreases resultedin a $0.6 million decrease in the Partnership’s 50 per cent share of equityincome from Northern Border.

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.  The Partnership reported transmissionrevenues of $6.9 million and depreciation expense of $1.6 for the first quarterof 2007 related to its consolidation of the Tuscarora operations.

The Partnership’soperations, maintenance and administrative expenses of $2.0 million in thefirst quarter of 2007 increased $1.4 million compared to $0.6 million for thesame period in 2006.  The first quarterof 2007 includes $1.2 million related to the consolidation of Tuscaroraoperations.  Excluding the $1.2 millionof expenses related to Tuscarora, the Partnership’s general and 

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administrative expensesincreased $0.2 million to $0.8 million in the first quarter of 2007 from $0.6 millionin the same period in 2006.  The increasewas primarily due to increased finance, tax and accounting costs.

Financial charges were$8.1 million in the first quarter of 2007, an increase of $7.9 million,compared to $0.2 million for the same period last year due to higher averagedebt outstanding and the consolidation of Tuscarora operations which included$1.2 million of financial charges.  Thehigher average debt outstanding was the result of additional financing in 2006and 2007 for acquisitions.

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***CashDistributions from Investments***

To supplement ourfinancial statements, we have disclosed “cash distributions from investments”and have itemized the cash distributions received from our original generalpartner interests and the increase in cash distributions due to 2006acquisitions.  We have presented thisadditional information to enhance an investor’s understanding of the way thatmanagement analyzes the Partnership’s financial performance. The segregation ofthe cash distributions received before and after the impact of 2006acquisitions provides a comparison of the Partnership’s cash flows for thethree months ended March 31, 2007 and 2006. The presentation of this additionalinformation is not meant to be considered in isolation or as a substitute forresults prepared in accordance with GAAP.

**CashDistributionsfrom Investments********(a)**
| ** **                                                                       | ** ** | **For the three months ended March 31** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **(millions of dollars)**                                              | ** ** | **2007**                                                              | ** ** | **2006** | ** ** |
| Cash distributions from  initial 30% general partner interest in Northern Border |       | **13.3**                                                              |       | 13.5 |   |
| Cash distributions from  initial 49% general partner interest in Tuscarora       |       | **—**                                                            |       | 2.2 |   |
|                                                                             | ** ** | **13.3**                                                              |       | 15.7 |   |
| Increase in cash  distributions due to 2006 acquisitions (b)                |       | **8.9**                                                               |       | — |   |
| Cash distributions from  investments (a)                                         | ** ** | **22.2**                                                              |       | 15.7 |   |
| Less Partnership costs (c)                                                       | ** ** | **(7.7**                                                              | **)**      | (0.8 | ) |
|                                                                             |       |                                                                  |       |   |   |
| Cash distributions from investments net of Partnership costs(c)             |       | **14.5**                                                              |       | 14.9 |   |

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(a)                 Reconciliationof non-GAAP financial measure: Cash distributions from investments is anon-GAAP financial measure which is the sum of equity income from investment inGreat Lakes, equity income from investment in Northern Border, equity incomefrom investment in Tuscarora, return of capital from Northern Border and returnof capital from Tuscarora, less equity income in excess of distributionsreceived.  It is provided as a supplementto results reported in accordance with GAAP. Management believes that this is ameaningful measure to assist investors in evaluating the Partnership’s businessperformance. Below is a reconciliation of Cash distributions from investmentsto GAAP financial measures:

|                                                    | ** ** | **For the three months ended March 31** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **(millions of dollars)**                | ** ** | **2007**                                                              | ** ** | **2006** | ** ** |
| Equity income from  investment in Great Lakes      | ** ** | **7.0**                                                               |       | — |   |
| Equity income from  investment in Northern Border  | ** ** | **17.8**                                                              |       | 11.2 |   |
| Equity income from  investment in Tuscarora        | ** ** | **—**                                                            |       | 2.0 |   |
| Return of capital from  Northern Border            | ** ** | **4.4**                                                               |       | 2.3 |   |
| Return of capital from  Tuscarora                  | ** ** | **—**                                                            |       | 0.2 |   |
| Equity income in excess  of distributions received | ** ** | **(7.0**                                                              | **)**      | — |   |
| Cash distributions from investments                | ** ** | **22.2**                                                              |       | 15.7 |   |

 

(b)                2006acquisitions include a 20 per cent general partner interest in Northern Borderon April 6th and a 49 per cent general partner interest in Tuscarora onDecember 19th.

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(c)                 Reconciliationof non-GAAP financial measure: Cash distributions from investments net ofPartnership costs is a non-GAAP financial measure which is equal to Cashdistributions from investments less the Partnership’s costs.  We exclude Tuscarora’s costs from thePartnership costs so that investors may evaluate our costs independent of costsdirectly attributable to our investments. Management believes that this is auseful measure to assist the Partnership’s investors in evaluating thePartnership’s business performance. A reconciliation of Partnership costs issummarized below:

|                                                                                           | ** ** | **For the three months ended March 31** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **(millions of dollars)**                                                       | ** ** | **2007**                                                              | ** ** | **2006** | ** ** |
| Operations, maintenance  and administrative expenses                                      |       | **2.0**                                                               |       | 0.6 |   |
| Financial charges, net  and other                                                         |       | **8.1**                                                               |       | 0.2 |   |
| Less:                                                                                     |       |                                                                  |       |   |   |
| Operations, maintenance  and administrative expenses and financial charges from Tuscarora |       | **(2.4**                                                              | **)**      | — |   |
| Partnership costs                                                                         |       | **7.7**                                                               |       | 0.8 |   |

 

Total cash distributionsreceived from our investments for the three months ended March 31, 2007 were$22.2 million, an increase of $6.5 million, compared to $15.7 million for thesame period last year.  The acquisitionof an additional 20 per cent general partner interest in Northern Bordercontributed $8.9 million.  Distributionsfrom Northern Border decreased in the first three months of 2007 compared tothe same period in 2006, resulting in a $0.2 million reduction in distributionsreceived by the Partnership for its original 30 per cent general partnerinterest.

Tuscarora’s available cash flow has been used tofinance the compressor station expansion project in Likely, California. Thisresulted in a $2.2 million decrease in distributions from Tuscarora compared tothe first three months of 2006.

Partnership costs of $7.7million in the first three months of 2007 compared to $0.8 million in the sameperiod in 2006 increased mainly due to increased financial charges on higheroutstanding debt balances to 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;

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·                  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 the generalpartner described above, other than in its capacity as a holder of 2,035,106units that are in excess of its aggregate two per cent general partnerinterest, represents the incentive distribution rights.

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***2007First Quarter Cash Distribution***

On April 18, 2007, theBoard of Directors of the general partner declared the Partnership’s 2007 firstquarter cash distribution.  The firstquarter cash distribution is payable on May 15, 2007 to unitholders of recordas of April 30, 2007.  The total cashdistribution of $24.9 million will be paid in the following manner: $22.7million to common unitholders (including $1.3 million to the general partner asholder of 2,035,106 common units and $5.2 million to TransCan Northern Ltd., anindirect wholly-owned subsidiary of TransCanada, as holder of 8,678,045 commonunits), $1.7 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 $3.4 million, or 28 per cent, to $15.7 millionfor the three months ended March 31, 2007, compared to $12.3 million for thesame period in 2006.  The increase wasprimarily due to $3.1 million of higher cash generated from operations fromTuscarora and $6.6 million of higher cash distributions received from NorthernBorder, partially offset by $5.4 million of higher interest payments related tohigher debt.  The increase in cash generatedfrom Tuscarora is due to the consolidation of $5.1 million of Tuscarora’s cashflows from operating activities in the first three months of 2007 compared to$2.0 million of distributions received from Tuscarora during the same period inthe prior year under the equity method of accounting for cash flows. Theincrease in cash distributions from Northern Border was primarily due to thePartnership’s acquisition of an additional 20 per cent general partnerinterest.  The cash distributionsreceived from Northern Border include $17.8 million and $11.2 millionclassified as distributions in cash flows provided by operating activities inthe three months ended March 31, 2007 and 2006, respectively. In addition, thePartnership received $4.4 million and $2.5 million of distributions classifiedas return of capital in the three months ended March 31, 2007 and 2006,respectively.  Distributions received inthe first three months of 2007 are based on the equity investment financialresults from Northern Border for the three months ended December 31, 2006.

***CashFlows from Investing Activities***

On February 22, 2007, thePartnership acquired a 46.45 per cent interest in Great Lakes from El PasoCorporation for $733.3 million in cash, subject to certain closing adjustments.

Cash distributionsreceived from Northern Border, which were classified as return of capital, were$4.4 million and $2.3 million for the three months ended March 31, 2007 and2006, respectively.  Cash distributions receivedfrom Tuscarora which were classified as return of capital were $nil and $0.2million for the three months ended March 31, 2007 and 2006, respectively.

Tuscarora made capitalexpenditures of $0.6 million in the first quarter of 2007 related to thecompressor station expansion project in Likely, California.

***CashFlows from Financing Activities***

The acquisition of a46.45 per cent interest in Great Lakes was partially financed through a privateplacement of 17,356,086 common units at $34.57 per common unit for grossproceeds of $600 million. In addition, TC PipeLines GP maintained its two percent general partner interest in the Partnership by contributing $12.6 millionto 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 the amended senior credit facility.  The Partnership drew $126 million under thesenior credit facility and borrowed $7 

30

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million under itsrevolving credit facility.  ThePartnership repaid $9 million of the outstanding balance on its revolvingcredit.

For the three monthsended March 31, 2007, the Partnership paid $11.3 million in cash distributionsin the following manner:  $10.5 millionto common unitholders (including $1.4 million to the general partner as holderof 2,305,106 common units), $0.6 million to the general partner as holder ofthe incentive distribution rights, and $0.2 million to the general partner inrespect of its 2 per cent general partner interest.

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***ContractualObligations***

The following tablesummarizes TC PipeLines’ contractual obligations related to long-term debt,operating leases and other long-term obligations as of March 31, 2007:
| ** **                                   | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                | ** ** | **Less Than** | ** ** | ** ** | ** ** | ** ** | ** ** | **After 5** | ** ** |
| **(millions of dollars)**          | ** ** | **Total**                                 | ** ** | **1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **Years** | ** ** |
| Senior Credit Facility                       |       | 521.0                                     |       | — |   | — |   | 521.0 |   | — |   |
| Series A Senior Notes  due 2010              |       | 58.0                                      |       | 3.4 |   | 6.3 |   | 48.3 |   | — |   |
| Series B Senior Notes  due 2010              |       | 5.9                                       |       | 0.5 |   | 1.0 |   | 4.4 |   | — |   |
| Series C Senior Notes  due 2012              |       | 7.2                                       |       | 0.8 |   | 1.7 |   | 1.6 |   | 3.1 |   |
| Interest payments on  Senior Credit Facility |       | 150.1                                     |       | 31.6 |   | 63.2 |   | 55.3 |   | — |   |
| Interest payments on  Senior Notes           |       | 18.3                                      |       | 5.0 |   | 9.0 |   | 4.2 |   | 0.1 |   |
| Operating Leases                             |       | 0.2                                       |       | 0.1 |   | 0.1 |   | — |   | — |   |
| Commitments (1)                              |       | 0.5                                       |       | 0.5 |   | — |   | — |   | — |   |
| Total                                        |       | $                                         | 761.2      |   | $ | 41.9 |   | $ | 81.3 |   | $ | 634.8 |   | $ | 3.2 |   |
|                                              |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)                Commitmentsrelate to Tuscarora’s contract with a third party for maintenance services oncertain components of its pipeline-related equipment. The contract expires inNovember 2007.

On February 22, 2007, theSenior Credit Facility was amended and restated in connection with the GreatLakes acquisition.  The amount availableunder the Senior Credit Facility increased from $410 million to $950 million,consisting of a $700 million senior term loan and a $250 million seniorrevolving credit facility, with $194 million of the senior term loan availablebeing terminated upon closing of the Great Lakes acquisition.

The Partnership had $521million and $397 million outstanding under the Senior Credit Facility at March31, 2007 and December 31, 2006, respectively. The interest rate on the Senior Credit Facility averaged 6.12 per centand 6.16 per cent for the three months ended March 31, 2007 and December 31,2006, respectively.  At March 31, 2007and December 31, 2006, the interest rate was 6.07 per cent.

The Partnership hadSeries A Senior Secured Notes, Series B Senior Secured Notes and the Series CSecured Notes in the amounts of $58.0 million, $5.9 million and $7.2 million,respectively, outstanding at March 31, 2007 and December 31, 2006 related toTuscarora.  The Series A Senior SecuredNotes bear interest at 7.13 per centand mature in 2010.  The Series BSenior Secured Notes 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.

The Partnership was incompliance with all financial covenants as of March 31, 2007.

***Capital Requirements***

On April 9, 2007,Northern Border informed the Partnership that a contribution of $7.5 million ispayable on April 30, 2007, representing the Partnership’s 50 per cent share ofa $15.0 million cash call issued by Northern Border.  The funds will be used by Northern Border torepay indebtedness.

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.

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**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.  GreatLakes and Northern Border fund their operating expenses, debt service and cashdistributions to their partners primarily with operating cash flow.  Capital resources for maintenance and growthexpenditures are funded by a variety of sources, including cash generated fromoperating activities, borrowings under credit agreements (in the case ofNorthern Border), issuance of senior notes and/or equity contributions fromtheir partners.  Northern Border’s andGreat Lakes’ ability to access the capital markets to issue debt securitiesunder reasonable terms depends on their respective financial condition, creditratings (in the case of Northern Border) 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 March 31, 2007:
| ** **                                  | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | **Less than **                  | ** ** | **Long-term** | ** ** |
| **(millions of dollars)**         | ** ** | **Total**  | ** ** | **1 year**                           | ** ** | **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 |   |
|                                             |            |            |            |                                           |            |  |  |  |  |  |

 

Under the most restrictive covenants in the SeniorNote Agreements, approximately $242.0 million of Great Lakes’ partners’ capitalis restricted as to distributions as of March 31, 2007.

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

The following tablesummarizes Northern Border’s debt and credit facilities outstanding as of March31, 2007:

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| ** **                                       | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | **Less than **                  | ** ** | **Long-term** | ** ** |
| **(millions of dollars)**              | ** ** | **Total**  | ** ** | **1 year**                           | ** ** | **portion** | ** ** |
|                                             |       |       |       |                                      |       |   |   |
| $175 million credit  agreement due 2010 (a)  (b) |       | $          | 23.0       |                                      | $          | — |   | $ | 23.0 |   |
| 6.25% senior notes due  2007 (b)                 |       | $          | 150.0      |                                      | $          | — |   | $ | 150.0 |   |
| 7.75% senior notes due  2009                     |       | $          | 200.0      |                                      | $          | — |   | $ | 200.0 |   |
| 7.50% senior notes due  2021                     |       | $          | 250.0      |                                      | $          | — |   | $ | 250.0 |   |
| Total                                            |       | $          | 623.0      |                                      | $          | — |   | $ | 623.0 |   |

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(a)                 NorthernBorder is required to pay a facility fee of 0.075% on the principal commitmentamount of its credit agreement.

(b)                Short-term debtexpected to be refinanced.  See “Amendedand Restated Credit Agreement” discussion below.

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*Revolving Credit Agreement —*Asof March 31, 2007, Northern Border had outstanding borrowings of $23.0 millionunder its $175 million revolving credit agreement dated as of May 16, 2005 (the“2005 Credit Agreement”) and was in compliance with the covenants of itsagreement.  The weighted average interestrate related to the borrowings on the 2005 Credit Agreement was 6.22 per centat March 31, 2007.  Amounts outstandingunder this credit agreement were refinanced under the 2007 Credit Agreementdiscussed below.

*Amendedand Restated Credit Agreement —*On April 27, 2007, NorthernBorder entered into a $250 million amended and restated revolving creditagreement (the “2007 Credit Agreement”) with certain financial institutions.  The 2007Credit Agreement was used to refinance the outstanding indebtedness under its2005 Credit Agreement and will be used to repay all of the $150 million of its6.25 per cent Senior Notes due May 1, 2007. As of March 31, 2007, Northern Border classified with its long-termdebt, $173 million as short-term debt expected to be refinanced.  The 2007 Credit Agreement will also be usedto finance permitted acquisitions, pay related fees and expenses, issue lettersof credit and provide for ongoing working capital needs and for other generalbusiness purposes, including capital expenditures.

Northern Border may, at its option, so long as no default or eventof default has occurred and is continuing, elect to increase the capacity underits 2007 Credit Agreement by an aggregate amount not to exceed $100 million,provided that lenders are willing to commit additional amounts.  At Northern Border’s option, the interestrate on the outstanding borrowings may be the lenders’ base rate or the LondonInterbank Offered Rate plus a spread that is based on Northern Border’slong-term unsecured debt ratings. The 2007 Credit Agreement permits NorthernBorder to specify the portion of the borrowings to be covered by specificinterest rate options and to specify the interest rate period. Northern Borderis required to pay a commitment fee based on the principal amount of thecommitment of $250 million. The term of the agreement is five years, withoptions for two one-year extensions.

Under the 2007 CreditAgreement, Northern Border is required to comply with certain financial,operational and legal covenants. Among other things, Northern Border isrequired to maintain a ratio of total debt to EBITDA (net income plus interestexpense, income taxes, depreciation and amortization and all other non-cashcharges) of no more than 4.75 to 1. Pursuant to the 2007 Credit Agreement, ifone or more acquisitions are consummated in which the aggregate purchase priceis $25 million or more, the allowable ratio of total debt to EBITDA isincreased to 5.50 to 1 for the first three calendar quarters following theacquisition. Upon any breach of these covenants, amounts outstanding under the2007 Credit Agreement may become immediately due and payable.

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

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**ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

TC PipeLines is exposedto market risk through changes in interest rates.  The Partnership does not have any materialforeign exchange risks.  TC PipeLines’interest rate exposure results from its Senior Credit Facility, which issubject to variability in LIBOR interest rates. At March 31, 2007, TC PipeLines had $521 million outstanding on itsSenior Credit Facility.  If LIBORinterest rates change by one per cent compared to the rates in effect as ofMarch 31, 2007, the Partnership’s interest expense for the three months endedMarch 31, 2007 would have changed by $2.2 million.  This amount has been determined byconsidering the impact of the hypothetical interest rates on variable rate borrowingsoutstanding as of March 31, 2007.

The Partnership usesderivatives to assist in managing its exposure to interest rate risk.  The fair value of interest rate derivativeshas been calculated using period-end market rates.  At March 31, 2007, the fair value of thePartnership’s interest rate swaps accounted for as hedges was $0.4million.  The notional amount hedged was$300 million.  The interest rate swapsare structured such that the cash flows match those of the Senior CreditFacility between March 12, 2007 and December 12, 2011.

The Partnership is alsoinfluenced by the same factors that influence our pipeline assets.  None of our pipeline assets own any of thenatural gas they transport; therefore, they do not assume any of the relatednatural gas commodity price risk.

Northern Border utilizesboth fixed- and variable-rate debt and is exposed to market risk due to thefloating interest rates on its credit agreement.  Northern Border regularly assesses the impactof interest rate fluctuations on future cash flows and evaluates hedgingopportunities to mitigate its interest rate risk.

Northern Border maintainsa significant portion of its debt at fixed rates to reduce its sensitivity tointerest rate fluctuations. As of March 31, 2007, 96 per cent of NorthernBorder’s outstanding debt was at fixed rates and there were no interest rateswap agreements outstanding.  On May 12007, Northern Border’s variable-rate debt will increase as it plans to borrowunder its 2007 Credit Agreement to fund the repayment of all of the $150million of its 6.25 per cent Senior Notes due May 1, 2007.  Additional information about Northern Border’s2007 Credit Agreement is included in this report under “Debt and CreditFacilities of Northern Border”.

If interest rates hypotheticallyincreased one per cent on Northern Border’s variable-rate borrowingsoutstanding at March 31, 2007, its interest expense would increase and its 2007projected net income would decrease by approximately $0.2 million.

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**ITEM 4.  CONTROLSAND PROCEDURES**

**Evaluation ofDisclosure Controls and 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 inInternal Control over Financial 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 ofTuscarora**

On December 19, 2006, thePartnership acquired an additional 49 per cent interest in Tuscarora,increasing the Partnership’s interest in Tuscarora to 98 per cent.  The Partnership is in the process ofintegrating Tuscarora’s historical internal control over financial reportingwith the Partnership’s internal controls. This integration may lead to the Partnership making changes in its orTuscarora’s historical internal control over financial reporting in futureperiods.

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**PART II.  OTHER INFORMATION**

**ITEM 1A.  RISKFACTORS**

The following new ormodified risk factor should be read in conjunction with the risk factorsdisclosed in Part I, Item 1A, “RiskFactors,” in our annual report on Form 10-K for the year ended December 31,2006:

**TAX RISKS**

**If we orour pipeline assets were to become subject to a material amount of entity leveltaxation for state tax purposes, then our cash available for distribution toour partners and for other business needs may be substantially reduced.**

Our tax treatment and cash available for distributiondepends on our status as a partnership for federal income tax purposes, as wellas not being subject to entity level taxation by any state.  Several states are evaluating a variety ofways to subject partnerships to entity level taxation.  One prevalent form of such taxation is a taxon gross receipts apportioned to a state. Imposition of such a tax or similar tax on us or our pipeline assets byany state would reduce the cash available for distribution to our partners andfor other business needs.

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**ITEM 6. EXHIBITS**
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2   |       | Transportation Service Agreement FT4761 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated November 4, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3   |       | Transportation Service Agreement FT4762 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated November 4, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4   |       | Transportation Service Agreement FT4763 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated November 4, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.5   |       | Transportation Service Agreement FT4764 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated November 30, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.6   |       | Transportation Service Agreement FT5840 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated December 1, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.7   |       | Transportation Service Agreement FT5841 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated December 1, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.8   |       | Transportation Service Agreement FT5842 between  Great Lakes Gas Transmission Limited Partnership and TransCanada PipeLines  Limited, dated November 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.10  |       | Operating Agreement between Great Lakes Gas  Transmission Limited Partnership and Great Lakes Gas Transmission Company,  dated April 5, 1990.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| *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)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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| *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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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*                    Indicatesexhibits incorporated by reference.

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**SIGNATURES**

Pursuantto the requirements of the Securities and Exchange Act of 1934, the Registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                       | **TC PipeLines, LP**             |
|-----------------------|----------------------------------|
|                  | (a Delaware Limited Partnership) |
|                  | By:                              | TC PipeLines GP, Inc.,  its general partner |
|                  |                             |   |
|                  | By:                              | /s/ Russell K. Girling |   |
| Date: April 30,  2007 |                             | Russell K. Girling |
|                  |                             | Chairman, Chief Executive Officer and Director |
|                  |                             | TC PipeLines GP, Inc. (Principal Executive Officer) |
|                  |                             |   |
|                  | By:                              | /s/ Amy W. Leong |   |
| Date: April 30,  2007 |                             | Amy W. Leong |
|                  |                             | Controller |
|                  |                             | TC PipeLines GP, Inc. (Principal Financial Officer) |

 

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