**Exhibit 99.1**

**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

**To theBoard of Directors of TC PipeLines GP, Inc., General Partner of TC PipeLines,LP:**

**We haveaudited the accompanying consolidated balance sheets of TC PipeLines GP, Inc,(a Delaware corporation) as of December 31, 2006 and 2005.  These consolidated balance sheets are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedbalance sheets based on our audits.**

**Weconducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtainreasonable assurance about whether the balance sheets are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe balance sheets.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall balance sheetpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.**

**In ouropinion, the consolidated balance sheets referred to above present fairly, inall material respects, the financial position of the Company as of December 31,2006 and 2005 in conformity with accounting principles generally accepted inthe United States of America.**

**/s/ KPMGLLP**

**Chartered Accountants**

**Calgary, Canada**

**April 25,2007**

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**CONSOLIDATED BALANCESHEETS**

**TC PipeLines GP,Inc.**
| **December 31 (millions of dollars)**                             | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Assets**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets                                                                        |       |       |       |       |       |
| Cash and  short-term investments                                                      | ** ** | **4.3**    |       | 2.6        |       |
| Accounts  receivables and other                                                       | ** ** | **2.5**    |       | —     |       |
| Due from  affiliate (Note 10)                                                         | ** ** | **6.0**    |       | 4.5        |       |
|                                                                                  | ** ** | **12.8**   |       | 7.1        |       |
| Investment in Northern  Border Pipeline (Note 3)                                      | ** ** | **561.2**  |       | 274.5      |       |
| Investment in Tuscarora  (Note 4)                                                     | ** ** | **—** |       | 38.9       |       |
| Plant, property and  equipment (Note 5)                                               | ** ** | **127.0**  |       | —     |       |
| Goodwill (Note 6)                                                                     | ** ** | **79.2**   |       | —     |       |
| Other assets                                                                          | ** ** | **3.9**    |       | —     |       |
|                                                                                  | ** ** | **784.1**  |       | 320.5      |       |
| **Liabilities and Stockholder’s  Equity**                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current liabilities                                                                   |       |       |       |       |       |
| Accounts payable                                                                      | ** ** | **3.3**    |       | 1.1        |       |
| Accrued interest                                                                      | ** ** | **1.3**    |       | —     |       |
| Due to  affiliates (Note 10)                                                          | ** ** | **3.1**    |       | 1.1        |       |
| Current portion  of long-term debt (Note 7)                                           | ** ** | **4.7**    |       | 13.5       |       |
|                                                                                  | ** ** | **12.4**   |       | 15.7       |       |
| Long-term debt (Note 7)                                                               | ** ** | **463.4**  |       | —     |       |
| Deferred income tax  (Note 8)                                                         | ** ** | **18.6**   |       | 16.4       |       |
|                                                                                  | ** ** | **494.4**  |       | 32.1       |       |
| Non-controlling  interests                                                            | ** ** | **266.3**  |       | 263.1      |       |
|                                                                                  | ** ** | ** ** |       |       |       |
| Stockholder’s equity  (Note 9)                                                   |       |       |       |       |       |
| Common stock  ($0.01 par value per share; 1,000 shares authorized; 100 shares issued) | ** ** | **—** |       | —     |       |
| Additional  paid-in capital                                                           | ** ** | **18.2**   |       | 24.7       |       |
| Retained  earnings                                                                    | ** ** | **4.9**    |       | 0.5        |       |
| Accumulated  other comprehensive income                                               | ** ** | **0.3**    |       | 0.1        |       |
|                                                                                  | ** ** | **23.4**   |       | 25.3       |       |
|                                                                                  | ** ** | **784.1**  |       | 320.5      |       |
| Commitments (Note 13)                                                                 |       |       |       |       |       |
| Subsequent events (Note 14)                                                           |       |       |       |       |       |

 

Theaccompanying notes are an integral part of these balance sheets.

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## **NOTES TOCONSOLIDATED BALANCE SHEETS**

## **Note 1    Organization**

TC PipeLines GP,Inc. (the GP), a Delaware corporation, was formed by TransCanada PipeLinesLimited in December 1998 to become the general partner of TC PipeLines, LP (theLP), a Delaware limited partnership. The GP and the LP are collectivelyreferred to herein as the Company. On May 15, 2003, TransCanada PipeLinesLimited became a wholly-owned subsidiary of TransCanada Corporation(collectively referred to herein as TransCanada). The GP is an indirectwholly-owned subsidiary of TransCanada.

The GP holds a twoper cent general partner interest in the LP and also owns 2,035,106 commonunits, representing an effective 13.4 per cent limited partner interest in theLP at December 31, 2006. By virtue of the GP’s performance of all managementand operating functions required by the LP pursuant to the Amended and RestatedAgreement of Limited Partnership of TC PipeLines, LP (Partnership Agreement),the GP has control of the operating and financial policies of the LP.

The LP is apublicly traded partnership.  Commonunits of the LP are listed on the Nasdaq Global Market and are quoted fortrading under the symbol “TCLP.” The LP owns a 50 per cent general partnerinterest in Northern Border Pipeline Company (Northern Border Pipeline) andowns or controls a 99 per cent interest in Tuscarora Gas Transmission Company(Tuscarora). Northern Border Pipeline owns a 1,249-mile interstate pipelinesystem that transports natural gas from the Montana-Saskatchewan border tomarkets in the midwestern United States. Tuscarora owns a 240-mile interstatepipeline system that transports natural gas from Oregon, where it interconnectswith facilities of Gas Transmission Northwest Corporation, to northern Nevada.

**Note 2    Significant Accounting Policies**

***a)******             Basis of Presentationand Use of Estimates***

The accompanyingconsolidated balance sheets and related notes present the consolidatedfinancial position of the Company as of December 31, 2006 and 2005. Thepreparation of consolidated balance sheets in conformity with generally acceptedaccounting principles in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe balance sheets. Although management believes these estimates arereasonable, actual results could differ from these estimates. Amounts arestated in United States dollars.

***b)******             Principles ofConsolidation***

The consolidated balancesheets include the accounts of the GP and the LP.  The GP controls the operations of the LPthrough its two per cent general partner interest.  All significant intercompany transactions andaccounts have been eliminated on consolidation. The Company uses the equitymethod of accounting for its investment in Northern Border Pipeline, over whichit is able to exercise significant influence. The Company accounted for itsinvestment in Tuscarora using the equity method until December 19, 2006. Onthis date, the Company acquired an additional 49 per cent general partnerinterest in Tuscarora and as a result of acquiring a controlling interest inTuscarora, began to consolidate Tuscarora’s operations.

***c)******              Cash and Short-TermInvestments***

The Company’s short-terminvestments with original maturities of three months or less are considered tobe cash equivalents and are recorded at cost, which approximates market value.

***d)******             Plant, Property andEquipment***

Plant, property andequipment relates solely to Tuscarora and is stated at original cost. Costs ofmigrating the land above and around the pipeline are capitalized to pipelinefacilities and depreciated over the remaining life of the related pipelinefacilities. Depreciation of pipeline

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facilities andcompression equipment is provided on a straight-line composite basis over theestimated useful life of the pipeline of 30 years and of the compressionequipment of 25 years. Equipment is depreciated on a straight-line basis overthe estimated useful lives of the equipment which range from three to 30 years.Repair and maintenance costs are expensed as incurred. Costs that areconsidered a betterment are capitalized.

Long-lived assets areassessed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Recoverability isassessed by comparing the carrying amount of an asset to future net cash flowsexpected to be generated by the asset. If such assets are considered to beimpaired, the impairment to be recognized is measured by the amount by whichthe carrying amounts of such assets exceed the fair value of the assets.

***e)******              Revenue Recognition***

Transmissionrevenues are recognized in the period in which the service is provided.  When rate cases are pending final FERCapproval, a portion of revenue collected is subject to possible refund.  As of December 31, 2006, the Partnership hasnot recognized any transmission revenue that is subject refund.

***f)******                Income Taxes***

The Company follows the liability method of accountingfor income taxes in accordance with Statement of Financial Accounting StandardsNo. 109 “Accounting for Income Taxes” (SFAS 109). Under SFAS 109, deferredincome taxes are recorded based upon differences between the financialreporting and tax basis of assets and liabilities and are measured using theenacted tax rates and laws that will be in effect when the underlying assetsare received and liabilities settled.

***g)******             Acquisitions andGoodwill***

The Company accounts forbusiness acquisitions using the purchase method of accounting and accordinglythe assets and liabilities of the acquired entities are recorded at theirestimated fair values at the date of acquisition.  The excess of the purchase price over thefair value of net assets acquired is attributed to goodwill. Goodwill is notamortized for accounting purposes but is amortized for tax purposes. Goodwillis re-evaluated on an annual basis for impairment.

***h)******             Derivative FinancialInstruments and Hedging Activities***

The Company utilizesderivative and other financial instruments to manage its exposure to changes ininterest rates. Derivatives and other instruments must be designated and beeffective to qualify for hedge accounting. Derivatives are recorded at their fair value at each balance sheet date.For cash flow hedges, unrealized gains or losses relating to derivatives arerecognized as other comprehensive income. In the event that a derivative doesnot meet the designation or effectiveness criteria, any unrealized gain or losson the instrument is recognized immediately in earnings.

If a derivative thatpreviously qualified as a hedge is settled, de-designated or ceases to beeffective, the gain or loss at that date is deferred and recognized in the sameperiod and in the same financial statement category as the corresponding hedgedtransactions. If a hedged anticipated transaction is no longer probable tooccur, related gains or losses are immediately recognized in earnings andamounts previously recognized in other comprehensive income are reclassified toearnings prospectively. Costs associated with the purchase of certain hedginginstruments are deferred and amortized against interest expense.

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***i)******                Asset RetirementObligation***

SFAS No. 143, *Accounting for Asset Retirement Obligations,* providesaccounting requirements for the recognition and measurement of liabilitiesassociated with the retirement of tangible long-lived assets. Under thestandard, these liabilities are recognized at fair value as incurred andcapitalized as part of the cost of the related tangible long-lived assets.Accretion of the liabilities due to the passage of time is classified as anoperating expense. Retirement obligations associated with long-lived assetsincluded within the scope of SFAS No. 143 are those for which a legalobligation exists under enacted laws, statutes, ordinances, or written or oralcontracts, including obligations arising under the doctrine of promissoryestoppel.

The plant, property andequipment of Tuscarora consists primarily of underground pipelines and aboveground compression equipment and other facilities. No amount has been recordedfor asset retirement obligations relating to these assets based on management’sassessment that no legal obligation exists.

# **Note 3        Investment in Northern Border Pipeline**

The LP owns a 50per cent general partner interest in Northern Border Pipeline. The remaining 50per cent partnership interest in Northern Border Pipeline is held by ONEOKPartners, LP (ONEOK), a publicly traded limited partnership. The NorthernBorder pipeline system is operated by ONEOK Partners GP, LLC, a wholly-ownedsubsidiary of ONEOK. Northern Border Pipeline is regulated by the FederalEnergy Regulatory Commission (FERC).

On April 6, 2006, the LPacquired an additional 20 per cent general partner interest in Northern BorderPipeline. There were no undistributed earnings of Northern Border Pipeline forthe years ended December 31, 2006 and 2005.

The following sets outsummarized balance sheet information for Northern Border Pipeline as atDecember 31, 2006 and 2005:

**SummarizedNorthern Border Pipeline Balance Sheet**
| **December 31**                                            | ** ** | **2006**    | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------|------------|-------------|------------|------------|------------|
| **(millions of dollars)**                             | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Assets**                                                      |       |        |       |       |       |
| Cash and cash  equivalents                                      | ** ** | **11.0**    |       | 22.0       |       |
| Other current  assets                                           | ** ** | **35.5**    |       | 45.7       |       |
| Plant, property  and equipment, net                             | ** ** | **1,475.7** |       | 1,516.1    |       |
| Other assets                                                    | ** ** | **22.5**    |       | 20.9       |       |
|                                                            | ** ** | **1,544.7** |       | 1,604.7    |       |
|                                                            |       |        |       |       |       |
| **Liabilities  and Partners’ Equity**                      |       |        |       |       |       |
| Current  liabilities                                            | ** ** | **47.7**    |       | 56.0       |       |
| Long-term debt,  including current maturities and notes payable | ** ** | **619.8**   |       | 628.9      |       |
| Reserves and  deferred credits                                  | ** ** | **2.1**     |       | 4.8        |       |
| Partners’ equity                                           |       |        |       |       |       |
| Partners’ capital                                          | ** ** | **874.1**   |       | 912.7      |       |
| Accumulated other comprehensive income                          | ** ** | **1.0**     |       | 2.3        |       |
|                                                            | ** ** | **1,544.7** |       | 1,604.7    |       |

 

# **Note 4        Investment in Tuscarora Gas Transmission**

OnSeptember 1, 2000, the LP acquired its initial 49 per cent interest inTuscarora from a subsidiary of TransCanada. Tuscarora is regulated by the FERC.

OnDecember 19, 2006, the LP acquired an additional 49 per cent general partnerinterest in Tuscarora. At December 31, 2006, the LP owns a 98 per cent

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generalpartner interest in Tuscarora. The remaining general partner interests inTuscarora are held one per cent by Sierra Pacific Resources and one per cent byTransCanada. There were no undistributed earnings of Tuscarora for the yearsended December 31, 2006 and 2005.

**Note 5    Plant, Property and Equipment**
| ** **                          | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | **Net Book** | ** ** |
|-------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|
| **December 31, 2006**     | ** ** | **Cost**   | ** ** | **Depreciation** | ** ** | **Value**         | ** ** |
| **(millions of dollars)** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **        | ** ** |
| **Tuscarora**                       |       |       |       |             |       |              |       |
| Pipeline  facilities                |       | 160.1      |       | 51.9             |       | 108.2             |       |
| Compression  equipment              |       | 20.9       |       | 3.5              |       | 17.4              |       |
| Construction  work in progress      |       | 1.3        |       | —           |       | 1.3               |       |
| Plant held for  future use          |       | 0.1        |       | —           |       | 0.1               |       |
|                                | ** ** | **182.4**  | ** ** | **55.4**         | ** ** | **127.0**         | ** ** |

 

**Note 6    Acquisitions**

*Northern Border Pipeline*

On April 6, 2006,the LP acquired an additional 20 per cent general partnership interest inNorthern Border Pipeline for approximately $297 million plus a $10 milliontransaction fee payable to a subsidiary of TransCanada, bringing the LP’s totalinterest to 50 per cent. Through the acquisition, the LP indirectly assumedapproximately $120 million of debt. The Partnership funded the transactionthrough a Bridge Loan Credit Facility. In connection with this transaction, asubsidiary of TransCanada will become the operator of Northern Border Pipelinein April 2007.

The acquisitionwas accounted for using the purchase method of accounting. The purchase pricewas allocated using an estimate of fair value of the net assets at the date ofacquisition. The difference between the purchase price and the fair value ofnet assets of $114 million, being goodwill, was recorded as part of the LP’sinvestment in Northern Border Pipeline. The $10 million transaction fee payableto a subsidiary of TransCanada, who will become the operator of Northern BorderPipeline in April 2007, has been recorded as part of the LP’s investment inNorthern Border Pipeline and is being amortized over the term of the relatedoperating agreement.

*Tuscarora*

On December 19,2006, the LP acquired an additional 49 per cent general partnership interest inTuscarora for $99.9 million, subject to closing adjustments. Through theacquisition the LP indirectly assumed $37.5 million of Tuscarora debt. ThePartnership funded the transaction through the Senior Credit Facility. Inconnection with this transaction, a subsidiary of TransCanada became theoperator of Tuscarora.

The acquisitionwas accounted for using the purchase method of accounting.  The purchase price was allocated as followsusing an estimate of fair value of the assets acquired and liabilities assumedat the date of acquisition:

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| ** **                              | ** ** | **Acquisition of** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **additional 49%** | ** ** |
| **Purchase Price Allocation** | ** ** | **interest**            | ** ** |
| **(millions of dollars)**     | ** ** | ** **              | ** ** |
| Current assets                          | ** ** | **4.7**                 | ** ** |
| Plant, property  and equipment          | ** ** | **56.6**                | ** ** |
| Other  non-current assets               | ** ** | **0.7**                 | ** ** |
| Goodwill                                | ** ** | **79.2**                | ** ** |
| Current  liabilities                    | ** ** | **(2.6**                | **)**      |
| Long-term debt                          | ** ** | **(37.5**               | **)**      |
| Non-controlling  interests              | ** ** | **(1.2**                | **)**      |
|                                    | ** ** | **99.9**                | ** ** |

 

Tuscarora’sbusiness is subject to rate regulation based on historical costs which do notchange with market conditions or change of ownership. Accordingly, uponacquisition, the assets and liabilities of Tuscarora were determined to have afair value equal to the rate regulated historical costs. No intangibles otherthan goodwill were identified in the acquisition.

#### **Note7    Credit Facilities and Long-Term Debt**

| ** **                          | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|
| **(millions of dollars)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Senior Credit  Facility             | ** ** | **397.0**  |       | —     |       |
| Series A Senior  Notes              | ** ** | **57.9**   |       | —     |       |
| Series B Senior Notes               | ** ** | **6.0**    |       | —     |       |
| Series C Senior  Notes              | ** ** | **7.2**    |       | —     |       |
| Revolving Credit  Facility          | ** ** | **—** |       | 13.5       |       |
| Total                               | ** ** | **468.1**  |       | 13.5       |       |

 

On February 28, 2006, theLP renewed a $20.0 million, previously $30.0 million, unsecured credit facility(Revolving Credit Facility). Loans under the Revolving Credit Facility boreinterest, at the option of the LP, at a one-, two-, three-, or six-month Londoninterbank offered rate (LIBOR) plus 0.75 per cent or 1.00 per cent if totaldebt was less than 15 per cent of capitalization, or greater than or equal to15 per cent of capitalization, respectively, or at a floating rate based on thehigher of the federal funds effective rate plus 0.5 per cent and the primerate. In 2005, the LP repaid $16.5 million on the Revolving Credit Facility andhad $13.5 million outstanding at December 31, 2005. In 2006, the LP repaid theRevolving Credit Facility in full and it was terminated. The interest rate onthe Revolving Credit Facility averaged 5.60 per cent and 4.40 per cent for theyears ended December 31, 2006 and 2005, respectively, and at December 31, 2005the interest rate was 5.62 per cent.

On March 31, 2006, the LP entered into an unsecured credit agreementfor a $310 million credit facility (Bridge Loan Credit Facility) with a bankingsyndicate. Borrowings under the Bridge Loan Credit Facility bore interest, atthe option of the LP, at the LIBOR or the base rate plus an applicable margin. On April 5, 2006, the LP borrowed $307million under the Bridge Loan Credit Facility to finance the purchase price anda $10 million transaction fee payable in connection with the acquisition of anadditional 20 per cent general partnership interest in Northern BorderPipeline. The remaining $3 million commitment under the Bridge Loan CreditFacility was terminated. On December 12, 2006, the Bridge Loan Credit Facilitywas refinanced through a $297 million draw on a $410 million credit agreement(Senior Credit Facility) with a banking syndicate and the use of $10 millioncash on hand. The interest rate on the Bridge Loan Credit Facilityaveraged 6.29 per cent for the year ended December 31, 2006.

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On December 12,2006, the LP entered into a credit agreement for the Senior Credit Facility. OnDecember 19, 2006, the LP borrowed an additional $100 million under the SeniorCredit Facility to finance the purchase price of an additional 49 per centgeneral partner interest in Tuscarora. The Senior Credit Facility matures onDecember 12, 2011, at which time all amounts outstanding will be due andpayable. Amounts borrowed may be repaid in part or in full prior to that timewithout penalty. Borrowings under the Senior Credit Facility will bear interestbased, at the LP’s election, on the LIBOR or the prime rate plus, in eithercase, an applicable margin. There was $397 million outstanding under the SeniorCredit Facility at December 31, 2006. The interest rate on the Senior CreditFacility averaged 6.16 per cent for the year ended December 31, 2006 and atDecember 31, 2006, the interest rate was 6.07 per cent. At December 31, 2006,the Partnership was in compliance with its financial covenants.

On December 21,1995, Tuscarora issued $91.7 million of 7.13 per cent senior secured notes,which require principal and interest payments over 15 years and mature onDecember 21, 2010 (Series A). On December 21, 2000, Tuscarora issued $8.0million of 7.99 per cent senior secured notes, which require principal andinterest payments over ten years and mature on December 21, 2010 (Series B). OnMarch 15, 2002, Tuscarora issued $10.0 million of 6.89 per cent senior securednotes, which require principal and interest payments over ten years and matureon December 21, 2012 (Series C). The Series A, Series B and Series C notes(collectively, the Notes) have a final payment at maturity of $46.7 million, $4.1million and $2.7 million, respectively. The Notes are secured by Tuscarora’stransportation contracts, supporting agreements and substantially all ofTuscarora’s property. The credit agreement for the Notes contains certainprovisions that include, among other items, limitations on additionalindebtedness and distributions to partners.

Annual maturitiesof the Senior Credit Facility and the Notes are summarized as follows (*millions of dollars*):
| 2007       |   | 4.7   |   |
|------------|--------|-------|--------|
| 2008       |   | 4.6   |   |
| 2009       |   | 4.4   |   |
| 2010       |   | 53.5  |   |
| 2011       |   | 397.8 |   |
| Thereafter |   | 3.1   |   |
|       |   | 468.1 |   |

 

**Note 8    Income Taxes**

Deferred incometax liabilities of $18.6 million for 2006 (2005 - $16.4 million) arise from theCompany’s investments having higher book basis than tax basis.

#### **Note9    Stockholder’s Equity**

A wholly-owned subsidiaryof TransCanada holds 100 common shares representing 100 per cent of the issuedcommon stock of the Company.  On July 21,2006 the Company declared a distribution of $6.5 million in the form of areturn of capital to a wholly-owned subsidiary of TransCanada.

#### **Note10  Related Party Transactions**

The Company doesnot have any employees. Management is provided by TransCanada. TransCanada doesnot receive a fee or other compensation for its management of the Company. TheCompany reimburses TransCanada for all costs, including the costs of employee,officer and director compensation and benefits, and all other expensesnecessary to the conduct of the Company’s business. Total costs reimbursed were$1.2 million for the year ended December 31, 2006 (2005 - $1.1 million).

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On April 6, 2006 the LPacquired an additional 20 per cent general partnership interest in NorthernBorder Pipeline. As part of this transaction, the LP paid a $10 milliontransaction fee to a subsidiary of TransCanada, who will become the operator ofNorthern Border Pipeline in April 2007. The fee has been recorded as part ofthe investment in Northern Border Pipeline and is being amortized over the termof the related operating agreement.

As at December 31,2006 and 2005, $0.5 million was owed to TransCan Northern Ltd., a wholly-ownedsubsidiary of TransCanada. As at December 31, 2006 $2.3 million was owed toTransCanada PipeLines USA Ltd. (TCPL USA), a wholly-owned subsidiary ofTransCanada (2005 - $0.6 million).

As at December 31,2006 $6.0 million was owed to the Company by TCPL USA under a credit facilityagreement (2005 - $4.5 million). The advance bears interest at the U.S. primerate. Amounts advanced may be repaid, in part or in full, with one business daynotice.

**Note 11  Capital Requirements**

The LP contributed$3.1 million during 2006, representing its then 30 per cent share of a $10.3million cash call issued by Northern Border Pipeline.  The funds were used by Northern BorderPipeline to fund an expansion project.

**Note 12  Financial Instruments**

The carrying value ofcash and short-term investments, accounts receivable and other, due fromaffiliate, accounts payable and accrued interest approximate their fair valuesbecause of the short maturity or duration of these instruments, or because theinstruments carry a variable rate of interest or a rate that approximatescurrent rates. The fair value of the LP’s long-term debt is estimated bydiscounting the future cash flows of each instrument at current borrowingrates.

The estimated fair values of the LP’s long-term debt as of December 31,2006 are as follows:
| ** **                          | ** ** | **Carrying Value** | ** ** | **Fair Value** | ** ** |
|-------------------------------------|------------|-------------------------|------------|---------------------|------------|
| **(millions of dollars)** | ** ** | ** **              | ** ** | ** **          | ** ** |
| Senior Credit  Facility             |       | 397.0                   |       | 397.0               |       |
| Series A Senior  Notes              |       | 57.9                    |       | 60.9                |       |
| Series B Senior  Notes              |       | 6.0                     |       | 6.4                 |       |
| Series C Senior Notes               |       | 7.2                     |       | 7.5                 |       |
| Total                               |       | 468.1                   |       | 471.8               |       |

 

The Partnership’s short-term and long-term debt results in exposures tochanging interest rates. The Partnership uses derivatives to assist in managingits exposure to interest rate risk.

At December 31, 2006, the fair value of the interest rate swaps accountedfor as hedges was $1.6 million. The fair value of interest rate derivatives hasbeen calculated using year-end market rates. The notional amount hedged was$200 million. The interest rate swaps are structured such that the cashflows match those of the Senior Credit Facility from March 12, 2007 to December12, 2011.

#### **Note13  Commitments**

At December 31,2006, Tuscarora is party to a contract with a third party for maintenanceservices on certain components of pipeline equipment. The contract requirespayments of approximately $0.7 million in 2007. In 2006, Tuscarora paid $0.8 million under this contract.

#### **Note14  Subsequent Events**

OnFebruary 22, 2007, the LP acquired a 46.45 per cent interest in Great Lakesfrom El Paso Corporation.  The totalpurchase price was $942 million, subject

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tocertain closing adjustments, and included the indirect assumption ofapproximately $209 million of debt. The acquisition was partially financedthrough a private placement of 17,356,086 common units at $34.57 per commonunit for gross proceeds of $600 million which closed concurrently with theacquisition. TransCan Northern Ltd. purchased 8,678,045 of the 17,356,086common units issued for gross proceeds of $300 million. The LP funded thebalance of the total consideration with a draw on its senior credit facility,which was amended and restated in connection with the acquisition. The amountavailable under the senior credit facility increased from $410 million to $950million, consisting of a $700 million senior term loan and a $250 millionsenior revolving credit facility, with $194 million of the senior term loanavailable being terminated upon closing of the acquisition. In addition, the GPmaintained its two per cent general partner interest in the LP by contributing$12.6 million to the LP in connection with the private equity placement.

TransCanada,which previously held a 50 per cent interest in Great Lakes, acquired theremaining 3.55 per cent interest simultaneously with the LP’s acquisition ofits interest. A wholly-owned subsidiary of TransCanada also became the operatorof Great Lakes. The LP used the equity method of accounting for its interest inGreat Lakes at the date of acquisition.

On April 9, 2007,Northern Border Pipeline informed the LP that a contribution of $7.5 million ispayable on April 30, 2007, representing the LP’s 50 per cent share of a $15million cash call issued by Northern Border Pipeline.  The funds will be used by Northern BorderPipeline to refinance senior notes due May 1, 2007.

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