**UNITED STATES SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-Q**
| **x**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
|       |       |                                                                                          |
| ** ** | ** ** | **For the  quarterly period ended June 30, 2007**                                             |
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **or**                                                                                        |
|       | ** ** | ** **                                                                                    |
| **o**      | ** ** | **TRANSITION  REPORT 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**

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

| **Delaware**                                   |   | **52-2135448**                           |
|------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of incorporation |   | (I.R.S. Employer  Identification Number) |
| or organization)                               |   | ** **                               |

 

| **110 Turnpike Road, Suite 203**          | ** ** | ** ** |
|-------------------------------------------|------------|------------|
| **Westborough,  Massachusetts**           | ** ** | **01581**  |
| (Address of  principal executive offices) |       | (Zip code) |

 

**508-871-7046**

**(Registrant’s telephone number,including area code)**

**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 thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 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.**
| Large accelerated filer x | Accelerated filer o | Non-accelerated filer o |
|---------------------------|---------------------|-------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes o    Nox

 

**As ofAugust 3, 2007, there were 34,856,086 of the registrant’s common unitsoutstanding.**

 

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**TCPIPELINES, LP**

**TABLE OFCONTENTS**
| **PART I**  | ** ** | **FINANCIAL  INFORMATION**                                                                                      |   |   |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------|--------|--------|
| ** **  | ** ** | ** **                                                                                                      |   |   |
| Item 1.     |       | Financial  Statements                                                                                           |   |   |
|        |       | Consolidated  Statement of Income  – Three and six  months ended June 30, 2007 and 2006               |   |   |
|        |       | Consolidated  Statement of Comprehensive Income  –  Three and six months ended June 30, 2007 and 2006 |   |   |
|        |       | Consolidated Balance  Sheet  – June 30, 2007 and December 31,  2006                                   |   |   |
|        |       | Consolidated  Statement of Cash Flows  – Six months  ended June 30, 2007 and 2006                     |   |   |
|        |       | Consolidated  Statement of Changes in Partners’ Equity  – Six months ended June 30, 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 UnitedStates dollars unless otherwise indicated.**

2

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**PARTI.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

**TC PipeLines, LP**

**Consolidated Statement ofIncome**
| **(unaudited)**                                                                 | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars except per unit amounts)** | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                            |       |                                               |       |                                             |       |   |   |   |   |
| Equity income from  investment in Great Lakes (Note 2)                          | ** ** | **13.1**                                           |       | —                                           | ** ** | **20.1** |   | — |   |
| Equity income from  investment in Northern Border (Note 3)                      | ** ** | **10.3**                                           |       | 12.3                                             | ** ** | **28.1** |   | 23.5 |   |
| Equity income from  investment in Tuscarora (Note 4)                            |       | —                                             |       | 1.6                                              |       | — |   | 3.6 |   |
| Transmission revenues                                                           | ** ** | **6.7**                                            |       | —                                           | ** ** | **13.6** |   | — |   |
| Operations, maintenance  and administrative expenses                            | ** ** | **(2.2**                                           | **)**      | (0.7                                             | )          | **(4.2** | **)** | (1.3 | ) |
| Depreciation                                                                    | ** ** | **(1.5**                                           | **)**      | —                                           | ** ** | **(3.1** | **)** | — |   |
| Financial charges, net  and other                                               | ** ** | **(8.7**                                           | **)**      | (4.2                                             | )          | **(16.8** | **)** | (4.4 | ) |
| **Net income**                                                                  | ** ** | **17.7**                                           |       | 9.0                                              | ** ** | **37.7** |   | 21.4 |   |
|                                                                            |       |                                               |       |                                             |       |   |   |   |   |
| **Net income allocation**                                                       |       |                                               |       |                                             |       |   |   |   |   |
| Common units                                                                    | ** ** | **15.6**                                           |       | 8.3                                              | ** ** | **34.6** |   | 20.0 |   |
| General partner                                                                 | ** ** | **2.1**                                            |       | 0.7                                              | ** ** | **3.1** |   | 1.4 |   |
|                                                                            | ** ** | **17.7**                                           |       | 9.0                                              | ** ** | **37.7** |   | 21.4 |   |
|                                                                            |       |                                               |       |                                             |       |   |   |   |   |
| **Net income per common unit  (Note 6)**                                        | ** ** | **$**                                              | **0.45**   |                                             | $          | 0.47 | ** ** | **$** | **1.16** |   | $ | 1.14 |   |
|                                                                            |       |                                               |       |                                             |       |   |   |   |   |
| **Weighted average units outstanding  (millions)**                              | ** ** | **34.9**                                           |       | 17.5                                             | ** ** | **29.8** |   | 17.5 |   |
|                                                                            |       |                                               |       |                                             |       |   |   |   |   |
| **Units outstanding at the end of the period  (millions)**                 | ** ** | **34.9**                                           |       | 17.5                                             | ** ** | **34.9** |   | 17.5 |   |
|                                                                                 |            |                                                    |            |                                                  |            |  |  |  |  |  |  |  |  |

 

**Consolidated Statement ofComprehensive Income**
| **(unaudited)**                                                          | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars)**                                      | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                     |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                               | ** ** | **17.7**                                           |       | 9.0                                              | ** ** | **37.7** |   | 21.4 |   |
| Other comprehensive  income                                              |       |                                               |       |                                             |       |   |   |   |   |
| Change  associated with current period hedging transactions (Note 10)    |       | **5.9**                                            |       | —                                           |       | **4.7** |   | — |   |
| Change  associated with current period hedging transactions of investees |       | **(0.1**                                           | **)**      | (0.2                                             | )          | **(0.4** | **)** | (0.3 | ) |
| **Total comprehensive income**                                           | ** ** | **23.5**                                           |       | 8.8                                              | ** ** | **42.0** |   | 21.1 |   |

 

3

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**Consolidated Balance Sheet**
| **(unaudited)**                            | ** ** | ** **                  | ** ** | ** **                      | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **(millions of dollars)**        | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
| **ASSETS**                                 |       |                        |       |                            |       |
| Current Assets                             |       |                        |       |                            |       |
| Cash and short-term investments            | ** ** | **7.5**                     |       | 4.0                             |       |
| Accounts receivable and other              | ** ** | **3.2**                     |       | 2.5                             |       |
|                                       | ** ** | **10.7**                    |       | 6.5                             |       |
| Investment in  Great Lakes (Note 2)        | ** ** | **733.2**                   |       | —                          |       |
| Investment in  Northern Border (Note 3)    | ** ** | **548.7**                   |       | 561.2                           |       |
| Plant, property  and equipment             | ** ** | **127.4**                   |       | 127.0                           |       |
| Goodwill                                   | ** ** | **79.1**                    |       | 79.2                            |       |
| Other assets                               | ** ** | **9.2**                     |       | 3.9                             |       |
|                                       | ** ** | **1,508.3**                 |       | 777.8                           |       |
|                                       |       |                        |       |                            |       |
| **LIABILITIES  AND PARTNERS’ EQUITY** |       |                        |       |                            |       |
| Current  Liabilities                       |       |                        |       |                            |       |
| Accounts payable                           | ** ** | **2.5**                     |       | 3.3                             |       |
| Accrued interest                           | ** ** | **3.1**                     |       | 1.3                             |       |
| Current portion of long-term debt (Note 5) | ** ** | **4.7**                     |       | 4.7                             |       |
|                                       | ** ** | **10.3**                    |       | 9.3                             |       |
| Long-term debt  (Note 5)                   | ** ** | **580.0**                   |       | 463.4                           |       |
|                                       | ** ** | **590.3**                   |       | 472.7                           |       |
| Non-controlling  interests                 | ** ** | **1.3**                     |       | 1.2                             |       |
| Partners’ Equity  (Note 7)            |       |                        |       |                            |       |
| Common units                               | ** ** | **891.5**                   |       | 295.6                           |       |
| General partner                            | ** ** | **19.1**                    |       | 6.5                             |       |
| Accumulated other comprehensive income     | ** ** | **6.1**                     |       | 1.8                             |       |
|                                       | ** ** | **916.7**                   |       | 303.9                           |       |
|                                       | ** ** | **1,508.3**                 |       | 777.8                           |       |

 

Subsequent events (Note 11)

See accompanying notes to theconsolidated financial statements.

4

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**Consolidated Statement ofCash Flows**
| **(unaudited)**                                             | ** ** | **Six months ended June 30** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars)**                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                        |       |                                             |       |   |   |
| **CASH  GENERATED FROM OPERATIONS**                         |       |                                             |       |   |   |
| Net income                                                  | ** ** | **37.7**                                         |       | 21.4 |   |
| Depreciation                                                | ** ** | **3.1**                                          |       | — |   |
| Amortization of  other assets                               | ** ** | **0.2**                                          |       | 0.1 |   |
| Non-controlling  interests                                  | ** ** | **0.1**                                          |       | — |   |
| Decrease in  operating working capital                      | ** ** | **0.3**                                          |       | 0.9 |   |
|                                                        | ** ** | **41.4**                                         |       | 22.4 |   |
|                                                        |       |                                             |       |   |   |
| **INVESTING  ACTIVITIES**                                   |       |                                             |       |   |   |
| Return of capital  from Great Lakes                         | ** ** | **3.5**                                          |       | — |   |
| Return of  capital from Northern Border                     | ** ** | **19.6**                                         |       | 14.3 |   |
| Return of  capital from Tuscarora                           |       | —                                           |       | 0.8 |   |
| Investment in  Great Lakes (Note 2)                         | ** ** | **(736.3**                                       | **)**      | — |   |
| Investment in  Northern Border (Note 3)                     | ** ** | **(7.5**                                         | **)**      | (311.1 | ) |
| Capital  expenditures                                       | ** ** | **(3.5**                                         | **)**      | — |   |
| Other assets                                                | ** ** | **(1.1**                                         | **)**      | (0.9 | ) |
|                                                        | ** ** | **(725.3**                                       | **)**      | (296.9 | ) |
|                                                        |       |                                             |       |   |   |
| **FINANCING  ACTIVITIES**                                   |       |                                             |       |   |   |
| Distributions  paid                                         | ** ** | **(36.2**                                        | **)**      | (21.5 | ) |
| Equity  issuances, net (Note 8)                             | ** ** | **607.0**                                        |       | — |   |
| Long-term debt  issued (Note 5)                             | ** ** | **141.0**                                        |       | 308.0 |   |
| Long-term debt  repaid (Note 5)                             | ** ** | **(24.4**                                        | **)**      | (13.5 | ) |
|                                                        | ** ** | **687.4**                                        |       | 273.0 |   |
|                                                        |       |                                             |       |   |   |
| **Increase/(decrease)  in cash and short-term investments** | ** ** | **3.5**                                          |       | (1.5 | ) |
| **Cash  and short-term investments, beginning of period**   | ** ** | **4.0**                                          |       | 2.3 |   |
|                                                        |       |                                             |       |   |   |
| **Cash  and short-term investments, end of period**         | ** ** | **7.5**                                          |       | 0.8 |   |
|                                                        |       |                                             |       |   |   |
| Interest payments made                                      | ** ** | **13.7**                                         |       | 3.3 |   |

 

See accompanyingnotes to the 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                                  |       | —                |       | 34.6                 |       | 3.1                  |       | —                         |       | —             |       | 37.7                 |       |
| Equity issuances                            |       | 17.4                  |       | 594.5                |       | 12.5                 |       | —                         |       | 17.4               |       | 607.0                |       |
| Distributions  paid                         |       | —                |       | (33.2                | )          | (3.0                 | )          | —                         |       | —             |       | (36.2                | )          |
| Other  comprehensive income                 |       | —                |       | —               |       | —               |       | 4.3                            |       | —             |       | 4.3                  |       |
| **Partners’ equity at June 30,  2007** | ** ** | **34.9**              | ** ** | **891.5**            | ** ** | **19.1**             | ** ** | **6.1**                        | ** ** | **34.9**           | ** ** | **916.7**            | ** ** |

 

See accompanying notes to the consolidated financial statements.

6

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**Note 1    Organization and Basis of Presentation**

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

 TC PipeLines is managed by its generalpartner, TC PipeLines GP, Inc. (TC PipeLines GP), an indirect wholly-ownedsubsidiary of TransCanada. The general partner provides certain administrativeservices for the Partnership and is reimbursed for its costs and expenses. Inaddition to its aggregate 2 per cent general partner interest in TC PipeLines,LP and its subsidiary limited partnerships on a combined basis, the generalpartner owns 2,035,106 common units, representing an effective 7.7 per centlimited partner interest in the Partnership at June 30, 2007.

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

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

The results of operationsfor the three and six months ended June 30, 2007 and 2006 are not necessarilyindicative of the results that may be expected for a full fiscal year. Theinterim financial statements should be read in conjunction with the Partnership’sfinancial statements and notes included in TC PipeLines’ annual report on Form10-K for the year ended December 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). Great Lakes is a Delaware limitedpartnership which owns an interstate natural gas pipeline system thattransports natural gas for delivery to customers in the Midwestern andNortheastern U.S. and Eastern Canada. The Partnership uses the equity method of accounting for its interest inGreat Lakes.  Great Lakes is regulated bythe 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 of TransCanada became the operator of GreatLakes.

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

7

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**SummarizedGreat Lakes Income Statement**
| ** **                                           | ** ** | **Three months ended** | ** ** | **For the period **        | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|-------------------------------------------|------------|
| **(unaudited)**                                      | ** ** | **June 30**                 | ** ** | **February 23 to June 30** | ** ** |
| **(millions of dollars)**                  | ** ** | **2007**                         | ** ** | **2007**                                  | ** ** |
| Transmission  revenues                               | ** ** | **66.2**                         | ** ** | **96.6**                                  | ** ** |
| Operations,  maintenance and administrative expenses | ** ** | **(15.3**                        | **)**      | **(21.4**                                 | **)**      |
| Depreciation                                         | ** ** | **(14.5**                        | **)**      | **(20.4**                                 | **)**      |
| Financial  charges, net and other                    | ** ** | **(8.0**                         | **)**      | **(11.4**                                 | **)**      |
| Net income                                           | ** ** | **28.4**                         | ** ** | **43.4**                                  | ** ** |

 

8

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**SummarizedGreat Lakes Balance Sheet**
| **(unaudited)**                               | ** ** | **June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|
| **(millions of dollars)**           | ** ** | **2007**          | ** ** |
| **Assets**                                    |       |              |       |
| Cash and cash  equivalents                    | ** ** | **53.3**          | ** ** |
| Other current  assets                         | ** ** | **40.6**          | ** ** |
| Plant, property  and equipment, net           | ** ** | **985.9**         | ** ** |
| Other assets                                  | ** ** | **1.3**           | ** ** |
|                                          | ** ** | **1,081.1**       | ** ** |
| **Liabilities  and Partners’ Equity**    |       |              |       |
| Current  liabilities                          | ** ** | **44.2**          | ** ** |
| Deferred credits                              | ** ** | **2.1**           | ** ** |
| Long-term debt,  including current maturities | ** ** | **450.0**         | ** ** |
| Partners’  capital                       | ** ** | **584.8**         | ** ** |
|                                          | ** ** | **1,081.1**       | ** ** |

 

##### **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 partnershipinterest in Northern Border is held by ONEOK Partners, LP (ONEOK), a publiclytraded limited partnership. The Northern Border system was operated by ONEOKPartners GP, LLC (ONEOK Partners GP), a wholly-owned subsidiary of ONEOK duringthe three months ended March 31, 2007. Effective April 1, 2007, a wholly-ownedsubsidiary of TransCanada became the operator of Northern Border. NorthernBorder is regulated by the FERC.

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

ThePartnership made an equity contribution of $7.5 million for a cash call issuedby Northern Border in the six months ended June 30, 2007 which was used to makedebt repayments.

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

**SummarizedNorthern Border Income Statement**
| **(unaudited)**                                      | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars)**                  | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Transmission  revenues                               | ** ** | **68.8**                                           |       | 71.5                                             | ** ** | **148.4** |   | 151.3 |   |
| Operations,  maintenance and administrative expenses | ** ** | **(22.3**                                          | **)**      | (20.7                                            | )          | **(40.1** | **)** | (38.2 | ) |
| Depreciation                                         | ** ** | **(15.2**                                          | **)**      | (14.8                                            | )          | **(30.5** | **)** | (29.4 | ) |
| Financial  charges, net and other                    | ** ** | **(10.3**                                          | **)**      | (10.6                                            | )          | **(20.7** | **)** | (20.9 | ) |
| Net income                                           | ** ** | **21.0**                                           |       | 25.4                                             | ** ** | **57.1** |   | 62.8 |   |

 

9

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**SummarizedNorthern Border Balance Sheet**
| **(unaudited)**                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(millions of dollars)**                                  | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **Assets**                                                           |       |              |       |                  |       |
| Cash and cash  equivalents                                           | ** ** | **6.5**           |       | 11.0                  |       |
| Other current  assets                                                | ** ** | **30.8**          |       | 35.5                  |       |
| Plant, property  and equipment, net                                  | ** ** | **1,453.8**       |       | 1,475.7               |       |
| Other assets                                                         | ** ** | **23.4**          |       | 22.5                  |       |
|                                                                 | ** ** | **1,514.5**       |       | 1,544.7               |       |
| **Liabilities  and Partners’ Equity**                           |       |              |       |                  |       |
| Current  liabilities                                                 | ** ** | **48.6**          |       | 47.7                  |       |
| Deferred credits  and other                                          | ** ** | **5.9**           |       | 2.1                   |       |
| Long–term debt,  including current maturities and notes payable | ** ** | **609.2**         |       | 619.8                 |       |
| Partners’ equity                                                |       |              |       |                  |       |
| Partners’ capital                                               | ** ** | **850.7**         |       | 874.1                 |       |
| Accumulated other comprehensive income                               | ** ** | **0.1**           |       | 1.0                   |       |
|                                                                 | ** ** | **1,514.5**       |       | 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-mileU.S. interstate pipeline system that transports natural gas from Oregon, whereit interconnects with facilities of Gas Transmission Northwest Corporation, awholly-owned subsidiary of TransCanada, to northern Nevada. The other generalpartner interests in Tuscarora are held one per cent by Sierra PacificResources (with the associated vote being controlled by the Partnership) andone per cent by TransCanada. Tuscarora is regulated by the FERC.

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

The following tables setout summarized financial information of Tuscarora:

**Summarized TuscaroraIncome Statement**
| **(unaudited)**                                      | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars)**                  | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Transmission  revenues                               | ** ** | **6.7**                                            |       | 7.6                                              | ** ** | **13.6** |   | 15.9 |   |
| Operations,  maintenance and administrative expenses | ** ** | **(1.3**                                           | **)**      | (1.3                                             | )          | **(2.5** | **)** | (2.4 | ) |
| Depreciation                                         | ** ** | **(1.5**                                           | **)**      | (1.5                                             | )          | **(3.1** | **)** | (3.1 | ) |
| Financial  charges, net and other                    | ** ** | **(1.2**                                           | **)**      | (1.3                                             | )          | **(2.4** | **)** | (2.7 | ) |
| Net income                                           | ** ** | **2.7**                                            |       | 3.5                                              | ** ** | **5.6** |   | 7.7 |   |

 

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**SummarizedTuscarora Balance Sheet**
| **(unaudited)**                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(millions of dollars)**           | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **Assets**                                    |       |              |       |                  |       |
| Cash and cash  equivalents                    | ** ** | **5.0**           |       | 2.2                   |       |
| Other current assets                          | ** ** | **2.4**           |       | 2.5                   |       |
| Plant, property and  equipment, net           | ** ** | **127.4**         |       | 127.0                 |       |
| Other assets                                  | ** ** | **1.2**           |       | 1.2                   |       |
|                                          | ** ** | **136.0**         |       | 132.9                 |       |
| **Liabilities and Partners’  Equity**    |       |              |       |                  |       |
| Current liabilities                           | ** ** | **2.2**           |       | 2.4                   |       |
| Long-term debt,  including current maturities | ** ** | **68.7**          |       | 71.1                  |       |
| Partners’ equity                         |       |              |       |                  |       |
| Partners’  capital                       | ** ** | **65.0**          |       | 59.3                  |       |
| Accumulated  other comprehensive income       | ** ** | **0.1**           |       | 0.1                   |       |
|                                          | ** ** | **136.0**         |       | 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 $516million and $397 million outstanding under the Senior Credit Facility at June30, 2007 and December 31, 2006, respectively. The interest rate on the Senior Credit Facility averaged 6.00 per cent and6.04 per cent for the three and six months ended June 30, 2007, respectively.At June 30, 2007 and December 31, 2006, the interest rates were 5.94 per centand 6.07 per cent, respectively.

The Partnership hadSeries A Senior Secured Notes, Series B Senior Secured Notes and Series CSecured Notes in the amounts of $56.2 million, $5.7 million and $6.8 millionoutstanding at June 30, 2007 related to Tuscarora, while at December 31, 2006the Partnership had Series A Senior Secured Notes, Series B Senior SecuredNotes and Series C Secured Notes in the amounts of $57.9 million, $6.0 millionand $7.2 million, respectively. The Series A Senior Secured Notes bear interest at 7.13 per cent and mature in2010.  The Series B Senior SecuredNotes bear interest at 7.99 per cent and mature in 2010.  The Series C Senior Secured Notes bearinterest at 6.89 per cent and are due in 2012.

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 - $516.8 million; and, thereafter -$3.1 million.

**Note 6    Net Income per Common Unit**

Net income per common unit is computed by dividing net income, afterdeduction of the general partner’s allocation, by the weighted average numberof common units outstanding.  The generalpartner’s allocation is equal to an amount based upon the general partner’s twoper cent interest, adjusted to reflect an amount equal to incentivedistributions.  Net income per commonunit was determined as follows:

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| **(unaudited)**                                                                 | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars except per unit amounts)** | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income                                                                      | ** ** | **17.7**                                           |       | 9.0                                              | ** ** | **37.7** |   | 21.4 |   |
| Net income  allocated to general partner                                        |       |                                               |       |                                             |       |   |   |   |   |
| General partner interest                                                        | ** ** | **(0.4**                                           | **)**      | (0.2                                             | )          | **(0.8** | **)** | (0.4 | ) |
| Incentive distribution income allocation                                        | ** ** | **(1.7**                                           | **)**      | (0.5                                             | )          | **(2.3** | **)** | (1.0 | ) |
|                                                                            | ** ** | **(2.1**                                           | **)**      | (0.7                                             | )          | **(3.1** | **)** | (1.4 | ) |
| Net income  allocable to common units                                           | ** ** | **15.6**                                           |       | 8.3                                              | ** ** | **34.6** |   | 20.0 |   |
| Weighted average  units outstanding*(millions)*                                 | ** ** | **34.9**                                           |       | 17.5                                             | ** ** | **29.8** |   | 17.5 |   |
| Net income per common  unit                                                     | ** ** | **$**                                              | **0.45**   |                                             | $          | 0.47 | ** ** | **$** | **1.16** |   | $ | 1.14 |   |
|                                                                                 |            |                                                    |            |                                                  |            |  |  |  |  |  |  |  |  |

 

**Note 7    Partners’ Equity**

Partners’ capitalconsists of 34,856,086 common units representing an aggregate 98 per centlimited partner interest in the Partnership (including 2,035,106 common unitsheld by the general partner and 8,678,045 common units held by TransCanNorthern Ltd., an indirect wholly-owned subsidiary of TransCanada) and anaggregate two per cent general partner interest. In aggregate, the generalpartner’s interests represent an effective 7.7 per cent ownership in thePartnership at June 30, 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 $945 million,subject to certain 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. In addition, TCPipeLines GP maintained its two per cent general partner interest in thePartnership by contributing $12.6 million to the Partnership in connection withthe equity private placement. The Partnership funded the balance of the totalconsideration with a draw on its senior credit facility, which was amended andrestated in connection with the acquisition.

The acquisition wasaccounted for using the purchase method of accounting. The purchase price wasallocated on a preliminary basis using an estimate of fair value of the netassets at the date of acquisition.  Thedifference between the purchase price and the estimated fair value of netassets of approximately $460 million, being goodwill, was recorded as part ofthe Partnership’s investment 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, theassets and liabilities of Great Lakes were determined to have a fair valueequal to the rate regulated historical costs. No intangibles other thangoodwill were identified in the acquisition.

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

The following Partnershippro forma financial information for the three and six months ended June 30,2007 and 2006 has been prepared as if the acquisition occurred at the beginningof the respective periods:

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| **(unaudited)**                                                                 | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of dollars except per unit amounts)** | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                            |       |                                               |       |                                             |       |   |   |   |   |
| Equity income  from investment in Great Lakes                                   | ** ** | **13.1**                                           |       | 14.0                                             | ** ** | **30.7** |   | 29.1 |   |
| Net income                                                                      | ** ** | **17.7**                                           |       | 21.0                                             | ** ** | **47.1** |   | 46.7 |   |
| Net income per unit                                                             | ** ** | **$**                                              | **0.45**   | ** **                                       | **$**      | 0.56 | ** ** | **$** | **1.26** | ** ** | **$** | 1.26 | ** ** |
|                                                                                 |            |                                                    |            |                                                  |            |  |  |  |  |  |  |  |  |

 

**Note 9    Related Party Transactions**

The Partnership does nothave any employees. The management and operating functions are provided by thegeneral partner. The general partner does not receive a management fee or othercompensation in connection with its management of the Partnership. ThePartnership reimburses the general partner for all costs of services provided,including the costs of employee, officer and director compensation andbenefits, and all other expenses necessary or appropriate to the conduct of thebusiness of, and allocable to the Partnership. Such costs include (i) overheadcosts (such as office space and equipment) and (ii) out-of-pocket expensesrelated to the provision of such services. The Partnership Agreement providesthat the general partner will determine the costs that are allocable to thePartnership in any reasonable manner determined by the general partner in its solediscretion. Total costs charged to the Partnership by the general partner were$0.9 million and $0.5 million for the six months ended June 30, 2007 and 2006,respectively. Total costs charged to the Partnership by the general partnerwere $0.5 million and $0.2 million for the three months ended June 30, 2007 and2006, respectively.

TransCanada NorthernBorder Inc. (TransCanada Northern Border), a wholly-owned subsidiary ofTransCanada formerly named TransCan Northwest Border Ltd., became the operatorof Great Lakes through TransCanada’s acquisition of Great Lakes GasTransmission Company, the operator of the Great Lakes facilities, on February22, 2007. TransCanada and its affiliates provide operating services such aslegal, tax, treasury, human resources, other administrative functions, andincur other costs on Great Lakes’ behalf. These include, but are not limitedto, employee benefit costs, property and liability insurance costs, andtransition costs. Total costs charged to Great Lakes by TransCanada and itsaffiliates were approximately $13.7 million and $17.0 million for the threemonths ended June 30, 2007 and for the period from February 23, 2007 to June30, 2007, respectively, of which $6.4 million and $7.9 million are included inthe Partnership’s equity income from Great Lakes during the same periods.

Great Lakes earns transportation revenues fromTransCanada and its affiliates under fixed priced contracts with remainingterms ranging from one to eleven years. Great Lakes earned $35.2 million and$49.1 million of transportation revenues under these contracts for the threemonths ended June 30, 2007 and for the period February 23, 2007 to June 30,2007, respectively. These amounts represent 53.2 per cent and 50.8 per cent oftotal revenues earned by Great Lakes for the three months ended June 30, 2007and for the period February 23, 2007 to June 30, 2007, respectively, of which$16.4 million and $22.8 million are included in the Partnership’s equity incomefrom Great Lakes during the same periods.

TransCanada Northern Border 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 and its affiliates 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.  Total costs charged to Northern Border by TransCanada and its affiliates were approximately $7.5 million for the three months ended June 30, 2007, of which 

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$3.8 million is included in the Partnership’s equity income from Northern Border during that same period.

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 related tothe assumption of operatorship. 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 and its affiliates provide operating services such aslegal, tax, treasury, human resources, other administrative functions, andincur other costs on Tuscarora’s behalf. These include, but are not limited to,employee benefit costs, and property and liability insurance costs. Total costscharged to Tuscarora by TransCanada and its affiliates were $0.7 million and $0.9million for the three and six months ended June 30, 2007.

InMay 2007, the Partnership reimbursed TransCanada $2.8 million for third partycosts related to the Partnership’s acquisition of its interest in Great Lakesin February 2007.

**Note 10  Derivative Financial Instruments**

At June 30, 2007, thefair value of the interest rate swaps accounted for as hedges was $6.3million.  The fair value of interest rateswaps has been calculated using period-end market rates.  The notional amount hedged was $400 million.  The interest rate swaps are structured suchthat the cash flows match those of the Senior Credit Facility from March 12,2007 through to maturity dates of May 22, 2009 and December 12, 2011.

**Note 11  Subsequent Events**

On July 24, 2007, thePartnership announced its second quarter cash distribution in the amount of$0.655 per unit, payable on August 14, 2007, to unitholders of record on July31, 2007.  The cash distributionrepresents an increase over the previous quarter of $0.005 per unit, or $0.02per unit per annum, to an indicated annual cash distribution of $2.62 per unit.

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

**TCPipeLines, LP**

**Cautionary Statement RegardingForward-Looking Information**

# A number of statements made by TC PipeLines, LP inthis quarterly report are forward-looking and relate to, among other things,anticipated financial performance, business prospects, strategies, marketforces and commitments. Much of this information appears in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” foundherein. All forward-looking statements are based on the Partnership’s currentbeliefs as well as assumptions made by and information currently available tothe Partnership. These statements reflect the Partnership’s current views withrespect to future events. The Partnership assumes no obligation to update anysuch forward-looking statements to reflect events or circumstances occurringafter the date hereof. Words such as “anticipate”, “believe”, “estimate”, “expect”,“plan”, “intend”, “forecast”, and similar expressions, identify forward-lookingstatements. Readers are cautioned not to place undue reliance on thisforward-looking information, which is as of the date of this Form 10-Q. Thesestatements reflect the Partnership’s current views with respect to futureevents and are subject to various risks, uncertainties and assumptionsincluding:

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

·                                          regulatorydecisions, particularly those of the FERC;

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

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

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

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

·                                          prevailing economicconditions, particularly conditions of the capital and equity markets.

# These 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 and Item 1A, “Risk Factors” in the Partnership’squarterly report on Form 10-Q for the quarter ended March 31, 2007. 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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# **Resultsof Operations of TC PipeLines, LP**

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

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

***Overview***

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

We own a 46.45 per centinterest in Great Lakes, which we acquired on February 22, 2007 from El PasoCorporation.  The other 53.55 per 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 in Northern Border is held by ONEOK Partners,L.P. (ONEOK), a publicly traded limited partnership. At June 30, 2007, eachpartner held a 50 percent voting interest on the Management Committee ofNorthern Border.

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

***Businessof Great Lakes***

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

The major policies of Great Lakes are established bythe Management Committee of Great Lakes, which consists of six members, threeof whom are designated by us and three of whom are designated by TransCanada.All decisions by the Management Committee require unanimous consent. For theday to day management 

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of Great Lakes’ business, the Management Committeeestablished an Executive Committee consisting of three members: one PartnershipCommittee Member, one TransCanada Committee Member and the Great LakesPresident, a non-voting member.

TransCanada Northern Border Inc. (TransCanada NorthernBorder), a wholly-owned subsidiary of TransCanada formerly named TransCanNorthwest Border Ltd., became the operator of Great Lakes through TransCanada’sacquisition of Great Lakes Gas Transmission Company, the operator of the GreatLakes facilities, on February 22, 2007. TransCanada and its affiliates provideoperating services such as legal, tax, treasury, human resources, otheradministrative functions, and incur

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other costs on Great Lakes’ behalf. These include, butare not limited to, employee benefit costs, property and liability insurancecosts, and transition costs. Total costs charged to Great Lakes by TransCanadaand its affiliates were approximately $13.7 million and $17.0 million for thethree months ended June 30, 2007 and for the period February 23, 2007 to June30, 2007, respectively, of which $6.4 million and $7.9 million are included inthe Partnership’s equity income from Great Lakes during the same periods.

Great Lakes earns transportation revenues fromTransCanada and its affiliates under fixed priced contracts with remainingterms ranging from one to eleven years. Great Lakes earned $35.2 million and$49.1 million of transportation revenues under these contracts for the threemonths ended June 30, 2007 and for the period February 23, 2007 to June 30,2007, respectively. These amounts represent 53.2 per cent and 50.8 per cent oftotal revenues earned by Great Lakes for the three months ended June 30, 2007and for the period February 23, 2007 to June 30, 2007, respectively, of which$16.4 million and $22.8 million are included in the Partnership’s equity incomefrom Great Lakes during the same periods.

***Business of Northern Border***

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

TransCanada Northern Border Inc. became the operator of Northern Bordereffective April 1, 2007. The officers of TransCanada Northern Border are nowthe equivalent of Northern Border’s officers. TransCanada and its affiliatesprovide operating services such as legal, tax, treasury, human resources, otheradministrative functions, and incur other costs on Northern Border’s behalf.These include, but are not limited to, employee benefit costs, property andliability insurance costs, and transition costs. Total costs charged toNorthern Border by TransCanada and its affiliates were approximately $7.5million for the three months ended June 30, 2007, of which $3.8 million isincluded in the Partnership’s equity income from Northern Border during thatsame period.

#### ***Business of Tuscarora***

Tuscarora owns a 240-mile U.S. interstate pipeline system that originatesat an interconnection point with facilities of Gas Transmission NorthwestCorporation, a wholly-owned subsidiary of TransCanada, near Malin, Oregon andruns southeast through northeastern California and northwestern Nevada.

On December 19, 2006, thePartnership acquired an additional 49 per cent general partner interest inTuscarora. Upon the acquisition, TC PipeLines began to consolidate its interestin Tuscarora, as the Partnership owns or controls 99 per cent. In connectionwith this transaction, TransCanada Northern Border became the operatorof Tuscarora. TransCanada and its affiliates provide operating services such aslegal, tax, treasury, human resources, other administrative functions, andincur other costs on Tuscarora’s behalf. These include, but are not limited to,employee benefit costs, and property and liability insurance costs. Total costscharged to Tuscarora by TransCanada and its affiliates were $0.7 million and$0.9 million for the three and six months ended June 30, 2007.

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***RecentDevelopments***

*Acquisition-*On February 22, 2007, the Partnership acquired a 46.45 percent general partnership interest in Great Lakes from El Paso Corporation. Thetotal purchase price was $945 million, subject to certain closing adjustments,and included the indirect assumption of approximately $209 million of debt. Theacquisition was partially financed through a private placement of 17,356,086common units at $34.57 per common unit for gross proceeds of $600 million whichclosed concurrently with the acquisition. TransCan Northern Ltd. purchased8,678,045 of the 17,356,086 common units issued for gross proceeds of $300million. In addition, TC PipeLines GP maintained its two per cent generalpartner interest in the Partnership by contributing $12.6 million to thePartnership in connection with the private equity placement. The

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Partnership funded thebalance of the total consideration with a draw on its senior credit facility,which was amended and restated in connection with this transaction.

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

Inthe second quarter of 2007, an additional $3.0 million related to the GreatLakes acquisition was paid, consisting primarily of a $2.8 millionreimbursement of acquisition fees to a wholly-owned subsidiary of TransCanada.

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

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

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

***AccountingPolicies and Estimates***

TC PipeLinesaccounts for its investments in both Great Lakes and Northern Border using theequity method of accounting. The equity method of accounting is appropriatewhere the investor does not control an investee, but rather is able to exercisesignificant influence over the operating and financial policies of an investee.TC PipeLines is able to exercise significant influence over its investments inGreat Lakes and Northern Border because of its representation on theirmanagement 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 and assumptions also affect the reported amounts ofrevenue and expenses during the reporting period. Although we believe theseestimates are reasonable, actual results could differ from our estimates.

There have been no changesto the Partnership’s accounting policies or estimates during the six monthsended June 30, 2007.

***RecentAccounting Pronouncements***

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157), whichestablishes a framework for measuring fair value and requires additionaldisclosures about fair value measurements. SFAS No. 157 is effective for ourfiscal year beginning January 1, 2008. 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 

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shall report unrealizedgains and losses in earnings, on items for which the fair value option has beenelected, at each subsequent reporting date. SFAS No. 159 is effective for ourfiscal year beginning January 1, 2008. We are currently reviewing theapplicability of SFAS No. 159 to our results of operations and financialposition.

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***KnownTrends and Uncertainties***

*Supply***-**We estimate that Canadian natural gas available forexport declined by approximately 500 MMcf/d for the six months ended June 30,2007 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 200 MMcf/d. Despite the drop in Canadiansupply available for export, our pipelines have continued to see demand fortheir transportation capacity during the year due to favorable marketconditions in the markets we serve.

*Competition -*Supplycompetition from other natural gas sources can adversely impact demand fortransportation on our pipeline assets. Recent growth in supplies available fromthe Rocky Mountain and Texas regions has led to additional supply in themarkets we serve. The Rockies Express Pipeline, a proposed 1,679-mile pipelinesystem from Rio Blanco County, Colorado to Monroe County, Ohio, will increasesupply competition in Midwestern markets. The western segment of the RockiesExpress Pipeline, from Colorado to Missouri, is anticipated to be placed inservice by early 2008, and initially is expected to add more supply competitionin markets served by Northern Border. The eastern segment of the RockiesExpress Pipeline, from Missouri to Ohio, is expected to be placed in service byJune 2009, and is anticipated to transport natural gas further east,potentially mitigating any excess supply in Northern Border’s marketregion.  Also, ongoing pipeline projectsto move growing East Texas production to markets in the eastern U.S. mayreverse the trend of this incremental production flowing into the marketsNorthern Border serves.

*Great Lakes -*For the period of March 1, 2007 to June 30, 2007, Great Lakes’ averagecontracted capacity compared to Great Lakes’ summer design peak day was 102 percent. As of June 30, 2007, all available capacity is contracted on a firm basisfor the remainder of 2007.

*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 be more variable in 2007 due to theimplementation of seasonal rates included in Northern Border’s tariff. NorthernBorder’s average contracted capacity was 93 per cent and 96 per cent of designcapacity for the six months ended June 30, 2007 and 2006, respectively. At June30, 2007, approximately 98 per cent and 86 per cent of Northern Border’s designcapacity was contracted on a firm basis for the third and fourth quarters of2007, respectively. Northern Border expects to continue to discount transportationcapacity as needed to optimize revenue.

***Regulatory Developments***

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

The settlement ofNorthern Border’s 2005 rate case was approved by the FERC in November 2006. Thesettlement established maximum long-term mileage-based rates and charges fortransportation on Northern Border’s system. Beginning January 1, 2007, overallrates were reduced, compared with rates prior to the filing, by approximatelyfive per cent. The settlement also provided for 

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seasonal rates forshort-term transportation services. Seasonal maximum rates vary on a monthlybasis from approximately $0.54 per decatherm (dth) to approximately $0.29 perdth for the full transportation route from Port of Morgan, Montana to theChicago 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 firmtransportation rate of $0.40/dth per day beginning June 1, 2006. This is a

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17 per centreduction to the previous rate of $0.4811/dth per day, or an approximate $5million reduction in Tuscarora’s annual revenues. In addition, thesettlement results in a moratorium on all rate actions before the FERC by anyparty to the settlement for a period of 48 months to May 31, 2010, includingrate actions related to expansion projects where Tuscarora proposes to pricethe expansion at the settlement rate.

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

***SecondQuarter 2007 Compared with Second Quarter 2006***

The Partnership reportedsecond quarter 2007 net income of $17.7 million, an increase of $8.7 million or97 per cent, compared to net income of $9.0 million for the same quarter lastyear. The increase was primarily due to equity income from the Partnership’sinvestment in Great Lakes, offset by lower equity income from Northern Borderand increased financial charges incurred by the Partnership.

Equity income from thePartnership’s investment in Great Lakes contributed $13.1 million for the threemonths ended June 30, 2007. The Partnership’s share of Great Lakes’ revenue was$30.7 million which was offset by operating expenses and depreciation of $13.9million and net financial charges of $3.7 million for the same period.

Equity income fromNorthern Border was $10.3 million in the second quarter of 2007, a decrease of$2.0 million or 16 per cent, compared to $12.3 million for the same period lastyear. The decrease in equity income was primarily due to decreased revenue andincreased operations and maintenance expenses.

Northern Border’soperating revenue decreased $2.7 million, or 4 per cent, for the three monthsended June 30, 2007 compared with operating revenue, net of the provision forrate refunds, for the same period last year due to the following:

·                  decreased revenue of $3.6 millionprimarily related to the reduction of long-term rates and the implementation ofvarying seasonal rates effective January 1, 2007; offset by

·                  additional revenue of $0.5 milliondue to contracts related to the Chicago III Expansion Project; and

·                  increasedrevenue of $0.4 million related to increased demand for other transportationservices.

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

Northern Border’soperations, maintenance and administrative expenses increased $1.6 million, or8 per cent, for the three months ended June 30, 2007 compared with the sameperiod last year primarily due to the following:

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

·                  increased electric compressioncharges of $0.7 million primarily related to the Chicago III Expansion Project;offset by

·                  decreasedexpense of $0.6 million related to the net under recovery of the compressorusage surcharge; and

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·                  decreasedexpense of $0.4 million related to expenses incurred during the second quarterof 2006 for Northern Border’s 2005 rate case.

The remaining decrease inNorthern Border’s net income of $0.1 million for the three months ended June30, 2007 compared with the same period last year was due to increaseddepreciation expense, partially offset by decreased financial charges, net andother.

 

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With the acquisition ofan additional 49 per cent general partner interest in Tuscarora on December 19,2006, the Partnership now consolidates its interest in Tuscarora. Tuscarora’scontribution to the Partnership’s net income increased $1.1 million in thesecond quarter of 2007 compared to the same period in the prior year dueprimarily to the acquisition of an additional 49 per cent general partnerinterest. The Partnership reported transmission revenues of $6.7 million anddepreciation expense of $1.5 million for the second quarter of 2007 related toits consolidation of the Tuscarora operations. Tuscarora’s revenues were lowerin the second quarter of 2007 compared to the same period in 2006 due to areduced firm transportation rate as a result of its rate settlement.

The Partnership’soperations, maintenance and administrative expenses of $2.2 million in thesecond quarter of 2007 increased $1.5 million compared to $0.7 million for thesame period in 2006. The second quarter of 2007 includes $1.3 million relatedto the consolidation of Tuscarora operations. Excluding the $1.3 million ofexpenses related to Tuscarora, the Partnership’s general and administrativeexpenses increased $0.2 million to $0.9 million in the second quarter of 2007from $0.7 million in the same period in 2006.

Financial charges were$8.7 million in the second quarter of 2007, an increase of $4.5 million,compared to $4.2 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. The higher average debt outstanding was theresult of additional financing in 2006 and 2007 for acquisitions.

***SixMonths Ended June 30, 2007 Compared with Six Months Ended June 30, 2006***

Net income increased$16.3 million, or 76 per cent, to $37.7 million in the first six months of2007, compared to $21.4 million for the same period in 2006. The increase wasprimarily due to equity income from the Partnership’s interest in Great Lakes,an increase in equity income from Northern Border resulting from thePartnership’s additional 20 per cent general partner interest, partially offsetby increased financial charges incurred by the Partnership and lower NorthernBorder net income.

Equity income from the Partnership’sinvestment in Great Lakes contributed $20.1 million for the period February 23,2007 to June 30, 2007. The Partnership’s share of Great Lakes’ revenue was$44.8 million for the period February 23, 2007 to June 30, 2007, which wasoffset by operating expenses and depreciation of $19.4 million and netfinancial charges of $5.3 for the same period.

Equity income from thePartnership’s investment in Northern Border increased $4.6 million, or 20 percent, to $28.1 million in the first six months of 2007, compared to $23.5million for the same period in 2006. The increase in equity income fromNorthern Border was due to the Partnership’s additional 20 per cent generalpartner interest which contributed $6.8 million in equity income, partiallyoffset by a reduction in Northern Border’s net income due primarily todecreased revenue and increased operations and maintenance expenses.

Northern Border’soperating revenue decreased $2.9 million, or 2 per cent, for the six monthsended June 30, 2007 compared with operating revenue, net of the provision forrate refunds, for the same period last year due to the following:

·                decreased revenue of $6.2 millionprimarily related to the reduction of long-term rates effective January 1, 2007and an increase in volumes sold at a discount; offset by

·     additional revenue of $2.0 million due tocontracts related to the Chicago III Expansion Project; and

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·                  increasedrevenue of $1.3 million related to increased demand for other transportationservices.

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

Northern Border’soperations, maintenance and administrative expenses increased $1.9 million, or5 per cent, for the six months ended June 30, 2007 compared with the sameperiod last year due to the following:

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·                a charge during the second quarter of2007 of $2.3 million for payment by us to ONEOK Partners over a five yearperiod, as agreed to in a transitions services agreement between ONEOK PartnersGP and TransCanada Northern Border, related to the reimbursement for sharedequipment and furnishings acquired by ONEOK Partners previously used to supportNorthern Border’s operations;

·                increased electriccompression charges of $1.1 million primarily related to the Chicago IIIExpansion Project; offset by

·                decreased expenseof $0.8 million related to taxes other than income;

·                decreased expenseof $0.3 million related to the net under recovery of the compressor usagesurcharge; and

decreased expense of $0.4 million related to expenses incurred duringthe second quarter of 2006 for Northern Border’s 2005 rate case.

The remaining decrease inNorthern Border’s net income of $0.9 million for the six months ended June 30,2007 compared with the same period last year was due to increased depreciationexpense, partially offset by decreased financial charges, net and other.

Tuscarora’s contributionto the Partnership’s net income increased $2.0 for the six months ended June30, 2007 compared to the same period in the prior year due primarily to theacquisition of an additional 49 per cent general partner interest on December19, 2006. The Partnership reported transmission revenues of $13.6 million anddepreciation expense of $3.1 million for the six months ended June 30, 2007 relatedto its consolidation of the Tuscarora operations. Tuscarora’s revenues werelower in six months ended June 30, 2007 compared to the same period in 2006 dueto a reduced firm transportation rate as a result of its rate settlement.

The Partnership’s operations,maintenance and administrative expenses of $4.2 million for the six monthsended June 30, 2007 increased $2.9 million compared to $1.3 million for thesame period in 2006. The six months ended June 30, 2007 includes $2.5 millionrelated to the consolidation of Tuscarora operations. Excluding the $2.5million of expenses related to Tuscarora, the Partnership’s general andadministrative expenses increased $0.4 million to $1.7 million for the sixmonths ended June 30, 2007 from $1.3 million in the same period in 2006.

Financial charges were$16.8 million for the six months ended June 30, 2007, an increase of $12.4million, compared to $4.4 million for the same period last year due to higheraverage debt outstanding and the consolidation of Tuscarora operations whichincluded $2.4 million of net financial charges. The higher average debtoutstanding was the result of additional financing in 2006 and 2007 foracquisitions.

***PartnershipCash Flows***

To supplement ourfinancial statements, we have disclosed “Partnership cash flows” and haveitemized the cash distributions received from our original general partnerinterests, the increase in cash distributions due to 2006 and 2007acquisitions, cash flows from Tuscarora’s operating activities and Partnershipcosts.  We have presented this additionalinformation to enhance an investor’s understanding of the way that managementanalyzes the Partnership’s financial performance. The segregation of the cashdistributions received before and after the impact of 2006 and 2007acquisitions provides a comparison of the Partnership’s cash flows for thethree and six months ended June 30, 2007 and 2006. The presentation of thisadditional information is not meant to be considered in isolation or as asubstitute for results prepared in accordance with GAAP.

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| **(unaudited)**                                                                                                      | ** ** | **Three months ended June 30** | ** ** | **Six months ended June 30** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(millions of U.S. dollars)**                                                                        | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cash  distributions from original 30% general partner interest in Northern Border                                    |       | **15.3**                                           |       | 14.6                                             |       | **28.6** |   | 28.1 |   |
| Cash  distributions from original 49% general partner interest in Tuscarora                                          |       | **—**                                         |       | 2.2                                              |       | **—** |   | 4.4 |   |
|                                                                                                                 | ** ** | **15.3**                                           |       | 16.8                                             | ** ** | **28.6** |   | 32.5 |   |
| Increase in cash  distributions due to the acquisition of a 46.45% general partner interest in  Great Lakes in 2007  |       | **23.6**                                           |       | —                                           |       | **23.6** |   | — |   |
| Increase in cash  distributions due to the acquisition of a 20% general partner interest in  Northern Border in 2006 |       | **10.2**                                           |       | 9.7                                              |       | **19.1** |   | 9.7 |   |
| Total cash distributions received (a)                                                                                | ** ** | **49.1**                                           |       | 26.5                                             | ** ** | **71.3** |   | 42.2 |   |
| Cash flows from  Tuscarora’s operating activities (b)                                                           | ** ** | **3.6**                                            |       | —                                           | ** ** | **8.7** |   | — |   |
| Partnership  costs (c)                                                                                               | ** ** | **(8.4**                                           | **)**      | (4.9                                             | )          | **(16.1** | **)** | (5.7 | ) |
| Partnership cash flows                                                                                               | ** ** | **44.3**                                           |       | 21.6                                             | ** ** | **63.9** |   | 36.5 |   |

 

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(a) Reconciliationof non-GAAP financial measure: Cash distributions received is a non-GAAPfinancial measure which is the sum of equity income from investment in GreatLakes, equity income from investment in Northern Border, return of capital fromGreat Lakes, return of capital from Northern Border and up until December 19,2006, equity income from investment in Tuscarora and return of capital fromTuscarora. It is provided as a supplement to results reported in accordancewith GAAP. Management believes that this is a meaningful measure to assistinvestors in evaluating the levels of cash distributions from the Partnership’sinvestments. Below is a reconciliation of Cash distributions received to GAAPfinancial measures:
| ** **                                        | ** ** | **For the three months ended June 30** | ** ** | **For the six months ended June 30** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **(millions of dollars)**                         | ** ** | **2007**                                                             | ** ** | **2006**                                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Equity income  from investment in Great Lakes     | ** ** | **13.1**                                                             |       | —                                                             | ** ** | **20.1** |   | — |   |
| Equity income  from investment in Northern Border | ** ** | **10.3**                                                             |       | 12.3                                                               | ** ** | **28.1** |   | 23.5 |   |
| Equity income  from investment in Tuscarora       | ** ** | —                                                               |       | 1.6                                                                | ** ** | **—** |   | 3.6 |   |
| Return of  capital from Great Lakes               | ** ** | **10.5**                                                             |       | —                                                             | ** ** | **3.5** |   | — |   |
| Return of  capital from Northern Border           | ** ** | **15.2**                                                             |       | 12.0                                                               | ** ** | **19.6** |   | 14.3 |   |
| Return of  capital from Tuscarora                 | ** ** | —                                                               |       | 0.6                                                                | ** ** | — |   | 0.8 |   |
| Total cash  distributions received                | ** ** | **49.1**                                                             |       | 26.5                                                               | ** ** | **71.3** |   | 42.2 |   |

 

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(b) EffectiveDecember 19, 2006, TC PipeLines began consolidating Tuscarora’s operations uponacquisition of an additional 49 per cent general partner interest. The cashflows from Tuscarora’s operating activities is the GAAP measure cash generatedfrom operations reported in Tuscarora’s financial statements.
| ** **                                             | ** ** | **For the three months ended June 30** | ** ** | **For the six months ended June 30** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **(millions of dollars)**                    | ** ** | **2007**                                                             | ** ** | **2006**                                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Tuscarora net  income                                  | ** ** | **2.7**                                                              |       | 3.5                                                                | ** ** | **5.6** |   | 7.7 |   |
| Add:  Depreciation and amortization                    | ** ** | **1.6**                                                              |       | 1.5                                                                | ** ** | **3.2** |   | 3.1 |   |
| Changes in operating assets and liabilities            | ** ** | **(0.7**                                                             | **)**      | (0.9                                                               | )          | **(0.1** | **)** | 0.4 |   |
| Cash flows from  Tuscarora’s operating activities | ** ** | **3.6**                                                              |       | 4.1                                                                | ** ** | **8.7** |   | 11.2 |   |

 

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(c) Reconciliationof non-GAAP financial measure: Partnership cash flows is a non-GAAP financialmeasure which is the sum of cash distributions received and cash flows fromTuscarora’s operating activities less Partnership costs. We exclude Tuscarora’scosts from Partnership costs so that investors may evaluate our costsindependent of costs directly attributable to our investments. Managementbelieves that this is a useful measure to assist investors in evaluating thePartnership’s cash flow from its operating activities. A reconciliation ofPartnership costs is summarized below:
| ** **                                                                                | ** ** | **For the three months ended June 30** | ** ** | **For the six months ended June 30** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **(millions of dollars)**                                                       | ** ** | **2007**                                                             | ** ** | **2006**                                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| Operations,  maintenance and administrative expenses                                      | ** ** | **2.2**                                                              | ** ** | 0.7                                                                | ** ** | **4.2** | ** ** | 1.3 | ** ** |
| Financial  charges, net and other                                                         | ** ** | **8.7**                                                              | ** ** | 4.2                                                                | ** ** | **16.8** | ** ** | 4.4 | ** ** |
| Less:                                                                                     |       |                                                                 |       |                                                               |       |   |   |   |   |
| Operations,  maintenance and administrative expenses and financial charges from Tuscarora |       | **(2.5**                                                             | **)**      | **—**                                                         |       | **(4.9** | **)** | **—** |   |
| Partnership  costs                                                                        | ** ** | **8.4**                                                              |       | 4.9                                                                | ** ** | **16.1** |   | 5.7 |   |

 

***SecondQuarter 2007***

Partnership cash flowsfor the quarter ended June 30, 2007 were $44.3 million, an increase of $22.7million, compared to $21.6 million for the same period last year. Cash flowsfrom Tuscarora’s operating activities were $3.6 million for the three monthsended June 30, 2007.  The Partnershipincurred financing and other costs of $8.4 million in the three months endedJune 30, 2007 compared to $4.9 million in the same period last year. Total cashdistributions received increased $22.6 million to $49.1 million for the sixmonths ended June 30, 2007 from $26.5 million for the same period in the prioryear primarily due to cash distributions received from Great Lakes.

The acquisition of a46.45 per cent general partner interest in Great Lakes on February 22, 2007contributed $23.6 million of cash distributions received in the three monthsended June 30, 2007. This was the first cash distribution received by thePartnership from Great Lakes.

The acquisition of anadditional 20 per cent general partner interest in Northern Border contributed$10.2 million of cash distributions received in the quarter ended June 30,2007. Distributions from Northern Border increased in the three months endedJune 30, 2007 compared to the same period in 2006, resulting in a $0.7 millionincrease in distributions received by the Partnership from its original 30 percent general partner interest.

Cash balances of Tuscarora are consolidated by thePartnership effective December 19, 2006 and as a result, the Partnership ceasedreporting distributions from Tuscarora after that date. Tuscarora’s availablecash flow has been used to finance the compressor station expansion project inLikely, California and to repay debt. This resulted in a $2.2 million decreasein distributions from Tuscarora compared to the three months ended June 30,2006.

Partnership costs of $8.4million for the quarter ended June 30, 2007 compared to $4.9 million in the sameperiod in 2006 increased mainly due to increased financial charges on higheroutstanding debt balances to finance the 2006 and 2007 acquisitions.

***SixMonths Ended June 30, 2007***

Partnership cash flowsfor the six months ended June 30, 2007 were $63.9 million, an increase of $27.4million, compared to $36.5 million for the same period last year. Cash flowsfrom Tuscarora’s operating activities were $8.7 million for the six monthsended June 30, 2007.  The Partnershipincurred financing and other costs of $16.1 million in the six months endedJune 30, 2007 compared to $5.7 million in the same period last year. Total cash

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distributions receivedincreased $29.1 million to $71.3 million for the six months ended June 30, 2007from $42.2 million for the same period in the prior year primarily due to cashdistributions received from Great Lakes.

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The acquisition of a46.45 per cent general partner interest in Great Lakes on February 22, 2007contributed $23.6 million of cash distributions received in the six monthsended June 30, 2007. This was the first cash distribution received by thePartnership from Great Lakes.

The acquisition of anadditional 20 per cent general partner interest in Northern Border contributed$19.1 million of cash distributions received in the six months ended June 30,2007. Distributions from Northern Border increased in the six months ended June30, 2007 compared to the same period in 2006, resulting in a $0.5 millionincrease in distributions received by the Partnership from its original 30 percent general partner interest.

Cash balances of Tuscarora are consolidated by thePartnership effective December 19, 2006 and as a result, the Partnership ceasedreporting distributions from Tuscarora after that date. Tuscarora’s availablecash flow has been used to finance the compressor station expansion project inLikely, California and to repay debt. This resulted in a $4.4 million decreasein distributions from Tuscarora compared to the six months ended June 30, 2006.

Partnership costs of $16.1million for the six months ended June 30, 2007 compared to $5.7 million in thesame period in 2006 increased mainly due to increased financial charges onhigher outstanding 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 commonunits, pro rata, and two per cent to the general partner, until there isdistributed for each outstanding common unit an amount equal to the minimumquarterly 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 atotal of $0.5275 for that quarter;

·      Second, 75 per cent to all units, prorata, and 25 per cent to the general partner, until each unitholder hasreceived a total of $0.6900 for that quarter; and

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

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

***2007Second Quarter Cash Distribution***

On July 24, 2007, theBoard of Directors of the general partner declared the Partnership’s 2007second quarter cash distribution. The second quarter cash distribution ispayable on August 14, 2007 to unitholders of record as of July 

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31, 2007. The total cashdistribution of $25.1 million will be paid in the following manner: $22.8million to common unitholders (including $1.3 million to the general partner asholder of 2,035,106 common units and $5.7 million to TransCan Northern Ltd., anindirect wholly-owned subsidiary of TransCanada, as holder of 8,678,045 commonunits), $1.8 million to the general partner as holder of the incentivedistribution rights, and $0.5 million to the general partner in respect of itstwo per cent general partner interest.

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***CashFlows from Operating Activities***

Cash flows provided byoperating activities increased $19.0 million, or 85 per cent, to $41.4 millionfor the six months ended June 30, 2007, compared to $22.4 million for the sameperiod in 2006. The increase was primarily due to $23.6 million of cashdistributions received from Great Lakes of which $20.1 million were classifiedas cash flows provided by operating activities, $5.1 million of higheroperating cash flows due to the consolidation of Tuscarora in 2007, $4.6million of higher cash distributions received classified as cash flows providedby operating activities from Northern Border, partially offset by $10.4 millionof higher interest payments related to higher debt. The increase in cashdistributions from Northern Border was primarily due to the Partnership’sacquisition of an additional 20 per cent general partner interest. The cashdistributions received from Northern Border of $47.7 million and $37.8 millionfor the six months ended June 30, 2007 and 2006, respectively, include $28.1million and $23.5 million classified as distributions in cash flows provided byoperating activities in the six months ended June 30, 2007 and 2006,respectively.

***CashFlows from Investing Activities***

Cash used in investingactivities was $725.3 million and $296.9 million for the six months ended June30, 2007 and 2006, respectively. On February 22, 2007, the Partnership acquireda 46.45 per cent interest in Great Lakes from El Paso Corporation for $736.3million in cash, subject to certain closing adjustments. In April 2006, thePartnership incurred costs of $297 million plus $10 million in a transactionfee payable to a subsidiary of TransCanada for the acquisition of an additional20 per cent general partnership interest in Northern Border. The Partnershipmade equity contributions of $7.5 million and $3.1 million during the sixmonths ended June 30, 2007 and 2006, respectively, for cash calls issued byNorthern Border.

$3.5 million of the cashdistributions received from Great Lakes were classified as return of capitalfor the six months ended June 30, 2007. $19.6 million and $14.3 million of thecash distributions received from Northern Border were classified as return ofcapital for the six months ended June 30, 2007 and 2006, respectively. $nil and$0.8 million of the cash distributions received from Tuscarora were classifiedas return of capital for the six months ended June 30, 2007 and 2006,respectively. Distributions received in the first six months of 2007 are basedon the equity investment financial results from Great Lakes and Northern Borderfor the six months ended March 31, 2007.

Tuscarora made capitalexpenditures of $3.5 million in the six months ended June 30, 2007 related tothe compressor station expansion project in Likely, California.

***CashFlows from Financing Activities***

Cash flows provided byfinancing activities were $687.4 million and $273.0 million for the six monthsended June 30, 2007 and 2006, respectively. The acquisition of a 46.45 per centinterest in Great Lakes was partially financed through a private placement of17,356,086 common units at $34.57 per common unit for gross proceeds of $600million. In addition, TC PipeLines GP maintained its two per cent generalpartner interest in the Partnership by contributing $12.6 million to thePartnership in connection with the private equity placement. The Partnershipfunded the balance of the total consideration with a draw on its senior creditfacility, which was amended and restated in connection with this transaction.The Partnership incurred $1.2 million of costs associated with the amendedsenior credit facility. The Partnership drew $126 million under the seniorcredit facility and borrowed $15 million under its revolving creditfacility.  The Partnership repaid $24.4million of the outstanding balance on its revolving credit facility and seniornotes.

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For the six months endedJune 30, 2007, the Partnership paid $36.2 million in cash distributions in thefollowing manner:  $33.2 million tocommon unitholders (including $2.9 million to the general partner as holder of2,305,106 common units and $5.6 million to TransCan Northern Ltd., an indirectwholly-owned subsidiary of TransCanada, as holder of 8,678,045 common units),$2.3 million to the general partner as holder of the incentive distributionrights, and $0.7 million to the general partner in respect of its two per centgeneral 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 June 30, 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                          |       | 516.0                                     |       | — |   | — |   | 516.0 |   | — |   |
| Series A Senior Notes  due 2010                 |       | 56.2                                      |       | 3.3 |   | 6.2 |   | 46.7 |   | — |   |
| Series B Senior Notes  due 2010                 |       | 5.7                                       |       | 0.5 |   | 1.1 |   | 4.1 |   | — |   |
| Series C Senior Notes  due 2012                 |       | 6.8                                       |       | 0.9 |   | 1.6 |   | 1.6 |   | 2.7 |   |
| Interest payments on  Senior Credit Facility(1) |       | 122.8                                     |       | 27.0 |   | 54.5 |   | 41.3 |   | — |   |
| Interest payments on  Senior Notes              |       | 15.9                                      |       | 4.9 |   | 8.7 |   | 2.3 |   | — |   |
| Operating Leases                                |       | 0.2                                       |       | 0.1 |   | 0.1 |   | — |   | — |   |
| Commitments (2)                                 |       | 0.3                                       |       | 0.3 |   | — |   | — |   | — |   |
| Total                                           |       | $                                         | 723.9      |   | $ | 37.0 |   | $ | 72.2 |   | $ | 612.0 |   | $ | 2.7 |   |
|                                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

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

On February 22, 2007, theSenior Credit Facility was amended and restated in connection with the Great Lakesacquisition. The amount available under the Senior Credit Facility increasedfrom $410 million to $950 million, consisting of a $700 million senior termloan and a $250 million senior revolving credit facility, with $194 million ofthe senior term loan available being terminated upon closing of the Great Lakesacquisition.

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

The Partnership had $516million and $397 million outstanding under the Senior Credit Facility at June30, 2007 and December 31, 2006, respectively. The interest rate on the SeniorCredit Facility averaged 6.00 per cent and 6.04 per cent for the three and sixmonths ended June 30, 2007, respectively. At June 30, 2007 and December 31,2006, the interest rates were 5.94 per cent and 6.07 per cent, respectively.

The Partnership hadSeries A Senior Secured Notes, Series B Senior Secured Notes and Series CSecured Notes in the amounts of $56.2 million, $5.7 million and $6.8 millionoutstanding at June 30, 2007 related to Tuscarora, while at December 31, 2006the Partnership had Series A Senior Secured Notes, Series B Senior SecuredNotes and Series C Secured Notes in the amounts of $57.9 million, $6.0 millionand $7.2 million, respectively. The Series A Senior Secured Notes bear interest at 7.13 per cent and mature in2010.  The Series B Senior SecuredNotes bear interest at 7.99 per cent and mature in 2010.  The Series C Senior Secured Notes bearinterest at 6.89 per cent and are due in 2012.

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

37

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***Capital Requirements***

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

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

**Liquidityand Capital Resources of our Pipeline Assets**

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

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

***Debtof Great Lakes***

The following tablesummarizes Great Lakes’ debt outstanding as of June 30, 2007:
| ** **                                  | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | **Less than 1**                 | ** ** | **Long-term** | ** ** |
| **(millions of dollars)**         | ** ** | **Total**  | ** ** | **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 |   |
|                                             |            |            |            |                                           |            |  |  |  |  |  |

 

Great Lakes is requiredto comply with certain financial, operational and legal covenants.  Underthe most restricted covenants in the Senior Note Agreements, approximately$242.0 million of Great Lakes’ partners’ capital is restricted as todistributions as of June 30, 2007.  In addition, Great Lakes is requiredto maintain a minimum consolidated tangible new worth of $175 million.  AtJune 30, 2007, Great Lakes was in compliance with all of its financialcovenants.

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

The following tablesummarizes Northern Border’s debt and credit facilities outstanding as of June30, 2007:
| ** **                          | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **Less than 1**                 | ** ** | **Long-term** | ** ** |
| **(millions of dollars)** | ** ** | **Total**  | ** ** | **year**                                  | ** ** | **portion** | ** ** |
|                                |       |       |       |                                      |       |   |   |
| $250 million  credit agreement (a)  |       | 160.0      |       | —                                    |       | 160.0 |   |
| 7.75% senior  notes due 2009        |       | 200.0      |       | —                                    |       | 200.0 |   |
| 7.50% senior  notes due 2021        |       | 250.0      |       | —                                    |       | 250.0 |   |
| Total                               |       | $          | 610.0      |                                      | $          | — |   | $ | 610.0 |   |
|                                     |            |            |            |                                           |            |  |  |  |  |  |

 

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(a) Northern Border is required to pay a facilityfee of 0.05% on the principal commitment amount of its credit agreement.

*Amended and Restated CreditAgreement –*On April 27, 2007, Northern Border entered into a$250 million amended and restated revolving credit agreement (the “2007 CreditAgreement”) with certain financial institutions. The 2007 Credit Agreement was used to refinance the outstandingindebtedness under Northern Border’s $175 million revolving credit agreementdated as of May 16, 2005 and was used to repay all of the $150 million of its6.25 per cent Senior Notes due May 1, 2007. The 2007 Credit Agreement will alsobe used to finance permitted acquisitions, pay related fees and expenses, issueletters of credit and provide for ongoing working capital needs and for othergeneral business 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 NorthernBorder’s option, the interest rate on the outstanding borrowings may be thelenders’ base rate or LIBOR plus a spread that is based on Northern Border’slong-term unsecured credit 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.  AtJune 30, 2007, amounts outstanding under the 2007 Credit Agreement were $160million at an average interest rate of 5.63 per cent.

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 full calendar quarters following theacquisition. Upon any breach of these covenants, amounts outstanding under the2007 Credit Agreement may become immediately due and payable.  At June 30, 2007, Northern Border was incompliance with all of its financial covenants.

***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 basedon available cash flow as determined by a prescribed formula. The respectivemanagement committees have also defined

39

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certain minimum requirementsin establishing the timing and amounts of required capital contributions.

40

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**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**TCPipeLines, LP**

**TC PipeLines is**exposed to market risk through changes in interestrates.  The Partnership does not have anymaterial foreign exchange risks. TC PipeLines’ interest rate exposure resultsfrom its Senior Credit Facility, which is subject to variability in LIBORinterest rates. At June 30, 2007, TC PipeLines had $516 million outstanding onits Senior Credit Facility.  If LIBORinterest rates change by one per cent compared to the rates in effect as ofJune 30, 2007, the Partnership’s interest expense for the six months ended June30, 2007 would have changed by $0.6 million.This amount has been determined by considering theimpact of the hypothetical interest rates on variable rate borrowingsoutstanding as of June 30, 2007.

**The Partnership uses derivatives to assist inmanaging its exposure to interest rate risk. The fair value of interest rate derivativeshas been calculated using period-end market rates. At June 30, 2007, the fairvalue of the Partnership’s interest rate swaps accounted for as hedges was $6.3million. The notional amount hedged was $400 million. The interest rate swapsare structured such that the cash flows match those of the Senior CreditFacility from March 12, 2007 through to maturity dates of May 22, 2009 andDecember 12, 2011.**

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

NorthernBorder utilizes both fixed- and variable-rate debt and is exposed to marketrisk due to the floating interest rates on its credit agreement. NorthernBorder regularly assesses the impact of interest rate fluctuations on futurecash flows and evaluates hedging opportunities to mitigate its interest raterisk. Northern Border maintains a significant portion of its debt at fixedrates to reduce its sensitivity to interest rate fluctuations. As of June 30,2007, 74 per cent of Northern Border’s outstanding debt was at fixed rates andthere were no interest rate swap agreements outstanding.

If interest rates hypotheticallyincreased one per cent on Northern Border’s variable-rate borrowingsoutstanding of $160 million at June 30, 2007, its annual interest expense wouldincrease by approximately $1.6 million.

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

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**ITEM4.  CONTROLS AND PROCEDURES**

**TC PipeLines, LP**

**Evaluationof Disclosure Controls and Procedures**

Based on theirevaluation of the Partnership’s disclosure controls and procedures as of theend of the period covered by this quarterly report, the Principal ExecutiveOfficer and Principal Financial Officer of the general partner of thePartnership have concluded that the Partnership’s disclosure controls andprocedures were effective in ensuring that the information required to bedisclosed by the Partnership in the reports that it files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms and thatinformation required to be disclosed by the Partnership in the reports that thePartnership files or submits under the Exchange Act is accumulated andcommunicated to the management of the general partner of the Partnership,including the Principal Executive Officer and Principal Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

**Changesin Internal Control over Financial Reporting**

There were nochanges in the Partnership’s internal control over financial reporting duringthe most recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Partnership’s internal control over financialreporting.

**Acquisitionof Tuscarora**

On December 19,2006, the Partnership acquired an additional 49 per cent interest in Tuscarora,increasing the Partnership’s interest in Tuscarora to 98 per cent. As at June30, 2007, the Partnership has substantially completed integrating Tuscarora’stransactions into the Partnership’s existing internal controls over financialreporting.

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**PARTII.  OTHER INFORMATION**

**ITEM 1A.  RISK FACTORS**

**TCPipeLines, LP**

*Refer to the risk factorsdisclosed in Part I, Item 1A, “RiskFactors,” in our annual report on Form 10-K for the year ended December 31,2006 and Part II, Item 1A, “Risk Factors” in our quarterly report on Form 10-Qfor the first quarter of 2007.*

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**ITEM 6. EXHIBITS**

**TCPipeLines, LP**

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

 

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

 

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

 

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

 

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* Indicates exhibitsincorporated by reference.

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### **SIGNATURES**

Pursuant to therequirements of the Securities and Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|        | **TC PipeLines, LP**              |
|--------|-----------------------------------|
|   | (a Delaware  Limited Partnership) |
|   |                              |
|   | By:                               | TC PipeLines GP,  Inc., its general partner |
|   |                              |   |
|   |                              |   |
|   | By:                               | /s/ Russell K.  Girling |   |
| Date:  | August 3, 2007                    |   | Russell K. Girling |
|   |                              | Chairman, Chief  Executive Officer and Director |
|   |                              |   |
|   |                              | TC PipeLines GP,  Inc. (Principal Executive Officer) |
|   |                              |   |
|   |                              |   |
|   | By:                               | /s/ Amy W. Leong |   |
| Date:  | August 3, 2007                    |   | Amy W. Leong |
|   |                              | Controller |
|   |                              | TC PipeLines GP,  Inc. (Principal Financial Officer) |

 

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