TC Pipelines, LP Annual Report 2000

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FY2000 Annual Report · TC Pipelines, LP

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objective: stability and growth

positioned
for the future

T C P I P E L I N E S , L P

our
profile

TC PipeLines, LP is a United States limited partnership that offers investors stable cash

flow and growth prospects through the participation in the growth of the natural gas pipeline

industry. TC PipeLines owns a 30% interest in Northern Border Pipeline Company and a

49% interest in Tuscarora Gas Transmission Company. Both Northern Border Pipeline and

Tuscarora own interstate pipeline systems that transport western Canadian natural gas to

growing natural gas consuming markets in the Chicago and Reno areas, respectively. The

Partnership is managed by its general partner, TC PipeLines GP, Inc., a wholly owned

subsidiary of TransCanada PipeLines Limited. Common units of the Partnership are listed

on the Nasdaq Stock Market and trade under the symbol TCLPZ.

TC PipeLines

10–Year Treasury

AT T R A C T I V E Y I E L D

TC PipeLines Yields
vs. 10-Year Treasury

14%

12%

10%

1999(1)

2000

(1) TC PipeLines commenced operations on May 28, 1999.

2000 Highlights

02 Letter to Unitholders

04 Form 10-K

F-1 Financial Statements

I-1 Investor Information

2 0 0 0 H I G H L I G H T S

T C P I P E L I N E S , L P

Highlights

Project 2000, Northern Border Pipeline’s expansion and 34-mile pipeline
extension into northern Indiana, approved by the Federal Energy
Regulatory Commission (FERC) in March

(cid:2) Aquisition of 49% interest in Tuscarora Gas Transmission Company

completed in September

(cid:2) Quarterly cash distribution to unitholders increased from $0.45 per

unit to $0.475 per unit effective for the third quarter of 2000

(cid:2) Northern Border Pipeline’s rate case settlement approved by the FERC

in December

Financial Highlights

(thousands of dollars, except per unit amounts)

Income Statement

Net income

Net income per unit

Cash Flow

Year ended
December 31,

2000

May 28 (1) –
December 31,

1999

37,224

$ 2.08

20,224

$ 1.13

Cash flow from investment in

Northern Border Pipeline Company

40,471

12,125

Cash flow from investment in

Tuscarora Gas Transmission Company (2)

1,499

Cash distributions paid

Cash distributions per unit (3)

32,657

$ 1.850

–

11,037

$ 1.068

(1) TC PipeLines commenced operations on May 28, 1999.
(2) TC PipeLines acquired a 49% interest in Tuscarora on September 1, 2000.
(3) Cash distributions are paid within 45 days after the end of each quarter.

S U S TA I N A B L E G R O W T H

P R O V E N S TA B I L I T Y

Quarterly Net Income
(cents per unit)

Quarterly Cash Distributions
(cents per unit)

9
8 4
4

8
4

7
4

8
5 5
5

5
4

5
.
7
5 4
4

5
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7
4

5
4

7
1

8
.
6
1

Q3 Q4
1999(1)

Q2 Q3 Q4

2000

Q3 Q4
1999(1)

Q2 Q3 Q4

2000

(1) TC PipeLines commenced operations on May 28, 1999.

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T C P I P E L I N E S , L P

L E T T E R T O U N I T H O L D E R S

In a year when the natural gas market and equity markets experienced significant
volatility, TC PipeLines demonstrated its commitment to stability and growth by
delivering solid cash distributions to our unitholders. Since the time of the
Partnership’s initial public offering in May 1999, our objective has been two-fold:
generate stable cash distributions to our unitholders and grow cash distributions in a
sustainable, disciplined manner.

In measuring the Partnership’s performance in 2000 relative to
this objective, I am pleased to report that the Partnership has had
a successful year.

A number of key events contributed to the Partnership’s success in
2000. First and foremost, Northern Border Pipeline Company, of
which the Partnership holds a 30% interest, generated solid
financial results. With steady cash flows that are underpinned by
long-term contracts and competitive rates for transporting
western Canadian natural gas to the midwestern United States
market, Northern Border Pipeline is an asset well-suited to enable
TC PipeLines to achieve the stability desired by our unitholders.
We believe Northern Border Pipeline’s rate settlement agreement,
which was approved by the FERC in December,
further
strengthens its competitive position. Project 2000, the planned
expansion and 34-mile extension from Manhattan, Illinois to
northern Indiana, is scheduled to be completed in November
2001 and is expected to provide near-term growth as it opens up
new markets to Northern Border Pipeline.

In September, we acquired a 49% interest in Tuscarora Gas
Transmission Company. We believe Tuscarora demonstrates the
attributes we look for when acquiring assets. The Tuscarora
pipeline system has access to the natural gas reserves in the
western Canadian sedimentary basin and is strategically located to
serve growing natural gas demand in northern Nevada. Tuscarora
also has a stable financial and operating track record, supported by
long-term contracts. Furthermore, we believe that Tuscarora has
near term growth potential. In January of 2001, Tuscarora
completed the construction of the Hungry Valley lateral, a new

T C P I P E L I N E S , L P

pipeline connection into the west side of the city of Reno. Upon being placed into service, the
Hungry Valley lateral has provided an additional 10 million cubic feet of natural gas per day to
the Reno area. We believe that as a result of projected continuing population growth, natural
gas demand in the Reno area will continue to increase. Tuscarora is well positioned to take
advantage of this expected growth in demand and is currently evaluating additional expansions
of its mainline system to meet the expected increased demand.

Continued convergence in the energy business is expected across the continent, as natural gas
continues to be the fuel of choice for new electricity generation. We expect this to contribute
to strong growth in demand for natural gas in the next decade with over half of the incremental
demand expected to come from the electric generation sector. To meet this demand growth, the
supply of natural gas must keep pace. The western Canadian sedimentary basin, which
currently supplies approximately 25% of North America’s natural gas requirements, is expected
to continue to be one of North America’s key supply sources. Last year, an unprecedented 8,900
gas wells were drilled in the western Canadian sedimentary basin alone. As a result of these
strong business fundamentals, we expect western Canadian natural gas supply to capture
greater market share in the United States. Both Northern Border Pipeline and Tuscarora
provide a strong infrastructure to meet this growth as they are well positioned to transport
western Canadian natural gas to their respective markets.

We also continue to evaluate opportunities to grow through acquisitions. We are focused on
investments of the high quality that have to date typified TC PipeLines, namely gas
transmission assets which form key components of the continental grid connecting areas of
growing natural gas supply to major natural gas consuming market areas. TransCanada, the
parent company of our general partner, continues to view TC PipeLines as an important
vehicle for realizing its gas transmission growth strategy. TransCanada is committed to
providing the expertise that will make TC PipeLines successful in meeting our objective of
growing cash distributions to unitholders.

On behalf of TC PipeLines, LP,

Ronald J. Turner

President and Chief Executive Officer
TC PipeLines GP, Inc.

March 29, 2001

T C P I P E L I N E S , L P

U N I T E D S TAT E S S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N

W A S H I N G T O N , D . C . 2 0 5 4 9

F O R M 1 0 - K

A n n u a l R e p o r t P u r s u a n t t o S e c t i o n 1 3 o r 1 5 ( d )

o f t h e S e c u r i t i e s E x c h a n g e a c t o f 1 9 3 4

For the fiscal year ended December 31, 2000

Commission file number: 000-26091

T C P I P E L I N E S , L P

(Exact name of registrant as specified in its charter)

D E L A W A R E

(State or other jurisdiction
of incorporation or organization)

5 2 - 2 1 3 5 4 4 8

(I.R.S. Employer
Identification No.)

1 1 0 T U R N P I K E R O A D , S U I T E 2 0 3

W E S T B O R O U G H , M A S S A C H U S E T T S 0 1 5 8 1

(Address of principal executive offices)(zip code)

Registrant's telephone number, including area code: 5 0 8 - 8 7 1 - 7 0 4 6

S e c u r i t i e s r e g i s t e r e d p u r s u a n t t o S e c t i o n 1 2 ( b ) o f t h e A c t :

Title of each class

Name of each exchange on which registered

N O N E

S e c u r i t i e s r e g i s t e r e d p u r s u a n t t o S e c t i o n 1 2 ( g ) o f t h e A c t :

Title of each class

C O M M O N U N I T S

Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.

[ ]

Aggregate market value of the voting and non-voting common equity held by non-affiliates

of the registrant, based on March 9, 2001, was approximately $273.2 million.

As of March 9, 2001, there were 14,690,694 of the registrant’s common units outstanding.

F O R M 1 0 - K I N D E X

T C P I P E L I N E S , L P

Item Part

Page Number

Part I

1. Business

2. Properties

Litigation

Submission of Matters to a Vote of

Security Holders

Part II

5. Market for Registrant’s Common Units and

Related Security Holder Matters

Selected Financial Data

7. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

7a. Quantitative and Qualitative Disclosures

about Market Risk

Financial Statements and Supplementary Data

9. Changes in and Disagreements with

Accountants on Accounting and Financial
Disclosures

Part III

10. Directors and Officers of the General Partner

11. Executive Compensation

12.

Security Ownership of Certain Beneficial

Owners and Management

13. Certain Relationships and Related Transactions

Part IV

14. Exhibits, Financial Statements Schedules

and Reports on Form 8-K

T C P I P E L I N E S , L P

F O R W A R D - L O O K I N G I N F O R M AT I O N

Certain written and oral statements made or incorporated by reference from time to
time by TC PipeLines, LP, its general partner, or their representatives in this Form
10-K and other reports and filings made with the Securities and Exchange
Commission, news releases, conferences or otherwise, are forward-looking and
relate to, among other things, anticipated financial performance, business prospects,
strategies, market forces and commitments.

Much of this information appears in “Management's Discussion and
Analysis of Financial Condition and Results of Operations” found
herein. By its nature, such forward-looking information is subject to
various risks and uncertainties, including those discussed below,
which could cause TC PipeLines’ actual results and experience to
differ materially from the anticipated results or other expectations
expressed. Readers are cautioned not to place undue reliance on this
forward-looking information, which is as of the date of this Form
10-K, and TC PipeLines undertakes no obligation to update
publicly or revise any forward-looking information, whether as a
result of new information, future events or otherwise.

Forward-looking information typically contains statements with
words such as “anticipate,” “believe,” “estimate,” “expect,” “plan,”
“target” or similar words suggesting future outcomes. The following
discussion is intended to identify certain factors, though not
necessarily all factors, which could cause future outcomes to differ
materially from those set forth in the forward-looking information.

The risks and uncertainties that may affect the operations,
performance, development and results of TC PipeLines’ business
and its ability to make cash distributions to unitholders include, but
are not limited to, the following factors:

regulatory decisions, particularly those of the Federal Energy
Regulatory Commission (FERC);

cost of acquisitions, including related debt service payments;

competing pipelines;

tariff and transportation charges to be collected by Northern
Border Pipeline Company for transportation services on the
Northern Border pipeline system or by Tuscarora Gas

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T C P I P E L I N E S , L P

Transmission Company for transportation services on the
Tuscarora pipeline system;

the amount of cash distributed to TC PipeLines by Northern
Border Pipeline or Tuscarora;

the inability of Northern Border Pipeline or Tuscarora to
maintain or increase its rate base by successfully completing
FERC approved projects;

a decline in the availability of western Canadian natural gas;

(cid:2) majority control of the Northern Border Pipeline management

committee by Northern Border Partners, L.P.;

the amount of cash required to be contributed by TC PipeLines
to fund the respective operations of Northern Border Pipeline
or Tuscarora;

competitive factors and pricing pressures;

shifts in market demand;

changes in laws and regulations, including environmental and
regulatory laws;

increases in maintenance and operating costs that are not
recovered by increased transportation rates;

prevailing economic conditions, particularly conditions of the
capital and equity markets;

the effects of required compliance with debt covenants;

timing of completion of capital or maintenance projects;

the availability of adequate levels of insurance;

currency and interest rate fluctuations;

the potential that the Internal Revenue Service could treat
TC PipeLines as a corporation; and

various events which could disrupt operations (including
explosions, fires, and severe weather conditions).

All amounts are stated in United States dollars unless otherwise indicated.

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T C P I P E L I N E S , L P

PA R T I

I T E M 1

Business

B U S I N E S S O F TC PIPELINES, LP

TC PipeLines, LP and its subsidiary limited partnerships, TC PipeLines Intermediate Limited
Partnership and TC Tuscarora Intermediate Limited Partnership, collectively referred to herein
as “TC PipeLines” or “the Partnership,” own and participate in the management of United
States based pipeline assets. TC PipeLines GP, Inc., a wholly owned subsidiary of TransCanada
Pipelines Limited, is the general partner of the Partnership.

On May 28, 1999, the Partnership issued 14,300,000 common units (11,500,000 to the public
and 2,800,000 to an affiliate of the general partner) in its initial public offering for net proceeds
of $274.6 million. The Partnership used the net proceeds from this offering, along with
3,200,000 subordinated units, an aggregate 2% general partner interest and incentive
distribution rights, to acquire the collective 30% general partner interest in Northern Border
Pipeline previously held by TransCanada Border PipeLine Ltd. and TransCan Northern Ltd.,
affiliates of the general partner. The remaining 70% general partner interest in Northern Border
Pipeline is held by Northern Border Partners, L.P., a publicly traded limited partnership that is
not affiliated with TC PipeLines.

Subsequent to the initial public offering, the underwriters exercised a portion of their over-
allotment option and purchased 390,694 additional common units for net proceeds to the
Partnership of $7.5 million. The Partnership used these proceeds to redeem an equal number of
subordinated units held by the general partner.

The general partner holds an aggregate 2% general partner interest in the Partnership. The
general partner also owns 2,809,306 subordinated units and is entitled to incentive distribution
rights if quarterly cash distributions on the common and subordinated units exceed specified
levels (see Item 5. – Market for Registrant’s Common Units and Related Security Holder
Matters).

On September 1, 2000, TC PipeLines, based on the approval by a committee comprised of its
independent directors, acquired a 49% general partner interest in Tuscarora Gas Transmission
Company. The Partnership acquired this asset from TCPL Tuscarora Ltd., an indirect subsidiary
of TransCanada, for a purchase price of $28.0 million. The Partnership borrowed $24.5 million
from the Revolving Credit Facility (see Item 7. – Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources of TC
PipeLines, LP – General) to fund a portion of the purchase price. The remainder of the purchase
price was funded with cash on hand.

T C P I P E L I N E S , L P

For the year ended December 31, 2000, the Partnership’s 30% general partner interest in
Northern Border Pipeline and 49% general partner interest in Tuscarora represent its only
material assets.

BUSINESS OF NORTHERN BORDER PIPELINE COMPANY

General

Northern Border Pipeline is a general partnership formed in 1978. The general partners are TC
PipeLines and Northern Border Partners, both of which are publicly traded partnerships. Each
of TC PipeLines and Northern Border Partners holds its interest in Northern Border Pipeline,
30% and 70% of voting power, respectively, through a subsidiary limited partnership. The
general partner of TC PipeLines is TC PipeLines GP, Inc., a subsidiary of TransCanada. The
general partners of Northern Border Partners and its subsidiary limited partnership are
Northern Plains Natural Gas Company and Pan Border Gas Company, both subsidiaries of
Enron Corp., and Northwest Border Pipeline Company, a subsidiary of The Williams
Companies, Inc.

Northern Border Pipeline owns an interstate pipeline system that transports natural gas from
the Montana-Saskatchewan border to natural gas markets in the midwestern United States. The
Northern Border pipeline system connects with multiple pipelines, that provide shippers with
access to the various natural gas markets served by those pipelines. In the year ended December
31, 2000, TC PipeLines estimates that Northern Border Pipeline transported approximately
22% of the total amount of natural gas imported from Canada to the United States. Over the
same period, approximately 90% of the natural gas transported was produced in the western
Canadian sedimentary basin located in the provinces of Alberta, British Columbia and
Saskatchewan.

Northern Border Pipeline transports gas for shippers under a tariff regulated by the FERC. The
tariff specifies the calculation of amounts to be paid by shippers and the general terms and
conditions of transportation service on the pipeline system. Northern Border Pipeline derives
revenue from agreements for the receipt and delivery of gas at points along the pipeline system
as specified in each shipper's individual transportation contract. Northern Border Pipeline does
not own the gas that it transports, and therefore it does not assume the related natural gas
commodity risk.

The management of Northern Border Pipeline is overseen by a four-member management
committee. One representative is designated by TC PipeLines; three representatives are
designated by Northern Border Partners, with each of its general partners selecting one
representative. Voting power on the management committee is presently allocated among
Northern Border Partners' three representatives in proportion to their general partner interests
in Northern Border Partners. As a result, the 70% voting power of Northern Border Partners'

T C P I P E L I N E S , L P

three representatives on the management committee is allocated as follows: 35% to the
representative designated by Northern Plains, 22.75% to the representative designated by Pan
Border and 12.25% to the representative designated by Northwest Border. Northern Plains and
Pan Border are subsidiaries of Enron Corp. Therefore, Enron controls 57.75% of the voting
power of the management committee and has the right to select two of the members of the
management committee.

The Northern Border pipeline system is operated by Northern Plains pursuant to an operating
agreement. As of December 31, 2000, Northern Plains employed approximately 200 individuals
located at the operating headquarters in Omaha, Nebraska, and at various locations along the
pipeline route. Northern Plains' employees are not represented by any labor union and are not
covered by any collective bargaining agreements.

The Northern Border Pipeline System

Northern Border Pipeline owns a 1,214-mile United States interstate pipeline system that
transports natural gas from the Montana-Saskatchewan border near Port of Morgan, Montana,
to interconnecting pipelines in the upper Midwest of the United States. Construction of the
Northern Border pipeline system was initially completed in 1982 and was expanded and/or
extended in 1991, 1992 and 1998.

The Northern Border pipeline system has pipeline access to natural gas reserves in the western
Canadian sedimentary basin in the provinces of Alberta, British Columbia and Saskatchewan,
as well as the Williston Basin in the United States. The Northern Border pipeline system also
has access to synthetic gas produced at the Dakota Gasification plant in North Dakota. For the
year ended December 31, 2000, of the natural gas transported on the system, approximately 90%
was produced in Canada, approximately 5% was produced by the Dakota Gasification plant, and
approximately 5% was produced in the Williston Basin.

The Northern Border pipeline system consists of 822 miles of 42-inch diameter pipe designed
to transport 2,373 million cubic feet per day (mmcfd) from the Canadian border to Ventura,
Iowa; 30-inch diameter pipe and 36-inch diameter pipe, each approximately 147 miles in length,
designed to transport 1,300 mmcfd in total from Ventura, Iowa to Harper, Iowa; and 226 miles
of 36-inch diameter pipe and 19 miles of 30-inch diameter pipe designed to transport 645
mmcfd from Harper, Iowa to a terminus near Manhattan, Illinois (Chicago area). Along the
pipeline there are 15 compressor stations with total rated horsepower of 476,500 and
measurement facilities to support the receipt and delivery of gas at various points. Other facilities
include four field offices and a microwave communication system with 51 tower sites.

At its northern end, the Northern Border pipeline system is connected to TransCanada's
majority-owned Foothills Pipe Lines (Sask.) Ltd. system in Canada, which is connected to
TransCanada’s Alberta System and the pipeline system owned by Transgas Limited in

T C P I P E L I N E S , L P

Saskatchewan. The Alberta System gathers and transports approximately 18% of the total North
American natural gas production and approximately 74% of the natural gas produced in the
western Canadian sedimentary basin. The Northern Border pipeline system also connects with
facilities of Williston Basin Interstate Pipeline at Glen Ullin and Buford, North Dakota,
facilities of Amerada Hess Corporation at Watford City, North Dakota and facilities of Dakota
Gasification Company at Hebron, North Dakota in the northern portion of the Northern
Border pipeline system.

Interconnects

The Northern Border pipeline system connects with multiple pipelines that provide its shippers
with access to the various natural gas markets served by those pipelines. The Northern Border
pipeline system interconnects with pipeline facilities of:

(cid:2) Northern Natural Gas Company, an Enron subsidiary, at Ventura, Iowa as well as multiple

smaller interconnections in South Dakota, Minnesota and Iowa;

(cid:2) Natural Gas Pipeline Company of America at Harper, Iowa;

(cid:2) MidAmerican Energy Company at Iowa City and Davenport, Iowa and Cordova, Illinois;

(cid:2) Alliant Power Company at Prophetstown, Illinois;

(cid:2) Northern Illinois Gas Company at Troy Grove and Minooka, Illinois;

(cid:2) Midwestern Gas Transmission Company near Channahon, Illinois;

(cid:2) ANR Pipeline Company near Manhattan, Illinois; and

(cid:2) The Peoples Gas Light and Coke Company near Manhattan, Illinois at the terminus of the

Northern Border pipeline system.

The Ventura, Iowa interconnect with Northern Natural Gas Company functions as a large
market center, where natural gas transported on the Northern Border pipeline system is sold,
traded and received for transport to significant consuming markets in the Midwest and to
interconnecting pipeline facilities destined for other markets.

Shippers

The Northern Border pipeline system serves more than 50 firm transportation shippers with
diverse operating and financial profiles. Based upon shippers' contractual obligations, as of
December 31, 2000, 92% of the firm capacity is contracted by producers and marketers. The
remaining firm capacity is contracted to local distribution companies (5%), interstate pipelines
(2%) and end-users (1%). As of December 31, 2000, the termination dates of these contracts
ranged from October 31, 2001 to December 21, 2013 and the weighted average contract life,
based upon annual contractual obligations, was approximately six years with just under 99% of
capacity contracted through mid-September 2003.

T C P I P E L I N E S , L P

Based on their proportionate shares of capacity, as of December 31, 2000, the five largest
shippers are: Pan-Alberta Gas (U.S.) Inc. (25.5%), TransCanada Energy Marketing USA, Inc.
(11.4%), PanCanadian Energy Services Inc (7.3%), Enron North America Corp. (6.3%) and
Engage Energy US, LP. (5.4%). The 20 largest shippers,
in total, are responsible for
approximately 93% of total revenues.

As of December 31, 2000, Northern Border Pipeline’s largest shipper, Pan-Alberta, holds firm
capacity of 690 mmcfd under three contracts with terms to October 31, 2003. An affiliate of
Enron provides guaranties for 300 mmcfd of Pan-Alberta's contractual obligations through
October 31, 2001. In addition, Pan-Alberta's remaining capacity is supported by various credit
support arrangements, including, among others, a letter of credit, a guaranty from an interstate
pipeline company through October 31, 2001 for 132 mmcfd, an escrow account and an upstream
capacity transfer agreement. Mirant Americas Energy Marketing, LP., formerly Southern
Company Energy Marketing L.P., manages the assets of Pan-Alberta Gas, Ltd., which include
Pan-Alberta’s contracts with Northern Border Pipeline.

Some of Northern Border Pipeline’s shippers are affiliated with the general partners of TC
PipeLines and Northern Border Partners. TransCanada Energy Marketing USA, Inc., a
subsidiary of TransCanada, holds firm contracts representing 11.4% of capacity. Enron North
America Corp., a subsidiary of Enron, holds firm contracts representing 6.3% of capacity.
Transcontinental Gas Pipe Line Corporation, a subsidiary of Williams, holds a contract
representing 0.8% of capacity.

Demand For Transportation Capacity

Northern Border Pipeline’s long-term financial condition is dependent on the continued
availability of economic western Canadian natural gas for import into the United States. Natural
gas reserves may require significant capital expenditures by others for exploration and
development drilling and the installation of production, gathering, storage, transportation and
other facilities that permit natural gas to be produced and delivered to pipelines that
interconnect with the Northern Border pipeline system. Low prices for natural gas, regulatory
limitations or the lack of available capital for these projects could adversely affect the
development of additional reserves and production, gathering, storage and pipeline transmission
of western Canadian natural gas supplies. Additional pipeline export capacity also could
accelerate depletion of these reserves.

Northern Border Pipeline’s business depends in part on the level of demand for western
Canadian natural gas in the markets the pipeline system serves. The volumes of natural gas
delivered to these markets from other sources affect the demand for both western Canadian
natural gas and use of the Northern Border pipeline system. Demand for western Canadian
natural gas to serve other markets also influences the ability and willingness of shippers to use
the Northern Border pipeline system to meet demand in the markets that the Northern Border
pipeline system serves.

A variety of factors could affect the demand for natural gas in the markets that the Northern
Border pipeline system serves. These factors include:

T C P I P E L I N E S , L P

economic conditions;

fuel conservation measures;

alternative energy requirements and prices;

climatic conditions;

government regulation; and

technological advances in fuel economy and energy generation devices.

TC PipeLines cannot predict whether these or other factors will have an adverse effect on
demand for use of the Northern Border pipeline system or how significant that adverse effect
could be.

Future Demand and Competition

On March 16, 2000, the FERC issued an order granting Northern Border Pipeline’s application
for a certificate to construct and operate Northern Border Pipeline’s proposed Project 2000
facilities. Project 2000 will expand and extend the Northern Border pipeline system into
Indiana. Project 2000 will afford shippers on Northern Border’s extended pipeline system access
to industrial gas consumers in northern Indiana through an interconnect with Northern Indiana
Public Service Company, a major midwest local distribution company, at the terminus near
North Hayden, Indiana.

The capital expenditures for Project 2000 are estimated to be approximately $94 million with a
planned in-service date of November 2001. Proposed facilities include approximately 34.4 miles
of 30-inch pipeline, new equipment and modifications at three compressor stations resulting in
a net increase of 22,500 compressor horsepower, and one meter station.

As a result of the Project 2000 expansion, the Northern Border pipeline system will have the
ability to transport 1,484 mmcfd from Ventura to Harper, Iowa, 844 mmcfd from Harper to
Manhattan, Illinois, and 544 mmcfd on the new extension from Manhattan to North Hayden,
Indiana. Five shippers have contracted for all the additional capacity under long-term
transportation agreements.

The Project 2000 shippers are: Bethlehem Steel Corporation, El Paso Energy Marketing
Company, Northern Indiana Public Service Company, Peoples Energy Services Corporation
and The Peoples Gas Light and Coke Company.

Northern Border Pipeline competes with other pipeline companies that transport natural gas
from the western Canadian sedimentary basin or that transport natural gas to markets in the
midwestern United States. The competitors for the supply of natural gas include six pipelines
and the Canadian domestic users in the western Canadian sedimentary basin region. Northern

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Border Pipeline’s competitive position is affected by the availability of Canadian natural gas for
export, the prices of natural gas in alternative markets, the cost of producing natural gas in
Canada, and demand for natural gas in the United States.

Alliance Pipeline, which commenced transporting natural gas from the western Canadian
sedimentary basin to the midwestern United States in December 2000, delivers its volumes into
the Chicago market and other interstate pipelines. Alliance Pipeline transports for its shippers
gas containing high-energy liquid hydrocarbons. Additional facilities to extract the natural gas
liquids were constructed near Alliance Pipeline's terminus in Chicago to permit Alliance to
transport natural gas with the liquids-rich element.

As a consequence of Alliance Pipeline, there has been an increase in the volume of natural gas
moving from the western Canadian sedimentary basin to Chicago. Vector Pipeline L.P.
interconnects with Alliance and transports gas eastward to a terminus in eastern Canada. There
are several additional projects proposed to transport natural gas from the Chicago area that
would provide access to additional markets for the shippers. The proposed projects currently
being pursued by third parties are targeting markets in northern Illinois, Wisconsin, and the
northeast United States. These proposed projects are in various stages of regulatory approval.

Williams has a minority interest (14.6%) in the Alliance Pipeline. TransCanada and other
unaffiliated companies own and operate pipeline systems that transport natural gas from the
same natural gas reserves in western Canada that supply Northern Border Pipeline’s customers.

Natural gas is also produced in the United States and transported by competing pipeline systems
to the same destinations as the Northern Border pipeline system.

FERC Regulation

GENERAL Northern Border Pipeline is subject to extensive regulation by the FERC as a
"natural gas company" under the Natural Gas Act. Under the Natural Gas Act and the Natural
Gas Policy Act, the FERC has jurisdiction with respect to virtually all aspects of the business,
including:

transportation of natural gas;

rates and charges;

construction of new facilities;

extension or abandonment of service and facilities;

accounts and records;

depreciation and amortization policies;

the acquisition and disposition of facilities; and

the initiation and discontinuation of services.

(cid:2)
(cid:2)
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T C P I P E L I N E S , L P

Where required, Northern Border Pipeline holds certificates of public convenience and
necessity issued by the FERC covering the facilities, activities and services. Under Section 8 of
the Natural Gas Act, the FERC has the power to prescribe the accounting treatment for items
for regulatory purposes. Northern Border Pipeline’s books and records are periodically audited
under Section 8.

The FERC regulates the rates and charges for transportation in interstate commerce. Natural
gas companies may not charge rates exceeding rates judged just and reasonable by the FERC. In
addition, the FERC prohibits natural gas companies from unduly preferring or unreasonably
discriminating against any person with respect to pipeline rates or terms and conditions of
service. Some types of rates may be discounted without further FERC authorization.

NORTHERN BORDER PIPELINE RATE CASE PROCEEDING In May 1999, Northern Border
Pipeline filed a rate case wherein it proposed, among other things, to increase the allowed equity
rate of return to 15.25%. The total annual cost of service increase due to the proposed changes
was approximately $30 million. A number of the shippers and competing pipelines filed
interventions and protests. In June 1999, the FERC issued an order in which the proposed
changes were suspended until December 1, 1999, after which they were implemented with
subsequent billings subject to refund. The order set for hearing not only the proposed changes
but also several issues raised by intervenors including the appropriateness of the cost of service
form of tariff and the depreciation schedule. Upon a request for clarification, the FERC issued
an order in August 1999 that provided the manner in which the costs of the recently completed
expansion and extension project (The Chicago Project) could be recovered from shippers may
be examined in this proceeding and that, while Northern Border Pipeline had not proposed to
change the depreciation rates approved in the last rate case, it had the burden of proving that the
depreciation rates are just and reasonable.

On September 26, 2000, Northern Border Pipeline filed a stipulation and agreement in its 1999
rate case proceeding that documented a settlement. On December 13, 2000, the FERC issued
its order approving the terms of the settlement. One of the important elements of the settlement
is the conversion of Northern Border Pipeline’s form of tariff from cost of service to stated rates
based on a straight-fixed variable rate design. Under the former cost of service tariff, the firm
transportation shippers contracted to pay for a proportionate share of Northern Border
Pipeline's cost of service. During any given month, each of these shippers paid a uniform
mileage-based charge for the amount of capacity contracted, and calculated under a cost of
service tariff. The shippers were obligated to pay their proportionate share of the cost of service
regardless of the amount of natural gas they actually transported. Under the cost of service form
of tariff, Northern Border Pipeline could not charge or collect more than the cost of service.
Under Northern Border Pipeline’s new form of tariff, shippers pay Northern Border Pipeline on
the basis of stated transportation rates. Under the terms of the settlement, and in accordance

T C P I P E L I N E S , L P

with straight-fixed variable rate design principles, approximately 98% of the agreed upon
revenue level is attributed to demand charges. The firm shippers are obligated to pay a monthly
demand charge, regardless of the amount of natural gas they actually transport, for the term of
their contracts. The remaining 2% of the agreed upon revenue level is attributed to the
commodity charge based on the volumes of gas actually transported. From December 1, 1999,
through and including December 31, 2000, the rates were based upon an annual revenue level
of $307 million. For periods after December 31, 2000, the rates are based upon an annual
revenue level of $305 million. On a per unit of transportation basis, the rates under the new tariff
are approximately equal to the cost of service on a per unit basis charged prior to December 1,
1999. The settlement also provides that neither Northern Border Pipelines nor its existing
shippers can seek rate changes until November 1, 2005, at which time Northern Border Pipeline
must file a new rate case. Prior to the new rate case, Northern Border Pipeline will not be
permitted to increase rates if its costs increase, nor will Northern Boarder Pipeline be required
to reduce rates based on cost savings. Northern Border Pipeline’s earnings and cash flow will
depend on its future costs, contracted capacity, the volumes of gas transported and its ability to
recontract capacity at acceptable rates.

Under Northern Border Pipeline’s previous cost of service tariff, the amount of revenue that
Northern Border Pipeline collected from customers generally declined as the rate base was
recovered. Under its new tariff, Northern Border Pipeline is entitled to collect revenue based on
stated rates established in its 1999 rate case until its next rate case, which will be filed November
1, 2005. Northern Border Pipeline will, however, continue to depreciate its rate base at an annual
depreciation rate on transmission plant in service of 2.25% and Northern Border Pipeline’s rate
base in 2005 will be a factor in determining what Northern Border Pipeline can charge when it
files a new rate case at that time. In order to avoid a decline in the revenue Northern Border
Pipeline can collect from its customers, Northern Border Pipeline must maintain or increase its
rate base by acquiring or constructing assets that replace or add to existing pipeline facilities or
by adding new facilities and maintain its level of contracted capacity at the stated rates.

It was agreed in the settlement of the 1999 rate case, that there would be no project cost
containment mechanism adjustment for The Chicago Project and that all costs as of November
30, 1999 incurred in the construction and commissioning of The Chicago Project be included
in rate base. The project cost containment mechanism was created in the settlement of the 1995
rate case. The purpose of the project cost containment mechanism was to limit Northern Border
Pipeline’s ability to include cost overruns for The Chicago Project in rate base and to provide
incentives for cost underruns.

The settlement of Northern Border Pipeline’s 1995 rate case, provided that for at least seven
years from the date The Chicago Project was completed, Northern Border Pipeline could
continue to calculate the allowance for income taxes in the manner it had historically used. In
addition, a settlement adjustment mechanism of $31 million was implemented, which effectively
reduces the return on rate base. These provisions of the 1995 rate case were maintained in the
settlement of Northern Border Pipeline’s 1999 rate case.

T C P I P E L I N E S , L P

Northern Border Pipeline also provides interruptible transportation service. Interruptible
transportation service is transportation in circumstances when surplus capacity is available after
satisfying firm service requests. The maximum rate that may be charged to interruptible shippers
is calculated as the sum of the firm transportation Rate Schedule T-1 maximum reservation
charge and commodity rate. Under Northern Border Pipeline’s previous cost of service form of
tariff, all interruptible transportation service revenue generated was credited to the benefit of the
firm shippers. Under Northern Border Pipeline’s new tariff, Northern Border Pipeline shares net
interruptible transportation service revenue and any new services revenue on an equal basis with
Northern Border Pipeline’s firm shippers through October 31, 2003. In addition, Northern
Border Pipeline is permitted to retain revenue from interruptible transportation service to offset
any decontracted firm capacity.

After October 31, 2003, all revenues from interruptible transportation service and other new
services will no longer be subject to sharing and thus will be retained by Northern Border
Pipeline. In addition, the settlement of the 1999 rate case also provided for an equal sharing with
Northern Border Pipeline’s firm shippers of revenue generated from a certain
telecommunications contract for the term of that contract. Northern Border Pipeline intends to
develop new services and seek the FERC’s authorization to implement such services. While the
receipt of those approvals and the future impact of the revenue sharing provisions of the
settlement on Northern Border Pipeline’s earnings cannot be determined at this time, revenues
from these sources are expected to be minimal through at least October 31, 2003.

OPEN ACCESS REGULATION Beginning on April 8, 1992, the FERC issued a series of orders,
known as Order 636, which required pipeline companies to unbundle their services and offer
sales, transportation, storage, gathering and other services separately, to provide all
transportation services on a basis that is equal in quality for all shippers and to implement a
program to allow firm holders of pipeline capacity to resell or release their capacity to other
shippers. Capacity release provisions were adopted that allowed shippers to release all or part of
their capacity either permanently or temporarily. Shippers on the Northern Border pipeline
system have temporarily released capacity as well as permanently released capacity to other
shippers who have agreed to comply with the underlying contractual and regulatory obligations
associated with that capacity.

Beginning in 1996, the FERC issued a series of orders, referred to together as Order 587,
amending its open access regulations to standardize business practices and procedures governing
transactions between interstate natural gas pipelines, their customers, and others doing business
with the pipelines. The intent of Order 587 was to assist shippers that deal with more than one
pipeline by establishing standardized business practices and procedures. These business
standards, developed by the Gas Industry Standards Board, govern important business practices
including shipper supplied service nominations, allocation of available capacity, accounting and
invoicing of transportation service, standardized internet business transactions and capacity
release. Northern Border Pipeline has implemented the necessary changes to its tariff and
internal systems.

T C P I P E L I N E S , L P

In 1998, the FERC initiated a number of proceedings to further amend its open access
regulations. In the resulting order, Order 637 issued February 9, 2000, the FERC revised the
short-term transportation regulations by 1) waiving the maximum rate ceiling in its capacity
release regulations until September 30, 2002 for short-term releases of capacity of less than one
year; 2) permitting value-oriented peak/off-peak rates to better allocate revenue responsibility
between short-term and long-term markets; 3) permitting term-differentiated rates to better
allocate risks between shippers and the pipelines; 4) revising the regulations related to scheduling
procedures, capacity segmentation, imbalance management and penalties; 5) retaining the right
of first refusal and the five-year matching cap but limiting the right to customers with maximum
rate contracts for 12 or more consecutive months of service; and 6) adopting new reporting
requirements to take effect September 1, 2000 that include reporting daily transactional data on
all firm and interruptible contracts, daily reporting of scheduled quantities at points or segments,
and the posting of corporate and pipeline organizational charts, names and functions. As
required by Order No. 637, Northern Border Pipeline filed pro forma tariff sheets in compliance
to address the issues identified in 4) above. This filing is pending at the FERC. All other related
compliance filings and reporting requirements have been completed and implemented.

TC PipeLines does not believe these regulatory initiatives will have a material adverse impact to
Northern Border Pipeline’s operations.

Environmental and Safety Matters

Northern Border Pipeline’s operations are subject to federal, state and local laws and regulations
relating to safety and the protection of the environment which include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, Clean Air Act, as amended, the Clean Water Act, as
amended, the Natural Gas Pipeline Safety Act of 1969, as amended, and the Pipeline Safety Act
of 1992.

Although TC PipeLines believes that Northern Border Pipeline’s operations and facilities are in
general compliance in all material respects with applicable environmental and safety regulations,
risks of substantial costs and liabilities are inherent in pipeline operations, and TC PipeLines
cannot provide any assurances that Northern Border Pipeline will not incur such costs and
liabilities. Moreover,
it is possible that other developments, such as increasingly strict
environmental and safety laws, regulations and enforcement policies thereunder, and claims for
damages to property or persons resulting from Northern Border Pipeline’s operations, could
result in substantial costs and liabilities to Northern Border Pipeline. If Northern Border
Pipeline is unable to recover such resulting costs, earnings and cash distributions could be
adversely affected.

T C P I P E L I N E S , L P

B U S I N E S S O F TUSCARORA GA S TR A N SM ISSION CO MPA NY

Tuscarora is a Nevada general partnership that was formed in 1993. Its general partners are
TC Tuscarora Intermediate Limited Partnership, a direct subsidiary of TC PipeLines, which
holds a 49% general partner interest, Tuscarora Gas Pipeline Co., a wholly owned subsidiary
of Sierra Pacific Resources Company, which holds a 50% general partner interest and TCPL
Tuscarora Ltd., an indirect wholly owned subsidiary of TransCanada, which holds a 1%
general partner interest.

The management of Tuscarora is overseen by a management committee that determines the
policies of, has authority over the affairs of, and approves the actions of Tuscarora. The
management committee participates in the management of the construction, maintenance and
operation of the Tuscarora pipeline system.

Under the Tuscarora partnership agreement, voting control is allocated among Tuscarora’s three
general partners in proportion to their general partner interests in Tuscarora. As a result, TC
PipeLines has a 49% voting interest, Sierra Pacific has a 50% voting interest, and TransCanada
has a 1% voting interest on the Tuscarora management committee. Tuscarora Gas Operating
Company, a subsidiary of Sierra Pacific, operates the Tuscarora pipeline system pursuant to an
operating agreement.

The Tuscarora Pipeline System

Tuscarora owns a 229-mile, 20-inch diameter, United States interstate pipeline system that
originates at an interconnection point with facilities of PG&E Gas Transmission - Northwest
near Malin, Oregon and runs southeast through northeastern California and northwestern
Nevada. The Tuscarora pipeline system terminates near Reno, Nevada at the Tracy Power Plant.
Deliveries are also made directly to the local gas distribution system of Sierra Pacific. Along its
route, deliveries are made in Oregon, northern California and northwestern Nevada.

The Tuscarora pipeline system was constructed in 1995 and was placed into service in December
1995. The Tuscarora pipeline system has the capacity to transport, on a firm basis, approximately
124 mmcfd. TC PipeLines believes that the Tuscarora pipeline system has the potential to be
economically expanded up to approximately 240 mmcfd.

Tuscarora has firm transportation contracts for over 94% of its capacity, including a contract for
92% of the capacity held by Sierra Pacific Power Company, a subsidiary of Sierra Pacific, which
expires on November 30, 2015. As of December 31, 2000, the weighted average contract life on
the Tuscarora pipeline system was approximately 15 years.

In December 2000, Tuscarora commenced construction of the Hungry Valley lateral, a 16-mile,
16-inch pipeline extension to serve as Tuscarora’s second connection into Reno, Nevada. Sierra
Pacific Power holds firm capacity on the lateral for approximately 10 mmcfd under a 15-year
firm transportation contract. The project was completed in January 2001 at a capital cost of
approximately $10.7 million.

T C P I P E L I N E S , L P

Tuscarora’s competitive position is dependent on the continued availability of economic western
Canadian natural gas for import into the United States and on the level of demand for western
Canadian natural gas in the markets the Tuscarora pipeline system serves. Shippers of natural
gas from the western Canadian sedimentary basin have other options for transporting Canadian
natural gas to the United States, including transportation on pipelines eastward in Canada or to
markets on the west coast of the United States and Canada. Similarly, natural gas produced in
the United States serves the same markets as Tuscarora in northern Nevada. However, TC
PipeLines believes Tuscarora has a well diversified natural gas supply which allows it to transport
both Canadian and United States natural gas.

In 2000, Tuscarora embarked on a public solicitation for additional capacity on its system. Based
on the results of the solicitation, Tuscarora is currently evaluating expanding its pipeline system.
TC PipeLines expects Tuscarora to file an application in the first half of 2001 with the FERC
for approval to expand the Tuscarora pipeline system. At this time, TC PipeLines can give no
assurance that Tuscarora will decide to or be able to expand its pipeline system.

FERC Regulation

Tuscarora is subject to regulation by the FERC as a “natural gas company” under the Natural
Gas Act, and is subject to the FERC’s rules, regulations and accounting procedures.

Tuscarora generates revenues from individual transportation contracts with shippers that provide
for the receipt and delivery of natural gas at points along the Tuscarora pipeline system.
Tuscarora’s transportation rates are based on its cost of service as approved by the FERC.
Tuscarora’s cost of service includes administrative and operating costs, depreciation and
amortization, taxes other than income taxes, an allowance for income taxes and a regulated
return on capital employed.

Environmental and Safety Matters

Tuscarora’s operations are subject to federal, state and local laws and regulations relating to safety
and protection of the environment. TC PipeLines believes that Tuscarora’s operations and
facilities comply in all material respects with applicable United States environmental and safety
regulations.

I T E M 2

Properties

TC PipeLines does not hold the right, title or interest in any properties.

Northern Border Pipeline holds the right, title and interest in its pipeline system. With respect
to real property, the Northern Border pipeline system falls into two basic categories: (a) parcels
which it owns in fee, such as certain of the compressor stations, meter stations, pipeline
field office sites, and microwave tower sites; and (b) parcels where Northern Border Pipeline’s
interest derives from leases, easements, rights-of-way, permits or licenses from landowners or

T C P I P E L I N E S , L P

governmental authorities permitting the use of such land for the construction and operation of
the Northern Border pipeline system. The right to construct and operate the Northern Border
pipeline across certain property was obtained by Northern Border Pipeline through exercise of
the power of eminent domain. Northern Border Pipeline continues to have the power of
eminent domain in each of the states in which it operates its pipeline system, although Northern
Border Pipeline may not have the power of eminent domain with respect to Native American
tribal lands.

Approximately 90 miles of the Northern Border pipeline system is located on fee, allotted and
tribal lands within the exterior boundaries of the Fort Peck Indian Reservation in Montana.
Tribal lands are lands owned in trust by the United States for the Fort Peck Tribes and allotted
lands are lands owned in trust by the United States for an individual Indian or Indians. Northern
Border Pipeline does have the right of eminent domain with respect to allotted lands.

In 1980, Northern Border Pipeline entered into a pipeline right-of-way lease with the Fort Peck
Tribal Executive Board, for and on behalf of the Assiniboine and Sioux Tribes of the Fort Peck
Indian Reservation. This pipeline right-of-way lease, which was approved by the Department of
the Interior in 1981, granted to Northern Border Pipeline the right and privilege to construct
and operate its pipeline on certain tribal lands. This lease expires in 2011.

In conjunction with obtaining a pipeline right-of-way lease across tribal lands located within the
exterior boundaries of the Fort Peck Indian Reservation, Northern Border Pipeline also
obtained a right-of-way across allotted lands located within the reservation boundaries. This
right-of-way on allotted lands is either a perpetual easement or for a term of years. Most of the
allotted lands are subject to a perpetual easement either granted, by the Bureau of Indian Affairs
for and on behalf of individual Indian owners, or obtained through condemnation. Several tracts
are subject to a right-of-way grant that has a term of 15 years.

Tuscarora holds the right, title and interest in its pipeline system. Tuscarora owns all of its
material equipment and personal property and leases office space in Reno, Nevada. With respect
to real property, Tuscarora’s ownership falls into two basic categories (a) parcels which it owns in
fee, including meter stations; and (b) parcels where its interest derives from leases, easements,
grants, temporary use of permits or licenses from landowners or governmental authorities
permitting the use of the land for the construction and operation of its pipeline system.

I T E M 3

Litigation

TC PipeLines is not currently a party to any material legal proceedings.

Neither Northern Border Pipeline nor Tuscarora are currently party to any material legal
proceedings that, individually or in the aggregate, would reasonably be expected to have a
material adverse impact on TC PipeLines’ results of operations or financial position.

T C P I P E L I N E S , L P

I T E M 4

Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders, through solicitation of proxies or
otherwise, during the year ended December 31, 2000.

PA R T I I

I T E M 5

Market for the Registrant’s Common Units and Related Security
Holder Matters

The common units, representing limited partner interests in the Partnership, were issued
pursuant to an initial public offering at a price of $20.50 per common unit. The common units
are quoted on the Nasdaq Stock Market and trade under the symbol “TCLPZ”. The common
units began trading on May 28, 1999.

The following table sets forth, for the periods indicated, the high and low sale prices per
common unit, as reported by the Nasdaq Stock Market, and the amount of cash distributions
per common unit paid with respect to the corresponding periods.

2000

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

1999
Second Quarter (2)

Third Quarter

Fourth Quarter

Price Range

High

Low

Cash Distributions

Paid per Unit (1)

$18.375

$17.000

$20.375

$20.500

$14.000

$14.500

$16.125

$17.875

$21.000

$20.625

$18.500

$20.375

$17.625

$13.875

$0.4500

$0.4750

$0.1681

$0.4500

(1) Cash distributions are paid within 45 days after the end of each quarter.

(2) The Partnership commenced operations on May 28, 1999.

As of March 9, 2001, there were approximately 76 record holders of common units and
approximately 5,353 beneficial owners of the common units, including common units held in
street name.

The Partnership currently has 14,690,694 common units outstanding, of which 11,890,694 are
held by the public and 2,800,000 are held by an affiliate of the general partner. The Partnership
also has 2,809,306 subordinated units outstanding, all of which are held by the general partner,
for which there is no established public trading market. The common units and the subordinated
units represent an aggregate 98% limited partner interest and the general partner interest
represents an aggregate 2% general partner interest in the Partnership.

T C P I P E L I N E S , L P

In general, the general partner is entitled to 2% of all cash distributions and the holders of
common units and subordinated units (collectively referred to as unitholders) are entitled to the
remaining 98% of all cash distributions. The Partnership will make quarterly cash distributions
to its partners (including holders of subordinated units), comprising all of its Available Cash.
Available Cash is defined in the partnership agreement and generally means, with respect to
any quarter of the Partnership, all cash on hand at the end of such quarter less the amount of
cash reserves that is necessary or appropriate in the reasonable discretion of the general partner
to (i) provide for the proper conduct of the business of the Partnership (including reserves for
future capital expenditures and for anticipated credit needs), (ii) comply with applicable laws
or any Partnership debt instrument or agreement, or (iii) provide funds for cash distributions
to unitholders and the general partner in respect of any one or more of the next four quarters.
Distributions of Available Cash to the holder of subordinated units are subject to the prior
rights of the holders of common units to receive the minimum quarterly distribution for each
quarter while the subordinated units are outstanding (subordination period), and to receive
any arrearages in the cash distribution of minimum quarterly distributions on the common
units for prior quarters during the subordination period. The partnership agreement defines
the minimum quarterly distribution as $0.45 for each full fiscal quarter (prorated for the initial
partial fiscal quarter commencing May 28, 1999, the closing date of the initial public offering,
through June 30, 1999). The subordination period will generally not end before June 30, 2004.
Upon expiration of the subordination period, all subordinated units will be converted on a
one-for-one basis into common units and will participate pro rata with all other common units
in future distributions of Available Cash. Under certain circumstances, up to 66.7% of the
subordinated units may convert into common units prior to the expiration of the
subordination period.

The general partner is entitled to incentive distributions if the amount distributed with respect
to any quarter exceeds the minimum quarterly distribution of $0.45 per common unit. Under
the incentive distribution provisions, the general partner is entitled to 15% of amounts
distributed in excess of $0.45 per common unit, 25% of amounts distributed in excess of $0.5275
per common unit, and 50% of amounts distributed in excess of $0.69 per common unit. The
amounts that trigger incentive distributions at various levels are subject to adjustment in certain
events, as described in the partnership agreement.

On September 5, 2000, the Partnership announced an increase in the quarterly cash distribution
from $0.45 per unit to $0.475 per unit for the third quarter cash distribution, which was paid on
November 14, 2000. As a result, the first tier of incentive distributions has been achieved.

In 2000, the Partnership made cash distributions to the limited partners and the general partner
that amounted to $32.7 million. These payments represented the $0.45 per unit minimum
quarterly cash distribution for the quarters ended December 31, 1999, March 31, 2000 and June
30, 2000 and $0.475 per unit for the quarter ended September 30, 2000. On February 14, 2001,

T C P I P E L I N E S , L P

the Partnership paid a cash distribution of $8.5 million to the limited partners and the
general partner, representing a cash distribution of $0.475 per unit for the quarter ended
December 31, 2000.

I T E M 6

Selected Financial Data

The selected financial data should be read in conjunction with the financial statements,
including the notes thereto, and Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”

T C P I P E L I N E S , L P

(thousands of dollars, except per unit amounts)
Income Data:

Equity income from investment in Northern Border Pipeline
Equity income from investment in Tuscarora (2)

General and administrative expenses

Financial charges and other

Net Income

Basic and fully diluted net income per unit

Units outstanding (thousands)

Cash Flow Data:

Net cash provided by operating activities

Distributions paid

Balance Sheet Data (at end of period):

Investment in Northern Border Pipeline
Investment in Tuscarora (2)

Total assets

Long-term debt

Partners’ capital

Year ended

December 31, 2000

May 28 (1) –
December 31, 1999

38,119

943

(1,337)

(501)

37,224

$2.08

17,500

40,366

32,657

248,098

27,881

277,545

21,500

255,405

20,923

–

(699)

–

20,224

$1.13

17,500

11,832

11,037

250,450

–

251,245

–

250,838

(1) The Partnership commenced operations on May 28, 1999.

(2) The Partnership acquired a 49% interest in Tuscarora on September 1, 2000.

I T E M 7

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

The following discussions of the financial condition and results of operations for the
Partnership, Northern Border Pipeline and Tuscarora should be read in conjunction with the
financial statements and notes thereto of the Partnership and Northern Border Pipeline
included elsewhere in this report (see Item 8. – Financial Statements and Supplementary Data).

T C P I P E L I N E S , L P

For more detailed information regarding the basis of presentation for the following financial
information, see the notes to the financial statements of the Partnership and Northern Border
Pipeline. All amounts are stated in United States dollars.

Results of Operations of TC PipeLines, LP

Currently, the Partnership holds two equity investments; a 30% general partner interest in
Northern Border Pipeline and a 49% general partner interest in Tuscarora. TC PipeLines
accounts for its interests in Northern Border Pipeline and Tuscarora using the equity method of
accounting. The Partnership’s initial investment in Northern Border Pipeline was recorded at
$241.7 million, the combined carrying values of the investment in Northern Border Pipeline as
reflected in the accounts of the predecessor companies as at May 28, 1999. This amount equated
to 30% of Northern Border Pipeline’s partners’ capital as at May 28, 1999. The Partnership’s
initial investment in Tuscarora, acquired on September 1, 2000, was recorded at $28.4 million
reflecting the purchase price of the investment including acquisition costs.

Since the general partner’s interests in Northern Border Pipeline and Tuscarora are currently the
Partnership’s only material sources of income, the Partnership’s results of operations are
influenced by and reflect the same factors that influence the financial results of Northern Border
Pipeline and Tuscarora.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE PERIOD MAY 28
TO DECEMBER 31, 1999

For the year ended December 31, 2000, TC PipeLines recorded equity income of $38.1 million
from its investment in Northern Border Pipeline, compared to $20.9 million for the period from
May 28 to December 31, 1999. The $17.2 million increase reflects twelve months of activity in
2000 compared to approximately seven months of activity in 1999 (TC PipeLines acquired its
30% general partner interest in Northern Border Pipeline on May 28, 1999). In addition,
Northern Border Pipeline’s 2000 net income reflects its rate case settlement, resulting in
incremental equity income to TC PipeLines. Northern Border Pipeline also reduced reserves
previously established for regulatory issues as the result of the settlement of Northern Border
Pipeline’s rate case, resulting in increased equity income to TC PipeLines.

For the year ended December 31, 2000, TC PipeLines recorded equity income of $0.9 million
from its investment in Tuscarora.

TC PipeLines incurred general and administrative expenses of $1.3 million for the year ended
December 31, 2000 compared to $0.7 million for the period from May 28 to December 31,
1999. This increase reflects higher administrative costs and a full year of operations in 2000.

The Partnership reported financial charges and other of $0.5 million for the year ended
December 31, 2000, which includes interest expense relating to the Partnership’s Revolving
Credit Facility (see Item 7. – Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources of TC PipeLines, LP – General).

T C P I P E L I N E S , L P

On September 1, 2000 the Partnership borrowed $24.5 million from the Revolving Credit
Facility to finance a portion of the acquisition of a 49% general partner interest in Tuscarora.
At December 31, 2000, the Partnership had $21.5 million outstanding under the Revolving
Credit Facility.

Liquidity and Capital Resources of TC PipeLines, LP

C A S H D I ST RI BUTION POLICY OF T C P IPELINE S, LP

During the subordination period, which generally cannot end before June 30, 2004, the
Partnership will make distributions of Available Cash in the following manner:

First, 98% to the common units, pro rata, and 2% to the general partner, until there is
distributed for each outstanding common unit an amount equal to the minimum quarterly
distribution for that quarter;

Second, 98% to the common units, pro rata, and 2% to the general partner, until there is
distributed for each outstanding common unit an amount equal to any arrearages in payment
of the minimum quarterly distribution on the common units for that quarter and for any
prior quarters during the subordination period;

(cid:2) Third, 98% to the subordinated units, pro rata, and 2% to the general partner, until there is
distributed for each outstanding subordinated unit an amount equal to the minimum
quarterly distribution for that quarter; and

(cid:2) Thereafter, in a manner whereby the general partner has rights (referred to as incentive
distribution rights) to receive increasing percentages of excess quarterly cash distributions
over specified cash distribution thresholds.

GENERAL

On January 19, 2001, the board of directors of the general partner declared the Partnership’s
2000 fourth quarter cash distribution. The fourth quarter cash distribution which was paid on
February 14, 2001, to unitholders of record as of January 31, 2001, totaled $8.5 million and was
paid in the following manner: $7.0 million to common unitholders, $1.3 million to the general
partner as holder of the subordinated units, and $0.2 million to the general partner, as holder of
incentive distribution rights and in respect of its 2% general partner interest.

(cid:2)
(cid:2)
T C P I P E L I N E S , L P

under the Revolving Credit Facility to fund a portion of the purchase price of the 49% general
partner interest in Tuscarora. In November, the Partnership made a $3.0 million principal
payment on the Revolving Credit Facility. Therefore, at December 31, 2000, the Partnership had
$21.5 million outstanding under the Revolving Credit Facility. The weighted average interest
rate for the period from September 1 to December 31, 2000 was 7.57%.

On May 28, 1999, the Partnership entered into a $40.0 million unsecured two-year revolving
credit facility with TransCanada PipeLine USA Ltd., an affiliate of the general partner. The
credit facility bears interest at LIBOR plus 1.25%. The purpose of this credit facility is to provide
borrowings to fund capital expenditures, to fund capital contributions to Northern Border
Pipeline and for working capital and other general business purposes, including funding cash
distributions to partners, if necessary. At December 31, 2000, the Partnership had no amount
outstanding under this credit facility.

CASH FL OWS FRO M OPERATING A CT IVITIES

Cash flows provided by operating activities increased to $40.4 million for the year ended
December 31, 2000 from $11.8 million for the period May 28 to December 31, 1999. For the
year ended December 31, 2000, the Partnership received cash distributions in aggregate of $42.0
million from its equity investments in Northern Border Pipeline and Tuscarora. For the period
May 28 to December 31, 1999, the Partnership received cash distributions of $12.1 million from
Northern Border Pipeline.

CASH FL OWS FRO M INVESTIN G A CT IV IT IES

Net cash used in investing activities was $28.4 million for the year ended December 31, 2000,
relating to the purchase of a 49% general partner interest in Tuscarora.

CASH FL OWS FRO M FI NANCIN G A C T IV ITIE S

For the year ended December 31, 2000, the Partnership paid $32.7 million in cash distributions.
This compares to cash distributions of $11.0 million that were paid by the Partnership for the
period May 28 to December 31, 1999.

On September 1, 2000, the Partnership borrowed $24.5 million from the Revolving Credit
Facility to fund a portion of the purchase price of the 49% general partner interest in Tuscarora.
At December 31, 2000, the Partnership had $21.5 million outstanding under the Revolving
Credit Facility.

CAPITAL REQUIREMENTS

To the extent TC PipeLines has any capital requirements with respect to its investments in
Northern Border Pipeline and Tuscarora or makes acquisitions in 2001, TC PipeLines expects
to finance these requirements with debt and/or equity.

T C P I P E L I N E S , L P

Results of Operations of Northern Border Pipeline (1)

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1999

Operating revenues, net for the year ended December 31, 2000 were $311.0 million as compared
to $298.3 million for the same period in 1999, an increase of $12.7 million (4%). Northern
Border Pipeline’s net operating revenues for 2000 reflect the significant terms of the rate case
settlement discussed in Item 1. “Business of Northern Border Pipeline Company – Northern
Border Pipeline Rate Case Settlement.” Operating revenues for 1999 were determined under
Northern Border Pipeline’s cost of service tariff.

Operations and maintenance expense increased $2.8 million (7%) for the year ended December 31,
2000, from the same period in 1999, due primarily to increased employee payroll and benefit
expenses and costs to operate Northern Border Pipeline’s two electric-powered compressor units.

Depreciation and amortization expense increased $5.4 million (10%) for the year ended
December 31, 2000, as compared to the same period in 1999, due primarily to an increase in the
depreciation rate applied to transmission plant. As a result of the rate case settlement, Northern
Border Pipeline used a depreciation rate for transmission plant of 2.25% for 2000. Northern
Border Pipeline had used a depreciation rate of 2.0% for 1999.

Taxes other than income decreased $2.3 million (8%) for the year ended December 31, 2000, as
compared to the same period in 1999, due primarily to adjustments to previous estimates of ad
valorem taxes.

Interest expense, net increased $4.9 million (8%) for the year ended December 31, 2000, as
compared to the same period in 1999, due primarily to an increase in average interest rates
between 1999 and 2000. The impact of the increase in interest rates was partially offset by a
decrease in average debt outstanding.

Other income increased $6.7 million (491%) for the year ended December 31, 2000, as compared
to the same period in 1999, due primarily to a reduction in reserves previously established for
regulatory issues as the result of the settlement of Northern Border Pipeline’s rate case.

YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1998

Operating revenues, net increased $101.7 million (52%) for the year ended December 31, 1999,
as compared to the same period in 1998, due primarily to additional revenue from the operation
of The Chicago Project facilities. Additional receipt capacity of 700 mmcfd, a 42% increase, and
new firm transportation agreements with 27 shippers resulted from The Chicago Project.
Northern Border Pipeline’s cost of service tariff provided an opportunity to recover operations
and maintenance costs of the pipeline, taxes other than income taxes, interest, depreciation and

(1)Amounts discussed represent 100% of the operations of Northern Border Pipeline, in which the Partnership has

held a 30% interest since May 28, 1999.

T C P I P E L I N E S , L P

amortization, an allowance for income taxes and a regulated return on equity. Northern Border
Pipeline was generally allowed an opportunity to collect from its shippers a return on
unrecovered rate base as well as recover that rate base through depreciation and amortization.
The Chicago Project increased Northern Border Pipeline’s rate base, which increased return for
the year ended December 31, 1999. Also reflected in the increase in 1999 revenues are recoveries
of increased pipeline operating expenses due to the new facilities.

Operations and maintenance expense increased $9.3 million (31%) for the year ended December
31, 1999, from the same period in 1998, due primarily to operations and maintenance expenses
for The Chicago Project facilities and increased employee payroll and benefit expenses.

Depreciation and amortization expense increased $10.9 million (27%) for the year ended
December 31, 1999, as compared to the same period in 1998, due primarily to The Chicago
Project facilities placed into service. The impact of the additional facilities on depreciation and
amortization expense was partially offset by a decrease in the depreciation rate applied to
transmission plant from 2.5% to 2.0%. Northern Border Pipeline agreed to reduce the
depreciation rate at the time The Chicago Project was placed into service as part of a previous
rate case settlement.

Taxes other than income increased $8.9 million (42%) for the year ended December 31, 1999,
as compared to the same period in 1998, due primarily to ad valorem taxes attributable to the
facilities placed into service for The Chicago Project.

For the year ended December 31, 1998, Northern Border Pipeline recorded a regulatory credit
of $8.9 million. During the construction of The Chicago Project, Northern Border Pipeline
placed new facilities into service in advance of the December 1998 project in-service date to
maintain gas flow at firm contracted capacity while existing facilities were being modified. The
regulatory credit deferred the cost of service of these new facilities, which Northern Border
Pipeline began to recover from its shippers commencing with the in-service date of The
Chicago Project.

Interest expense, net increased $34.7 million (136%) for the year ended December 31, 1999, as
compared to the same period in 1998, due to an increase in interest expense of $15.8 million and
a decrease in interest expense capitalized of $18.9 million. Interest expense increased due
primarily to an increase in average debt outstanding, reflecting amounts borrowed to finance a
portion of the capital expenditures for The Chicago Project. The impact of the increased
borrowings on interest expense was partially offset by a decrease in average interest rates between
1998 and 1999. The decrease in interest expense capitalized is due to the completion of
construction of The Chicago Project in December 1998.

Other income decreased $10.7 million (89%) for the year ended December 31, 1999, as
compared to the same period in 1998, primarily due to a decrease in the allowance for equity
funds used during construction. The decrease in the allowance for equity funds used during
construction is due to the completion of construction of The Chicago Project in December 1998.

T C P I P E L I N E S , L P

Liquidity and Capital Resources of Northern Border Pipeline

G E N E R A L

In June 1997, Northern Border Pipeline entered into a credit agreement (Pipeline Credit
Agreement) with certain financial institutions to borrow up to an aggregate principal amount of
$750 million. The Pipeline Credit Agreement is comprised of a $200 million five-year revolving
credit facility maturing in June 2002 to be used for the retirement of Northern Border Pipeline’s
prior credit facilities and for general business purposes, and a $550 million three-year revolving
credit facility to be used for the construction of The Chicago Project. Effective March 31, 1999,
the three-year revolving credit facility converted to a term loan maturing in June 2002. At
December 31, 2000, $424 million was outstanding under the term loan and $45 million was
outstanding under the five-year revolving credit facility.

At December 31, 2000, Northern Border Pipeline also had outstanding $184 million of senior
notes issued in a $250 million private placement under a July 1992 note purchase agreement.
The note purchase agreement provides for four series of notes, Series A through D, maturing
between August 2000 and August 2003. The Series A Notes with a principal amount of $66
million were repaid in August 2000. The Series B Notes with a principal amount of $41 million
mature in August 2001. Northern Border Pipeline anticipates borrowing on the Pipeline Credit
Agreement to repay the Series B Notes.

Short-term liquidity needs will be met by Northern Border Pipeline’s internal sources and
through the Pipeline Credit Agreement discussed above. Long-term capital needs may be met
through Northern Border Pipeline’s ability to issue long-term indebtedness.

CASH FL OWS FRO M OPERATING A CT IVITIES

Cash flows provided by operating activities increased $4.5 million to $176.0 million for the year
ended December 31, 2000, as compared to the same period in 1999, primarily due to increased
earnings. During 2000, Northern Border Pipeline realized net cash inflows of approximately
$2.4 million related to Northern Border Pipeline’s rate case, which included approximately
$25.1 million of amounts collected subject to refund less estimated refunds issued in late
December 2000 totaling approximately $22.7 million. Cash flows provided by operating
activities increased $67.7 million to $171.5 million for the year ended December 31, 1999, as
compared to the same period in 1998, primarily attributed to The Chicago Project facilities
placed into service in late December 1998.

T C P I P E L I N E S , L P

C A S H F L OW S FRO M INVESTIN G A CT IV IT IES

Capital expenditures of $15.5 million for the year ended December 31, 2000 included $7.4
million for Project 2000. For the same period in 1999, capital expenditures were $101.7 million
and included $85.5 million for The Chicago Project and $2.5 million for Project 2000. The
remaining capital expenditures for 2000 and 1999 are primarily related to renewals and
replacements of existing facilities.

Total capital expenditures for 2001 are estimated to be $97 million, including $81 million for
Project 2000 (see Item 1. – Business of Northern Border Pipeline – Future Demand and
Competition). The remaining capital expenditures planned for 2001 are for renewals and
replacements of existing facilities. Northern Border Pipeline currently anticipates funding its
2001 capital expenditures primarily by borrowing on its Pipeline Credit Agreement and using
internal sources.

CASH FL OWS FRO M FI NANCIN G A C T IV ITIE S

Cash flows used in financing activities increased $58.8 million to $148.7 million for the year
ended December 31, 2000, as compared to the same period in 1999. Distributions paid to the
general partners increased $7.7 million to $134.9 million for the year ended December 31, 2000
as compared to the same period of 1999 primarily due to an increase in Northern Border
Pipeline’s net income. For the year ended December 31, 2000, advances under the Pipeline
Credit Agreement, which were primarily used to repay $66 million of Series A Notes, were $75
million as compared to advances of $90 million for the same period in 1999, which were
primarily used to finance a portion of the capital expenditures for The Chicago Project.
Financing activities for the year ended December 31, 1999 included $197.4 million from the
issuance of the 1999 Senior Notes, net of associated debt discounts and issuance costs, and $12.9
million from the termination of interest rate forward agreements. Payments on the Pipeline
Credit Agreement were $45 million for the year ended December 31, 2000, as compared to $263
million for the same period in 1999. At December 31, 2000, Northern Border Pipeline reflected
a cash overdraft of approximately $22.4 million primarily due to refund checks outstanding. The
goal of Northern Border Pipeline’s cash management program is to maximize the amount of
Northern Border Pipeline’s cash and cash equivalents balance in highly liquid, interest-bearing
investments. Those investments are converted to cash when needed to replenish Northern
Border Pipeline’s bank accounts for check clearing requirements.

Cash flows used in financing activities were $89.9 million for the year ended December 31,
1999, as compared to cash flows provided by financing activities of $564.8 million for the same
period in 1998. During the year ended December 31, 1998, Northern Border Pipeline’s general
partners contributed $223.0 million to finance a portion of the capital expenditures for The
Chicago Project. Distributions paid to the general partners increased $66.0 million to $127.2
million for the year ended December 31, 1999 as compared to the same period of 1998. The
distributions for 1999 were impacted by increased earnings and included distributions for 13

T C P I P E L I N E S , L P

months’ activity, rather than 12 months, resulting from a change in the timing of distribution
payments. The distributions for 1998 were impacted by a rate case refund during the fourth
quarter of 1997 and by the change in the timing of distribution payments. Advances under the
Pipeline Credit Agreement, which were primarily used to finance a portion of the capital
expenditures for The Chicago Project, were $90 million for the year ended December 31, 1999
as compared to advances of $403 million for the same period in 1998.

Results of Operations of Tuscarora (2)

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1999

Revenue generated by Tuscarora was $19.4 million and $19.3 million for the years ended
December 31, 2000 and 1999, respectively.

For the year ended December 31, 2000, Tuscarora incurred costs and expenses of $2.4 million
compared to $2.9 million for the same period last year. The decrease in costs and expenses is
primarily due to the capitalization of labor costs relating to the construction of the Hungry
Valley lateral and lower property taxes.

Tuscarora recorded depreciation of $4.4 million for each of the years ended December 31, 2000
and 1999.

Tuscarora recorded financial charges and other of $5.8 million for the year ended December 31,
2000, compared to $6.0 million for the same period last year.

Liquidity and Capital Resources of Tuscarora

GENERAL

In September 2000, Tuscarora adopted a cash distribution policy that became effective January
1, 2001. Under the terms of the cash distribution policy, Tuscarora will make quarterly cash
distributions to its general partners in accordance with their respective general partner interests.
Cash distributions will generally be computed as the sum of Tuscarora’s net income before taxes
and depreciation and amortization,
less amounts required for debt repayments, net of
refinancings, maintenance capital expenditures, certain non-cash items, and any cash reserves
deemed necessary by the management committee. Cash distributions will be computed at the
end of each calendar quarter and the distribution will be made on or before the last day of the
month following the quarter end.

CASH FL OWS FRO M OPERATING A CT IVITIES

Cash flows provided by operating activities for the years ended December 31, 2000 and 1999
were $10.7 million.

(2)Amounts discussed represent 100% of the operations of Tuscarora, in which the Partnership has held a 49%

interest since September 1, 2000.

T C P I P E L I N E S , L P

C A S H F L OW S FRO M INVESTIN G A CT IV IT IES

Net cash used in investing activities increased to $3.7 million for the year ended December 31,
2000 compared to $0.7 million in 1999 due to capital expenditures incurred in 2000 relating to
construction of the Hungry Valley lateral.

C A S H F L OW S FRO M FI NANCIN G A C T IV ITIE S

For the year ended December 31, 2000, Tuscarora repaid $3.6 million in debt compared to
repayments of $2.8 million in the year ended December 31, 1999.

On December 19, 2000, Tuscarora issued Series B Senior Secured Notes in the amount of $8.0
million. These notes bear interest at 7.99% and are due in 2010. The proceeds from these notes
were used to finance the construction of the Hungry Valley lateral.

Tuscarora paid cash distributions of $5.3 million to its general partners for the year ended
December 31, 2000 compared to cash distributions of $8.5 million for the year ended December
31, 1999. The decrease in cash distributions in 2000 is due to an increase in the amount of cash
used to fund capital expenditures relating to the Hungry Valley lateral.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” In June 1999, the FASB issued SFAS No. 137, which deferred the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000 the FASB issued
SFAS No. 138, which amended certain guidance within SFAS No. 133. TC PipeLines does not
believe SFAS No. 133, as amended, will have a material impact on its financial position or
results of operations.

I T E M 7a

Quantitative and Qualitative Disclosures About Market Risk

TC PipeLines’ interest rate exposure results from its Revolving Credit Facility which is subject
to variability in LIBOR interest rates. If LIBOR interest rates change by one percentage point
compared to the rates in effect as of December 31, 2000, annual interest expense would change
by approximately $0.2 million. This amount has been determined by considering the impact of
the hypothetical interest rates on variable rate borrowings outstanding as of December 31, 2000.

The Partnership’s market risk sensitivity is also influenced by and reflects the same factors that
influence Northern Border Pipeline.

Northern Border Pipeline’s interest rate exposure results from variable rate borrowings from
commercial banks. To mitigate potential fluctuations in interest rates, Northern Border Pipeline
attempts to maintain a significant portion of its debt portfolio in fixed rate debt. Northern
Border Pipeline also uses interest rate swap agreements to increase the portion of fixed rate debt.
As of December 31, 2000, approximately 50% of Northern Border Pipeline’s debt portfolio, after
considering the effect of interest rate swap agreements, is in fixed rate debt.

T C P I P E L I N E S , L P

If average interest rates change by one percentage point compared to rates in effect as of
December 31, 2000, Northern Border Pipeline’s annual interest expense would change by
approximately $4.3 million. This amount has been determined by considering the impact of the
hypothetical interest rates on variable rate borrowings outstanding as of December 31, 2000.

I T E M 8

Financial Statements and Supplementary Data

The information required hereunder is included in this report as set forth in the “Index to
Financial Statements” on page F-1.

I T E M 9

Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PA R T I I I

I T E M 1 0

Directors and Officers of the General Partner

TC PipeLines is a limited partnership and has no officers, directors or employees. Set forth
below is certain information concerning the directors and officers of the general partner. Each
director holds office for a one-year term or until his or her successor is earlier appointed. All
officers of the general partner serve at the discretion of the Board of Directors of the general
partner.

Name
Ronald J. Turner

Russell K. Girling

Paul F. MacGregor

Donald R. Marchand

Gary G. Penrose

Theresa Jang

Rhondda E.S. Grant

Robert A. Helman

Jack F. Jenkins-Stark

David L. Marshall

Dennis J. McConaghy

Walentin Mirosh

Age as of

Position with General Partner as of

December 31, 2000
47

December 31, 2000
President, Chief Executive Officer and Director

Chief Financial Officer and Director

Vice-President, Business Development

Vice-President and Treasurer

Vice-President, Taxation

Controller

Secretary

Independent Director

Director

Mr. Turner has been a director of the general partner since April 1999 and was appointed
President and Chief Executive Officer in December 2000. Mr. Turner’s principal occupation
is Executive Vice-President, Operations and Engineering of TransCanada, a position he has

T C P I P E L I N E S , L P

held since December 2000. From June 2000 until December 2000, Mr. Turner was Executive
Vice-President, International of TransCanada. From April 2000 until June 2000, Mr. Turner
was Senior Vice-President, International of TransCanada. From July 1999 until April 2000,
Mr. Turner was Senior Vice-President and President, International of TransCanada. From
July 1998 until July 1999, Mr. Turner was Senior Vice-President of TransCanada. From April
1998 until July 1998, Mr. Turner was Executive Vice-President, NOVA Gas Transmission
Ltd. (natural gas transmission). From December 1997 until April 1998, Mr. Turner was Vice-
President, Value Process West, NOVA Chemicals Ltd. (commodity chemicals). From January
1994 until December 1997, Mr. Turner was Vice-President, Facilities Provison, NOVA Gas
Transmission Ltd. Mr. Turner is also a director of NOVA Gas Transmission Ltd.

Mr. Girling was appointed Chief Financial Officer and a director of the general partner in April
1999. Mr. Girling’s principal occupation is Executive Vice-President and Chief Financial
Officer of TransCanada, a position he has held since June 2000. From July 1999 until June 2000,
Mr. Girling was Senior Vice-President and Chief Financial Officer of TransCanada. From
January 1999 until July 1999, Mr. Girling was Vice-President, Finance of TransCanada. From
July 1998 until January 1999, Mr. Girling was Executive Vice-President, Power (TransCanada
Energy Ltd.). From October 1995 until July 1998, Mr. Girling was Senior Vice-President,
North American Power (TransCanada Energy Ltd.). Mr. Girling is a director of the general
partner of TransCanada Power, L.P., a Canadian limited partnership. Mr. Girling is also a
director of NOVA Gas Transmission Ltd.

Mr. MacGregor was appointed Vice-President, Business Development of the general partner in
April 1999. Mr. MacGregor’s principal occupation is Vice-President of Business Development
of TransCanada, a position he has held since September 1999. From July 1998 until September
1999, Mr. MacGregor was Vice-President, North American Pipeline Investments for
TransCanada’s Transmission division. From 1997 until July 1998, Mr. MacGregor was a Vice-
President of Alberta Natural Gas Company Ltd. (ANG) (energy services), a former subsidiary
of TransCanada which has since merged into TransCanada. In 1996, Mr. MacGregor was
Director of Field Operations of TransCanada.

Mr. Marchand was appointed Vice-President and Treasurer of the general partner in October 1999.
Mr. Marchand’s principal occupation is Vice-President, Finance and Treasurer of TransCanada,
a position he has held since September 1999. From January 1998 until September 1999, Mr.
Marchand was Director, Finance of TransCanada. From August 1996 until January 1998, Mr.
Marchand was Manager, Finance of TransCanada. From July 1995 until August 1996, Mr.
Marchand was Assistant Manager, Finance of TransCanada.

Mr. Penrose was appointed Vice-President, Taxation of the general partner in April 1999. Mr.
Penrose’s principal occupation is Vice-President, Taxation of TransCanada, a position he has
held since February 1997. From August 1992 until February 1997, Mr. Penrose was General
Manager, Taxation for TransCanada. Mr. Penrose is also a director of TransCanada Hungary
Liquidity Management Limited Liability Company.

T C P I P E L I N E S , L P

Ms. Jang was appointed Controller of the general partner in June 1999. From May 1997 until
June 1999, Ms. Jang was a Specialist in TransCanada’s Financial Reporting department. From
February 1996 until May 1997, Ms. Jang was Supervisor, Corporate Accounting of
TransCanada. From August 1992 until February 1996, Ms. Jang was Senior Financial Analyst,
Corporate Accounting of TransCanada.

Ms. Grant was appointed Secretary of the general partner in April 1999. Ms. Grant’s principal
occupation is Vice-President and Corporate Secretary of TransCanada, a position she has held
since September 1999. From July 1998 until September 1999, Ms. Grant was Corporate
Secretary and Associate General Counsel, Corporate of TransCanada. From October 1994 until
July 1998, Ms. Grant was Corporate Secretary and Associate General Counsel, Corporate of
NOVA Corporation (energy services and commodity chemicals).

Mr. Helman was appointed a director of the general partner in July 1999. Mr. Helman has been a
partner of Mayer, Brown & Platt (law firm) since 1967. Mr. Helman also serves as a director of
Brambles USA, Inc., Dreyers Grand Ice Cream, Inc., Northern Trust Corporation and The
Northern Trust Company.

Mr. Marshall was appointed a director of the general partner in July 1999. Mr. Marshall was Vice-
Chairman of The Pittston Company (diversified energy, security and transportation services
firm) from 1994 until 1998 and was the Chief Financial Officer and a director of The Pittston
Company from 1983 until 1994. Mr. Marshall also serves as a director on the board of M&S
Austin One, LLC.

Mr. Jenkins-Stark was appointed a director of the general partner in July 1999. Mr. Jenkins-Stark
is currently Senior Vice-President and Chief Financial Officer of Silicon Energy Corp. (a
developer and seller of internet-based energy technology software), a position he has held since
April 2000. From December 1998 until April 2000, Mr. Jenkins-Stark was Senior Vice-
President and Chief Financial Officer of GATX Capital (commercial finance). From September
1998 until December 1998, Mr. Jenkins-Stark was Senior Vice-President, Finance of GATX
Capital. From May 1987 until September 1998, Mr. Jenkins-Stark was Senior Vice-President
of PG&E Corp. (diversified energy) and President and Chief Executive Officer of PG&E Gas
Transmission Company (natural gas transmission). Mr. Jenkins-Stark also serves as a director of
Hall-Kinion Corporation.

Mr. McConaghy was appointed a director of the general partner in December 2000. Mr.
McConaghy’s principal occupation is Senior Vice-President Business Development of
TransCanada, a position he has held since October 2000. From June 2000 until October 2000,
Mr. McConaghy was Senior Vice-President, Midstream/Divestments of TransCanada. From
July 1998 until June 2000, Mr. McConaghy was Vice-President Corporate Strategy and
Planning of TransCanada. From May 1996 until July 1998, Mr. McConaghy was Vice-
President, Strategy and Corporate Development, NOVA Corporation. From November 1995

T C P I P E L I N E S , L P

until May 1996, Mr. McConaghy was Senior Vice-President and Chief Financial Officer,
NOVA Chemicals Ltd.

Mr. Mirosh has been a director of the general partner since October 1999. Mr. Mirosh’s principal
occupation is Executive Vice-President, Regulatory Strategy and Northern Development of
TransCanada, a position he has held since June 2000. From April 2000 until June 2000, Mr.
Mirosh was Senior Vice-President, Regulatory Strategy and Northern Development of
TransCanada. From July 1999 until April 2000, Mr. Mirosh was Senior Vice-President,
Corporate Strategy and Business Development of TransCanada. From July 1998 until July 1999,
Mr. Mirosh was Senior Vice-President, Business Development and Corporate Stategy of
TransCanada. From April 1996 until July 1998, Mr. Mirosh was President of ANG and prior to
that time, Mr. Mirosh was Executive Vice-President, Operations of ANG. Mr. Mirosh is also a
director of NOVA Gas Transmission Ltd.

I T E M 1 1

Executive Compensation

The following table summarizes certain information regarding the annual salaries of Messrs.
Ronald J. Turner and Garry P. Mihaichuk for the years ended December 31, 2000 and 1999 by
TransCanada, parent company of the general partner. Mr. Turner is an employee of TransCanada
and was appointed President and Chief Executive Officer of the general partner in December
2000. Mr. Mihaichuk was an employee of TransCanada until December 2000 and served as
President and Chief Executive Officer of the general partner from October 1999 until December
2000. Through the general partner, TC PipeLines reimburses TransCanada for the services
contributed to its operations by Messrs. Turner and Mihaichuk. TC PipeLines and the general
partner were formed in December 1998 and the general partner began compensating its directors
and officers on May 28, 1999.

Name and Principal Position
Ronald J. Turner (3)

President and Chief Executive Officer

Garry P. Mihaichuk (4)

Former President and Chief Executive Officer

Annual TransCanada Base Salary (1)

Canadian Dollars

United States Dollar
Equivalent (2)

309,660

431,250

345,839

206,500

287,600

239,500

Year

2000

1999

(1) Annualized base salary paid by parent of general partner. Only a proportionate share, based on services

provided, is attributed to the Partnership.

(2) The compensation of the Chief Executive Officer of the general partner is paid by TransCanada in Canadian
dollars. The United States dollar equivalents have been calculated using the applicable 2000 and 1999 noon
buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes of 0.6669
and 0.6925, respectively, as reported by the Federal Reserve Bank of New York.

(3) Mr. Turner was appointed President and Chief Executive Officer of the general partner in December 2000.

(4) Mr. Mihaichuk was appointed President and Chief Executive Officer of the general partner in October 1999 and

resigned in December 2000.

T C P I P E L I N E S , L P

Each director who is not an employee of TransCanada, the general partner or its affiliates
(independent director) is entitled to a directors’ retainer fee of $10,000 per annum and an
additional fee of $2,000 per annum for each committee of the board of which he is Chair. These
fees are paid by the Partnership on a semi-annual basis. For the year ended December 31, 1999,
the three independent directors were paid half of these annual fees as they were appointed in July
1999. Each independent director is also paid a fee of $1,500 for attendance at each meeting of
the Board of Directors and a fee of $750 for attendance at each meeting of a committee of the
Board. The independent directors are reimbursed for out-of-pocket expenses incurred in the
course of attending such meetings. Under a directors’ compensation plan adopted effective July
19, 1999, each independent director receives 50% of his annual board retainer that is payable on
the applicable date in the form of common units of the Partnership. The common units are
purchased by the general partner on the open market and the number of common units
purchased under the directors’ compensation plan is based on the trading price of common units
on the day preceding the applicable payment date.

The Audit and Compensation Committee of the Board of Directors of the general partner of
TC PipeLines did not during the last completed fiscal year make any determination with respect
to the compensation of the Partnership's executive officers. The executive officers' salaries are
determined on a competitive and market basis by the parent company of the general partner.

I T E M 1 2

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership of the voting securities of the Partnership
as of March 9, 2001 by the general partner’s directors, officers and certain beneficial owners.
Officers of the general partner own shares of TransCanada, which in the aggregate amount to
less than 1% of TransCanada’s issued and outstanding shares. Other than as set forth below, no
person is known by the general partner to own beneficially more than 5% of the voting securities
of the Partnership.

T C P I P E L I N E S , L P

Amount and Nature of Benefical Ownership

Common Units

Subordinated Units

Number
of Units

Percent
of Class

Number
of Units

Percent
of Class

Percentage of
Interest for
all Units (1)

Name and Business Address

TC PipeLines GP, Inc. (2)(3)

450 1st Street SW

Calgary, Alberta T2P 5H1

–

2,809,306

100

16.1

TransCan Northern Ltd. (2)

450 1st Street SW

Calgary, Alberta T2P 5H1

2,800,000

19.1

Goldman, Sachs Group Inc. (4)

85 Broad Street

New York, New York 10004

2,515,200

17.1

Robert A. Helman (5)

190 S. LaSalle Street

Chicago, Illinois 60603

Jack F. Jenkins-Stark (6)

1010 Atlantic Avenue

6,450

Alameda, California 94501

2,450

David L. Marshall (7)

450 1st Street SW

Calgary, Alberta T2P 5H1

2,050

Ronald J. Turner

450 1st Street SW

Calgary, Alberta T2P 5H1

Garry P. Mihaichuk

450 1st Street SW

Calgary, Alberta T2P 5H1

Directors and Executive

Officers as a Group

(12 persons)

–

10,950

–

16.0

14.4

–

(1) A total of 17,500,000 common and subordinated units are issued and outstanding.

(2) TC PipeLines GP, Inc. and TransCan Northern Ltd. are wholly owned subsidiaries of TransCanada.

(3) TC PipeLines GP, Inc. owns an aggregate 2% general partner interest of TC PipeLines and its subsidiaries on a

combined basis.

(4) As reported on a schedule 13(g) filed on February 14, 2001, each of Goldman Sachs Group, Inc. (GS Group) and
Goldman, Sachs & Co. (Goldman Sachs) disclaim beneficial ownership of the securities beneficially owned by (i)
any client accounts with respect to which Goldman Sachs or employees of Goldman Sachs have voting or
investment discretion, or both and (ii) certain investment entities, of which a subsidiary of GS Group or Goldman
Sachs is the general partner, managing general partner or other manager, to the extent interests in such entities
are held by persons other than GS Group, Goldman Sachs or their affiliates.

(5) 6,000 units are held by Bank of Oklahoma N.A., trustee for Mayer, Brown & Platt Savings Plan FBO Robert A.

Helman and 450 units are held directly by Mr. Helman.

(6) 2,450 units are held by the Jenkins-Stark Family Trust dated June 16, 1995.

(7) 2,050 units are held directly by Mr. Marshall.

Less than 1%.

T C P I P E L I N E S , L P

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and officers, and persons
who own more than 10% of the common units, to file initial reports of ownership and reports
of changes in ownership (Forms 3, 4, and 5) of the common units with the Securities and
Exchange Commission (SEC) and the Nasdaq Stock Market. Officers, directors and greater
than 10% unitholders are required by SEC regulation to furnish the Partnership with copies of
all such forms that they file.

Except as set forth below, based solely on the Partnership’s review of the copies of such reports
received by the Partnership and on written representations by certain reporting persons that no
reports on Form 5 were required, the Partnership believes that during the fiscal year ended
December 31, 2000 all Section 16(a) filing requirements applicable to its officers, directors and
holders of 10% or more of its common units were complied with in a timely manner. However,
the Form 3 required to be filed by Mr. Dennis McConaghy within 10 days of his appointment
as a director of the general partner on December 22, 2000, was filed late on March 5, 2001 due
to a clerical error.

I T E M 1 3

Certain Relationships and Related Transactions

An affiliate of the general partner owns 2,800,000 common units and the general partner owns
2,809,306 subordinated units, representing an aggregate 31.4% limited partner interest in the
Partnership. In addition, the general partner owns an aggregate 2% general partner interest in
the Partnership through which it manages and operates the Partnership.

The general partner is accountable to TC PipeLines and the unitholders as a fiduciary. Neither
the Delaware Act nor case law defines with particularity the fiduciary duties owed by general
partners to limited partners of a limited partnership. The Delaware Act does provide that
Delaware limited partnerships may, in their partnership agreements, restrict or expand the
fiduciary duties owed by a general partner to limited partners and the partnership.

In order to induce the general partner to manage the business of TC PipeLines, the partnership
agreement contains various provisions restricting the fiduciary duties that might otherwise be
owed by the general partner. The following is a summary of the material restrictions of the
fiduciary duties owed by the general partner to the limited partners.

(cid:2) The partnership agreement permits the general partner to make a number of decisions in its
“sole discretion.” This entitles the general partner to consider only the interests and factors
that it desires and it shall have no duty or obligation to give any consideration to any interest
of, or factors affecting, TC PipeLines, its affiliates or any limited partner. Other provisions of
the partnership agreement provide that the general partner’s actions must be made in its
reasonable discretion.

T C P I P E L I N E S , L P

(cid:2) The partnership agreement generally provides that affiliated transactions and resolutions of
conflicts of interest not involving a required vote of unitholders must be “fair and reasonable”
to TC PipeLines. In determining whether a transaction or resolution is “fair and reasonable”
the general partner may consider interests of all parties involved, including its own. Unless
the general partner has acted in bad faith, the action taken by the general partner shall not
constitute a breach of its fiduciary duty.

(cid:2) The partnership agreement specifically provides that it shall not be a breach of the general
partner’s fiduciary duty if its affiliates engage in business interests and activities in
competition with, or in preference or to the exclusion of, TC PipeLines. Also, the general
partner and its affiliates have no obligation to present business opportunities to TC
PipeLines.

(cid:2) The partnership agreement provides that the general partner and its officers and directors will
not be liable for monetary damages to TC PipeLines, the limited partners or assignees for
errors of judgment or for any acts or omissions if the general partner and those other persons
acted in good faith.

TC PipeLines is required to indemnify the general partner and its officers, directors, employees,
affiliates, partners, members, agents and trustees (collectively referred to hereafter as the General
Partner and others), to the fullest extent permitted by law, against liabilities, costs and expenses
incurred by the General Partner and others. This indemnification is required if the General
Partner and others acted in good faith and in a manner they reasonably believed to be in, or (in
the case of a person other than the general partner) not opposed to, the best interests of TC
PipeLines. Indemnification is required for criminal proceedings if the General Partner and
others had no reasonable cause to believe their conduct was unlawful.

The Partnership does not directly employ any persons to manage or operate its business. These
functions are provided by the general partner. The general partner does not receive a
management fee or other compensation in connection with its management of the Partnership.
The Partnership reimburses the general partner for all costs of services provided, including the
costs of employee, officer and director compensation and benefits, and all other expenses
necessary or appropriate to the conduct of the business of, and allocable to the Partnership. The
partnership agreement provides that the general partner will, in its sole discretion, determine the
expenses that are allocable to the Partnership in any reasonable manner determined by it. Total
costs reimbursed to the general partner by the Partnership were approximately $0.7 million for
the year ended December 31, 2000. Such costs include, (i) personnel costs (such as salaries and
employee benefits) of the personnel providing services, (ii) overhead costs (such as office space
and equipment) and (iii) out-of-pocket expenses related to the provision of services to the
Partnership.

T C P I P E L I N E S , L P

On September 1, 2000, TC PipeLines, based on the approval of a committee comprised of its
independent directors, acquired a 49% general partner interest in Tuscarora. The Partnership
acquired this asset from TCPL Tuscarora Ltd., an indirect subsidiary of TransCanada, for a
purchase price of $28.0 million. The Partnership borrowed $24.5 million from the Revolving
Credit Facility (see Item 7. – Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources of TC PipeLines, LP – General)
to fund a portion of the purchase price. The remainder of the purchase price was funded with
cash on hand.

As of February 1, 2001, TransCanada Energy Marketing USA, Inc., an affiliate of TransCanada,
the parent of TC PipeLines’ general partner, is one of Northern Border Pipeline’s firm shippers
and is currently obligated to pay 11.4% of Northern Border Pipeline’s capacity. The terms of this
transaction are no less favorable to Northern Border Pipeline than those which Northern Border
Pipeline would expect to negotiate with unrelated third parties on an arm’s length basis.

PA R T I V

I T E M 1 4

Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) (1) and (2) Financial Statements and Financial Statement Schedules

The financial statements filed as part of this report are listed in the “Index to Financial
Statements” on Page F-1.

(b) The Registrant filed the following reports on Form 8-K during the fourth quarter of 2000:

A report on Form 8-K was filed on October 3, 2000 stating that Northern Border Pipeline,
a partnership in which TC PipeLines indirectly holds a 30% general partner interest, had
filed for approval on September 26, 2000, a stipulation and agreement with the FERC that
documents the settlement of its pending rate case.

A report on Form 8-K was filed on December 20, 2000 announcing changes to the officers
and directors of the general partner of the Partnership and the FERC’s approval of the rate
case settlement of Northern Border Pipeline, a partnership in which TC PipeLines
indirectly holds a 30% general partner interest.

Exhibit
Number

Description

T C P I P E L I N E S , L P

*3.1

*3.2

*3.3

*3.4

*3.5

*4.1

*4.2

*10.1

*10.2

*10.3

Amended and Restated Agreement of Limited Partnership of TC PipeLines, LP
dated May 28, 1999 (Exhibit 3.1 to TC PipeLines, LP’s Form 10-K, March 28,
2000).

Certificate of Limited Partnership of TC PipeLines, LP (Exhibit 3.2 to TC
Pipelines, LP’s Form S-1 Registration Statement Registration No. 333-69947 (“1999
Form S-1”)).

Certificate of Limited Partnership of TC PipeLines Intermediate Limited
Partnership (Exhibit 3.3 to the 1999 Form S-1).

Certificate of Limited Partnership of TC Tuscarora Intermediate Limited
Partnership (Exhibit 99.1 to TC PipeLines, LP’s Form 8-K, September 1, 2000).

Agreement of Limited Partnership of TC Tuscarora Intermediate Limited
Partnership dated July 19, 2000 (Exhibit 99.2 to TC PipeLines, LP’s Form 8-K,
September 1, 2000).

Indenture, dated as of August 17, 1999 between Northern Border Pipeline Company
and Bank One Trust Company, NA, successor to The First National Bank of
Chicago, as trustee (Exhibit 4.1 to Northern Border Pipeline Company’s, Form S-4
Registration Statement Registration No. 333-88577).

Indenture, Assignment and Security Agreement dated December 21, 1995 between
Tuscarora Gas Transmission Company and Wilmington Trust Company, as trustee
(Exhibit 99.1 to TC PipeLines, LP’s Form 10-Q, quarter ended September 30,
2000).

Amended and Restated Agreement of Limited Partnership of TC PipeLines
Intermediate Limited Partnership dated May 28, 1999 (Exhibit 10.1 to TC
PipeLines, LP’s Form 10-K, March 28, 2000).

Contribution, Conveyance and Assumption Agreement among TC PipeLines, LP
and certain other parties dated May 28, 1999 (Exhibit 10.2 to TC PipeLines, LP’s
Form 10-K, March 28, 2000).

Northern Border Pipeline Company General Partnership Agreement between
Northern Border Intermediate Limited Partnership, TransCanada Border PipeLine
Ltd., and TransCan Northern Ltd., effective March 9, 1978 as amended (Exhibit 3.2
to Northern Border Partners, L.P. Form S-1 Registration Statement No. 33-66158).

*10.3.1 Seventh Supplement Amending Northern Border Pipeline Company General
Partnership Agreement dated as of September 23, 1993 Partnership (Exhibit 10.3.1
to the 1999 Form S-1).

T C P I P E L I N E S , L P

Exhibit
Number

Description

*10.3.2 Eighth Supplement Amending Northern Border Pipeline Company General
Partnership Agreement dated May 21, 1999 by and among TransCan Border
PipeLine Ltd., TransCanada Northern Ltd., Northern Border Intermediate Limited
Partnership and TC PipeLines Intermediate Limited Partnership (Exhibit 10.3.2 to
TC PipeLines, LP’s Form 10-K, March 28, 2000).

*10.4

Note Purchase Agreement between Northern Border Pipeline Company and the
parties listed therein, dated July 15, 1992 (Exhibit 10.6 to Northern Border Partners,
L.P.’s Form S-1 Registration Statement No. 33-66158).

*10.4.1 Supplemental Agreement to the Note Purchase Agreement dated as of June 1, 1995
(Exhibit 10.6.1 to Northern Border Partners, L.P.’s Form S-1 Registration Statement
No. 33-66158).

*10.5

*10.6

*10.7

*10.8

*10.9

U.S. $40,000,000 Two-year Revolving Credit Facility between TC PipeLines, LP, as
borrower, and TransCanada PipeLine USA Ltd., as lender dated May 28, 1999
(Exhibit 10.5 to TC PipeLines, LP’s Form 10-K, March 28, 2000).

Form of Credit Agreement among Northern Border Pipeline Company, The First
National Bank of Chicago, as Administrative Agent, The First National Bank of
Chicago, Royal Bank of Canada, and Bank of America National Trust and Savings
Association, as Syndication Agents, First Chicago Capital Markets, Inc., Royal Bank
of Canada, and BancAmerica Securities, Inc. as Joint Arrangers and Lenders (as
defined therein) dated as of June 16, 1997 (Exhibit 10(c) to Northern Border
Partners, L.P.’s Form S-3 Registration Statement No. 33-40601).

Operating Agreement between Northern Border Pipeline Company and Northern
Plains Natural Gas Company, dated February 28, 1980 (Exhibit 10.3 to Northern
Border Partners, L.P.’s Form S-1 Registration Statement No. 33-66158).

Guaranty made by Panhandle Eastern Pipeline Company, dated October 31, 1992
(Exhibit 10.9 to Northern Border Partners, L.P.’s Form S-1 Registration Statement
No. 33-65158).

Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Enron Gas Marketing, Inc., dated June 22,
1990 (Exhibit 10.10 to Northern Border Partners, L.P.’s Form S-1 Registration
Statement No. 33-66158).

*10.9.1 Amended Exhibit A to Northern Border Pipeline Company U.S. Shipper Service
Agreement effective April 1, 1998 (Exhibit 10.10.4 to Northern Border Partners,
L.P.’s 1997 Form 10-K SEC File No. 1-12202).

Exhibit
Number

Description

T C P I P E L I N E S , L P

*10.10 Amended Exhibit A to Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and Enron Gas Marketing,
Inc. (Exhibit 10.10.1 to Northern Border Partners, L.P.’s Form 10-K for the year
ended December 31, 1993, SEC file No. 1-12202).

*10.11 Amended Exhibit A to Northern Border Pipeline U.S. Shippers Service Agreement
between Northern Border Pipeline Company and Enron Gas Marketing, Inc.,
effective November 1, 1994 (Exhibit 10.10.2 to the Northern Border Partners, L.P.’s
Form 10-K for the year ended December 31, 1994, SEC File No. 1-12202).

*10.12 Amended Exhibit A’s to Northern Border Pipeline Company U.S. Shipper Service
Agreement effective August 1, 1995 and November 1, 1995 (Exhibit 10.10.3 to
Northern Border Partners, L.P.’s Form 10-K for the year ended December 31, 1995).

*10.13 Amended Exhibit A to Northern Border Pipeline Company U.S. Shipper Service
Agreement effective April 1, 1998 (Exhibit 10.10.4 to Northern Border Partners,
L.P.’s Form 10-K for the year ended December 31, 1997, SEC File No. 1-12202).

*10.14 Guaranty made by Northern Natural Gas Company, dated October 7, 1993 (Exhibit
10.11.1 to Northern Border Partners, L.P.’s 1993 Form 10-K SEC File No. 1-12202).

*10.14.1 Guaranty made by Northern Natural Gas Company, dated October 7, 1993 (Exhibit
10.11.2 to Northern Border Partners, L.P.’s 1993 Form 10-K SEC File No. 1-12202).

*10.15 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Western Gas Marketing Limited, as agent
for TransCanada PipeLines Limited, dated December 15, 1980 (Exhibit 10.13 to
Northern Border Partners, L.P.’s Form S-1 Registration Statement No. 33-66158).

*10.15.1 Amended Exhibit A to Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and Western Gas
Marketing Limited extending the term effective April 2, 1999 (Exhibit 10.11.1 to
1999 Form S-1).

*10.16 Amendment to Northern Border Pipeline Company Service Agreement extending
the term effective November 1, 1995 (Exhibit 10.13.1 to Northern Border Partners,
L.P.’s Form 10-K for the year ended December 31, 1995).

*10.17 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Transcontinental Gas Pipe Line
Corporation, dated July 14, 1983, with Amended Exhibit A effective February 11,
1994 (Exhibit 10.17 to Northern Border Partners, L.P.’s 1995 Form 10-K SEC File
No. 1-12202).

T C P I P E L I N E S , L P

Exhibit
Number

Description

*10.18 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Enron Capital & Trade Resources Corp.
dated October 15, 1997 (Exhibit 10.21 to Northern Border Partners, L.P.’s 1997
Form 10-K SEC File No. 1-12202).

*10.19 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Enron Capital & Trade Resources Corp.
dated October 15, 1997 (Exhibit 10.22 to Northern Border Partners, L.P.’s 1997
Form 10-K SEC File No. 1-12202).

*10.20 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Enron Capital & Trade Resources Corp.
dated August 5, 1997 with Amendment dated September 25, 1997 (Exhibit 10.25 to
Northern Border Partners, L.P.’s 1997 Form 10-K SEC File No. 1-12202).

*10.20.1 Amended Exhibit A to Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. effective November 1, 1998 (Exhibit 10.15.1 to 1999 Form S-1).

*10.22 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Enron Capital & Trade Resources Corp.
dated August 5, 1997 (Exhibit 10.26 to Northern Border Partners, L.P.’s 1997 Form
10-K SEC File No. 1-12202).

*10.22.1 Amended Exhibit A to Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and Enron Capital & Trade
Resources Corp. effective April 2, 1999 (Exhibit 10.16.1 to 1999 Form S-1).

*10.23 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc., as agent for
TransCanada PipeLines Limited, dated August 14, 1997 (Exhibit 10.28 to Northern
Border Partners, L.P.’s 1997 Form 10-K SEC File No. 1-12202).

*10.24 Agreement among Northern Plains Natural Gas Company, Pan Border Gas
Company, Northwest Border Pipeline Company, TransCanada Border PipeLine
Ltd., TransCan Northern Ltd., Northern Border Intermediate Limited Partnership,
Northern Border Partners, L.P., and the Management Committee of Northern
Border Pipeline, dated as of March 17, 1999 (Exhibit 10.21 to Northern Border
Partners, L.P.’s 1998 Form 10-K SEC File No. 1-12202).

*10.25 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc. as agent for
TransCanada PipeLines Limited, dated October 10, 1996, with Amended Exhibit A
effective April 2, 1999 (Exhibit 10.19 to 1999 Form S-1).

Exhibit
Number

Description

T C P I P E L I N E S , L P

*10.26 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc., as agent for
TransCanada PipeLines Limited dated August 5, 1997 with Amended Exhibit A,
effective April 2, 1999 (Exhibit 10.27 to Northern Border Partners, L.P.’s Form 10-
K for the year ended December 31, 1997).

*10.27 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc. as agent for
TransCanada PipeLines Limited, dated October 5, 1998, with Amended Exhibit A
effective April 2, 1999 (Exhibit 10.20 to 1999 Form S-1).

*10.28 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc. as agent for
TransCanada PipeLines Limited, dated October 5, 1998, with Amended Exhibit A
effective April 2, 1999 (Exhibit 10.21 to 1999 Form S-1).

*10.29 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Border Pipeline Company and TransCanada Gas Services Inc. as
agent for TransCanada PipeLines Limited, dated October 5, 1998, with Amended
Exhibit A effective April 2, 1999 (Exhibit 10.22 to 1999 Form S-1).

*10.30 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc. as agent for
TransCanada PipeLines Limited, dated October 5, 1998, with Amended Exhibit A
effective April 2, 1999 (Exhibit 10.23 to 1999 Form S-1).

*10.31 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and TransCanada Gas Services Inc. as agent for
TransCanada PipeLines Limited, dated December 18, 1998 (Exhibit 10.24 to 1999
Form S-1).

*10.32 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Pan-Alberta Gas (U.S.) Inc. dated October
1, 1993, with Amended Exhibit A effective June 22, 1998 (Exhibit 10.25 to 1999
Form S-1).

*10.33 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Pan-Alberta Gas (U.S.) Inc. (successor to
Natgas U.S. Inc.), dated October 6, 1989, with Amended Exhibit A effective April 2,
1999 (Exhibit 10.26 to 1999 Form S-1).

T C P I P E L I N E S , L P

Exhibit
Number

Description

*10.34 Northern Border Pipeline Company U.S. Shippers Service Agreement between
Northern Border Pipeline Company and Pan-Alberta Gas (U.S.) Inc., dated October
1, 1992, with Amended Exhibit A effective June 22, 1998 (Exhibit 10.27 to 1999
Form S-1).

*10.35

Project Management Agreement by and between Northern Plains Natural Gas
Company and Enron Engineering & Construction Company, dated March 1, 1996
(Exhibit No. 10.39 to Northern Border Pipeline Company, Form S-4 Registration
Statement, Registration No. 333-88577).

*10.36 Directors’ Compensation Plan of TC PipeLines, GP, Inc. dated effective July 19,
1999 (Exhibit 10.36 to TC PipeLines, LP’s Form 10-K, March 28, 2000).

*10.37

Purchase and Sale Agreement dated July 19, 2000 among TCPL Tuscarora Ltd., TC
Tuscarora Intermediate Limited Partnership, TC PipeLines GP, Inc., TransCanada
PipeLines Limited and TransCanada PipeLine USA Ltd. (Exhibit 99.3 to TC
PipeLines, LP’s Form 8-K, September 1, 2000).

*10.38 Credit Agreement dated as of August 22, 2000 among TC PipeLines, LP, the Lenders
Party thereto and Bank One N.A., as agent (Exhibit 99.2 to TC PipeLines, LP’s Form
10-Q, quarter ended September 30, 2000).

21.1

Subsidiaries of the Registrant.

* Indicates exhibits incorporated by reference.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 29th day of March 2001.

T C P I P E L I N E S , L P

T C P I P E L I N E S , L P
(A Delaware Limited Partnership)
by its general partner, TC PipeLines GP, Inc.

By:

Ronald J. Turner
President and Chief Executive Officer
TC PipeLines GP, Inc.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons in the capacities and on the dates indicated.

Ronald J. Turner

President and Chief Executive Officer
and Director (Principal Executive Officer)

March 29, 2001

Walentin Mirosh

Director

March 29, 2001

Russell K. Girling

Chief Financial Officer
and Director (Principal Financial Officer)

March 29, 2001

Robert A. Helman

Director

March ,

2001

Theresa Jang

Jack F. Jenkins-Stark

Controller (Principal Accounting Officer)

Director

March 29, 2001

March ,

2001

Dennis J. McConaghy

Director

March 29, 2001

David L. Marshall

Director

March ,

2001

T C P I P E L I N E S , L P

I N D E X T O F I N A N C I A L S TAT E M E N T S

Financial Statements of

TC PipeLines, LP

Independent Auditors’ Report

Balance Sheet – December 31, 2000 & 1999

Statement of Income –

Year Ended December 31, 2000 & Period Ended
December 31, 1999

Statement of Cash Flows –

Year Ended December 31, 2000 & Period Ended
December 31, 1999

Statement of Changes in Partners’ Capital –

Year Ended December 31, 2000 & Period Ended
December 31, 1999

Notes to Financial Statements

Financial Statements of

Northern Border Pipeline Company

Report of Independent Public Accountants

Balance Sheet – December 31, 2000 & 1999

Statement of Income –

Years Ended December 31, 2000, 1999 & 1998

Statement of Cash Flows –

Years Ended December 31, 2000, 1999 & 1998

Statement of Changes in Partners’ Capital –

Years Ended December 31, 2000, 1999 & 1998

Notes to Financial Statements

Financial Statements Schedule of

Northern Border Pipeline Company

Report of Independent Public Accountants

Schedule II – Valuation & Qualifying Accounts

F-2

F-3

F-4

F-5

F-12

F-13

F-14

F-15

F-16

F-17

S-1

S-2

F-1

I N D E P E N D E N T A U D I T O R S ’ R E P O R T

T C P I P E L I N E S , L P

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

We have audited the accompanying balance sheets of TC PipeLines,
LP (a Delaware limited partnership) as of December 31, 2000 and
1999 and the related statements of income, cash flows and changes in
partners’ capital for the year ended December 31, 2000 and the
period from the commencement of operations on May 28, 1999 to
December 31, 1999. These financial statements are the
responsibility of the General Partner. Our responsibility is to
express an opinion on these financial statements based on our
audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TC PipeLines,
LP as of December 31, 2000 and 1999 and the results of its
operations and its cash flows for the year ended December 31, 2000
and the period from the commencement of operations on May 28,
1999 to December 31, 1999 in conformity with accounting
principles generally accepted in the United States.

Calgary, Canada

January 22, 2001

F-2

T C P I P E L I N E S , L P

B A L A N C E S H E E T

December 31 (thousands of dollars)
Assets

Current Assets

Cash

Investment in Northern Border Pipeline Company

Investment in Tuscarora Gas Transmission Company

Liabilities and Partners’ Capital

Current Liabilities

Accounts payable

Accrued interest

Long-Term Debt

Partners’ Capital

Common units

Subordinated units

General partner

2000

1999

1,566

795

248,098

27,881

277,545

499

141

640

21,500

212,253

37,951

5,201

255,405

277,545

250,450

–

251,245

407

–

407

–

208,573

37,248

5,017

250,838

251,245

S TAT E M E N T O F I N C O M E

(thousands of dollars, except per unit amounts)
Equity Income from Investment in

Northern Border Pipeline Company

Equity Income from Investment in

Tuscarora Gas Transmission Company

General and Administrative Expenses

Financial Charges and Other

Net Income

Net Income per Unit

Units Outstanding (thousands)

(1) Commencement of operations.

The accompanying notes are an integral part of these financial statements.

Year ended

May 28 (1) –

December 31, 2000 December 31, 1999

38,119

20,923

943

(1,337)

(501)

37,224

–

(699)

–

20,224

$2.08

$1.13

17,500

F-3

S TAT E M E N T O F C A S H F L O W S

(thousands of dollars)

Cash Generated from Operations

Net income

Add/(Deduct):

Distributions received in excess of /(less than) equity income

Increase in accounts payable

Increase in accrued interest

Investing Activities

Investment in Tuscarora Gas Transmission Company

Financing Activities

Distributions paid

Long-term debt issued

Reduction of long-term debt

Common units issued

Common units redeemed

Subordinated units redeemed

Increase in Cash

Cash, Beginning of Period

Cash, End of Period

T C P I P E L I N E S , L P

Year ended

May 28 (1) –

December 31, 2000 December 31, 1999

37,224

20,224

2,909

141

40,366

(28,438)

(32,657)

24,500

(3,000)

–

(11,157)

771

795

1,566

(8,799)

407

–

11,832

–

(11,037)

–

282,061

(274,560)

(7,501)

(11,037)

795

–

795

S TAT E M E N T O F C H A N G E S I N PA R T N E R S ’ C A P I TA L

Common
Units

Subordinated
Units

General
Partner

Partners’
Capital

(thousands
of units)

(thousands
of dollars)

(thousands
of units)

(thousands
of dollars)

(thousands
of units)

(thousands
of dollars)

Partnership Units

Initial public offering

Contributions of assets

14,300

274,560

–

14,300

274,560

14,300

193,515

3,200

43,303

4,833

17,500

241,651

Redemption of common units

(14,300) (274,560)

–

Exercise of over-allotment option

391

7,501

(391)

(7,501)

–

(14,300) (274,560)

–

Net Income

Distributions Paid

Partners’ Capital at

14,691

201,016

2,809

35,802

4,833

17,500

241,651

16,637

(9,080)

3,182

(1,736)

405

(221)

20,224

(11,037)

December 31, 1999

14,691

208,573

2,809

37,248

5,017

17,500

250,838

Net Income

Distributions Paid

Partners’ Capital at

30,490

(26,810)

5,830

(5,127)

904

(720)

37,224

(32,657)

December 31, 2000

14,691

212,253

2,809

37,951

5,201

17,500

255,405

(1) Commencement of operations.

The accompanying notes are an integral part of these financial statements.

F-4

T C P I P E L I N E S , L P

N O T E S T O F I N A N C I A L S TAT E M E N T S

N O T E 1
Basis of Presentation

TC PipeLines, LP, a Delaware limited partnership, and its subsidiary limited partnerships, TC
PipeLines Intermediate Limited Partnership, a Delaware limited partnership, and TC Tuscarora
Intermediate Limited Partnership, a Delaware limited partnership, are collectively referred to
herein as TC PipeLines or the Partnership. TC PipeLines was formed by TransCanada
PipeLines Limited (TransCanada) to acquire, own and participate in the management of United
States based pipeline assets.

TC PipeLines owns a 30% general partner interest in Northern Border Pipeline Company
(Northern Border Pipeline), a Texas general partnership. Northern Border Pipeline owns a
1,214-mile natural gas transmission line extending from the United States-Canadian border
near Port of Morgan, Montana, to a terminus near Manhattan, Illinois.

TC PipeLines also owns a 49% general partner interest in Tuscarora Gas Transmission
Company (Tuscarora), a Nevada general partnership. Tuscarora owns a 229-mile interstate
pipeline system that transports natural gas from Malin, Oregon, where it interconnects with
facilities of PG&E Gas Transmission – Northwest, to the Reno, Nevada area.

TC PipeLines is managed by its general partner, TC PipeLines GP, Inc. (General Partner), a
wholly-owned subsidiary of TransCanada. The General Partner provides certain administrative
services for the Partnership and is reimbursed for its costs and expenses. In addition to its 2%
general partner interest, the General Partner owns 2,809,306 Subordinated Units, representing
an effective 15.7% limited partner interest in the Partnership at December 31, 2000.

INITIAL PUBLIC OFFERING AND CONCURRENT TRANSACTIONS

TC PipeLines commenced operations on May 28, 1999, when it issued 14,300,000 Common
Units (11,500,000 to the public and 2,800,000 to an affiliate of the General Partner) for net
proceeds of $274.6 million, after deducting underwriters’ fees of $15.0 million. These proceeds,
along with 3,200,000 Subordinated Units, a 2% general partner interest and incentive
distribution rights, were issued to TransCanada Border PipeLine Ltd. and TransCan Northern
Ltd. (collectively, the predecessor companies), affiliates of the General Partner, to acquire the
predecessor companies’ 30% general partner interest in Northern Border Pipeline.

On June 25, 1999, the underwriters exercised a portion of their over-allotment option under the
terms of the underwriting agreement and purchased 390,694 additional Common Units for net
proceeds of $7.5 million. The Partnership used those proceeds to redeem 390,694 Subordinated
Units from the General Partner.

F-5

T C P I P E L I N E S , L P

N O T E 2
Significant Accounting Policies

(a) Basis of Presentation

The accompanying financial statements and related notes present the financial position of the
Partnership as of December 31, 2000 and 1999 and the results of its operations, cash flows and
changes in partners’ capital for the year ended December 31, 2000 and for the period from May
28, 1999 (commencement of operations) to December 31, 1999. The Partnership uses the equity
method of accounting for its investments in Northern Border Pipeline and Tuscarora, over
which it is able to exercise significant influence. Amounts are stated in United States dollars.

(b) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes these estimates are reasonable, actual results
could differ from these estimates.

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

(d) Partners’ Capital

Costs incurred in connection with the issuance of Units are deducted from the proceeds
received.

(e) Income Taxes

No provision for income taxes related to the operations of the Partnership is included in the
accompanying financial statements because, as a partnership, it is not subject to Federal or state
income tax. The tax effect of the Partnership's activities accrues to its partners.

N O T E 3
Investment in Northern Border Pipeline Company

The Partnership owns a 30% general partner interest in Northern Border Pipeline, a partnership
which owns a natural gas pipeline extending from the Montana-Saskatchewan border near Port
of Morgan, Montana, to a terminus near Manhattan, Illinois. Northern Border Pipeline is
subject to regulation by the Federal Energy Regulatory Commission (FERC).

At the time of acquisition on May 28, 1999, the Partnership recorded its investment in Northern
Border Pipeline at $241.7 million, representing the combined carrying values of the investment

F-6

T C P I P E L I N E S , L P

in Northern Border Pipeline as reflected in the accounts of the predecessor companies at the
same date. TC PipeLines’ equity income amounted to $38.1 million and $20.9 million for the
year ended December 31, 2000 and the period May 28 to December 31, 1999, respectively,
representing 30% of the net income of Northern Border Pipeline for the same periods.

The following sets out summarized financial information for Northern Border Pipeline as at and
for the years ended December 31, 2000 and 1999. TC PipeLines has held its general partner
interest since May 28, 1999.

December 31 (millions of dollars)
Northern Border Pipeline Balance Sheet

Cash and cash equivalents

Other current assets

Plant, property and equipment, net

Other assets

Current liabilities

Reserves and deferred credits

Long-term debt

Partners’ capital

Year ended December 31 (millions of dollars)
Northern Border Pipeline Income Statement

Revenues

Costs and expenses

Depreciation

Financial charges and other

Net income

2000

29.0

38.1

1999

17.3

33.8

1,687.0

1,731.4

14.4

(114.3)

(4.9)

(822.3)

827.0

14.2

(116.7)

(10.7)

(834.5)

834.8

2000

1999

311.0

(69.5)

(57.3)

(57.1)

127.1

298.3

(69.0)

(51.9)

(58.8)

118.6

N O T E 4
Investment in Tuscarora Gas Transmission Company

On September 1, 2000, TC PipeLines completed its acquisition of a 49% general partner
interest in Tuscarora Gas Transmission Company. The Partnership acquired this asset from
TCPL Tuscarora Ltd., an indirect subsidiary of TransCanada, for a purchase price of $28.0
million. The Partnership borrowed $24.5 million from the Revolving Credit Facility (see Note
5) to fund a portion of the purchase price. The remainder of the purchase price was funded with
cash on hand. TCPL Tuscarora Ltd. has retained a 1% general partner interest in Tuscarora.
Tuscarora is subject to regulation by the FERC.

TC PipeLines’ equity income from Tuscarora for the period September 1, 2000, the date of
acquisition, to December 31, 2000 amounted to $0.9 million representing 49% of the net income
of Tuscarora for the same period.

The following sets out summarized financial information for Tuscarora as at and for the year
ended December 31, 2000. TC PipeLines has held its general partner interest since September
1, 2000.

F-7

December 31 (millions of dollars)
Tuscarora Balance Sheet

Cash and cash equivalents

Other current assets

Plant, property and equipment, net

Other assets

Current liabilities

Reserves and deferred credits

Long-term debt

Partners’ capital

Year ended December 31 (millions of dollars)
Tuscarora Income Statement

Revenues

Costs and expenses

Depreciation

Financial charges and other

Net income

T C P I P E L I N E S , L P

2000

7.1

3.2

115.7

2.5

(8.9)

(12.0)

(84.2)

23.4

2000

19.4

(2.4)

(4.4)

(5.8)

6.8

N O T E 5
Credit Facilities and Long-Term Debt

On August 22, 2000, the Partnership entered into an unsecured three-year credit facility with a
third party (Revolving Credit Facility) under which the Partnership may borrow up to an
aggregate principal amount of $30.0 million. Loans under the Revolving Credit Facility bear
interest at a floating rate. The Revolving Credit Facility matures on August 31, 2003. Amounts
borrowed may be repaid in part or in full prior to that time without penalty. The Revolving
Credit Facility may be used to finance capital expenditures and for other general purposes. On
September 1, 2000, the Partnership borrowed $24.5 million from the Revolving Credit Facility
to fund a portion of the purchase price of the 49% general partner interest in Tuscarora. At
December 31, 2000, the Partnership had $21.5 million outstanding under the Revolving Credit
Facility. The fair value of the Revolving Credit Facility approximates its carrying value. The
weighted average interest rate for the period from September 1 to December 31, 2000, the four
months the Revolving Credit Facility has been outstanding, was 7.57%. Interest paid during the
year ended December 31, 2000 and the period May 28 to December 31, 1999 was $0.5 million
and nil, respectively.

On May 28, 1999, the Partnership entered into a $40.0 million unsecured two-year revolving
credit facility with TransCanada PipeLine USA Ltd. (TransCanada Credit Facility), an affiliate
of the General Partner. The credit facility bears interest at London Interbank Offered Rate plus
1.25%. The purpose of the TransCanada Credit Facility is to provide borrowings to fund capital
expenditures, to fund capital contributions to Northern Border Pipeline and for working capital
and other general business purposes, including funding cash distributions to partners, if
necessary. At December 31, 2000 and 1999, the Partnership had no amount outstanding under
this credit facility.

F-8

T C P I P E L I N E S , L P

N O T E 6
Partners’ Capital and Distributions

Partners’ capital consists of 14,690,694 Common Units representing an 82.3% limited partner
interest (an affiliate of the General Partner owns 2,800,000 of such Common Units), 2,809,306
Subordinated Units owned by the General Partner representing a 15.7% limited partner interest
and a 2% general partner interest. In the aggregate, the General Partner’s and its affiliate’s
interests represent an effective 33.4% ownership of the Partnership’s equity.

The Partnership will make distributions to its partners with respect to each calendar quarter
within 45 days after the end of each quarter. Distributions are based on available cash which
includes all cash and cash equivalents of the Partnership and working capital borrowings less
reserves established by the General Partner. Amounts will generally be distributed 98% to the
holders of Common and Subordinated Units (collectively referred to as Unitholders) and 2% to
the General Partner. The Unitholders are entitled to receive the minimum quarterly distribution
(MQD) of $0.45 per unit if and to the extent there is sufficient available cash. Distributions to
holders of the Subordinated Units are subject, while Subordinated Units remain outstanding
(Subordination Period), to the prior rights of holders of the Common Units to receive the
MQD. The Subordination Period generally cannot end before June 30, 2004. Upon expiration
of the Subordination Period, all Subordinated Units will be converted on a one-for-one basis
into Common Units and will participate pro rata with all other Common Units in future
distributions. Under certain circumstances, up to 66.7% of the Subordinated Units may convert
into Common Units prior to the expiration of the Subordination Period. Common Units will
not accrue arrearages with respect to distributions for any quarter after the Subordination
Period and Subordinated Units will not accrue any arrearages with respect to distributions for
any quarter.

As an incentive, the General Partner’s percentage interest in quarterly distributions is increased
after certain specified target levels are met. At the time the quarterly distributions exceed $0.45
per unit, the General Partner will receive 15% of the excess. As the quarterly distributions are
increased above $0.5275 per unit, the General Partner will receive increasing percentages in
excess of the targets reaching a maximum of 50% of the excess of the highest target level. For
the year ended December 31, 2000 and the period May 28 to December 31, 1999, the
Partnership distributed $1.85 and $1.068, respectively, per unit. The distributions for the year
ended December 31, 2000 and the period May 28 to December 31, 1999 included incentive
distributions to the General Partner in the amount of $0.2 million and nil, respectively.

Partnership income is allocated to the General Partner and the limited partners in accordance
with their respective partnership percentages, after giving effect to any priority income
allocations for incentive distributions that are allocated 100% to the General Partner.

F-9

T C P I P E L I N E S , L P

N O T E 7
Net Income per Unit

Net income per unit is computed by dividing net income, after deduction of the General
Partner’s allocation, by the weighted average number of Common and Subordinated Units
outstanding. The General Partner’s allocation is equal to an amount based upon the General
Partner’s 2% interest, adjusted to reflect an amount equal to incentive distributions. Net income
per unit was determined as follows:

(thousands of dollars, except per unit amounts)
Net income

Net income allocated to General Partner

Adjustment to reflect incentive distribution income allocation

Net income allocable to units

Weighted average units outstanding (thousands)

Net income per unit

(1) Commencement of operations.

N O T E 8
Related Party Transactions

Year ended

May 28 (1) –

December 31, 2000 December 31, 1999

37,224

20,224

(745)

(159)

(904)

36,320

17,500

$2.08

(405)

–

(405)

19,819

17,500

$1.13

The Partnership does not directly employ any persons to manage or operate its business. These
functions are provided by the General Partner. The General Partner does not receive a
management fee or other compensation in connection with its management of the Partnership.
The Partnership reimburses the General Partner for all costs of services provided, including the
costs of employee, officer and director compensation and benefits, and all other expenses
necessary or appropriate to the conduct of the business of, and allocable to the Partnership. The
Partnership Agreement provides that the General Partner will determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General Partner in its
sole discretion. Total costs reimbursed to the General Partner by the Partnership were
approximately $0.7 million for the year ended December 31, 2000 ($0.2 million for the period
from May 28, 1999 to December 31, 1999). Such costs include (i) personnel costs (such as salaries
and employee benefits) of the personnel providing such services, (ii) overhead costs (such as office
space and equipment) and (iii) out-of-pocket expenses related to the provision of such services.

On September 1, 2000, TC PipeLines, based on the approval of a committee comprised of its
independent directors, completed its acquisition of a 49% general partner interest in Tuscarora.
The Partnership acquired this asset from TCPL Tuscarora Ltd., an indirect subsidiary of
TransCanada, for a purchase price of $28.0 million. The Partnership borrowed $24.5 million
from the Revolving Credit Facility (see Note 5) to fund a portion of the purchase price. The
remainder of the purchase price was funded with cash on hand.

F-10

T C P I P E L I N E S , L P

TransCanada Energy Marketing USA, Inc. (TransCanada Energy), an affiliate of TransCanada,
the parent of TC PipeLines’ General Partner, has firm service agreements representing
approximately 11.4% of contracted capacity. The firm service agreements for TransCanada
Energy extend for various terms with termination dates that range from October 2003 to
December 2008.

N O T E 9
Quarterly Financial Data (unaudited)

(thousands of dollars, except per unit amounts)
2000

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

1999

Second Quarter(2)

Third Quarter

Fourth Quarter

Equity
Income

Net
Income

Net Income
Per Unit

Cash

Distributions(1)

8,623

8,824

10,514

11,101

3,130

8,738

9,055

8,344

8,533

9,980

10,367

2,986

8,499

8,739

$ 0.47

$ 0.48

$ 0.55

$ 0.58

$0.17

$0.48

$0.49

8,036

8,550

3,001

8,036

(1) Cash distributions are paid within 45 days after the end of each quarter.

(2) The Partnership commenced operations on May 28, 1999.

N O T E 1 0
Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” In June 1999, the FASB issued SFAS No. 137 which deferred the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000 the FASB issued SFAS
No. 138, which amended certain guidance within SFAS No. 133. The adoption of SFAS No.
133, as amended, will not have a material impact on TC PipeLines’ financial position or results
of operations.

N O T E 1 1
Subsequent Events

On January 18, 2001, the Board of Directors of the General Partner declared a cash distribution
of $0.475 per unit related to the three months ended December 31, 2000. The $8.5 million
distribution is payable on February 14, 2001 in the following manner: $7.0 million to the holders
of Common Units as of the close of business on January 31, 2000, $1.3 million to the General
Partner as holder of the Subordinated Units, and $0.2 million to the General Partner as holder
of incentive distribution rights and in respect of its 2% general partner interest.

F-11

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

T C P I P E L I N E S , L P

R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N T A N T S

To Northern Border Pipeline Company:

We have audited the accompanying balance sheet
of Northern Border Pipeline Company (a Texas
partnership) as of December 31, 2000 and 1999,
and the related statements of income, cash flows
and changes in partners' capital for each of the
three years in the period ended December 31,
2000. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements
referred to above present fairly, in all material
respects, the financial position of Northern
Border Pipeline Company as of December 31, 2000
and 1999, and the results of its operations and
its cash flows for each of the three years in the
period ended December 31, 2000, in conformity
with accounting principles generally accepted in
the United States.

Arthur Andersen LLP
Omaha, Nebraska,
January 22, 2001

F-12

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

B A L A N C E S H E E T

(In Thousands)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable

Related party receivables

Materials and supplies, at cost

Under recovered cost of service

Total current assets

NATURAL GAS TRANSMISSION PLANT

In service

Construction work in progress

Total property, plant and equipment

Less: Accumulated provision for

depreciation and amortization

Property, plant and equipment, net

OTHER ASSETS

Total assets

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES

December 31,

2000

1999

29,046

17,310

27,128

6,008

4,957

–

67,139

21,929

5,120

3,645

3,068

51,072

2,364,487

2,363,291

14,405

4,730

2,378,892

2,368,021

691,900

1,686,992

636,627

1,731,394

14,374

14,225

$1,768,505

$1,796,691

Current maturities of long-term debt

41,000

66,000

Accounts payable

Accrued taxes other than income

Accrued interest

Accumulated provision for rate refunds

Total current liabilities

26,087

28,137

14,401

4,726

114,351

5,588

26,290

16,504

2,317

116,699

LONG-TERM DEBT, NET OF CURRENT MATURITIES

822,267

834,459

RESERVES AND DEFERRED CREDITS

4,892

10,698

COMMITMENTS AND CONTINGENCIES (Note 6)

PARTNERS' CAPITAL

826,995

834,835

Total liabilities and partners' capital

$1,768,505

$1,796,691

The accompanying notes are an integral part of these financial statements.

F-13

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

S T A T E M E N T O F I N C O M E

(In Thousands)

OPERATING REVENUES

Operating revenues

Provision for rate refunds

Operating revenues, net

OPERATING EXPENSES

Operations and maintenance

Depreciation and amortization

Taxes other than income

Regulatory credit

Operating expenses

Year ended December 31,

2000

1999

1998

$ 334,978

$ 300,664

$ 196,600

(23,956)

311,022

(2,317)

298,347

–

196,600

41,548

57,328

27,979

–

38,708

51,908

30,320

–

126,855

120,936

29,447

40,989

21,381

(8,878)

82,939

OPERATING INCOME

184,167

177,411

113,661

INTEREST EXPENSE

Interest expense

Interest expense capitalized

Interest expense, net

OTHER INCOME

Allowance for equity funds used

during construction

Other income, net

Other income

65,489

(328)

65,161

60,312

44,542

(98)

(19,001)

60,214

25,541

305

7,753

8,058

101

1,262

1,363

10,237

1,874

12,111

NET INCOME TO PARTNERS

$ 127,064

$ 118,560

$ 100,231

The accompanying notes are an integral part of these financial statements.

F-14

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

S T A T E M E N T O F C A S H F L O W S

(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income to partners

$ 127,064

$118,560

$100,231

Adjustments to reconcile net income

to partners to net cash provided by

Year ended December 31,

2000

1999

1998

operating activities:

Depreciation and amortization

Provision for rate refunds

Rate refunds paid

Allowance for equity funds used

during construction

Reserves and deferred credits

Regulatory credit

Changes in components of

working capital

Other

Total adjustments

Net cash provided by operating

57,682

25,082

(22,673)

(305)

(5,806)

–

(3,002)

(2,075)

48,903

51,962

2,317

–

41,005

–

(101)

(10,237)

880

–

(10)

(9,105)

(2,112)

(18,471)

(40)

52,906

364

3,546

activities

175,967

171,466

103,777

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures for property, plant

and equipment, net

(15,523)

(101,678)

(651,169)

CASH FLOWS FROM FINANCING ACTIVITIES:

Contributions from partners

Distributions to partners

–

(134,904)

(127,163)

Issuance of long-term debt, net

75,000

289,026

Retirement of long-term debt

(111,000)

(263,000)

Increase in bank overdraft

22,437

–

Proceeds received upon termination of

interest rate forward agreements

Long-term debt financing costs

Net cash provided by (used in)

financing activities

NET CHANGE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents-beginning of year

–

(241)

(148,708)

11,736

17,310

12,896

(1,626)

(89,867)

(20,079)

37,389

Cash and cash equivalents-end of year

$ 29,046

$ 17,310

223,000

(61,205)

403,000

–

564,795

17,403

19,986

$ 37,389

Changes in components of working capital:

Accounts receivable

Materials and supplies

Accounts payable

Accrued taxes other than income

Accrued interest

Over/under recovered cost of service

$ (6,087)

$ (8,145)

$ (1,567)

(1,312)

1,585

1,847

(2,103)

3,068

(285)

(4,598)

6,462

4,741

(287)

317

(10,769)

(466)

1,396

(7,382)

Total

$ (3,002)

$ (2,112)

$(18,471)

The accompanying notes are an integral part of these financial statements.

F-15

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N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

S T A T E M E N T O F C H A N G E S I N P A R T N E R S ’ C A P I T A L

(In Thousands)

TransCanada
Border
PipeLine Ltd.

TransCan
Northern Ltd.

TC PipeLines
Intermediate
Limited
Partnership

Northern
Border
Intermediate
Limited
Partnership

Total
Partners'
Capital

Partners' Capital at

December 31, 1997

34,885

$ 139,539

Net income to partners

Contributions received

6,014

13,380

24,055

53,520

Distributions paid

(3,673)

(14,689)

Partners' Capital at

December 31, 1998

50,606

202,425

–

$ 406,988

581,412

70,162

100,231

156,100

223,000

(42,843)

(61,205)

590,407

843,438

Net income to partners

2,930

11,715

20,923

82,992

118,560

Distributions paid

(5,206)

(20,819)

(12,124)

(89,014)

(127,163)

Ownership transfer

(48,330)

(193,321)

241,651

–

Partners' Capital at

December 31, 1999

Net income to partners

Distributions paid

Partners' Capital at

–

250,450

584,385

834,835

38,119

88,945

127,064

(40,471)

(94,433)

(134,904)

December 31, 2000

–

$ 248,098

$ 578,897

826,995

The accompanying notes are an integral part of these financial statements.

F-16

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

1. ORGANIZATION AND MANAGEMENT

Northern Border Pipeline Company (Northern Border Pipeline) is a
general partnership, formed in 1978, pursuant to the Texas Uniform
Partnership Act. The ownership percentages of the partners in
Northern Border Pipeline (Partners) at December 31, 2000 and 1999,
are as follows:

Partner
Northern Border Intermediate Limited Partnership
TC PipeLines Intermediate Limited Partnership

Ownership
Percentage
70
30

Net income and distributions are allocated to the Partners based on
ownership percentage. Effective May 28, 1999, TransCanada Border
PipeLine Ltd. and TransCan Northern Ltd. transferred their combined
30% ownership interest in Northern Border Pipeline to TC PipeLines
Intermediate Limited Partnership (TC PipeLines) in connection with
an initial public offering of limited partner interests in TC
PipeLines, LP. In accordance with the partnership agreement, net
income and distributions were prorated at the effective date of the
ownership transfer.

Northern Border Pipeline owns a 1,214-mile natural gas transmission
pipeline system extending from the United States-Canadian border
near Port of Morgan, Montana, to a terminus near Manhattan,
Illinois.

Northern Border Pipeline is managed by a Management Committee that
includes three representatives from Northern Border Intermediate
Limited Partnership (Partnership) and one representative from TC
PipeLines. The Partnership's representatives selected by its general
partners, Northern Plains Natural Gas Company (Northern Plains), a
wholly-owned subsidiary of Enron Corp. (Enron), Pan Border Gas
Company (Pan Border), a wholly-owned subsidiary of Northern Plains,
and Northwest Border Pipeline Company, a wholly-owned subsidiary of
The Williams Companies, Inc., have 35%, 22.75% and 12.25%,
respectively, of the voting interest on the Management Committee.
The representative designated by TC PipeLines votes the remaining
30% interest. In December 1998, Northern Plains acquired Pan Border
from a subsidiary of Duke Energy Corporation. At the closing of the
acquisition, Pan Border’s sole asset consisted of its general
partner interest in the Partnership. The day-to-day management of
Northern Border Pipeline's affairs is the responsibility of Northern
Plains (the Operator), as defined by the operating agreement between
Northern Border Pipeline and Northern Plains. Northern Border
Pipeline is charged for the salaries, benefits and expenses of the

F-17

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

Operator. For the years ended December 31, 2000, 1999, and 1998,
Northern Border Pipeline reimbursed the Operator approximately $31.7
million, $29.7 million and $30.0 million, respectively.
Additionally, Northern Border Pipeline utilizes Enron affiliates for
management on pipeline expansion and extension projects.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.

(B) Government Regulation

Northern Border Pipeline is subject to regulation by the Federal
Energy Regulatory Commission (FERC). Northern Border Pipeline's
accounting policies conform to Statement of Financial Accounting
Standards (SFAS) No. 71, “Accounting for the Effects of Certain
Types of Regulation.” Accordingly, certain assets that result
from the regulated ratemaking process are recorded that would not
be recorded under generally accepted accounting principles for
nonregulated entities. At December 31, 2000 and 1999, Northern
Border Pipeline has reflected regulatory assets of approximately
$12.4 million and $12.1 million, respectively, in Other Assets
on the balance sheet. Northern Border Pipeline is recovering the
regulatory assets from its shippers over varying time periods,
which range from four to 43 years.

Northern Border Pipeline transports gas for shippers under a
tariff regulated by the FERC. The tariff specifies the
calculation of amounts to be paid by shippers and the general
terms and conditions of transportation service on the pipeline
system. Northern Border Pipeline's revenues are derived from
agreements for the receipt and delivery of gas at points along
the pipeline system as specified in each shipper's individual
transportation contract. Northern Border Pipeline does not own
the gas that it transports, and therefore it does not assume the

F-18

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

related natural gas commodity risk. See Notes 3 and 4 for a
further discussion of Northern Border Pipeline’s tariff and
transportation agreements.

(D) Cash and Cash Equivalents

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

(E) Income Taxes

Income taxes are the responsibility of the Partners and are not
reflected in these financial statements. However, the Northern
Border Pipeline FERC tariff establishes the method of accounting
for and calculating income taxes and requires Northern Border
Pipeline to reflect in its rates the income taxes which would
have been paid or accrued if Northern Border Pipeline were
organized during the period as a corporation. As a result, for
purposes of determining transportation rates in calculating the
return allowed by the FERC, Partners' capital and rate base are
reduced by the amount equivalent to the net accumulated deferred
income taxes. Such amounts were approximately $326 million and
$316 million at December 31, 2000 and 1999, respectively, and are
primarily related to accelerated depreciation and other plant-
related differences.

(F) Property, Plant and Equipment and Related Depreciation

and Amortization

Property, plant and equipment is stated at original cost. The
original cost of property retired is charged to accumulated
depreciation and amortization, net of salvage and cost of
removal. No retirement gain or loss is included in income except
in the case of extraordinary retirements or sales.

Maintenance and repairs are charged to operations in the period
incurred. The provision for depreciation and amortization of the
transmission line is an integral part of Northern Border
Pipeline's FERC tariff. The effective depreciation rates applied
to Northern Border Pipeline’s transmission plant in 2000, 1999
and 1998 were 2.25%, 2.0% and 2.5%, respectively. Based upon the
rate case settlement discussed in Note 3, Northern Border
Pipeline will continue to use a 2.25% depreciation rate.
Composite rates are applied to all other functional groups of
property having similar economic characteristics.

F-19

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

(G) Allowance for Funds Used During Construction

The allowance for funds used during construction (AFUDC)
represents the estimated costs, during the period of
construction, of funds used for construction purposes. For
regulated activities, Northern Border Pipeline is permitted to
earn a return on and recover AFUDC through its inclusion in rate
base and the provision for depreciation.

(H) Risk Management

Financial instruments are used by Northern Border Pipeline in the
management of its interest rate exposure. A control environment
has been established which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
financial instrument activities. As a result, Northern Border
Pipeline has entered into various interest rate swap agreements
with major financial institutions which hedge interest rate risk
by effectively converting certain of its floating rate debt to
fixed rate debt. Northern Border Pipeline does not use these
instruments for trading purposes. The cost or benefit of the
interest rate swap agreements is recognized currently as a
component of interest expense.

3. RATES AND REGULATORY ISSUES

Rate Case

Northern Border Pipeline’s revenue is derived from agreements with
various shippers for the transportation of natural gas. It
transports gas under a FERC regulated tariff. Northern Border
Pipeline had used a cost of service form of tariff since its
inception but agreed to convert to a stated rate form of tariff as
part of the settlement of its current rate case discussed below.

Under the cost of service tariff, Northern Border Pipeline was
provided an opportunity to recover all of the operations and
maintenance costs of the pipeline, taxes other than income taxes,
interest, depreciation and amortization, an allowance for income
taxes and a regulated return on equity. Northern Border Pipeline was
generally allowed to collect from its shippers a return on regulated
rate base as well as recover that rate base through depreciation and
amortization. Billings for the firm transportation agreements were
based on contracted volumes to determine the allocable share of the
cost of service and were not dependent upon the percentage of
available capacity actually used. Under the cost of service tariff,
Northern Border Pipeline billed on an estimated basis for a six-

F-20

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

month cycle. Any net excess or deficiency resulting from the
comparison of the actual cost of service determined for the period
in accordance with the FERC tariff to the estimated billing was
accumulated, including carrying charges thereon, and was either
billed to or credited back to the shippers. Revenues reflected
actual cost of service. An amount equal to differences between
billing estimates and the actual cost of service, including carrying
charges, was reflected in current assets or current liabilities.

Northern Border Pipeline filed a rate proceeding with the FERC in
May 1999 for, among other things, a redetermination of its allowed
equity rate of return. The total annual cost of service increase due
to Northern Border Pipeline’s proposed changes was approximately $30
million. In June 1999, the FERC issued an order in which the proposed
changes were suspended until December 1, 1999, after which the
proposed changes were implemented with subsequent billings subject
to refund.

In September 2000, Northern Border Pipeline filed a stipulation and
agreement with the FERC that documented the proposed settlement of
its pending rate case. The settlement was approved by the FERC in
December 2000. Under the approved settlement, effective December 1,
1999, shippers will pay stated transportation rates based on a
straight-fixed variable rate design. Under the straight-fixed
variable rate design, approximately 98% of the agreed upon revenue
level is attributed to demand charges, based upon contracted firm
capacity, and the remaining 2% is attributed to commodity charges,
based on the volumes of gas actually transported on the system. From
December 1, 1999, through and including December 31, 2000, the rates
were based upon an annual revenue level of $307 million. For periods
after December 31, 2000, the rates are based upon an annual revenue
level of $305 million. The settlement further provides for the
incorporation into Northern Border Pipeline’s rate base all of the
construction costs of The Chicago Project, which was Northern Border
Pipeline’s expansion and extension of its pipeline from near Harper,
Iowa, to a point near Manhattan, Illinois. Northern Border Pipeline
had placed into service the facilities for the Chicago Project in
December 1998. Under the settlement, both Northern Border Pipeline
and its existing shippers will not be able to seek rate changes
until November 1, 2005, at which time Northern Border Pipeline must
file a new rate case.

F-21

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

After the FERC approved the rate case settlement and prior to the
end of 2000, Northern Border Pipeline made estimated refund payments
to its shippers totaling approximately $22.7 million, primarily
related to the period from December 1999 to November 2000. At
December 31, 2000, Northern Border Pipeline had estimated its
remaining refund obligation through the end of 2000 to be
approximately $4.7 million, which is expected to be paid in the
first quarter of 2001. Norther Border Pipeline’s operating revenues
for 2000 reflect the significant terms of the approved settlement.

Certificate application

In October 1998, Northern Border Pipeline filed a certificate
application with the FERC to seek approval to expand and extend its
pipeline system into Indiana (Project 2000). When completed, Project
2000 will afford shippers on the expanded and extended pipeline
system access to industrial gas consumers in northern Indiana. The
certificate application was subsequently amended by Northern Border
Pipeline in March and December 1999. On March 16, 2000, the FERC
issued an order granting Northern Border Pipeline’s application for
a certificate to construct and operate the proposed facilities. The
FERC approved Northern Border Pipeline’s request for rolled-in rate
treatment based upon the proposed project costs. The project has a
targeted in-service date of November 2001. The capital expenditures
for the project are estimated to be approximately $94 million, of
which $10.8 million had been incurred through December 31, 2000.

4. TRANSPORTATION SERVICE AGREEMENTS

Operating revenues are collected pursuant to the FERC tariff through
firm transportation service agreements (firm service agreements).
The firm service agreements extend for various terms with
termination dates that range from October 2001 to December 2013.
Northern Border Pipeline also has interruptible service agreements
with numerous other shippers as a result of its self-implementing
blanket transportation authority. Under the approved settlement of
the rate case discussed in Note 3, in certain situations, Northern
Border Pipeline will reduce the billings for the firm service
agreements by one half of the revenues received from the
interruptible service agreements through October 31, 2003. After
October 31, 2003, all revenues from interruptible transportation
service will be retained by Northern Border Pipeline.

F-22

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

Northern Border Pipeline’s largest shipper, Pan-Alberta Gas (U.S.)
Inc. (PAGUS), is presently obligated for approximately 25.5% of the
contracted firm capacity through three firm service agreements which
expire in October 2003. Financial guarantees exist through October
2001 for approximately 16.3% of the contracted firm capacity of
PAGUS, including 10.5% guaranteed by Northern Natural Gas Company,
a wholly-owned subsidiary of Enron. The remaining obligation of
PAGUS is supported by various credit support arrangements, including
among others, a letter of credit, an escrow account and an upstream
capacity transfer agreement. Operating revenues from the PAGUS firm
service agreements and interruptible service agreements for the
years ended December 31, 2000, 1999 and 1998 were $65.0 million,
$76.6 million and $87.3 million, respectively.

TransCanada Energy Marketing USA, Inc. (TransCanada Energy), an
affiliate of TC PipeLines, has firm service agreements representing
approximately 11.4% of contracted capacity. The firm service
agreements for TransCanada Energy extend for various terms with
termination dates that range from October 2003 to December 2008.
Other shippers affiliated with the Partners of Northern Border
Pipeline have firm service agreements representing approximately
7.1% of contracted capacity. These firm service agreements extend
for various terms with termination dates that range from January
2002 to May 2009. Operating revenues from the affiliated firm
service agreements and interruptible service agreements for the
years ended December 31, 2000, 1999, and 1998 were $58.5 million,
$52.5 million and $22.4 million, respectively.

5. CREDIT FACILITIES AND LONG-TERM DEBT

Detailed information on long-term debt is as follows:

(Thousands of dollars)

1992 Senior Notes – average 8.49% and 8.43% at

December 31, 2000 and 1999, respectively,

due from 2000 to 2003

Pipeline Credit Agreement

Term loan, due 2002

Five-year revolving credit facility

1999 Senior Notes – 7.75%, due 2009

Unamortized proceeds from termination

of interest rate forward agreements

Unamortized debt discount

Total

Less: Current maturities of long-term debt

December 31,

2000

1999

$ 184,000

$ 250,000

424,000

45,000

200,000

11,107

(840)

863,267

41,000

439,000

–

200,000

12,397

(938)

900,459

66,000

Long-term debt

$ 822,267

$ 834,459

F-23

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

In August 1999, Northern Border Pipeline completed a private
offering of $200 million of 7.75% Senior Notes due 2009, which notes
were subsequently exchanged in a registered offering for notes with
substantially identical terms (1999 Senior Notes). Also in August
1999, Northern Border Pipeline received approximately $12.9 million
from the termination of interest rate forward agreements, which is
included in long-term debt on the balance sheet and is being
amortized against interest expense over the life of the 1999 Senior
Notes. The interest rate forward agreements, which had an aggregate
notional amount of $150 million, had been executed in September 1998
to hedge the interest rate on a planned issuance of fixed rate debt
in 1999. The proceeds from the private offering, net of debt
discounts and issuance costs, and the termination of the interest
rate forward agreements were used to reduce existing indebtedness
under a June 1997 credit agreement.

In June 1997, Northern Border Pipeline entered into a credit
agreement (Pipeline Credit Agreement) with certain financial
institutions to borrow up to an aggregate principal amount of $750
million. The Pipeline Credit Agreement is comprised of a $200
million five-year revolving credit facility to be used for the
retirement of a previously existing bank loan agreement and for
general business purposes, and a $550 million three-year revolving
credit facility to be used for the construction of The Chicago
Project. Effective March 1999, in accordance with the provisions of
the Pipeline Credit Agreement, Northern Border Pipeline converted
the three-year revolving credit facility to a term loan maturing in
June 2002. The Pipeline Credit Agreement permits Northern Border
Pipeline to choose among various interest rate options, to specify
the portion of the borrowings to be covered by specific interest
rate options and to specify the interest rate period, subject to
certain parameters. Northern Border Pipeline is required to pay a
facility fee on the remaining aggregate principal commitment amount
of $624 million.

At December 31, 2000 and 1999, Northern Border Pipeline had an
outstanding interest rate swap agreement with a notional amount of
$40 million, which will terminate in November 2001. Under the
agreement, Northern Border Pipeline makes payments to counterparties
at fixed rates and in return receives payments at variable rates
based on the London Interbank Offered Rate. At December 31, 2000 and
1999, Northern Border Pipeline was in a payable position relative
to its counterparties. The average effective interest rate of
Northern Border Pipeline's variable rate debt, taking into
consideration the interest rate swap agreement, was 7.06% and 6.73%
at December 31, 2000 and 1999, respectively.

F-24

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

Interest paid, net of amounts capitalized, during the years ended
December 31, 2000, 1999 and 1998 was $68.0 million, $55.5 million
and $23.8 million, respectively.

Aggregate required repayments of long-term debt are as follows: $41
million, $547 million and $65 million for 2001, 2002 and 2003,
respectively. There are no required repayment obligations for either
2004 or 2005.

Certain of Northern Border Pipeline’s long-term debt and credit
arrangements contain requirements as to the maintenance of minimum
partners’ capital and debt to capitalization ratios which restrict
the incurrence of other indebtedness by Northern Border Pipeline and
also place certain restrictions on distributions to the partners of
Northern Border Pipeline. Under the most restrictive of the
covenants, as of December 31, 2000 and 1999, respectively, $136
million and $132 million of partners' capital of Northern Border
Pipeline could be distributed.

The following estimated fair values of financial instruments
represent the amount at which each instrument could be exchanged in
a current transaction between willing parties. Based on quoted
market prices for similar issues with similar terms and remaining
maturities, the estimated fair value of the 1992 Senior Notes was
approximately $191 million and $273 million at December 31, 2000 and
1999, respectively. The estimated fair value of the 1999 Senior
Notes was approximately $213 million and $201 million at December
31, 2000 and 1999, respectively. At December 31, 2000 and 1999, the
estimated fair value which would be payable to terminate the
interest rate swap agreement, taking into account current interest
rates, was approximately $1 million. Northern Border Pipeline
presently intends to maintain the current schedule of maturities for
the 1992 Senior Notes, 1999 Senior Notes and the interest rate swap
agreement which will result in no gains or losses on their
respective repayment. The fair value of Northern Border Pipeline’s
variable rate debt approximates the carrying value since the
interest rates are periodically adjusted to reflect current market
conditions.

6. COMMITMENTS AND CONTINGENCIES

Capital expenditures

Total capital expenditures for 2001 are estimated to be $97 million.
This includes approximately $81 million for Project 2000 (see Note
3) and approximately $16 million for renewals and replacements of

F-25

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

the existing facilities. Funds required to meet the capital
expenditures for 2001 are anticipated to be provided primarily from
debt borrowings and internal sources.

Environmental Matters

Northern Border Pipeline is not aware of any material contingent
liabilities with respect to compliance with applicable environmental
laws and regulations.

Other

Various legal actions that have arisen in the ordinary course of
business are pending. Northern Border Pipeline believes that the
resolution of these issues will not have a material adverse impact
on Northern Border Pipeline's results of operations or financial
position.

7. QUARTERLY FINANCIAL DATA (Unaudited)

(In thousands)

2000

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

1999

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Operating
Revenues, net

Operating
Income

Net Income
to Partners

$ 76,241

$ 44,628

$ 28,744

77,346

78,241

79,194

44,305

47,584

47,650

29,413

34,293

34,614

$ 73,635

$ 44,271

$ 30,315

73,022

73,925

77,765

43,788

44,017

45,335

28,933

29,127

30,185

8. ACCOUNTING PRONOUNCEMENTS

In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded on the balance sheet as either
an asset or liability measured at its fair value. The statement requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.

F-26

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

N O T E S T O F I N A N C I A L S T A T E M E N T S

In June 1999, the FASB issued SFAS No. 137, which deferred the
effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, which amended
certain guidance within SFAS No. 133. Northern Border Pipeline will
adopt SFAS No. 133 beginning January 1, 2001. The adoption of SFAS
No. 133, as amended, will not have a material impact on Northern
Border Pipeline’s financial position or results of operations.

9. SUBSEQUENT EVENTS

Northern Border Pipeline makes distributions to it general partners
approximately one month following the end of the quarter. The
distribution for the fourth quarter of 2000 of approximately $31.4
million is payable February 2, 2001.

F-27

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

T C P I P E L I N E S , L P

R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N T A N T S

O N S C H E D U L E

To Northern Border Pipeline Company:

We have audited in accordance with auditing
standards generally accepted in the United
States, the financial statements of Northern
Border Pipeline Company included in this Form
10-K and have issued our report thereon dated
January 22, 2001. Our audits were made for the
purpose of forming an opinion on the basic
financial statements taken as a whole. The
schedule of Northern Border Pipeline Company
listed in Item 14 of Part IV of this Form 10-K
is the responsibility of the Company’s
management and is presented for purposes of
complying with the Securities and Exchange
Commission’s rules and is not part of the basic
financial statements. This schedule has been
subjected to the auditing procedures applied in
the audits of the basic financial statements and,
in our opinion, fairly states in all material
respects the financial data required to be set
forth therein in relation to the basic financial
statements taken as a whole.

Arthur Andersen LLP
Omaha, Nebraska,
January 22, 2001

S-1

T C P I P E L I N E S , L P

N O R T H E R N B O R D E R P I P E L I N E C O M P A N Y

S C H E D U L E I I – V A L U A T I O N A N D Q U A L I F Y I N G A C C O U N T S
F O R T H E Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 0 0 , 1 9 9 9 A N D 1 9 9 8

(In Thousands)

Column A

Column B

Column C

Additions

Column D

Column E

Deductions

Description

of Year

Expenses

Accounts

Were Created

End of Year

Balance at

Charged to

Charged

For Purpose For

Beginning

Costs and

to Other

Which Reserves

Balance at

Reserve for regulatory issues

2000

1999

1998

7,376

6,726

1,800

650

–

7,376

–

1,800

7,376

6,726

S-2

T C P I P E L I N E S , L P

David L. Marshall

Retired Vice Chairman
The Pittston Company
Hilton Head, South Carolina

Dennis J. McConaghy

Senior Vice-President Business Development
TransCanada PipeLines Limited
Calgary, Alberta

Walentin Mirosh

Executive Vice-President, Regulatory
Strategy and Northern Development
TransCanada PipeLines Limited
Calgary, Alberta

Ronald J. Turner

Executive Vice-President
Operations and Engineering
TransCanada PipeLines Limited
Calgary, Alberta

Board of Directors of the
General Partner of
TC PipeLines, LP
(December 31, 2000)

Russell K. Girling

Executive Vice-President and
Chief Financial Officer
TransCanada PipeLines Limited
Calgary, Alberta

Robert A. Helman

Partner
Mayer, Brown & Platt
Chicago, Illinois

Jack F. Jenkins-Stark

Senior Vice-President and
Chief Financial Officer
Silicon Energy Corp.
Alameda, California

Executive Officers of the
General Partner of
TC PipeLines, LP
(December 31, 2000)

Ronald J. Turner

Donald R. Marchand

President and Chief Executive Officer

Vice-President and Treasurer

Russell K. Girling

Chief Financial Officer

Paul F. MacGregor

Vice-President, Business Development

Gary G. Penrose

Vice-President, Taxation

Investor Relations

Offices

Theresa Jang

Controller

Rhondda E. S. Grant

Secretary

Theresa Jang

Controller
(877) 290-2772 (toll-free)
Telephone:
(403) 920-2350
Facsimile:
email: investor_relations@tcpipelineslp.com

110 Turnpike Road, Suite 203
Westborough, Massachusetts 01581
Telephone: (508) 871-7046

450 – 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
Telephone: (877) 290-2772 (toll-free)
(403) 920-2350
Facsimile:

Internet Site

K-1 Information

www.tcpipelineslp.com

(877) 699-1091 (toll-free)

Stock Exchange Listing

Auditors

Transfer Agent

Nasdaq Stock Market
Symbol: TCLPZ

KPMG LLP
Calgary, Alberta

Mellon Investor Services LLC
Ridgefield Park, New Jersey

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Visit TC PipeLines, L P ’s
Internet site at:
www.tcpipelineslp.com

TC PipeLines, LP
TransCanada PipeLines Tower
450 – 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1

Toll Free:
(877) 290-2772
Direct dial: (403) 920-2050
(403) 920-2350
Facsimile:

Printed in Canada