TC Pipelines Flowing Strong

TC PipeLines, L.P.’s (TCLP - Analyst Report) second-quarter earnings, while on the lower side relative to our estimates, were above year-earlier levels. The year-over-year increase resulted from higher transmission revenue, lower financial charges and increased equity income from Great Lakes, partially offset by a fall in equity income from Northern Border.

Importantly, TCLP raised its quarterly distribution by 7.6% year-over-year to the annualized rate of $2.82 per unit. We continue to like the partnership for the potential addition of quality assets to the partnership’s portfolio over the next few quarters from its general partner. Our Buy recommendation and price objective remains unchanged.

Total cash distributions received increased approximately 3% from the year-earlier level to $50.4 million, driven by higher contribution from Great Lakes and Northern Border. Cash distributions received from Great Lakes were $24.1 million, up more than 2% year-over-year, while that from Northern Border came at $26.3 million, an increase of approximately 3% over the year-earlier period. The partnership’s cash distributions in any given quarter are based on the financial results from Northern Border in the previous quarter.

The fall in transmission revenue can be attributed to a decrease in overall volumes mainly due to competition from the western segment of the Rockies Express Pipeline. Tuscarora’s contribution to net income was up more than 59% to $4.3 million, driven by the compressor station expansion project in Likely, California, which became operational on April 1.

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