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TQM Pipeline is an energy transporter whose mission is to develop its pipeline system across Québec and the Maritimes and to operate it in a safe, efficient and profitable manner. To that end, the Company: promotes the efficient use of natural gas; seeks maximum quality by using the best operating and administrative techniques at minimal cost; encourages continuous training of its employees; complies with all laws, regulations and bylaws, with the utmost respect for the environment; and contributes to society’s well-being and development and conducts itself like a good corporate citizen. 2 Achiievements 2005 2 Mission 3 Table of Contents 4 Message from Management 6 Directors and Management 7 System 9 Highlights 10 Financial Review 13 Statistics 15 Operations 16 Safety 18 Outlook 19 Business Risks 20 Contractual Obligations 21 Related Party Transactions 22 Significant Accounting Estimate 23 Forward-Looking Information 24 Other Information 3 previous in-line inspections and excavation results The Company filed its 2005 toll application, which have culminated in a revised sound pipeline integrity included a cost of service of $86,481,000, and plan that is responsive to the risks involved in the secured approval for it from the interested parties and operation of the Company’s pipeline facilities. There the National Energy Board (the "NEB" or “Board”). In were no ruptures or leaks along the Company's 2005, the rate of return on rate base decreased from pipeline during the year. 7.78% to 7.53%, reflecting the lower interest rate on debt, which dropped from 7.01% to 6.70%, and the With a balanced financial structure and sound decrease in the approved rate of return on equity from management, the Company maintained its credit 9.56% to 9.46%; the average rate base increased ratings, namely “A (low)” from Dominion Bond Rating from $463,584,000 to $471,777,000. In 2005, the Service and “BBB+” from Standard & Poor’s. Company achieved incentive earnings of approximately $970,000 which were shared equally TQM Pipeline continued its public awareness and with our customers according to the cost savings information program. The activities included intiative agreement. The Board also approved TQM informational visits to municipalities, fire departments, Pipeline’s application for interim tolls, beginning and landowners along the pipeline system. The January 1, 2006, at the same level as in 2005. purpose of the meetings was to increase awareness of the presence of the pipeline on their properties and In October, 2004, the Company paid to a contractor a remind them to contact TQM Pipeline before doing final settlement in the amount of $6,200,000 including any work near facilities. As well its efforts toward interest, in respect of the decision rendered by the public awareness, TQM Pipeline contributed to the arbitration court regarding cost overruns on the communities it belongs to through the payment of extension project to Portland Natural Gas $2,500,000 of municipal and school taxes to Québec Transmission System ("PNGTS"). An amount of municipalities crossed by the TQM Pipeline system. $32,283,000 relating to the resolution of this claim has been applied in 2005 to gas plant in service and was TQM Pipeline is presently working to build facilities submitted to and approved by the NEB for inclusion in required to serve TransCanada Energy Ltd.'s ("TCE") the Company's 2005 tolls. cogeneration plant in Bécancour which is expected to be in service for late 2006, and continues to be well TQM Pipeline delivered 4.7 billion cubic metres (167 positioned for expected growth resulting from the Bcf) in 2005, versus 4.5 billion cubic metres (158 Bcf) advent of liquefied natural gas (“LNG”) or through in 2004, an overall increase of approximately 5%. other requests for increased transportation service The Company’s deliveries in 2005 for the East within eastern Canada. Hereford station – serving PNGTS – were up 30.7% offset by lower deliveries in Québec which were down by 5.9%. A full integration of integrity management was undertaken in prior years. New computerized systems and a significant volume of data obtained from 4 To conclude, I would like to take this opportunity to mark the retirement of Réjean Laforge, after 25 years of loyal service to TQM Pipeline. I speak for all Board members and employees in acknowledging Réjean's contribution in placing TQM Pipeline in a strong financial position – a prerequisite for TQM Pipeline to participate in the growth opportunity arising from the introduction of potential new gas supply sources in the East. Bernard Otis Acting General Manager Trans Québec & Maritimes Pipeline Inc. 5 Patrick Cabana (2) James M. Baggs Diirecttors Corporate Controller Vice-President Field Operations Gaz Métro inc. TransCanada PipeLines Limited 1717, rue du Havre Montréal (Québec) H2K 2X3 450 – 1st Street S.W. Calgary (Alberta) T2P 5H1 Pierre Despars Craig R. Frew (2) Executive Vice-President Vice-President Finance and Business Development Gas Transmission East Gaz Métro inc. TransCanada PipeLines Limited 1717, rue du Havre 450 – 1st Street S.W. Montréal (Québec) H2K 2X3 Calgary (Alberta) T2P 5H1 Martin Imbleau (1) Jim A. McPherson (1) Martin Imbleau Jim A. McPherson Vice-President Director Business Development Sales and Marketing Gas Transmission East Gaz Métro inc. TransCanada PipeLines Limited 1717, rue du Havre Montréal (Québec) H2K 2X3 450 – 1st Street S.W. Calgary (Alberta) T2P 5H1 (1) (2) (3) Réjean Laforge President Trans Québec & Maritimes Pipeline Inc. (1) Executive Committee 6300, avenue Auteuil (2) Audit Committee Brossard (Québec) J4Z 3P2 (3) Retired in February 2006 Management Martin Imbleau Amy W. Leong Chief Executive Officer Chief Financial Officer Bernard Otis Jean-Marc Rousseau Acting General Manager Financial Manager 6 Trans Québec & Maritimes Pipeline Inc. (the “Company” or Management’s Discussion and Analysis, “TQM Pipeline”) is mandatary of TQM Pipeline and Company, dated March 15, 2006, should be read in Limited Partnership (the “Partnership”). Gaz Métro Limited conjunction with the audited Financial Partnership (“Gaz Métro ”) and TransCanada PipeLines Limited Statements of Trans Québec & Maritimes (“TransCanada”) are the general partners, each with 49.995% Pipeline Inc. (As mandatary of TQM Pipeline participation in the Partnership, and 3118240 Canada Inc. is and Company, Limited Partnership) and the the limited partner with the remaining 0.01% participation. Gaz notes thereto for the year ended December Métro and TransCanada are also equal shareholders in the 31, 2005. Amounts are stated in Canadian Company, 3118240 Canada Inc. and TQM Finance Inc., which dollars. acts as a financial intermediary between the Company and the Partnership. TQM Pipeline built and operates an underground gas transmission system. Although the system is almost invisible on the surface, it crosses more than 75 municipalities and about 40 watercourses, including the St. Lawrence River in two places, near Montréal and Québec City. The pipeline is 572 kilometres ("km") long, including 3.5 km in a sub-fluvial tunnel near Québec City, and has a diameter ranging from 114 millimetres ("mm") to 762 mm. In addition to the underground system, TQM Pipeline’s facilities include two compressor stations and 29 delivery points in the following areas: Montréal, the Laurentians, the Mauricie, Québec City, the Montérégie and the Eastern Townships. TQM Pipeline’s Head Office is in Brossard. 7 Lac Gazoduc Saint-Jean Jonquière Roberval Alma Chicoutimi TQM Chambord Desbiens La Baie 1 888 810-8800 Légende / legend Réseau de Gazoduc TQM TQM Pipeline system Québec n Poste de mesurage de Gazoduc TQM TQM Pipeline meter station La Tuque Saint-Augustin-de-Desmaures n Lévis Saint-Romuald s Point de livraison de Gazoduc TQM TQM Pipeline delivery point Pénitencier de Donnacona s n Saint-Nicolas/Saint-Flaviens s Point de réception de Gazoduc TQM TQM Pipeline receipt point Donnacona s Station de compression de Gazoduc TQM Saint-Lambert-de-Lauzon TQM Pipeline Compressor Station Portneuf n Saint-Flavien Réseau de TransCanada PipeLines Deschambault n Sainte-Marie TransCanada PipeLines system Saint-Joseph- er iv Vallée-Jonction de-Beauce R Réseau de Gaz Métro ce Beauceville Gaz Métro system n re w Ville/City Sainte-Anne- La t. Saint-Georges de-la-Pérade S Saint-Georges s t / Grand-Mère en Saint-Narcisse Province Saint-Laur Saint-Maurice n e de / of uv Québec le F Trois-Rivières n Bécancour Pointe-du-Lac n s Mont-Tremblant Louiseville s Yamachiche n Sainte-Geneviève-de-Berthiers Lac Saint-Joachin-de-Courval Saint-Agathe-des-Monts n Saint-Pierre s Berthierville Sainte-Adèle Joliette n Drummondville Terrebonne2 s Lanoraie Saint-Jérôme s n Terrebonne Lavaltrie n n Mascouche Mirabel(Saint-Janvier) s Okas Mirabel Lachenaie n n L'Assomption Saint-Hyacinthe Acton-Vale Repentigny Asbestos MAINE n Laval Windsor Boisbriand Waterloo s Granby Marbleton Montréal Waterloo East Angus Saint-Lazare n Sherbrooke Farnham Brossard Coaticook Saint-Mathieu Bromont Magog n Cowansville Sainte-Anne-de-Sabrevois East Hereford n NEW NEW YORK VERMONT HAMPSHIRE Mars 2006 / March 2006 8 Years ended December 31 2005 2004 2003 (dollar amounts in thousands) Operating revenues (1) $87,538 $84,468 $87,789 Partners’ income (1) $14,628 $14,216 $15,206 Total assets (1) $485,370 $496,646 $513,648 Total long-term debt (1)(2) $332,000 $254,600 $350,800 Partners’ withdrawals (1) $17,302 $19,502 $21,302 Approved average rate base $471,777 $463,584 $484,507 Weighted rate of return on 7.53% 7.78% 7.89% approved rate base Approved monthly tolls $7,207 $7,017 $7,276 Total natural gas deliveries 4.7 109m3 4.5 109m3 4.6 109m3 Peak day(3) 19.8 106m3 21.0 106m3 21.2 106m3 (1) Prepared in accordance with Canadian generally accepted accounting principles. (2) The First Mortgage Bonds Series G in the amount of $85,000,000 matured in September 2005 and accordingly, this amount was presented in the financial statements in current liabilities, under Long-term debt due within one year in 2004.