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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number: 000-26091

TC PipeLines, LP
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        As of August 6, 2004, there were 17,500,000 of the registrant's common units outstanding.

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TC PipeLines, LP

Statement of Income

Statement of Comprehensive Income

See accompanying Notes to the Condensed Financial Statements.

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Balance Sheet

Statement of Cash Flows

See accompanying Notes to the Condensed Financial Statements

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Notes to Condensed Financial Statements
(unaudited)

Note 1    Basis of Presentation

        TC PipeLines, LP, and its subsidiary limited partnerships, TC PipeLines Intermediate Limited Partnership and TC Tuscarora Intermediate Limited Partnership, all Delaware limited partnerships, are collectively referred to herein as TC PipeLines or the Partnership. The Partnership commenced operations on May 28, 1999.

        The financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States of America (GAAP). Other comprehensive income recorded by TC PipeLines arises through its equity investments in Northern Border Pipeline Company (Northern Border Pipeline) and Tuscarora Gas Transmission Company (Tuscarora) and relates to cash flow hedges transacted by Northern Border Pipeline and Tuscarora. Amounts are stated in United States dollars.

        Since a determination of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of these financial statements requires the use of estimates and assumptions which have been made using careful judgment. In the opinion of management, these financial statements have been properly prepared within reasonable limits of materiality and include all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of operations for the three and six months ended June 30, 2004 and 2003, the financial position as at June 30, 2004 and December 31, 2003 and cash flows for the six months ended June 30, 2004 and 2003.

        The results of operations for the three and six months ended June 30, 2004 and 2003 are not necessarily indicative of the results that may be expected for a full fiscal year. The interim financial statements should be read in conjunction with the Partnership's financial statements and notes included in TC PipeLines' Annual Report on Form 10-K for the year ended December 31, 2003.

Note 2    Investment in Northern Border Pipeline Company

        The Partnership owns a 30% general partner interest in Northern Border Pipeline, a partnership which owns a 1,249-mile United States interstate pipeline system that transports natural gas from the Montana-Saskatchewan border to markets in the midwestern United States. The remaining 70% partnership interest in Northern Border Pipeline is held by Northern Border Partners, L.P., a publicly traded limited partnership. The 2% general partnership interest in Northern Border Partners, L.P. is controlled by affiliates of Enron Corp. (Enron), which hold a 1.65% general partner interest, and TransCanada Corporation (TransCanada), parent of TC PipeLines' general partner, which holds the remaining 0.35% general partner interest. The Northern Border pipeline system is operated by Northern Plains Natural Gas Company, a wholly owned subsidiary of Enron. Northern Border Pipeline is regulated by the Federal Energy Regulatory Commission (FERC).

        TC PipeLines uses the equity method of accounting for its investment in Northern Border Pipeline. TC PipeLines' equity income for the three and six months ended June 30, 2004 and 2003 includes 30% of the net income of Northern Border Pipeline for the same periods. There were no undistributed earnings from Northern Border Pipeline as at June 30, 2004 and December 31, 2003. The following sets out summarized financial information representing 100% of the operations of Northern Border Pipeline for the three and six months ended June 30, 2004 and 2003 and as at June 30, 2004 and December 31, 2003.

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        During each of the three months ended June 30, 2004 and 2003, and during each of the six months ended June 30, 2004 and 2003, Northern Border Pipeline amortized $0.4 million and $0.8 million related to terminated interest rate swap agreements, as a reduction to interest expense from accumulated other comprehensive income.

Note 3    Investment in Tuscarora Gas Transmission Company

        The Partnership owns a 49% general partner interest in Tuscarora, a partnership that owns a 240-mile United States interstate pipeline system that transports natural gas from Oregon, where it interconnects with facilities of Gas Transmission Northwest Corporation, to northern Nevada. The remaining general partner interests in Tuscarora are held 50% by Sierra Pacific Resources and 1% by TransCanada. The Tuscarora pipeline system is operated by Tuscarora Gas Operating Company, a wholly owned subsidiary of Sierra Pacific Resources. Sierra Pacific Power Company, a subsidiary of Sierra Pacific Resources, is Tuscarora's largest shipper, accounting for approximately 68% of Tuscarora's available capacity. Tuscarora is regulated by the FERC.

        The Partnership uses the equity method of accounting for its investment in Tuscarora. TC PipeLines' equity income for the three and six months ended June 30, 2004 and 2003 represents 49% of the net income of Tuscarora for the same periods. There were no undistributed earnings from Tuscarora as at June 30, 2004 and December 31, 2003. The following sets out summarized financial information representing 100% of the operations of Tuscarora for the three and six months ended June 30, 2004 and 2003 and as at June 30, 2004 and December 31, 2003.

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        Tuscarora has recorded other comprehensive income of less than $(0.1) million for each of the three and six months ended June 30, 2004 and 2003.

Note 4    Credit Facilities and Long-Term Debt

        On March 8, 2004 the Partnership renewed its unsecured credit facility (Revolving Credit Facility) with Bank One, NA, as administrative agent. Under the renewed Revolving Credit Facility, the Partnership may borrow up to an aggregate principal amount of $30.0 million. Loans under the Revolving Credit Facility bear interest, at the option of the Partnership, at a one-, two-, three-, or six-month London Interbank Offered Rate (LIBOR) plus 1.25% or at a floating rate based on the higher of the federal funds effective rate plus 0.5% and the prime rate. The Revolving Credit Facility matures on February 28, 2006. Amounts borrowed may be repaid in part or in full prior to that time without penalty. The Revolving Credit Facility may be used to provide borrowings to fund capital expenditures, to fund capital contributions to Northern Border Pipeline, Tuscarora, and any other entity in which the Partnership directly or indirectly acquires an interest, to fund working capital and for other general business purposes, including temporary funding of cash distributions to unitholders and the general partner, if necessary. The Partnership had borrowed an aggregate of $11.0 million and $20.0 million, respectively, for the three and six months ended June 30, 2004, on the Revolving Credit Facility. The Partnership had $25.5 million outstanding as at June 30, 2004 and $5.5 million outstanding at December 31, 2003 on the Revolving Credit Facility. The interest rate on the Revolving Credit Facility averaged 2.33% and 2.35% for the three and six months ended June 30, 2004, respectively, and at June 30, 2004 and December 31, 2003, the interest rate was 2.35% and 2.42%, respectively.

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        On May 28, 2003, the Partnership renewed its $40.0 million unsecured two-year revolving credit facility (TransCanada Credit Facility) with TransCanada PipeLine USA Ltd., an affiliate of the general partner. The TransCanada Credit Facility bears interest at LIBOR 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, Tuscarora, and any other entity in which the Partnership directly or indirectly acquires an interest, to fund working capital and for other general business purposes, including temporary funding of cash distributions to unitholders and the general partner, if necessary. The Partnership had no borrowings outstanding under the TransCanada Credit Facility as at June 30, 2004 and December 31, 2003, respectively.

Note 5    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:

Note 6    Subordinated Unit Conversion

        On July 31, 2004, the remaining one third of the originally issued 2,800,000 subordinated units (936,436) held by the general partner, converted into an equal number of common units as a result of satisfying the tests set forth in the Amended and Restated Agreement of Limited Partnership of TC PipeLines, LP (Partnership Agreement). This concludes the subordination period.

Note 7    Distributions

        On July 20, 2004, the board of directors of the general partner declared a cash distribution of $0.575 per unit for the three months ended June 30, 2004. The distribution totaling approximately $10.7 million is payable on August 13, 2004 in the following manner: $9.5 million to the holders of common units as of the close of business on July 30, 2004 (including $1.6 million to an affiliate of TransCanada as holder of 2,800,000 common units and $1.1 million to the general partner as holder of 1,872,870 common units), $0.5 million to the general partner as holder of the subordinated units, $0.5 million to the general partner as holder of incentive distribution rights and $0.2 million to the general partner in respect of its 2% general partner interest.

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Note 8    Capital Requirements

        The Partnership contributed $19.5 million in each of the three months ended March 31, 2004 and June 30, 2004, representing its 30% share of two $65.0 million cash calls issued by Northern Border Pipeline to its partners on January 27, 2004 and April 27, 2004. The funds were used by Northern Border Pipeline to repay a portion of its existing indebtedness. The payment to Northern Border Pipeline was funded through the use of cash from operations and existing credit facilities. These contributions were partially offset by $4.4 million and $6.4 million return of capital, in the three and six months ended June 30, 2004, respectively, from Northern Border Pipeline.

Note 9    Subsequent Events

        On July 16, 2004, Tuscarora issued a cash call for a $0.8 million capital contribution for the 2005 expansion to its partners. The Partnership will contribute $0.4 million, representing its 49% share to be paid July 30, 2004. The funds will be used to finance the permitting, design and construction of a new 8000 horsepower compressor station located in the State of California in Modoc County (Likely Station) and the addition of a new booster compressor, to be located at the interconnection point with the Paiute Pipeline Company, in the State of Nevada in Washoe County (Wadsworth Station).

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

TC PipeLines, LP

Cautionary Statement Regarding Forward-Looking Information

        This quarterly report includes forward-looking statements regarding future events and the future financial performance of TC PipeLines, LP. All forward-looking statements are based on the Partnership's beliefs as well as assumptions made by and information currently available to the Partnership. Words such as "anticipates", "believes", "estimates", "expects", "plans", "intends", "forecasts", and similar expressions, identify forward-looking statements. These statements reflect the Partnership's current views with respect to future events and are subject to various risks, uncertainties and assumptions including:

•

the Partnership's 30% general partner interest in Northern Border Pipeline and 49% general partner interest in Tuscarora represent its only material assets. As a result, the Partnership is dependent upon Northern Border Pipeline and Tuscarora for all of its available cash;



•

majority control and operation of Northern Border Pipeline by affiliates of Enron Corp., any further developments in the Enron bankruptcy proceedings, the creation of a new pipeline operating company, CrossCountry Energy, LLC and the potential sale of CrossCountry;



•

regulatory decisions, particularly those of the FERC;



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the ability of Northern Border Pipeline to recontract its capacity at maximum transportation rates;



•

the failure of a shipper on either one of the pipelines in which the Partnership has an interest to perform its contractual obligations;



•

the ability of affiliates of Sierra Pacific Resources to continue to meet their contractual obligations to Tuscarora;



•

the availability of Western Canadian natural gas for import into the United States;



•

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

and other risks discussed in the Partnership's filings with the Securities and Exchange Commission (SEC), including the Partnership's Annual Report on Form 10-K for the year ended December 31, 2003. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements.

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Results of Operations of TC PipeLines, LP

        As a result of the Partnership's ownership interests in both Northern Border Pipeline and Tuscarora, the following discusses first the results of operations and liquidity and capital resources of TC PipeLines, then those of each of Northern Border Pipeline and Tuscarora in their entirety.

        The following discussions of the financial condition and results of operations of the Partnership, Northern Border Pipeline and Tuscarora should be read in conjunction with the financial statements and notes thereto of the Partnership included elsewhere in this report (see Item 1. Financial Statements). For more detailed information regarding the basis of presentation for the following financial information, see the notes to the condensed financial statements of the Partnership.

Overview

        TC PipeLines, LP was formed in 1998 to acquire, own and participate in the management of United States based pipeline assets. TC PipeLines, LP, and its subsidiary limited partnerships, TC PipeLines Intermediate Limited Partnership and TC Tuscarora Intermediate Limited Partnership, all Delaware limited partnerships, are collectively referred to herein as TC PipeLines or the Partnership. TC PipeLines GP, Inc., a wholly owned subsidiary of TransCanada, is the general partner of the Partnership. The Partnership owns a 30% general partner interest in Northern Border Pipeline and a 49% general partner interest in Tuscarora.

Investment in Northern Border Pipeline Company

        Northern Border Pipeline owns a 1,249-mile United States interstate pipeline system that transports natural gas from the Montana-Saskatchewan border to markets in the midwestern United States. The Partnership acquired its 30% interest in Northern Border Pipeline from affiliates of its general partner. The Partnership has one member and 30% of the voting power of the Northern Border Pipeline management committee.

        The remaining 70% general partner interest in Northern Border Pipeline is held by Northern Border Partners, L.P., a publicly traded limited partnership. The general partners of Northern Border Partners are Northern Plains Natural Gas Company and Pan Border Gas Company, both Enron affiliates, and Northwest Border Pipeline Company, a subsidiary of TransCanada. TransCanada has one member and 12.25% of the voting power on the Northern Border Pipeline management committee. TransCanada and TC PipeLines collectively have two members and an aggregate 42.25% of the voting power of the Northern Border Pipeline management committee. Northern Plains and Pan Border collectively have two members and 57.75% of the voting power of the Northern Border Pipeline management committee. Northern Plains also serves as the operator of the Northern Border Pipeline system.

Investment in Tuscarora Gas Transmission Company

        Tuscarora owns a 240-mile United States interstate pipeline system that transports natural gas from Oregon, where it interconnects with facilities of Gas Transmission Northwest Corporation, to northern Nevada. The Partnership owns a 49% general partner interest in Tuscarora. The remaining general partner interest in Tuscarora is held 50% by Sierra Pacific Resources and 1% by TCPL Tuscarora Ltd., an indirect subsidiary of TransCanada. Under the Tuscarora partnership agreement, voting power of the management committee is allocated among Tuscarora's three general partners in proportion to their general partner interests in Tuscarora. The Tuscarora pipeline system is operated by Tuscarora Gas Operating Company, a wholly owned subsidiary of Sierra Pacific Resources. Sierra Pacific Power Company, a subsidiary of Sierra Pacific Resources, is Tuscarora's largest shipper, accounting for approximately 68% of Tuscarora's available capacity.

        On December 1, 2002, Tuscarora completed and placed into service an expansion of its pipeline system. The expansion consisted of the addition of two compressor stations, located along the Tuscarora mainline, as well as an 11-mile pipeline extension from Tuscarora's previous terminus near Reno, Nevada to Wadsworth, Nevada. The expansion increased Tuscarora's capacity from 127 million cubic feet per day (MMcf/d) to approximately 182 MMcf/d. The new capacity is contracted under long-term firm contracts ranging from ten to fifteen years. Under the terms of these transportation contracts, approximately 70% of the contracts related to the new capacity came into effect upon commencement of service. The remaining 30% of new contracts came into effect by the end of 2003.

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        In July 2003, Tuscarora held an open season that resulted in shippers executing long-term contracts that have resulted in a planned expansion of the system by approximately 50 MMcf/d. The estimated total capital cost of the project is approximately $17.0 million and is expected in-service on November 1, 2005. The expansion plan will support increased demand in the Reno area and includes the addition of a new gas turbine driven compressor station located at Likely, California and the installation of a new 3000 horse power reciprocating compressor at the existing Wadsworth site. Upon completion of the expansion, it is estimated the contracted capacity of Tuscarora will be approximately 230 MMcf/d.

Critical Accounting Policy

        TC PipeLines accounts for its interests in both Northern Border Pipeline and Tuscarora using the equity method of accounting as detailed in notes two and three to the condensed financial statements. The equity method of accounting is appropriate where the investor does not control but is able to exercise significant influence over the operating and financial policies of an investee. TC PipeLines is able to exercise significant influence over Northern Border Pipeline and Tuscarora as evidenced by its representation on their respective management committees.

        The interests in Northern Border Pipeline and Tuscarora are currently the Partnership's only significant 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, respectively.

Second Quarter 2004 Compared with Second Quarter 2003

        Net income increased $1.6 million, or 13%, to $13.6 million in the second quarter of 2004, compared to $12.0 million for the same period in 2003. 2004 second quarter net income reflects an increase in equity income from both Northern Border Pipeline and Tuscarora.

        Equity income from the Partnership's investment in Northern Border Pipeline increased $1.1 million, or 10%, to $12.4 million for the second quarter of 2004, compared to $11.3 million for the same period in 2003. In the second quarter of 2004, Northern Border Pipeline's revenues were higher than the same period in 2003, which is primarily due to an increase in Northern Border Pipeline's ability to generate and retain more revenues from the sale of short-term capacity and additional transportation services. Northern Border Pipelines' operations and maintenance expense decreased compared to the same period in 2003 due primarily to the settlement of previously accrued charges for administrative services provided by the operator and its affiliates. Partially offsetting this reduction was an expense for an option to renew a pipeline right-of-way lease with the Fort Peck Indian Reservation. Northern Border Pipeline's interest expense was lower in the second quarter of 2004 compared to the same period in 2003 due primarily to lower average debt balances outstanding. Taxes other than income decreased in the second quarter of 2004 as compared to the same period in 2003, due primarily to adjustments to ad valorem taxes.

        Equity income from the Partnership's investment in Tuscarora increased $0.6 million, or 50%, to $1.8 million in the second quarter of 2004, compared to $1.2 million for the same period in 2003. Tuscarora's revenues increased primarily due to long-term firm contracts, which commenced in November 2003, related to the 2002 expansion.

        The Partnership recorded general and administrative expenses of $0.5 million and $0.4 million in the second quarter of 2004 and 2003, respectively.

        The Partnership recorded financial charges of $0.1 million in the second quarter of 2004 and 2003.

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Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003

        Net income increased $3.4 million, or 14%, to $27.3 million in the first six months of 2004, compared to $23.9 million for the same period in 2003. Net income in the first six months reflects an increase in equity income from both Northern Border Pipeline and Tuscarora.

        Equity income from the Partnership's investment in Northern Border Pipeline increased $2.6 million, or 12%, to $24.9 million in the first six months of 2004, compared to $22.3 million for the same period in 2003. In the first six months of 2004, Northern Border Pipeline's revenues were higher than the same period in 2003, which is primarily due to an increase in Northern Border Pipeline's ability to generate and retain more revenues from the sale of short-term capacity and additional transportation services. As of October 2003, Northern Border Pipeline is no longer required to share interruptible transportation and new services revenue with its shippers. In addition, the leap year added an additional day of transportation revenues. The decrease in 2004 operations and maintenance expense is primarily due to the settlements of previously accrued charges compared to the same period last year. Partially offsetting these reductions were higher electricity costs for Northern Border Pipeline's electric-powered compressors and expense for the option to renew a pipeline right-of-way lease with the Fort Peck Indian Reservation. Also contributing to the Partnership's increase in equity income was a reduction in Northern Border Pipeline's interest expense which was lower in the first six months of 2004 compared to the same period in 2003 due both to lower average debt balances outstanding and lower average interest rates. The decrease in taxes in the first six months ended June 30, 2004 is due primarily to a reduction in the estimate to ad valorem taxes.

        Equity income from the Partnership's investment in Tuscarora increased $1.1 million, or 44%, to $3.6 million in the first six months of 2004, compared to $2.5 million for the same period in 2003. Tuscarora's revenues increased primarily due to long-term firm contracts, which commenced in November 2003, related to the 2002 expansion. Operating expenses in the first six months remained at the same levels compared to the same period last year.

        The Partnership recorded general and administrative expenses of $1.0 million and $0.8 million in the first six months of 2004 and 2003, respectively.

        The Partnership recorded financial charges of $0.2 million and $0.1 million in the first six months of 2004 and 2003, respectively.

Liquidity and Capital Resources of TC PipeLines, LP

Debt and Credit Facilities

        TC PipeLines, LP's debt and credit facilities outstanding at June 30, 2004 are as follows:

Conversion of Subordinated Units

        On July 31, 2004, the remaining one third of the originally issued 2,800,000 subordinated units (936,436) held by the general partner converted into an equal number of common units as a result of satisfying the tests set forth in the Partnership Agreement. This concludes the subordination period.

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Cash Distribution Policy of TC PipeLines, LP

        During the subordination period, which ended July 1, 2004, the Partnership made distributions of Available Cash, as defined in the Partnership Agreement, in the following manner:

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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 t