TC PIPELINES LP - 10-K Annual Report

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

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F O R M 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-26091

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

DELAWARE 52-2135448
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

110 TURNPIKE ROAD, SUITE 203
WESTBOROUGH, MASSACHUSETTS 01581
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 508-871-7046

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

TITLE OF CLASS

COMMON UNITS REPRESENTING LIMITED PARTNER INTERESTS

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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes [X] No [ ]

Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, as at June 30, 2003, was approximately $350.1
million.

As of February 23, 2004, there were 16,563,564 of the registrant's common
units outstanding.

TC PIPELINES, LP
TABLE OF CONTENTS

ALL AMOUNTS ARE STATED IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED.

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PART I

ITEM 1. BUSINESS

BUSINESS OF TC PIPELINES, LP

TC PipeLines, LP was formed in 1998 as a Delaware limited partnership 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 are collectively referred to herein as "TC PipeLines" or
"the Partnership." TC PipeLines GP, Inc., an indirect wholly owned subsidiary
of TransCanada PipeLines Limited which is a wholly owned subsidiary of
TransCanada Corporation referred to herein collectively as "TransCanada", is
the general partner of the Partnership.

The Partnership owns a 30% general partner interest in Northern Border
Pipeline Company. 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 controlled by affiliates of Enron Corp.
TransCanada holds a minority general partner interest in Northern Border
Partners which entitles it to 12.25% of the voting power of Northern Border
Pipeline.

TC PipeLines also owns a 49% general partner interest in Tuscarora Gas
Transmission Company (Tuscarora). The Partnership acquired this interest from
TCPL Tuscarora Ltd., an indirect subsidiary of TransCanada, in September 2000.

At December 31, 2003, the Partnership had 16,563,564 common units outstanding,
of which 11,890,694 were held by the public, 2,800,000 were held by an affiliate
of the general partner and 1,872,870 were held by the general partner.

TransCanada, by virtue of its ownership of the Partnership's general partner,
holds an aggregate 2% general partner interest in the Partnership. The
general partner also owns 1,872,870 common units and 936,436 subordinated
units and receives incentive distributions if quarterly cash distributions on
the common and subordinated units exceed levels specified in the partnership
agreement (see Item 5. "Market for Registrant's Common Units and Related
Security Holder Matters").

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

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. This pipeline system connects with multiple pipelines
that provide shippers with access to the various natural gas markets served by
those pipelines. TC PipeLines estimates that, in the year ended December 31,
2003, Northern Border Pipeline transported approximately

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22% of the total amount of natural gas imported from Canada to the United
States. Over the same period, approximately 88% 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 Federal Energy Regulatory Commission (FERC). The tariff specifies the
maximum and minimum transportation rates 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 natural gas commodity price
risk for quantities transported. Any exposure to commodity risk for
imbalances on Northern Border Pipeline's system that may result from under or
over deliveries to customers or interconnecting pipelines is either recovered
through provisions in Northern Border Pipeline's tariff or is immaterial.
Northern Border Pipeline owns the line pack, which is the amount of gas
necessary to maintain efficient operations of the pipeline. Northern Border
Pipeline's shippers are responsible to provide fuel gas necessary for the
operation of gas compressor stations.

Northern Border Pipeline's management is overseen by a four-member management
committee. Three representatives are designated by Northern Border Partners,
with each of its general partners selecting one representative and one
representative is designated by TC PipeLines. Voting power on the management
committee is 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' 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. Therefore, Enron controls 57.75% of the voting power
of the management committee and has the right to select two of the members.
On December 2, 2001, Enron filed a voluntary petition for Chapter 11
protection in bankruptcy court. On September 25, 2003, a motion by Enron to
transfer Enron's interests in, among other entities, Northern Plains and Pan
Border to CrossCountry Energy, a new pipeline operating entity, was approved.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations of Northern Border Pipeline
Company - The Impact Of Enron's Chapter 11 Filing On Northern Border
Pipeline's Business."

The Northern Border pipeline system is operated by Northern Plains pursuant to
an operating agreement. As of December 31, 2003, Northern Plains employed
approximately 216 individuals located at its headquarters in Omaha, Nebraska
and at various locations along the pipeline route and also used employees and
information technology systems of its affiliates to provide its services.
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 1,249-mile interstate pipeline system that
transports natural gas from the Montana-Saskatchewan border near Port of Morgan,
Montana to natural gas markets in the midwestern United States. Construction of
the pipeline was initially completed in 1982. The Northern Border pipeline
system was expanded and/or extended in 1991, 1992, 1998 and 2001. The Northern
Border pipeline system connects directly and through multiple pipelines to
various natural gas markets in the United States.

The Northern Border pipeline system consists of 822 miles of 42-inch diameter
pipe from the Canadian border to Ventura, Iowa capable of transporting a total
of 2,374 million cubic feet per day (mmcfd); 30-inch diameter pipe and 36-inch
diameter pipe, each approximately 147 miles in length, capable of transporting
1,484 mmcfd in total from Ventura, Iowa to Harper, Iowa; 226 miles of 36-inch
diameter pipe and 19 miles of 30-inch diameter pipe capable of transporting 844
mmcfd from Harper, Iowa to Manhattan, Illinois (Chicago area); and 35 miles of
30-inch diameter pipe capable of transporting 545 mmcfd from Manhattan, Illinois
to a terminus near North Hayden, Indiana. Along the pipeline there are 16
compressor stations with total rated horsepower of 499,000 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
50 tower sites.

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 in Canada, domestic natural gas produced within the
Williston Basin and synthetic gas produced at the Dakota Gasification plant in
North Dakota. In addition, the pipeline is capable of physically receiving
natural gas at two locations near Chicago. At its northern end, the pipeline
system's gas supplies are received through an interconnection with Foothills
Pipe Lines (Sask.)

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Ltd. system in Canada. The Foothills system, owned by TransCanada, is
connected to TransCanada's Alberta system and the pipeline system owned by
Transgas Limited in Saskatchewan. Also at the north end, the pipeline system
connects to a domestic natural gas gathering system owned by Omimex Ltd.
Corporation. In North Dakota, the Northern Border pipeline system connects
with facilities of Northern Natural Gas Company at Buford, which facilities
in turn are connected to Williston Basin Interstate Pipeline and the
gathering system owned by Bear Paw Energy, LLC, a wholly owned subsidiary of
Northern Border Partners. In December 2003, an interconnection with a newly
constructed pipeline owned by Williston Basin Interstate Pipeline near
Manning, North Dakota was placed in service. The initial design capacity of
the interconnect facilities is 200 mmcfd. The pipeline, with an initial
design capacity of 80 mmcfd, was constructed to transport natural gas from
coalbed and conventional natural gas supplies in the Powder River Basin of
northeastern Wyoming and southeastern Montana as well conventional supplies
in the Rocky Mountain area. Other locations in North Dakota where Northern
Border Pipeline can receive gas are interconnections with Williston Basin
Interstate Pipeline at Glen Ullin and Amerada Hess Corporation at Watford
City and facilities of Dakota Gasification Company at Hebron. Near its
terminus, the pipeline system is capable of physically receiving natural gas
from Northern Illinois Gas Company at Troy Grove, Illinois and from
Midwestern Gas Transmission Company, a wholly owned subsidiary of Northern
Border Partners, at Channahon, Illinois. For the year ended December 31,
2003, of the natural gas transported on the Northern Border pipeline system,
approximately 88% was produced in Canada, approximately 5% was produced by
the Dakota Gasification plant and approximately 6% was produced in the
Williston Basin and 1% from other sources.

INTERCONNECTS

The Northern Border pipeline system connects with multiple pipelines of various
interstate, intrastate and local distribution companies, as well as with
end-users. These interconnects provide its shippers with access to the various
natural gas markets served by those pipelines. The larger interconnections are
with the pipeline facilities of:

o Northern Natural Gas Company at Ventura, Iowa as well as multiple
smaller interconnections in South Dakota, Minnesota and Iowa;

o Natural Gas Pipeline Company of America at Harper, Iowa;

o MidAmerican Energy Company at Iowa City and Davenport, Iowa and
Cordova, Illinois;

o Alliant Power Company at Prophetstown, Illinois;

o Northern Illinois Gas Company at Troy Grove and Minooka, Illinois;

o Midwestern Gas Transmission Company near Channahon, Illinois;

o ANR Pipeline Company near Manhattan, Illinois;

o Vector Pipeline L.P. in Will County, Illinois;

o Guardian Pipeline, L.L.C., an affiliate of Northern Border Partners,
in Will County, Illinois;

o The Peoples Gas Light and Coke Company near Manhattan, Illinois; and

o Northern Indiana Public Service Company near North Hayden, Indiana at
the terminus of the pipeline system.

Several market centers, 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,
have developed on the Northern Border pipeline system. The largest of these
market centers is at the Ventura, Iowa connection with Northern Natural Gas
Company. Two other market center locations are the Harper, Iowa connection with
Natural Gas Pipeline Company of America and the multiple interconnects in the
Chicago area that include connections with Northern Illinois Gas Company, The
Peoples Gas Light and Coke Company and Northern Indiana Public Service Company,
as well as four interstate pipelines.

SHIPPERS

The Northern Border pipeline system serves more than 40 firm transportation
shippers with diverse operating and financial profiles. Based upon shippers'
contractual obligations, as of December 31, 2003, 94% of the firm capacity is
contracted by producers and marketers. The remaining firm capacity is contracted
primarily by local distribution companies (5%), and interstate pipelines (1%).
As of December 31, 2003, the termination dates of these contracts ranged from
March 31, 2004 to December 21, 2013, and the weighted average contract life,
based upon contractual obligations, was approximately three and one-third years.
All of Northern Border Pipeline's capacity was under contract through December
31, 2003 and, assuming no extensions of existing contracts or execution of new
contracts, approximately 70% and 59% is under contract through December 31, 2004
and 2005 respectively. See

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Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations of Northern Border Pipeline Company -
Overview."

Northern Border Pipeline's shippers may change throughout the year as a result
of its shippers utilizing Northern Border Pipeline's capacity release provisions
that allow them to release all or part of their capacity to other shippers,
either permanently for the full term of their contract or temporarily. Under the
terms of Northern Border Pipeline's tariff, a temporary capacity release does
not relieve the original contract shipper from its payment obligations if the
replacement shipper fails to pay.

For the year ended December 31, 2003, BP Canada Energy Marketing Corp. (BP
Canada), EnCana Marketing U.S.A. Inc. (EnCana), and Pan Alberta Gas (U.S.)
Inc. (Pan-Alberta) collectively accounted for approximately 41% of Northern
Border Pipeline's revenues. As of December 31, 2003, Northern Border
Pipeline's three largest shippers were BP Canada, EnCana and Cargill
Incorporated who are obligated for approximately 21%, 19% and 9%,
respectively, of the contracted firm capacity. In July 2003, Cargill
Incorporated completed the assignment of all the firm capacity formerly held
by Mirant Americas Energy Marketing, LP, which extends for terms into 2006
and 2008. Approximately half of the capacity contracted to BP Canada and
EnCana is due to expire by November 1, 2004. During 2003, all of the
contracted capacity due to expire by November 1, 2003, of which Pan-Alberta
held approximately 20% was recontracted with 10 shippers. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations of Northern Border Pipeline Company -
Overview."

DEMAND FOR TRANSPORTATION CAPACITY

Northern Border Pipeline's long-term financial condition is dependent on the
continued availability of economic western Canadian natural gas supplies 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 interstate pipelines' systems. Prices for natural
gas, the currency exchange rate between Canada and the United States,
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. Increased Canadian consumption of natural gas related to the
extraction process for oil sands projects as well as restrictions on gas
production to protect oil sand reserves could also impact supplies of natural
gas for export. Additional pipeline export capacity also could accelerate
depletion of these reserves. Furthermore, the availability of export capacity
could also affect the demand or value of the transport on the Northern Border
pipeline system.

Northern Border Pipeline's business also depends on the level of demand for
natural gas in the markets the Northern Border pipeline system serves. The
volumes of natural gas delivered to these markets from other sources affect the
demand for both the natural gas supplies and the use of the Northern Border
pipeline system. Demand for 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 it 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:

o economic conditions;

o fuel conservation measures;

o alternative energy requirements and prices;

o gas storage inventory levels;

o climatic conditions;

o government regulation; and

o technological advances in fuel economy and energy generation devices.

Interstate pipelines' primary exposure to market risk occurs at the time
existing transportation contracts expire and are subject to renegotiation. A key
determinant of the value that customers can realize from firm transportation on
a pipeline is the basis differential, or market price spread, between two points
on the pipeline. The difference in natural gas prices between the points along
the pipeline where gas enters and where gas is delivered represents the gross
margin that a customer can expect to achieve from holding transportation
capacity at any point in time. This margin and its variability become important
factors in determining the transportation rate customers are willing to

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pay when they renegotiate their transportation contracts. The basis differential
between markets can be affected by trends in production, available capacity,
storage inventories, weather and general market demand in the respective areas.

Throughput on the Northern Border pipeline system may experience seasonal
fluctuations depending upon the level of winter heating load demand or summer
electric generation usage in the markets it serves. However, since
approximately 98% of Northern Border Pipeline's expected revenue is
attributable to demand charges, Northern Border Pipeline's revenues and cash
flows are not impacted materially by such seasonal throughput variations.

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 such adverse effect could be.

INTERSTATE PIPELINE COMPETITION

Northern Border Pipeline competes with other pipeline companies that
transport natural gas from the Western Canadian Sedimentary Basin or that
transport natural gas to end-use markets in the midwest. Northern Border
Pipeline's competitive position is affected by the availability of Canadian
natural gas for export, the availability of other sources of natural gas and
demand for natural gas in the United States. Demand for transportation
services on the Northern Border pipeline system is affected by natural gas
prices, the relationship between export capacity from and production in the
Western Canadian Sedimentary Basin and natural gas shipped from producing
areas in the United States. Shippers of natural gas produced in the Western
Canadian Sedimentary Basin also have other options to transport Canadian
natural gas to the United States, including transportation on the Alliance
Pipeline, on TransCanada's pipeline system through various interconnects with
U.S. interstate pipelines, including Viking Gas Transmission Company which is
owned by Northern Border Partners, or to markets on the West Coast.

The Alliance Pipeline competes directly with Northern Border Pipeline in the
transportation of natural gas from the Western Canadian Sedimentary Basin to the
Chicago area. Because it transports liquids-rich natural gas, the Alliance
Pipeline has no interconnections with other pipelines upstream of liquids
extraction facilities located near Chicago. This contrasts with the Northern
Border pipeline system, which serves various markets through interconnections
with other pipelines along its route. The Chicago market hub has absorbed the
new supply from Alliance Pipeline as incremental pipeline capacity has been
developed to transport natural gas from the Chicago area to other market
regions.

In addition, Northern Border Pipeline competes in its markets with other
interstate pipelines that provide access to other supply basins. Northern
Border Pipeline's major deliveries into Northern Natural Gas at Ventura, Iowa
compete with gas supplied from the Rockies, and mid-continent regions.
Northern Border Pipeline also competes with these supply basins at its
delivery interconnect with Natural Gas Pipeline at Harper, Iowa. In the
Chicago area, Northern Border Pipeline competes with many interstate
pipelines that transport gas from the Gulf Coast, mid-continent, Rockies and
western Canada.

FERC REGULATION

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 Northern Border Pipeline's business, including:

o transportation of natural gas;

o rates and charges;

o construction of new facilities;

o extension or abandonment of service and facilities;

o accounts and records;

o depreciation and amortization policies;

o the acquisition and disposition of facilities; and

o the initiation and discontinuation of services.

Where required, Northern Border Pipeline holds certificates of public
convenience and necessity issued by the

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FERC covering its 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
may be periodically audited by the FERC under Section 8. Northern Border
Pipeline was notified in November 2002 that it was one of the companies selected
by the FERC to undergo an industry-wide audit of FERC-assessed annual charges.
The overall audit objective was to determine compliance with the FERC accounting
requirements and regulations as they relate to the calculation and assessment of
annual charges by validating the accuracy of the data filed annually with the
FERC. The audit covered the period of January 1, 2001 to December 31, 2001. On
April 10, 2003, the FERC issued its final report that found Northern Border
Pipeline was in compliance.

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. Generally, rates are based on the cost of service
including recovery of and a return on the pipeline's actual historical cost
investment. 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 and rates may be negotiated
subject to FERC approval. The rates and terms and conditions for Northern Border
Pipeline's service are found in its FERC-approved tariff.

Transportation rates are established periodically in FERC proceedings known as
rate cases. Under Northern Border Pipeline's tariff, Northern Border Pipeline is
allowed to charge for its services on the basis of stated transportation rates
established in its 1999 rate case. Northern Border Pipeline may also provide
services under negotiated and discounted rates. Firm shippers that contract for
the stated transportation rate are obligated to pay a monthly demand charge,
regardless of the amount of natural gas they actually transport, for the term of
their contracts. Approximately 98% of the revenue generated is attributed to
demand charges. The remaining 2% of the agreed upon revenue level is attributed
to commodity charges based on the volumes of gas actually transported.

Under the terms of settlement in Northern Border Pipeline's 1999 rate case,
neither Northern Border Pipeline's existing shippers nor Northern Border
Pipeline can seek rate changes until November 1, 2005, at which time Northern
Border Pipeline must file a rate case. Prior to this rate case, Northern Border
Pipeline will not be permitted to increase rates if costs increase, nor will
Northern Border Pipeline be required to reduce rates based on cost savings. As a
result, Northern Border Pipeline's earnings and cash flow will depend on future
costs, contracted capacity, the volumes of gas transported and its ability to
recontract capacity at acceptable rates.

Until new depreciation rates are approved by the FERC, Northern Border
Pipeline continues to depreciate its transmission plant at the FERC-approved
annual depreciation rate. Northern Border Pipeline's annual depreciation rate
on transmission plant in service is 2.25%. In order to avoid a decline in
transportation rates set in future rate cases as a result of accumulated
depreciation, 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.

In Northern Border Pipeline's 1995 rate case, the FERC addressed the issue of
whether the federal income tax allowance included in Northern Border Pipeline's
proposed cost of service was reasonable in light of previous FERC rulings. In
those rulings, the FERC held that an interstate pipeline is not entitled to a
tax allowance for income attributable to limited partnership interests held by
individuals. The settlement of Northern Border Pipeline's 1995 rate case
provided that until at least December 2005, 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 was
implemented, which effectively reduced 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.

Northern Border Pipeline also provides interruptible transportation service.
Interruptible transportation service is transportation in circumstances when
capacity is available after satisfying firm service requests. The maximum
rate that may be charged to interruptible shippers is the sum of the firm
transportation maximum demand and commodity charges. From the settlement of
its 1999 rate case through October 31, 2003, Northern Border Pipeline shared
net interruptible transportation service revenue and any new services revenue
on an equal basis with its firm shippers, however, Northern Border Pipeline
was permitted to retain revenue from interruptible transportation service to
offset any decontracted firm capacity. Beginning November 1, 2003, Northern
Border Pipeline retains all revenues from these services.

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Northern Border Pipeline is subject to the requirements of FERC Order Nos.
497 and 566, which prohibit preferential treatment by interstate natural gas
pipelines of their marketing affiliates and govern how information may be
provided to those marketing affiliates. On November 25, 2003, the FERC issued
a final rule, Order No. 2004, adopting new standards of conduct for
transmission providers when dealing with their energy affiliates. All
transmission providers must comply with the standards of conduct by June 1,
2004. The standards of conduct are designed to prevent transmission providers
from giving undue preferences to any of their energy affiliates. The final
rule generally requires that transmission function employees operate
independently of the marketing function employees and energy affiliates. As
required of all transmission providers, Northern Border Pipeline posted a
compliance plan to its website on February 9, 2004. By definition, two of
Northern Border Pipeline's energy affiliates are Bear Paw Energy, LLC and
Crestone Energy L.L.C., both of which are gathering companies owned by
Northern Border Partners. Northern Border Pipeline's operator, Northern
Plains, provides after hours and weekend gas control services for Bear Paw
and Crestone that results in some cost savings to Northern Border Pipeline.
Northern Border Pipeline has requested a waiver to permit Northern Plains to
continue to provide after hours and weekend gas control services for Bear Paw
Energy and Crestone. If the waiver is not granted, the cost to maintain gas
control for Northern Border Pipeline will increase slightly. Several parties
have filed for rehearing on a number of issues, including whether gathering
companies should be included in the definition of energy affiliate.

On August 1, 2002, the FERC issued a Notice of Proposed Rulemaking regarding the
regulation of cash management practices of the natural gas and other companies
that it regulates. On June 26, 2003, the FERC issued an interim rule in that
proceeding that amended the FERC's regulations to provide for documentation
requirements for cash management programs and to implement new reporting
requirements. Specifically, under the interim rule, all cash management
agreements between regulated entities and their affiliates must be in writing,
must specify the duties and responsibilities of cash management participants and
administrators, must specify the methods for calculating interest and for
allocating interest income and expense, and must specify any restrictions on
deposits or borrowings by participants. A FERC-regulated entity must file with
the FERC any cash management agreements to which it is a party, as well as any
subsequent changes to such agreements. In addition, a FERC-regulated entity must
notify the FERC when its equity component of proprietary capital ratio falls
below 30%. Northern Border Pipeline does not have a cash management agreement
nor is Northern Border Pipeline required to have one and the FERC was
notified. Northern Border Pipeline advises that it does not expect that the
FERC policy will have an impact on Northern Border Pipeline's cash management
practices.

On July 17, 2002, the FERC issued a Notice of Inquiry Concerning Natural Gas
Pipeline Negotiated Rate Policies and Practices. Subsequently, the FERC
issued an order on July 25, 2003, modifying its prior policy on negotiated
rates. The FERC ruled that it would no longer permit the pricing of
negotiated rates based upon natural gas commodity price indices. Negotiated
rates based upon such indices may continue until the end of the contract
period for which such rates were negotiated, but such rates will not be
prospectively approved by the FERC. The FERC also imposed certain
requirements on other types of negotiated rate transactions to ensure that
the agreements embodying such transactions do not materially differ from the
terms and conditions set forth in the tariff of the pipeline entering into
the transaction. Since Northern Border Pipeline's business does not derive a
significant amount of its revenues from negotiated rate transactions,
Northern Border Pipeline advises that it does not expect this FERC ruling to
have a material effect on its business.

Recent FERC orders in proceedings involving other natural gas pipelines have
addressed certain aspects of the pipelines' creditworthiness provisions set
forth in their tariffs. In addition, industry groups, such as the North
American Energy Standards Board (NAESB), are studying creditworthiness
standards. On February 12, 2004, FERC issued a Notice of Proposed Rulemaking
to require interstate pipelines to follow standardized procedures for
determining the creditworthiness of their shippers. The proposed rule would
incorporate by reference ten consensus standards passed within NAESB and
would adopt additional standards requiring, among other things,
standardization of information shippers provide to establish credit,
collateral requirements for service, procedures for suspension and
termination for non-creditworthy shippers and procedures governing capacity
release transactions. Comments are due on the proposed rule by March 26,
2004. Recent FERC orders, and this proposed rule, support greater collateral
requirements for credit on shippers for the construction of new facilities by
a pipeline. The enactment of some of these standards may have the effect of
easing certain creditworthiness requirements and parameters currently
reflected in Northern Border Pipeline's tariff. Recent FERC orders have
indicated, however, that pipelines are free to negotiate credit terms
relative to the construction of new facilities by a pipeline, which are then
effective for the term of the contract and are not superceded by tariff
provisions once the facilities are

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completed. Northern Border Pipeline advises that, at this time, it cannot
predict the ultimate impact, if any, on Northern Border Pipeline of any
resulting final rule.

In February 2004, the FERC adopted new quarterly financial reporting
requirements and accelerated the filing date for interstate pipeline's annual
financial report. The quarterly reports will include a basic set of financial
statements and other selected data and will be submitted electronically. For
2004, each quarterly report will be due approximately 70 days following the
end of the quarter except for the first quarter report which is due on or
before July 9, 2004. Subsequent reports will be due 60 days after the end of
each quarter. The annual report previously required to be filed each year on
or before April 30, will be required on or before April 25, 2005 for 2004 and
on April 18 thereafter. Northern Border Pipeline advises that it does not
anticipate any impact for complying with these requirements other than the
time and additional expenses for preparation of these reports.

From time to time, Northern Border Pipeline files to make changes to its tariff
to clarify provisions, to reflect current industry practices and to reflect
recent FERC rulings. In February 2003, Northern Border Pipeline filed to amend
the definition of company use gas, which is gas supplied by Northern Border
Pipeline's shippers for the operation of its compressor stations, to clarify
the language by adding detail to the broad categories that comprise company
use gas. However, in its March 2003 order, the FERC directed Northern Border
Pipeline to cease collecting electric costs through its company use gas
provisions and to refund with interest, within 90 days, all electric costs
that had been collected through the company use gas provisions. Refunds of
approximately $10.0 million were made in May 2003.

In August 2003 Northern Border Pipeline filed revised tariff sheets to
clarify its procedures for the awarding of capacity. Several parties
protested the filing. One party requested a show cause proceeding to examine
past tariff practices alleging that Northern Border Pipeline had violated its
tariff by denying a service request that would have involved a short distance
for less than one year. On September 10, 2003, the FERC rejected Northern
Border Pipeline's tariff sheets based upon the conclusion that certain
aspects of the proposal were not in accordance with Commission policy. The
FERC did affirm that, up to ninety days prior to the effective date, Northern
Border Pipeline had the right not to sell capacity requested for short
distances or on a short-term basis. Northern Border Pipeline filed a timely
request for rehearing of the Commission's Order in October 2003 which is
still pending. Northern Border Pipeline also filed responses to requests for
further information on the award of capacity in the summer of 2003. Northern
Border Pipeline filed its compliance tariff sheets in early December 2003 and
is awaiting a Commission decision on these tariff sheets. Northern Border
Pipeline's tariff sheets and the final orders to be entered in this
proceeding will impact how Northern Border Pipeline awards available
capacity. With contracts expiring before November 1, 2004, if timely bids for
one year of service or longer on the entire transportation path available are
not received, Northern Border Pipeline advises that it may potentially be
required to accept bids for shorter distances that may result in creating
segments of capacity of miminal value.

In March 2004, Northern Border Pipeline filed tariff sheets to implement two
balancing services to assist deliveries at variable load points, such as
electrical generation plant. Northern Border Pipeline also filed with the
FERC certain agreements for third party balancing which it believes are
administrative in nature and which will be terminated upon approval of the
new balancing services. Under current orders and rulings in other proceedings
before the FERC, it is unclear whether these agreements would be deemed
non-conforming. However, Northern Border Pipeline advises that it does not
expect that orders on these tariff sheets and agreements will have a material
adverse impact on its business.

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, the Pipeline Safety Act of 1992 and the
Pipeline Safety Improvement Act of 2002.

The Pipeline Safety Improvement Act (Act) of 2002 was signed into law in
December 2002, providing guidelines for interstate pipelines in the areas of
risk analysis and integrity management, public education programs,
verification of operator qualification programs and filings with the National
Pipeline Mapping System. The Act requires pipeline companies to perform
integrity assessments on pipeline segments that exist in high population
density areas or near specifically identified sites that are designated as
high consequence areas. Pipeline companies are required to perform the
integrity assessments within ten years of the date of enactment and must
perform subsequent integrity assessments on a seven-year cycle. At least 50%
of the highest risk segments must be assessed within five years of the
enactment date. In addition, within one year of enactment, the pipeline's
operator qualification programs, in force since the mandatory compliance date
of October 2002, must also conform to standards provided by the Department of
Transportation. The regulations implementing the Act are not yet final. Rules
on integrity management, direct assessment usage, and the operator
qualification standards have been issued. Northern Border Pipeline has made
the required filings with the National Pipeline Mapping System and has
reviewed and revised its public education program. Compliance with the Act is
expected to increase Northern Border Pipeline's operating costs particularly
related to integrity assessments for its interstate pipeline. As required,
Northern Border Pipeline has developed an overall plan for pipeline integrity
management. The detailed analysis is being performed to determine the
priorities and costs for inspecting and testing its pipeline. However, the
plan will be modified as a result of the findings noted and could result in
additional assessment or remediation costs. Although TC PipeLines expects
Northern Border Pipeline to include these costs in future rate case filings,
total recovery is not assured. Northern Border Pipeline advises that,
presently, it expects its costs for 2004 for integrity assessments to be
approximately $0.5 million.

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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, however, 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 the enactment of increasingly strict environmental and safety laws,
regulations and enforcement policies by Congress, the FERC, the Department of
Transportation and other federal agencies, state regulatory bodies and the
courts, 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.

BUSINESS OF TUSCARORA GAS TRANSMISSION COMPANY

Tuscarora is a Nevada general partnership 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, 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 Resources 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 Resources, operates the Tuscarora
pipeline system pursuant to an operating agreement. Effective December 1, 2002,
TransCanada is under contract to provide gas control services for the Tuscarora
pipeline system, including monitoring and control of the compressor units, as
well as emergency call out functions and other operational co-ordination.

THE TUSCARORA PIPELINE SYSTEM

Tuscarora owns a 240-mile, 20-inch diameter, United States interstate pipeline
system that originates at an interconnection point with facilities of Gas
Transmission Northwest Corporation (GTN) near Malin, Oregon and runs southeast
through northeastern California and northwestern Nevada. The Tuscarora pipeline
system terminates near Wadsworth, Nevada. Deliveries are also made directly to
the local gas distribution system of Sierra Pacific Power Company, a
subsidiary of Sierra Pacific Resources. 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 firm capacity
contracts to transport approximately 180 mmcfd of natural gas.

On December 1, 2002, Tuscarora completed and placed into service an expansion
of its pipeline system. This expansion consisted of two compressor stations
and an 11-mile pipeline extension from the previous terminus of the Tuscarora
pipeline system near Reno, Nevada to Wadsworth, Nevada. The expansion
increased Tuscarora's contracted capacity from 127 mmcfd to approximately 180
mmcfd. The new capacity was contracted under long-term firm transportation
contracts ranging from ten to fifteen years from the in-service date. Sierra
Pacific Power had contracted for approximately 11 mmcfd of the expansion
capacity. The project had a capital budget of approximately $43.0 million and
was completed at a capital cost of approximately $39.0 million. At the
request of the Public Utilities Commission of Nevada, Tuscarora will submit a
cost and revenue study to the FERC within 3 years of the in-service date of
the expansion.

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Tuscarora has firm transportation contracts for over 94% of its capacity,
including contracts held by Sierra Pacific Power for 68.1% of the total
available capacity, the majority of which expires on November 30, 2015. As of
December 31, 2003, the weighted average contract life on the Tuscarora pipeline
system was approximately 11.5 years.

In June 2003, Tuscarora held an open season to determine the demand for
incremental firm capacity by winter 2005. The open season resulted in the
execution of firm transportation service agreements for a net increase of
approximately 50 mmcfd. Tuscarora has begun preliminary planning activities
for construction of additional facilities to meet the additional capacity
requirements. Tuscarora has advised that it anticipates that an application
for a Certificate of Public Convenience and Necessity for authorization to
construct and operate the new pipeline facilities, will be filed with the
FERC by the second quarter 2004. Construction of the project is anticipated
to commence in late spring of 2005, with newly commissioned facilities on
line by November 1, 2005. Total capital cost is estimated to be approximately
$16.6 million. This expansion project will increase Tuscarora's contracted
capacity by approximately 28%.

Tuscarora's competitive position is dependent on the continued availability of
commercially attractive 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. Tuscarora is able to transport both Canadian and
United States natural gas, providing Tuscarora with a well-diversified supply of
natural gas to serve its markets.

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.

On November 25, 2003, the FERC issued a final rule, Order No. 2004, adopting
new standards of conduct for transmission providers when dealing with their
energy affiliates. All transmission providers must comply with the standards
of conduct by June 1, 2004. The standards of conduct are designed to prevent
transmission providers from giving undue preferences to any of their energy
affiliates. The final rule generally requires that transmission function
employees operate independently of the marketing function employees and
energy affiliates. Tuscarora advises that it will be in compliance with these
new standards by June 1, 2004.

In February 2004, the FERC amended its financial reporting regulations to
establish new quarterly financial reporting requirements. The reports will
include a basic set of financial statements and other selected data and will
be submitted electronically. The first report for Tuscarora will be due on or
before July 23, 2004. Tuscarora advises that it does not anticipate any
impact from complying with these requirements other than the time and
additional expenses for preparation of these reports.

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.

AVAILABLE INFORMATION

The Partnership's annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made
available free of charge on the Partnership's website at
www.tcpipelineslp.com/investor/reports.htm as soon as reasonably practicable
after the Partnership electronically files these materials with, or furnishes
them to, the Securities and Exchange Commission (SEC).

ITEM 2. PROPERTIES

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

PROPERTIES OF NORTHERN BORDER PIPELINE COMPANY

Northern Border Pipeline holds the right, title and interest in its pipeline
system. With respect to real property, the pipeline system falls into two basic
categories: (a) parcels which are owned in fee, such as sites for compressor
stations, meter stations, pipeline field offices, and microwave towers; and (b)
parcels where the interest derives from leases, easements, rights-of-way,
permits or licenses from landowners or governmental authorities permitting the
use of such land for the construction and operation of the pipeline system. The
right to construct and operate the pipeline system across certain property was
obtained 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, 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

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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 (Tribes).
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 pipeline
right-of-way lease expires in 2011. See Item 3. "Legal Proceedings."

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. 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,
expiring in 2015.

PROPERTIES OF TUSCARORA GAS TRANSMISSION COMPANY

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; and (b) parcels where
its interest derives from leases, easements, grants, permits or licenses from
landowners or governmental authorities permitting the use of the land for the
construction and operation of its pipeline system.

ITEM 3. LEGAL PROCEEDINGS

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

On July 31, 2001, the Tribes of the Fort Peck Indian Reservation filed a
lawsuit in Tribal Court against Northern Border Pipeline to collect more than
$3.0 million in back taxes, together with interest and penalties. The lawsuit
relates to a utilities tax on certain of Northern Border Pipeline's
properties within the Fort Peck Indian Reservation. Northern Border Pipeline
and the Tribes, through a mediation process, reached a settlement in
principle on pipeline right-of-way lease and taxation issues. Final
documentation has been completed and is subject to the approval of the Bureau
of Indian Affairs, which the parties believe will be obtained in the very
near term. This settlement grants to Northern Border Pipeline, among other
things, (i) an option to renew the pipeline right-of-way lease upon agreed
terms and conditions on or before April 1, 2011 for a term of 25 years with a
renewal right for an additional 25 years; (ii) a present right to use
additional tribal lands for expanded facilities; and (iii) release and
satisfaction of all tribal taxes against Northern Border Pipeline. In
consideration of this option and other benefits, Northern Border Pipeline
will pay a lump sum amount of $5.9 million and an annual amount of
approximately $1.5 million beginning April 2004. Northern Border Pipeline
advises that it intends to seek regulatory recovery of the costs resulting
from the settlement. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors and Cautionary
Statement Regarding Forward-Looking Statements."

See Item 1. "Business - Business of Northern Border Pipeline Company - FERC
Regulation" for a discussion on the proceeding before the FERC.

Northern Border Pipeline advises that it is not currently party to any other
legal proceedings that, individually or in the aggregate, would reasonably be
expected to have a material adverse impact on it or TC PipeLines' results of
operations or financial position.

Tuscarora is not currently a party to any material legal proceedings.

ITEM 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, 2003.

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PART II

ITEM 5. MARKET FOR 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 on May 28, 1999 at a price of
$20.50 per common unit. The common units are quoted on the Nasdaq Stock Market
and trade under the symbol "TCLP."

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 declared with respect to the corresponding
periods. Cash distributions are paid within 45 days after the end of each
quarter to unitholders of record as of the record date.

As of February 23, 2004, there were 97 record holders of common units and
approximately 7,500 beneficial owners of common units, including common units
held in street name.

The Partnership currently has 16,563,564 common units outstanding, of which
11,890,694 are held by the public, 2,800,000 are held by an affiliate of the
general partner, and 1,872,870 are held by the general partner. The Partnership
also has 936,436 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.

The general partner receives 2% of all cash distributions and the holders of
common units and subordinated units (collectively referred to as unitholders)
receive the remaining 98% of all cash distributions. The general partner is
also entitled to incentive distributions as described below. The
Partnership's quarterly cash distributions to its unitholders are comprised
of 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 a quarter less the amount of cash
reserves that are necessary or appropriate, in the reasonable discretion of
the general partner, to:

o provide for the proper conduct of the business of the Partnership
(including reserves for future capital expenditures and for
anticipated credit needs);

o comply with applicable laws or any Partnership debt instrument or
agreement; or

o 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.

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The general partner receives incentive distributions if the amount distributed
with respect to any quarter exceeds the minimum quarterly distribution of $0.45
per unit. Under the incentive distribution provisions, the general partner
receives 15% of amounts distributed in excess of $0.45 per unit, 25% of amounts
distributed in excess of $0.5275 per unit, and 50% of amounts distributed in
excess of $0.69 per unit provided the balance has been first distributed to
unitholders on a pro rata basis. The amounts that trigger incentive
distributions at various levels are subject to adjustment in certain events, as
described in the partnership agreement.

In 2003, the Partnership made cash distributions to unitholders and the general
partner that amounted to $39.4 million compared to $37.4 million in 2002. These
payments represented $0.525 per unit for the quarters ended December 31, 2002
and March 31, 2003 and $0.55 per unit for the quarters ended June 30, 2003 and
September 30, 2003. On February 13, 2004, the Partnership paid a cash
distribution of $10.1 million to unitholders and the general partner,
representing a cash distribution of $0.55 per unit for the quarter ended
December 31, 2003. The distribution was allocated in the following manner: $9.1
million to the holders of common units as of the close of business on January
30, 2004 (including $1.5 million to an affiliate of the general partner as
holder of 2,800,000 common units and $1.0 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, $0.3 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.

SUBORDINATION PERIOD

The subordination period extends until the first day of any quarter beginning
after June 30, 2004 in respect of which:

o distributions of Available Cash from operating surplus on the common
units and the subordinated units for each of the three non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distribution on all of the
outstanding common units and subordinated units during those periods;

o the adjusted operating surplus generated during each of the three
non-overlapping four-quarter periods immediately preceding that date
equaled or exceeded the sum of the minimum quarterly distribution on
all of the common units and the subordinated units that were
outstanding on a fully diluted basis and the related distributions on
the general partner interest during those periods; and

o there are no arrearages in payment of the minimum quarterly
distribution on the common units.

On August 1, 2002, 936,435 subordinated units, representing one-third of the
outstanding subordinated units held by the general partner, upon satisfaction of
the financial tests set forth in the partnership agreement of TC PipeLines,
automatically converted into an equal number of common units.

On August 1, 2003, an additional 936,435 subordinated units held by the general
partner, upon satisfaction of the financial tests set forth in the partnership
agreement, automatically converted into an equal number of common units.

The remaining 936,436 outstanding subordinated units will, upon satisfaction
of the financial tests, automatically convert into common units on the first
day after the record date for distributions for the quarter ending June 30,
2004, and will thereafter participate, pro rata, with the other common units
in distributions of Available Cash.

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ITEM 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."

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

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

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

AS A RESULT OF THE PARTNERSHIP'S OWNERSHIP OF INVESTMENTS 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
and Northern Border Pipeline included elsewhere in this report (see Item 8.
"Financial Statements and Supplementary Data"). 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. As of December 31, 2003, TC PipeLines' interest in Northern Border
Pipeline represents approximately 84% of TC PipeLines' total assets and for the
year ended December 31, 2003 provided approximately 89% of TC PipeLines' equity
income. All amounts are stated in United States dollars.

OVERVIEW

TC PipeLines, LP owns a 30% general partner interest in Northern Border
Pipeline Company. 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 controlled by affiliates of Enron Corp.
TransCanada

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holds a minority general partner interest in Northern Border Partners which
entitles it to 12.25% of the voting power of Northern Border Pipeline.
Northern Border Pipeline owns a 1,249-mile interstate pipeline system that
transports natural gas from the Montana-Saskatchewan border near Port of
Morgan, Montana to natural gas markets in the midwestern United States.
Construction of the pipeline was initially completed in 1982. The Northern
Border pipeline system was expanded and/or extended in 1991, 1992, 1998 and
2001. The Northern Border pipeline system connects directly and through
multiple pipelines to various natural gas markets in the United States.

TC PipeLines also owns a 49% general partner interest in Tuscarora Gas
Transmission Company. The Partnership acquired this interest from TCPL
Tuscarora Ltd., an indirect subsidiary of TransCanada, in September 2000.
Tuscarora owns a 240-mile, 20-inch diameter, United States interstate
pipeline system that originates at an interconnection point with facilities
of Gas Transmission Northwest Corporation (GTN) near Malin, Oregon and runs
southeast through northeastern California and northwestern Nevada. The
Tuscarora pipeline system terminates near Wadsworth, Nevada. Deliveries are
also made directly to the local gas distribution system of Sierra Pacific
Resources. 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. In January 2001, Tuscarora completed construction
of the Hungry Valley lateral, a 14-mile, 16-inch pipeline extension that
serves as Tuscarora's second connection into Reno, Nevada. On December 1,
2002, Tuscarora completed and placed into service another expansion of its
pipeline system. The 2002 expansion consisted of two compressor stations and
an 11-mile pipeline extension from the previous terminus of the Tuscarora
pipeline system near Reno, Nevada to Wadsworth, Nevada. The expansion
increased Tuscarora's contracted capacity from 127 mmcfd to approximately 180
mmcfd. The new capacity is contracted under long-term firm transportation
contracts.

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. Northern Border Pipeline represents
approximately 90% of TC Pipelines' equity income. For an overview discussing
the important factors impacting Northern Border Pipeline's business, such as
the continued availability of western Canadian natural gas and demand
therefore in the U.S., see "Results of Operations of Northern Border Pipeline
Company - Overview" below.

RESULTS OF OPERATIONS OF TC PIPELINES, LP

CRITICAL ACCOUNTING POLICY

TC PipeLines accounts for its investments in both Northern Border Pipeline and
Tuscarora using the equity method of accounting as detailed in Note 3 and Note 4
to the Partnership's Financial Statements, included elsewhere in this report.
The equity method of accounting is appropriate where the investor does not
control an investee, but rather is able to exercise significant influence over
the operating and financial policies of an investee. TC PipeLines is able to
exercise significant influence over its investments in Northern Border Pipeline
and Tuscarora as evidenced by its representation on their respective management
committees.

Since the 30% general partner interest in Northern Border Pipeline and the 49%
general partner interest in 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 (see Item 1. "Business - Business of
Northern Border Pipeline Company" and "Business - Business of Tuscarora Gas
Transmission Company").

YEAR ENDED DECEMBER 31, 2003 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2002

Net income increased $2.5 million, or 5%, to $48.0 million for the year ended
December 31, 2003, compared to $45.5 million for 2002. The increase is primarily
due to higher equity income from the Partnership's investments in Northern
Border Pipeline and Tuscarora.

Equity income from the Partnership's investment in Northern Border Pipeline
increased $1.7 million, or 4%, to $44.5 million for the year ended December 31,
2003 compared to $42.8 million for 2002. Northern Border Pipeline's revenues for
2003 were higher than the same period last year due to the uncollected revenues
associated with the transportation capacity previously held by Enron North
America which reduced 2002 revenues, as well as additional incremental
revenues received in 2003. These factors increased the Partnership's 2003
equity income by $0.9 million. Also, Northern Border Pipeline's interest
expense was lower during 2003 compared to the same period last year due
primarily to lower average interest rates and lower average debt balances
outstanding, resulting in an increase of $2.0 million to the Partnership's
equity income. These increases were partially offset by higher operations and
maintenance expenses and taxes other than income as well as a decrease in
other income. The increase in 2003 operations and maintenance expense is
primarily due to a provision recorded by Northern Border

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Pipeline in 2003 related to its share of Enron's cash balance plan
underfunding (see "Results of Operations of Northern Border Pipeline Company -
Impact of Enron's Chapter 11 Filing on Northern Border Pipeline's Business"),
partially offset by lower electric power costs in 2003 as compared to 2002,
resulting in a net decrease to the Partnership's equity income of $0.3
million. The increase in 2003 taxes other than income is primarily due to a
refund of use taxes received by Northern Border Pipeline during 2002 as well
as higher property taxes in 2003 as compared to 2002. These increases resulted
in a decrease in equity income to the Partnership of $0.4 million. Other
income (expense) was lower during 2003 as compared to the prior year. The 2003
amount includes interest expense for refunds required by the order issued by
the FERC on March 27, 2003 (see Item 1. "Business - Business of Northern
Border Pipeline Company - FERC Regulation") whereas the 2002 amount includes
income mostly related to interest received on the refund of use taxes
previously discussed and income for previously vacated frequency bands. The
impact on the Partnership of this decrease in other income was a $0.5 million
reduction in equity income from Northern Border Pipeline.

Equity income from the Partnership's investment in Tuscarora increased $0.6
million, or 13%, to $5.3 million for the year ended December 31, 2003, compared
to $4.7 million for the prior year. Tuscarora's revenues increased primarily due
to new transportation contracts from the expansion, increasing the Partnership's
equity income from Tuscarora by $3.2 million. This increase was partially offset
by increased operations and maintenance expense and increased depreciation
expense, both resulting from Tuscarora's expansion. The combined effect of these
increased expenses reduced the Partnership's equity income from Tuscarora by
$1.8 million. In addition, higher interest expense due to Tuscarora's expansion,
partially offset by a decrease in Tuscarora's other income, resulted in a $0.8
million reduction in the Partnership's equity income for the year ended December
31, 2003.

The Partnership recorded general and administrative expenses of $1.7 million and
$1.5 million for the years ended December 31, 2003 and 2002, respectively.

The Partnership recorded financial charges of $0.1 million and $0.5 million for
the years ended December 31, 2003 and 2002, respectively. This decrease is
primarily attributed to the Partnership repaying $6.0 million of the balance
outstanding on its Revolving Credit Facility during 2003, which reduced the
balance outstanding from $11.5 million to $5.5 million.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2001

Net income increased $2.0 million, or 5%, to $45.5 million for the year ended
December 31, 2002, compared to $43.5 million for 2001. The increase is primarily
due to higher equity income from the Partnership's investments in Northern
Border Pipeline and Tuscarora.

Equity income from the Partnership's investment in Northern Border Pipeline
increased $0.7 million, or 2%, to $42.8 million for the year ended December 31,
2002 compared to $42.1 million for 2001. Northern Border Pipeline's revenues
increased in 2002 due to Project 2000, Northern Border Pipeline's expansion and
extension that was placed into service in October 2001. This had the impact of
increasing the Partnership's 2002 equity income by approximately $2.4 million.
Also, favorable interest rates decreased Northern Border Pipeline's interest
expense in 2002 further increasing 2002 equity income to the Partnership by $1.1
million. These increases were largely offset by a reserve recorded by Northern
Border Pipeline in 2002 for costs that arose from the treatment of previously
collected quantities of natural gas used in utility operations to cover
electric power costs, resulting in a $3.0 million decrease in 2002 equity
income to the Partnership (see Item 1. "Business - Business of Northern Border
Pipeline Company - FERC Regulation").

Equity income from the Partnership's investment in Tuscarora increased $1.1
million, or 31%, to $4.7 million for the year ended December 31, 2002, compared
to $3.6 million for 2001. This increase is attributed to incremental revenue
from new transportation contracts, the completion of Tuscarora's expansion
facilities, which were placed into service on December 1, 2002, as well as lower
interest expense, resulting from the capitalization of interest expense related
to funds being used for the expansion.

The Partnership recorded general and administrative expenses of $1.5 million and
$1.2 million for the years ended December 31, 2002 and 2001, respectively.

The Partnership recorded financial charges of $0.5 million and $1.0 million for
the years ended December 31, 2002 and 2001, respectively. This decrease is
primarily attributed to the Partnership repaying $10.0 million of the balance

- 18 -

outstanding on its Revolving Credit Facility during 2002, which reduced the
balance outstanding from $21.5 million to $11.5 million, and to lower average
interest rates during 2002.

LIQUIDITY AND CAPITAL RESOURCES OF TC PIPELINES, LP

CASH DISTRIBUTION POLICY OF TC PIPELINES

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

o 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;

o 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;

o 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

o 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.

The general partner receives incentive distributions if the amount distributed
with respect to any quarter exceeds the minimum quarterly distribution of $0.45
per unit. Under the incentive distribution provisions, the general partner
receives 15% of amounts distributed in excess of $0.45 per unit, 25% of amounts
distributed in excess of $0.5275 per unit, and 50% of amounts distributed in
excess of $0.69 per unit provided the balance has been first distributed to
unitholders on a pro rata basis. The amounts that trigger incentive
distributions at various levels are subject to adjustment in certain events, as
described in the partnership agreement.

CONVERSION OF SUBORDINATED UNITS

On August 1, 2002, 936,435 subordinated units, representing one-third of the
outstanding subordinated units held by the general partner, upon satisfaction of
the financial tests set forth in the partnership agreement of TC PipeLines,
automatically converted into an equal number of common units.

On August 1, 2003, an additional 936,435 subordinated units held by the general
partner, upon satisfaction of the financial tests set forth in the partnership
agreement, automatically converted into an equal number of common units.

The remaining 936,436 outstanding subordinated units will, upon satisfaction
of the financial tests, automatically convert into common units on the first
day after the record date for distributions for the quarter ending June 30,
2004, and will thereafter participate, pro rata, with the other common units
in distributions of Available Cash.

GENERAL

On January 30, 2004, the Partnership paid $19.5 million related to its 30%
share of a capital contribution to Northern Border Pipeline in response to a
$65.0 million cash call issued by Northern Border Pipeline to its partners on
January 27, 2004. Northern Border Pipeline advises that the funds will be
used to repay a portion of its existing indebtedness under the 2002 Pipeline
Credit Agreement. This payment was funded through the use of cash from
operations and existing credit facilities.

On January 16, 2004, the board of directors of the general partner declared the
Partnership's 2003 fourth quarter cash distribution. The fourth quarter cash
distribution, which was paid on February 13, 2004 to unitholders of record as of
January 30, 2004, totaled $10.1 million and was paid in the following manner:
$9.1 million to common unitholders (including $1.5 million to an affiliate of
the general partner as holder of 2,800,000 common units and $1.0 million to the
general partner as holder of 1,871,870 common units), $0.5 million to the
general partner as holder of the subordinated units, $0.3 million to the general
partner as the holder of incentive distribution rights, and $0.2 million to the
general partner in respect of its 2% general partner interest.

- 19 -

SUMMARY OF CERTAIN CONTRACTUAL OBLIGATIONS

DEBT AND CREDIT FACILITIES

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 the London Interbank Offered Rate (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.
At December 31, 2003 and 2002, the Partnership had no borrowings outstanding
under the TransCanada Credit Facility. As at March 12, 2004, $9.0 million is
outstanding under the TransCanada Credit Facility.

On March 8, 2004, the Partnership renewed its unsecured credit facility
(Revolving Credit Facility) with Bank One, NA, as administrative agent. Under
the Revolving Credit Facility, the Partnership may borrow up to an aggregate
principal amount of $30.0 million. Loans under the Revolving Credit Facility
may bear interest, at the option of the Partnership, at a one-, two-, three-,
or six-month 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 finance capital expenditures and for other general
purposes. The Partnership had $5.5 million and $11.5 million outstanding
under the Revolving Credit Facility at December 31, 2003 and 2002,
respectively. The interest rate on the Revolving Credit Facility at December
31, 2003 and 2002 was 2.4% and 2.7%, respectively. As at March 12, 2004, $5.5
million is outstanding under the Revolving Credit Facility.

On April 23, 2002, the Partnership filed a shelf registration statement with the
SEC to sell, from time to time, up to $200.0 million of common units
representing limited partner interests and/or debt securities. The Partnership
intends to use the net proceeds for general purposes, repayment of debt, future
acquisitions, capital expenditures and working capital. As at March 12, 2004, no
additional units of the Partnership had been issued.

CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows provided by operating activities decreased $2.5 million, or 5%, to
$49.6 million for the year ended December 31, 2003, compared to $52.1 million
for 2002. The decrease is primarily due to lower distributions received from
Northern Border Pipeline in 2003 as compared to 2002. In 2003, Northern Border
Pipeline was ordered by the FERC to refund $10.0 million (TC PipeLines' share is
$3.0 million) to its shippers related to company use gas (see Item 1.
"Business - Business of Northern Border Pipeline Company - FERC Regulation").
In 2003, the Partnership's cash from operations included cash distributions
of $45.2 million and $6.2 million from its investments in Northern Border
Pipeline and Tuscarora, respectively, compared to $49.2 million and $4.6
million, respectively, in 2002.

Cash flows provided by operating activities increased $9.2 million, or 21%, to
$52.1 million for the year ended December 31, 2002, compared to $42.9 million
for 2001. In 2001, the Partnership received cash distributions of $42.9 million
and $2.4 million from Northern Border Pipeline and Tuscarora, respectively.

- 20 -

CASH FLOWS FROM INVESTING ACTIVITIES

For the year ended December 31, 2003, the Partnership made equity contributions
totaling $4.9 million to Tuscarora related to Tuscarora's expansion project,
which was partially offset by a $0.8 million return of capital from Tuscarora.
As well, a $1.0 million return of capital was received by the Partnership from
Northern Border Pipeline in 2003. During 2002, the Partnership made equity
contributions totaling $7.6 million to Tuscarora related to Tuscarora's
expansion project, partially offset by a $0.2 million return of capital received
from Tuscarora in 2002.

The Partnership did not have any material sources or uses of cash relating to
investing activities in 2001.

CASH FLOWS FROM FINANCING ACTIVITIES

For the year ended December 31, 2003, the Partnership paid cash distributions of
$39.4 million, compared to $37.4 million in 2002. The increase is due to the
Partnership increasing its quarterly cash distribution from $0.525 per unit to
$0.55 per unit beginning with the 2003 second quarter cash distribution. In
2001, the Partnership paid cash distributions of $35.2 million.

For the year ended December 31, 2003, the Partnership repaid $6.0 million of the
balance outstanding on the Revolving Credit Facility, compared to repayments of
$10.0 million during 2002. The Partnership did not make any drawings or
repayments on the Revolving Credit Facility in 2001. At December 31, 2003, the
Partnership had $5.5 million outstanding under the Revolving Credit Facility.

CAPITAL REQUIREMENTS

On January 30, 2004, TC PipeLines paid $19.5 million related to its 30% share of
a capital contribution to Northern Border Pipeline in response to a $65.0
million cash call issued by Northern Border Pipeline to its partners on January
27, 2004.

To the extent TC PipeLines has any additional capital requirements with respect
to its investments in Northern Border Pipeline and Tuscarora or makes
acquisitions in 2004, TC PipeLines expects to finance these requirements with
operating cash flows, debt and/or equity.

IMPACT OF ENRON'S CHAPTER 11 FILING ON TC PIPELINES' BUSINESS

In 2001, Enron filed a voluntary petition for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code. For more details see
"Results of Operations of Northern Border Pipeline Company - Impact of
Enron's Chapter 11 Filing on Northern Border Pipeline's Business."

Based on currently available information, TC PipeLines does not expect the
impact of Enron's bankruptcy protection filing to have a material impact on the
business or financial condition of Northern Border Pipeline or TC PipeLines.

TC PipeLines continues to monitor developments at Enron and to assess any impact
of Enron's Chapter 11 proceedings on Northern Border Pipeline in light of
Northern Border Pipeline's existing agreements and relationships with Enron and
its subsidiaries, and to take all appropriate action to protect the interests of
TC PipeLines and its unitholders.

OUTLOOK

On December 19, 2003, Northern Border Pipeline advised that its Management
Committee had unanimously agreed to issue equity cash calls to its partners in
the total amount of $130.0 million (TC PipeLines' share is $39.0 million) in
early 2004, the first of which was issued on January 27, 2004, and $90.0 million
(TC PipeLines' share is $27.0 million) in 2007 and to change the cash
distribution policy of Northern Border Pipeline as of January 1, 2004.
Effective January 1, 2008, Northern Border Pipeline's cash distribution
policy will be adjusted to maintain a consistent capital structure. TC
PipeLines expects to fund a portion of the 2004 equity cash calls with
borrowings under its existing credit facilities. As at March 12, 2004, the
Partnership has paid Northern Border Pipeline $19.5 million related to the
equity cash calls previously discussed.

- 21 -

RESULTS OF OPERATIONS OF NORTHERN BORDER PIPELINE COMPANY

IN THE FOLLOWING DISCUSSION OF THE RESULTS OF NORTHERN BORDER PIPELINE, ALL
AMOUNTS REPRESENT 100% OF THE OPERATIONS OF NORTHERN BORDER PIPELINE, IN WHICH
THE PARTNERSHIP HAS HELD A 30% INTEREST SINCE MAY 28, 1999.

The discussion and analysis of Northern Border Pipeline's financial condition
and operations are based on Northern Border Pipeline's financial statements,
which were prepared in accordance with accounting principles generally accepted
in the United States of America. The following discussion and analysis should be
read in conjunction with Northern Border Pipeline's financial statements
included elsewhere in this report.

OVERVIEW

For Northern Border Pipeline, there are several major business drivers.
First, a healthy long-term supply outlook is critical. Because the primary
source of gas supply that is transported on its system is in the Western
Canadian Sedimentary Basin, western Canadian supply trends are particularly
important to Northern Border Pipeline. The current outlook for western
Canadian supply looks stable for the foreseeable future however production
has exceeded new reserve additions in recent years. Increased Canadian
consumption related to the extraction process for oil sands projects as well
as restrictions on gas production to protect oil sand reserves could also
impact supplies of natural gas for export. The supply outlook may be
significantly enhanced over time by new Alaskan and Mackenzie Delta supplies
reaching the western Canadian pipeline grid potentially beginning by the end
of this decade.

Natural gas markets are also critical to Northern Border Pipeline's financial
performance. The Northern Border pipeline system serves natural gas markets
in the upper midwestern area of the United States and accesses a major
trading hub in the Chicago area. Market growth has been steady with both
heating load growth and direct end-user growth such as power plants and
ethanol plants. However, competitive pipeline projects may have a negative
impact on Northern Border Pipeline's profitability.

Northern Border Pipeline charges fees for transportation which are primarily
fixed and are based on the amount of capacity reserved by each shipper.
Contracting with shippers to reserve the available pipeline capacity as
existing contracts expire is a critical factor in Northern Border Pipeline's
success. The weighted average life of Northern Border Pipeline's contracts as
of December 31, 2003 was approximately three and one third years. During
2003, Northern Border Pipeline was successful in recontracting, at maximum
rates, all the capacity under contracts that expired on or before November
2003.

The composition of natural gas affects the volume of natural gas that is
transported through a pipeline system. Beginning in 2000, the energy content
of natural gas that Northern Border Pipeline receives at the Canadian border
has declined modestly from 1,023 British Thermal Units (Btus) per cubic foot
(cf) to 1,005 Btus/cf. Northern Border Pipeline's transportation contracts in
conjunction with its tariff define both the volume and equivalent Btu value
of the gas to be transported. A reduction in the Btu level results in a
higher volume of natural gas to be transported to meet an overall equivalent
Btu value of the gas. The Btu level decline that is being experienced is
primarily the result of greater processing capacity in Alberta, Canada. The
change has caused Northern Border Pipeline to reduce its capacity by almost 2
percent to be able to maintain its high standard of system reliability for
its customers. Although Btu levels could theoretically go lower, Northern
Border Pipeline advises that it believes the Btu level will stabilize near
the current level of 1,005 Btus/cf.

As was the case last year, Northern Border Pipeline is in re-contracting
discussions with its customers for contracts that will expire prior to
November 1, 2004, which represents approximately 30% of its system capacity.
The value of capacity on interstate pipelines is driven by supply and demand
conditions. In particular, the relationship between gas prices in Canada and
prices in the midwestern U.S. markets will determine the underlying value of
transportation. The current gas balance in western Canada is such that
Northern Border Pipeline's transportation has been commercially attractive
for available supply that is not consumed within western Canada or committed
to transportation capacity on other pipelines reaching downstream markets. To
maintain an adequate gas balance in western Canada, production will need to
grow moderately in the future to meet anticipated demand primarily driven by
gas consumption in the extraction and processing associated with Canadian oil
sands development. Canada holds an estimated 1.6 trillion barrels of bitumen
reserves. Bitumen, after it is extracted from sand, can be upgraded to
synthesized crude oil through several processes. The extraction and
processing of bitumen require significant quantities of natural gas. Northern
Border Pipeline advises that it does not know how many of the announced oil
sands development projects will be approved and constructed but the demand
for transportation on its pipeline system could be affected adversely by the
additional competition for Canadian gas supply that would result.

Northern Border Pipeline advises that it continues to work with producers and
marketers to develop the contractual support for a new proposed 300-mile
pipeline project, the Bison Pipeline, to connect the coal bed methane
reserves in the Powder River Basin to markets served by Northern Border
Pipeline. Northern Border Pipeline advises that it intends to hold a new open
season for the Bison Pipeline when production increases to levels that
Northern Border Pipeline believes will support the project. If sufficient
interest commitments are received, Northern Border Pipeline advises that it
will pursue regulatory approvals.

Northern Border Pipeline advises that it will continue to focus on safe,
efficient, and reliable operations and the further development of its
pipeline. Northern Border Pipeline further advises that it is working to
maintain its position as a low cost transporter of Canadian gas to the
midwestern U.S. and provide highly valued services to its customers. Growth
may occur through incremental projects intended to access new markets or
supply areas and supported by long-term contracts.

- 22 -

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Certain amounts included in or affecting Northern Border Pipeline's financial
statements and related disclosures must be estimated, requiring Northern
Border Pipeline to make certain assumptions with respect to values or
conditions that cannot be known with certainty at the time the financial
statements are prepared. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America 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. Any effects on Northern Border
Pipeline's business, financial position or results of operations resulting
from revisions to these estimates are recorded in the period in which the
facts that gave rise to the revision become known.

Northern Border Pipeline's significant accounting policies are summarized in
Note 2 - Notes to Northern Border Pipeline's Financial Statements included
elsewhere in this report. Certain of Northern Border Pipeline's accounting
policies are of more significance in its financial statement preparation process
than others. 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
accounting principles generally accepted in the United States of America for
nonregulated entities. Northern Border Pipeline continually assesses whether the
regulatory assets are probable of future recovery by considering such factors as
regulatory changes and the impact of competition. If future recovery ceases to
be probable, Northern Border Pipeline would be required to write-off the
regulatory assets at that time. At December 31, 2003, Northern Border Pipeline
has reflected regulatory assets of $8.2 million, which are being recovered from
its shippers over varying periods of time.

Northern Border Pipeline's long-lived assets are stated at original cost.
Northern Border Pipeline must use estimates in determining the economic useful
lives of those assets. For utility property, no retirement gain or loss is
included in income except in the case of retirements or sales of entire
regulated operating units. The original cost of utility property retired is
charged to accumulated depreciation and amortization, net of salvage and cost of
removal.

Northern Border Pipeline's accounting for financial instruments is in
accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires that every derivative instrument
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. At December 31, 2003, Northern Border Pipeline's
balance sheet included assets from derivative financial instruments of
$16.6 million.

RESULTS OF OPERATIONS

Northern Border Pipeline's net income to partners was $148.2 million in 2003,
compared to net income of $142.7 million in 2002 and $140.5 million in 2001.
Northern Border Pipeline's 2003 operating results benefited from increased
operating revenues from Northern Border Pipeline's Order 637 Compliance
filing which went into effect October 1, 2003 and the ability to enter into
short-term contracts effective November 1, 2003, the re-contracting of
capacity previously held by Enron North America Corp. (ENA) and reductions in
interest expense due to lower interest rates. Partially offsetting these
increases to Northern Border Pipeline's operating results were higher
operations and maintenance expenses for 2003 as compared to 2002. Northern
Border Pipeline's increase in net income in 2002 over 2001 resulted from
reductions in interest rates, which reduced its interest expense for 2002 as
compared to 2001. In addition, Northern Border Pipeline realized increased
operating revenues in 2002 resulting from Project 2000, Northern Border
Pipeline's expansion and extension placed in service in October 2001.
Northern Border Pipeline's 2001 results were reduced by reserves for
uncollectible receivables.

Operating revenues were $324.2 million in 2003, $321.1 million in 2002 and
$313.1 million in 2001. The $3.1 million increase in operating revenues in
2003 over 2002 resulted primarily from additional revenues of approximately
$1.8 million related to the re-contracted capacity of ENA contracts. ENA
filed for Chapter 11 bankruptcy protection in December 2001 (see "Impact of
Enron's Chapter 11 Filing on Northern Border Pipeline's Business"). In
addition, Northern Border Pipeline recognized revenues from its ability to
now offer short-term firm contracts and also transportation service beyond a
shipper's contracted transportation path. The increase in operating revenues
in 2002 over 2001 was primarily due to additional revenues of approximately
$10.3 million associated with the completion of Project 2000 in October 2001.
The impact of the additional revenues associated with Project 2000 was
partially offset by uncollected revenues associated with the transportation
capacity formerly held by ENA. For 2002, the revenues lost on this capacity
totaled approximately $1.8 million.

- 23 -

Operations and maintenance expenses were $43.8 million in 2003, $41.4 million
in 2002 and $33.7 million in 2001. The 2003 expense included a $3.1 million
charge for Northern Border Pipeline's allocation from Northern Plains related
to the Enron cash balance plan under funding (see "Impact of Enron's Chapter
11 Filing on Northern Border Pipeline's Business"). In 2003, Northern Border
Pipeline also had increases in salaries and benefits, right-of-way damages,
and telecommunication expenses offset by decreases in electric power costs,
as compared to 2002. The 2002 expense included $10.0 million reserve for
costs associated with the treatment of previously collected quantities of
natural gas used in utility operations to cover electric power costs. The
FERC ordered refunds for these costs in 2003 (see Item 1. "Business -
Business of Northern Border Pipeline - FERC Regulation"). The 2002 expense
also included an increase in regulatory commission expense, and decreases in
employee benefit expense, administrative expense, and bad debt expense as
compared to 2001.

Depreciation and amortization expense was $57.8 million in 2003, $58.7
million in 2002 and $57.5 million in 2001. The decrease from 2002 to 2003
primarily reflects asset retirements. The increase between 2001 and 2002
reflects additional expense for assets related to Project 2000, placed in
service in October 2001.

Taxes other than income were $29.6 million in 2003, $28.4 million in 2002 and
$25.6 million in 2001. The increase in 2003 from 2002 is due primarily to a
refund from Minnesota for previously paid use taxes. The decrease in taxes other
than income in 2002 from 2001 was due primarily to adjustments to ad valorem
taxes. Northern Border Pipeline periodically reviews and adjusts its estimates
of ad valorem taxes. Reductions to previous estimates in 2001 exceeded
reductions to previous estimates in 2002 by approximately $2.1 million. As a
result of a ruling by the Minnesota Supreme Court, Northern Border Pipeline
filed for a refund of use taxes previously paid on exempt purchases. Northern
Border Pipeline received the refund in March 2002.

Interest expense was $44.9 million in 2003, $51.5 million in 2002 and $55.4
million in 2001. Interest expense for both 2003 and 2002 decreased from prior
year levels due to a decrease in Northern Border Pipeline's average interest
rate as well as a decrease in its average debt outstanding. The 2001 results
included $0.9 million of interest expense capitalized primarily related to
construction of Project 2000 facilities.

Other income (expense) was $0.1 million in 2003, $1.8 million in 2002 and
($0.4 million) in 2001. In 2003, Northern Border Pipeline recorded expense of
approximately $0.6 million for a repayment of amounts previously received for
vacated microwave frequency bands, interest expense of $0.3 million due to
the FERC-ordered refunds of electric power costs and $0.2 million of interest
income received related to a sales tax refund on exempt purchases. The amount
for 2002 includes approximately $0.6 million for amounts received for
previously vacated microwave frequency bands and income of $0.2 million due
to a reduction in reserves previously established. The amount for 2001
includes a charge of approximately $1.5 million for an uncollectible
receivable from a telecommunications company that had purchased excess
capacity on Northern Border Pipeline's communication system and a $0.7
million charge for reserves established. Northern Border Pipeline recorded an
allowance for equity funds used during construction of $0.9 million in 2001
primarily due to the construction of Project 2000 facilities.

LIQUIDITY AND CAPITAL RESOURCES OF NORTHERN BORDER PIPELINE COMPANY

CASH DISTRIBUTION POLICY OF NORTHERN BORDER PIPELINE

Under the terms of the cash distribution policy of Northern Border Pipeline,
distributions to the general partners of Northern Border Pipeline are to be
made on a proportionate basis according to each general partner's capital
account balance. The Northern Border Pipeline management committee determines
the amount and timing of distributions. In December 2003, Northern Border
Pipeline's management committee voted to, among other things, change its cash
distribution policy effective January 1, 2004. Under this new policy, cash
distributions are based upon 100% of distributable cash flow which is
earnings before interest, taxes, depreciation and amortization less interest
expense and maintenance capital expenditures. Effective January 1, 2008, the
cash distribution policy will be adjusted to maintain a consistent capital
structure at a level to be determined. Prior to January 1, 2004, cash
distributions were computed as the sum of 100% of net income, excluding
specific non-cash items, 100% of the current portion of any allowance for
income taxes and 35% of the sum of deferred tax expense, depreciation expense
and amortization of regulatory assets, minus 35% of maintenance capital
expenditures. Cash distributions are currently made by Northern Border
Pipeline on a quarterly basis approximately one month after the end of the
quarter.

SUMMARY OF CERTAIN CONTRACTUAL OBLIGATIONS

(a) See Note 7 - Notes to Northern Border Pipeline's Financial Statements

- 24 -

DEBT AND CREDIT FACILITIES

Northern Border Pipeline entered into a $175 million three-year credit
agreement (2002 Pipeline Credit Agreement) with certain financial institutions
in May 2002. The 2002 Pipeline Credit Agreement replaced a previous credit
agreement. The 2002 Pipeline Credit Agreement is to be used to refinance
existing indebtedness and for general business purposes. At December 31, 2003,
$131 million was outstanding under the 2002 Pipeline Credit Agreement at an
average interest rate of 1.95%. The 2002 Pipeline Credit Agreement requires the
maintenance of a ratio of EBITDA (net income plus interest expense, income taxes
and depreciation and amortization) to interest expense of greater than 3 to 1.
The 2002 Pipeline Credit Agreement also requires the maintenance of the ratio of
indebtedness to EBITDA of no more than 4.5 to 1. At December 31, 2003, Northern
Border Pipeline was in compliance with these covenants.

At December 31, 2002, Northern Border Pipeline had outstanding $65 million of
Series D Senior Notes issued in a $250 million private placement under a July
1992 note purchase agreement. The Series D Senior Notes matured in August 2003.
Northern Border Pipeline borrowed under the 2002 Pipeline Credit Agreement to
repay the Series D Senior Notes.

In April 2002, Northern Border Pipeline completed a private offering of $225
million of 6.25% Senior Notes due 2007 (2002 Pipeline Senior Notes). In
September 2001, Northern Border Pipeline completed a private offering of $250
million of 7.50% Senior Notes due 2021 (2001 Pipeline Senior Notes). In August
1999, Northern Border Pipeline completed a private offering of $200 million of
7.75% Senior Notes due 2009 (1999 Pipeline Senior Notes). The 2002 Pipeline
Senior Notes, 2001 Pipeline Senior Notes and 1999 Pipeline Senior Notes
(collectively Pipeline Senior Notes) were subsequently exchanged in registered
offerings for notes with substantially identical terms. The indentures under
which the Pipeline Senior Notes were issued do not limit the amount of unsecured
debt Northern Border Pipeline incurs, but do contain material financial
covenants, including restrictions on incurrence of secured indebtedness. The
proceeds from the Pipeline Senior Notes were used to reduce indebtedness
outstanding.

Northern Border Pipeline entered into interest rate swap agreements with
notional amounts totaling $225 million in May 2002. Under the interest rate
swap agreements, Northern Border Pipeline makes payments to counter parties
at variable rates based on the London Interbank Offered Rate and in return
receives payments based on a 6.25% fixed rate. The swaps were entered into to
hedge the fluctuations in the market value of the 2002 Pipeline Senior Notes.
At December 31, 2003, the average effective interest rate on Northern Border
Pipeline's interest rate swap agreements was 2.31%.

Northern Border Pipeline's short-term liquidity needs will be met by operating
cash flows and through the 2002 Pipeline Credit Agreement. Northern Border
Pipeline's long-term capital needs may be met through the ability to issue
long-term indebtedness.

CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows provided by operating activities were $193.3 million in 2003,
$224.4 million in 2002 and $197.3 million in 2001. The $31.1 million decrease
in 2003 from 2002 was primarily due to the payment of the FERC-ordered
refunds related to electric power costs and the discontinuance of certain
shipper transportation repayments. The $27.1 million increase in 2002 from
2001 was primarily due to an increase in operating revenues and the impact of
rate case refunds in 2001. In 2001, Northern Border Pipeline realized net
cash outflows of approximately $4.7 million related to its rate case refunds.
During the first quarter of 2001, Northern Border Pipeline made refunds to
its shippers totaling $6.8 million, which included approximately $2.1 million
collected in the first quarter of 2001 with the remainder collected
previously.

CASH FLOWS FROM INVESTING ACTIVITIES

Cash used in investing was $12.9 million for 2003 as compared to $9.2 million
for 2002 and $54.7 million for 2001. The 2003, 2002 and 2001 amounts include
$0.9 million, $0.3 million and $49.0 million, respectively, for Project 2000.
The remaining capital expenditures for 2003, 2002 and 2001 were primarily
related to renewals and replacements of existing facilities.

Total capital expenditures for 2004 are estimated to be $14.0 million
primarily related to renewals and replacements of existing facilities.
Northern Border Pipeline advises that it currently anticipates funding its
2004 capital expenditures primarily by borrowing on its credit facility and
using operating cash flows.

- 25 -

CASH FLOWS FROM FINANCING ACTIVITIES

Cash flows used in financing activities were $177.0 million for the year ended
December 31, 2003 as compared to $200.8 million for the same period in 2002 and
$160.7 million for the same period in 2001. Distributions to Northern Border
Pipeline's partners were $154.0 million, $164.1 million and $143.0 million for
2003, 2002 and 2001, respectively. The decrease from 2002 to 2003 in
distributions was primarily due to the impact of the electric power refunds
ordered by FERC on March 27, 2003. The increase from 2001 to 2002 in
distributions was primarily due to Northern Border Pipeline's improved operating
results.

For 2003, 2002 and 2001, Northern Border Pipeline's borrowings on long-term debt
totaled $142.0 million, $431.9 million and $385.4 million, respectively, which
were primarily used to repay previously existing indebtedness. For 2002,
Northern Border Pipeline received net proceeds from the 2002 Pipeline Senior
Notes of approximately $223.5 million. The net proceeds from the issuance of the
2001 Pipeline Senior Notes totaled approximately $247.2 million in 2001.
Northern Border Pipeline's borrowings under its credit agreements were $131.0
million in 2003, $207.0 million in 2002 and $136.0 million in 2001. Total
payments on debt were $165.0 million, $468.0 million and $374.0 million in 2003,
2002 and 2001, respectively.

In April 2002, Northern Border Pipeline received $2.4 million from the
termination of forward starting interest rate swaps upon issuance of the 2002
Pipeline Senior Notes (see Note 6 - Notes to Northern Border Pipeline's
Financial Statements). In September 2001, Northern Border Pipeline paid
approximately $4.1 million to terminate interest rate swap agreements upon
issuance of the 2001 Pipeline Senior Notes. The swaps were entered into to hedge
the fluctuations in Treasury rates and spreads between the execution date of the
swaps and the issuance of the 2002 and 2001 Pipeline Senior Notes. For 2001,
Northern Border Pipeline recognized a decrease in bank overdraft of $22.4
million. At December 31, 2000, Northern Border Pipeline reflected the bank
overdraft primarily due to rate refund checks outstanding.

IMPACT OF ENRON'S CHAPTER 11 FILING ON NORTHERN BORDER PIPELINE'S BUSINESS

On December 2, 2001, Enron filed a voluntary petition for bankruptcy protection
under Chapter 11 of the United States Bankruptcy Code. Certain wholly owned
Enron subsidiaries also filed for Chapter 11 bankruptcy protection on December
2, 2001 and thereafter. Northern Border Pipeline has not filed for bankruptcy
protection. Northern Plains, Pan Border and Northwest Border are Northern Border
Partners' general partners. Each of Northern Plains and Pan Border are wholly
owned subsidiaries of Enron, and Northwest Border is a wholly owned subsidiary
of TransCanada. Northern Plains and Pan Border were not among the Enron
companies filing for Chapter 11 protection.

The business of Enron and its subsidiaries that have filed for bankruptcy
protection are currently being administered under the direction and control of
the bankruptcy court. An unsecured creditors committee has been appointed in
the Chapter 11 cases. The creditors committee is responsible for general
oversight of the bankruptcy case, and has the power, among other things, to:
investigate the acts, conduct, assets, liabilities, and financial condition of
the debtor, the operation of the debtor's business and the desirability of the
continuance of such business; participate in the formulation of a plan of
reorganization; and file acceptances or rejections to such a plan.

On June 25, 2003, Enron announced the organization of CrossCountry Energy
Corp. a newly formed holding company, to hold, among other assets, Enron's
ownership interest in Northern Plains and Pan Border. The motion filed in
Bankruptcy Court to approve the proposed transfer of those ownership
interests was approved on September 25, 2003. An amended order on December
18, 2003 made the approval applicable to CrossCountry Energy, LLC
(CrossCountry). In connection with the closing, CrossCountry and Enron will
enter into a transition services agreement pursuant to which Enron will
provide to CrossCountry, on an interim, transitional basis, various services,
including but not limited to (i) information technology services, (ii)
accounting system usage rights and administrative support (iii) contract
management and purchasing support services (iv) corporate secretary services,
and (v) payroll, employee benefits and administrative services. In turn,
these services are provided to Northern Border Pipeline through Northern
Plains.

On January 9, 2004, the Bankruptcy Court approved as complete the amended
joint Chapter 11 plan and related disclosure statement (Chapter 11 Plan). The
Chapter 11 Plan has been submitted to the creditors for approval. Several
creditors have filed objections to the Chapter 11 Plan, including the Pension
Benefit Guaranty Corporation (PBGC). The Bankruptcy Court has scheduled a
hearing for April 20, 2004 on the approval. Under the Chapter 11 Plan, it is
anticipated that if CrossCountry is not sold to a third party, as permitted
by the Chapter 11 Plan, its shares would be distributed directly or
indirectly to creditors of the debtors.

Enron's filing for bankruptcy protection has impacted Northern Border
Pipeline. At the time of the filing of the bankruptcy petition, Northern
Border Pipeline had a number of contractual relationships with Enron and its
subsidiaries. Northern Plains provided and continues to provide operating and
administrative services for Northern Border Pipeline. Northern Plains has
continued to meet its operational and administrative service obligations
under the existing agreement, and, in its Form 10-K for the year ended
December 31, 2003, Northern Border Pipeline states that it believes Northern
Plains will continue to do so.

- 26 -

ENA, a wholly owned subsidiary of Enron that is in bankruptcy, was a party to
transportation contracts which obligated ENA to pay for 3.5% of Northern
Border Pipeline's capacity. In 2002, ENA rejected and terminated all of its
contracts on the Northern Border pipeline system. Northern Border Pipeline
filed claims against ENA for damages for breach of contract and other claims.
These claims are unsecured claims against Enron and ENA's bankruptcy estate.
Northern Border Pipeline advises that it is uncertain regarding the ultimate
amount of damages for breach of contract or other claims that Northern Border
Pipeline will be able to establish in the bankruptcy proceeding, and Northern
Border Pipeline cannot predict the amounts that it will collect or the timing
of collection. Northern Border Pipeline further states that it believes,
however, that any such delay in collecting or failure to collect will not
have a material adverse effect on its financial condition.

On December 31, 2003, Enron filed a motion seeking approval of the Bankruptcy
Court to provide additional funding to, and for authority to terminate the
Enron Corp. Cash Balance Plan (Plan) and certain other defined benefit plans
of Enron's affiliated in `standard terminations' within the meaning of
Section 4041 of the Employee Retirement Income Security Act of 1974, as
amended (ERISA). Such standard terminations would satisfy all of the
obligations of Enron and its affiliates with respect to funding liabilities
under the Plan. In addition, a standard termination would eliminate the
contingent claims of the PBGC's claims against Enron and its affiliates with
respect to the funding liabilities under the Plan. On January 30, 2004, the
Bankruptcy Court entered an order authorizing termination, additional funding
and other actions necessary to effect the relief requested. Pursuant to the
Bankruptcy Court order, any contributions to the Plan are subject to the
prior receipt of a favorable determination by the Internal Revenue Service
that the Plan is tax-qualified as of the date of termination. In addition,
the Bankruptcy Court order provides that the rights of PBGC and others to
assert that their filed claims have not been released or adjudicated as a
result of the Bankruptcy order and Enron and all other interested parties
retained the right to assert that such claims had been adjudicated or
released.

Northern Border Pipeline advises that Enron management has informed Northern
Border Pipeline that it will seek funding contributions from each member of
its ERISA controlled group of corporations that employs or employed
individuals who are, or were, covered under the Plan. Northern Border
Pipeline further advises that Northern Plains has advised Northern Border
Pipeline that Northern Plains is a member of a controlled group of
corporations covered under the Plan and that an amount of approximately $3.1
million has been estimated for Northern Border Pipeline's share of Northern
Plains' proportionate share of the up to $200 million estimated termination
costs authorized by the Bankruptcy Court order. Under the operating agreement
with Northern Plains, these increased costs may be Northern Border Pipeline's
responsibility. Northern Border Pipeline has accrued this amount to satisfy
claims of reimbursement for these termination costs. While the final amounts
have not been determined, Northern Border Pipeline advises that it believes
this accrual is adequate to cover the allocation of these costs to Northern
Border Pipeline.

Enron is the grantor of the Enron Gas Pipeline Employee Benefit Trust (the
Trust), which when taken together with the Enron Corp. Medical Plan for
Inactive Participants (the Medical Plan) constitutes a "voluntary employees'
beneficiary association" or "VEBA" under Section 501(c)(9) of the Internal
Revenue Code. In October 2002, Northern Plains was advised that Enron had
notified the committee that has administrative and fiduciary oversight
related to the Trust and the Medical Plan, that Enron had made the
determination to begin necessary steps to partition the assets of the Trust
and the related liabilities of the Medical Plan among all of the
participating employers of the Trust. The Trust was established as a
regulatory requirement for inclusion of certain costs for post-employment
medical benefits in the rates established for the affected pipelines,
including Northern Border Pipeline. Enron requested the enrolled actuary to
prepare an analysis and recommendation for the allocation of the Trust's
assets and associated liabilities among all the participating employers. On
July 22, 2003, Enron sought approval of the Bankruptcy Court to terminate the
Trust and to distribute its assets among certain identified pipeline
companies, one being Northern Plains. If Enron's relief as requested is
granted, Northern Plains would assume retiree benefit liabilities, estimated
as of June 30, 2002, of $1.9 million with an asset allocation of $0.8
million. An objection to the motion has been filed and no hearing date has
been set. An additional actuary has been engaged by Enron to review the
analysis and recommendations for allocations. There can be no assurances that
the allocation of liabilities and assets will not change from those set forth
in the motion.

Enron's filing for bankruptcy protection and related developments have had
other impacts on Northern Border Pipeline's business and management. Numerous
shareholder and employee class action lawsuits have been initiated against
Enron, its former independent accountants, legal advisors, executives, and
board members. Enron has received several requests for information from
different federal and state agencies, including the FERC, and committees of
the United States House of Representatives and Senate. Some of the information
requested from Enron may include information about Northern Border Pipeline.
While Northern Border Pipeline has not been subject to these investigations
or lawsuits, it is possible that in the documentation production by Enron and
others, confidential proprietary or commercially sensitive information
concerning Northern Border Pipeline may have been produced. It is also
possible that some of this information may be made available to the public.

- 27 -

While Northern Plains and Pan Border have not filed for Chapter 11 bankruptcy
protection, their stock is owned by Enron, which is in bankruptcy. As noted
above, Enron could sell its interest in Northern Plains and/or Pan Border, or
take other action with respect to their investment in Northern Border
Pipeline. Enron could also cause Northern Plains and Pan Border to file for
bankruptcy protection. In its Form 10-K for the year ended December 31, 2003,
Northern Border Pipeline states that it has had no indication from Enron that
it intends to cause such companies to file for bankruptcy protection.

Northern Border Pipeline is managed by a four-member management committee.
Three representatives are designated by Northern Border Partners, with each
of its general partners selecting one representative, and one representative is
designated by TC PipeLines. The vote among Northern Border Partners'
representatives is in proportion to their general partner interests in
Northern Border Partners. As a result, the 70% voting interest of Northern
Border Partners' three representatives is allocated 35%, 22.75% and 12.25%
among Northern Plains, Pan Border and Northwest Border, respectively. If
Enron were to sell the stock of Northern Plains and Pan Border, the purchaser
would have the right to appoint a majority of Northern Border Pipeline's
management committee and control Northern Border Pipeline's activities,
except for those activities requiring a unanimous vote which include changes
to Northern Border Pipeline's cash distribution policy, certain expansion and
extensions of the pipeline, some transfers of general partner interests and
settlement of rate cases.

If Northern Plains and Pan Border were to file for bankruptcy protection,
Northern Border Partners' Partnership Agreement provides that they would
automatically be deemed to have withdrawn as general partners of Northern
Border Partners. It is possible that the enforceability of the automatic
withdrawal provisions in this partnership agreement may be challenged. The
success and impact of a challenge are unknown. Upon the occurrence of such an
event of withdrawal, the remaining general partner of Northern Border
Partners would have the right to purchase the withdrawing partners' general
partnership interests. If the remaining general partner does not purchase
such general partnership interests, the limited partners of Northern Border
Partners would have the right to elect new general partners. In the event
that the remaining general partner does not elect to purchase the general
partner interests or a successor is not so elected by the limited partners,
then the partnership shall be dissolved. In either event, the party acquiring
the general partner interests currently held by Northern Plains and Pan
Border would have the right to appoint a majority of Northern Border
Pipeline's management committee and control Northern Border Pipeline's
activities, except for those activities requiring a unanimous vote.

Northern Plains also serves as Northern Border Pipeline's operator. If
Northern Plains were to file for bankruptcy protection, it could potentially
be removed as operator. Northern Border Pipeline's credit agreement provides
that it would be an event of default thereunder if Northern Plains were
replaced as operator without the consent of the lenders.

Other than the items identified above, Northern Border Pipeline states in its
Form 10-K for the year ended December 31, 2003 that it is not aware of any
claims made against it that arise out of the Enron bankruptcy cases. Northern
Border Pipeline continues to monitor developments at Enron, to assess the
impact on Northern Border Pipeline of its existing agreements and
relationships with Enron and its subsidiaries, and to take appropriate action
to protect its interests.

PUBLIC UTILITY HOLDING COMPANY ACT (PUHCA) REGULATION

Besides its ownership in Northern Plains and Pan Border, all of the common
stock of Portland General Electric Company (PGE) is owned by Enron. As the
owner of PGE's common stock, Enron is a holding company for purposes of the
Public Utility Holding Company Act of 1935 (PUHCA). Following Enron's
acquisition of PGE in 1997, Enron annually filed a statement claiming an
exemption from all provisions of PUHCA (except the provision which addresses
the acquisition of public utility company affiliates) under Section 3(a)(1).
Due to Enron's bankruptcy filing in December 2001, Enron was no longer able
to provide necessary financial information needed to file the exemption
statement. As a result, in February 2002, Enron applied to the SEC for an
order of exemption under Sections 3(a)(1), 3(a)(3) and 3(a)(5).

- 28 -

On December 29, 2003, the SEC issued an order denying the two applications filed
by Enron seeking exemption as a public utility holding company under Sections
3(a)(1), 3(a)(3) and 3(a)(5) of PUHCA. The SEC order found, relative to the
application under Section 3(a)(1), that Enron's subsidiary, PGE, is not
predominantly and substantially intrastate in character and does not carry on
business substantially in a single state. Relative to the application under
Sections 3(a)(3) and 3(a)(5), the SEC found that Enron was unable to establish
that it is only incidentally a holding company and that it derives no material
part of its income from an electric utility subsidiary.

On December 31, 2003, Enron and other related entities filed an application
under Section 3(a)(4) of PUHCA (the 3(a)(4) Application). This application
claims, for each of the applicants, an exemption as a public utility holding
company based on the temporary nature of the applicants' current or proposed
interest in PGE under the Chapter 11 Plan filed by Enron and certain of its
subsidiaries. By SEC order entered January 30, 2004, the hearing date on
Enron's pending application for exemption under PUHCA was postponed until
February 9, 2004 and by SEC order entered February 6, 2004, the hearing date
was postponed until further notice. On March 9, 2004, pursuant to an offer of
settlement that had been previously made to the SEC, Enron withdrew the
3(a)(4) Application and registered as a holding company under PUHCA.
Immediately after Enron registered, the SEC issued two orders, one granting
Enron and its subsidiaries authority to undertake certain transactions
without further authorization from the SEC under PUHCA (referred to as the
Omnibus Order) and the other approving Enron's Fifth Amended Bankruptcy Plan
(referred to as the Plan Order).

The Omnibus Order authorizes, among other items, certain transactions
specific to Northern Border Partners, L.P. and its subsidiaries, including
authority for Northern Border Partners and Northern Border Pipeline to
declare and pay distributions out of capital. Further, the Omnibus Order
authorizes Northern Border Partners to invest as much as an additional $1
billion in natural gas gathering, processing, storage and transportation
assets and to issue and sell debt and equity securities as may be required to
fund such investments or acquisitions. The authorizations are effective until
the earlier of the deregistration of Enron under PUHCA or July 31, 2005.
Northern Border Pipeline advises that it believes that the authority relating
to Northern Border Partners and its affiliates in the Omnibus Order minimizes
the likelihood that its business will be adversely impacted by Enron's
registration under PUHCA.

However, PUHCA imposes a number of restrictions on the operations of a
registered holding company and its subsidiaries within the registered holding
company system that can become materially more expensive and cumbersome than
operations by companies that are not subject to, or exempt, from PUHCA. As a
subsidiary of a registered holding company, Northern Border Pipeline is
subject to regulation by the SEC with respect to the acquisition of the
securities of public utilities; the acquisition of assets and interests in
any other business, declaration and payment of certain cash distributions;
intra-system borrowings or indemnifications; sales, services or construction
transactions with other holding company system companies; and the issuance of
debt or equity securities, among other matters. To the extent those regulated
activities are not approved under the Omnibus Order or otherwise exempt under
various rules and regulations promulgated under PUHCA, Northern Border
Pipeline advises that it would need to seek additional approvals from the
SEC. At this time, Northern Border Pipeline advises that it does not believe
there is a need for it to seek any additional authorizations from the SEC in
order to conduct its operations. Nevertheless, Northern Border Pipeline
advises that there can be no assurance that PUHCA will not have an adverse
impact on its operations as a result of Enron's registration as a holding
company.

While TC PipeLines currently does not anticipate that the registration of
Enron as a holding company under PUHCA will have a material impact on its
ability to conduct its operations or to meet its obligations, further
regulatory developments could adversely impact Northern Border Pipeline and
therefore have an indirect adverse impact on TC PipeLines' operations.

- 29 -

RESULTS OF OPERATIONS OF TUSCARORA GAS TRANSMISSION COMPANY

IN THE FOLLOWING DISCUSSION OF THE RESULTS OF TUSCARORA, ALL AMOUNTS REPRESENT
100% OF THE OPERATIONS OF TUSCARORA, IN WHICH THE PARTNERSHIP HAS HELD A 49%
INTEREST SINCE SEPTEMBER 1, 2000.

OVERVIEW

Tuscarora is a Nevada general partnership 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, 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.

Tuscarora owns a 240-mile, 20-inch diameter, United States interstate pipeline
system that originates at an interconnection point with facilities of Gas
Transmission Northwest Corporation (GTN) near Malin, Oregon and runs southeast
through northeastern California and northwestern Nevada. The Tuscarora pipeline
system terminates near Wadsworth, Nevada. Deliveries are also made directly to
the local gas distribution system of Sierra Pacific Resources. 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. In January 2001, Tuscarora completed construction of
the Hungry Valley lateral, a 14-mile, 16-inch pipeline extension that serves as
Tuscarora's second connection into Reno, Nevada. On December 1, 2002, Tuscarora
completed and placed into service another expansion of its pipeline system. The
2002 Tuscarora expansion consisted of two compressor stations and an 11-mile
pipeline extension from the previous terminus of the Tuscarora pipeline system
near Reno, Nevada to Wadsworth, Nevada. The expansion increased Tuscarora's
contracted capacity from 127 mmcfd to approximately 180 mmcfd. The new
capacity is contracted under long-term firm transportation contracts ranging
from ten to fifteen years.

CRITICAL ACCOUNTING POLICY

Tuscarora's accounting policies conform to 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.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

Tuscarora's net income increased $1.4 million, or 13%, to $11.8 million for the
year ended December 31, 2003, compared to $10.4 million in 2002. This increase
is primarily due to higher revenues, partially offset by higher costs and
expenses and higher depreciation expense.

Revenues generated by Tuscarora increased $6.6 million, or 29%, to $29.7 million
for the year ended December 31, 2003, compared to $23.1 million for 2002. This
increase is primarily due to incremental revenues generated from new
transportation contracts, including those related to Tuscarora's expansion
facilities that were placed into service December 1, 2002.

- 30 -

Costs and expenses incurred by Tuscarora increased $2.2 million, or 79%, to $5.0
million for the year ended December 31, 2003, compared to $2.8 million for the
year ended December 31, 2002. This increase is primarily due to the higher costs
of operating two new compressor stations that were placed into service
December 1, 2002.

Depreciation recorded by Tuscarora increased $1.5 million, or 31%, to $6.4
million for the year ended December 31, 2003, compared to $4.9 million for the
prior year. The increase reflects the larger asset base resulting from the
expansion in December 2002.

Financial charges recorded by Tuscarora increased $0.8 million, or 14%, to $6.5
million for the year ended December 31, 2003, compared to $5.7 million for 2002.
This increase is due to the fact that no interest was capitalized in 2003. In
2002, financial charges were lower due to the capitalization of interest
expense related to funds used for the expansion.

Tuscarora recorded other income of zero and $0.7 million for the years ended
December 31, 2003 and 2002, respectively. This decrease is primarily due to the
allowance recorded in 2002 related to equity funds used during construction of
the expansion. No such allowance was recorded in 2003.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

Tuscarora's net income increased $2.1 million, or 25%, to $10.4 million for the
year ended December 31, 2002, compared to $8.3 million in 2001. This increase is
primarily due to higher revenues, lower financial charges and higher other
income.

Revenues generated by Tuscarora increased $1.8 million, or 8%, to $23.1 million
for the year ended December 31, 2002, compared to $21.3 million for 2001. This
increase is primarily due to incremental revenues being generated from new
transportation contracts, including those related to Tuscarora's expansion
facilities which were placed into service December 1, 2002.

Costs and expenses incurred by Tuscarora totaled $2.8 million and $2.6 million
for the years ended December 31, 2002 and 2001, respectively.

Tuscarora recorded depreciation of $4.9 million and $4.6 million for the years
ended December 31, 2002 and 2001, respectively.

Tuscarora recorded financial charges of $5.7 million and $6.1 million for the
years ended December 31, 2002 and 2001, respectively. This decrease is due to
the capitalization of interest expense in 2002 related to funds being used for
the expansion.

Tuscarora recorded other income of $0.7 million and $0.3 million for the years
ended December 31, 2002 and 2001, respectively. This increase is primarily due
to a higher allowance recorded in 2002 related to equity funds used during
construction of the expansion compared to the allowance recorded in 2001 related
to the Hungry Valley lateral project.

LIQUIDITY AND CAPITAL RESOURCES OF TUSCARORA GAS TRANSMISSION COMPANY

CASH DISTRIBUTION POLICY OF TUSCARORA

In September 2000, Tuscarora adopted a cash distribution policy that became
effective January 1, 2001. Under the terms of the cash distribution policy and
at the discretion of the Tuscarora Management Committee, Tuscarora makes
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 Tuscarora 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.

- 31 -

SUMMARY OF CERTAIN CONTRACTUAL OBLIGATIONS

(1) Tuscarora is party to a contract with a third party for maintenance
services on certain components of its pipeline-related equipment. The
contract expires in November 2007.

DEBT AND CREDIT FACILITIES

On March 15, 2002, Tuscarora issued Series C Senior Secured Notes in the amount
of $10.0 million. These notes bear interest at 6.89% and are due in 2012. The
proceeds from these notes were used to finance the construction of Tuscarora's
expansion facilities.

On January 4, 2002, Tuscarora entered into a credit agreement with Bank One for
a $5.0 million, 364-day revolving credit facility (Credit Facility), which bears
interest at either LIBOR plus 1% or the prime rate. As at December 31, 2002, the
balance outstanding on this facility was $4.6 million. The Credit Facility
expired on January 3, 2003, where upon Tuscarora elected not to renew this
facility and repaid the outstanding balance.

In November 2001 and January 2002, Tuscarora entered into forward starting
interest rate swaps with notional amounts of $10.0 million and $8.0 million,
respectively, related to the planned issuance of Series C Senior Secured Notes.
The swaps were settled on February 15, 2002 for net proceeds of approximately
$0.2 million. The swaps were entered into to hedge the fluctuations in treasury
rates and spreads between the execution date of the swaps and the issuance date
of the Series C Senior Secured Notes.

Short-term liquidity needs will be met by operating cash flows. Long-term
capital needs may be met through the ability to issue long-term indebtedness.

CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows provided by operating activities increased $1.4 million, or 9%, to
$16.4 million for the year ended December 31, 2003, compared to $15.0 million
for 2002. This increase is the result of increased earnings during 2003 as
well as decreased working capital during the same period.

Cash flows provided by operating activities increased $1.6 million, or 12%, to
$15.0 million for the year ended December 31, 2002 compared to $13.4 million for
2001. This increase is the result of increased earnings during 2002, partially
offset by increased working capital during the same period.

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures of $1.3 million for the year ended December 31, 2003
primarily related to the expansion that went into service December 1, 2002.
Capital expenditures of $31.9 million for the year ended December 31, 2002
included $31.6 million for Tuscarora's expansion.

Capital expenditures of $10.2 million for the year ended December 31, 2001
included $4.7 million for Tuscarora's expansion and $2.4 million related to the
construction of the Hungry Valley lateral.

Total capital expenditures for 2004 are estimated to be $1.8 million of which
approximately $1.6 million relates to a planned expansion in 2005. The remainder
relates to renewals and replacements of existing facilities. Tuscarora
anticipates funding its 2004 capital expenditures by using a combination of
partner contributions and operating cash flows.

- 32 -

CASH FLOWS FROM FINANCING ACTIVITIES

Cash flows used in financing activities were $14.1 million for the year ended
December 31, 2003, compared to cash flows from financing activities of $16.5
million for the year ended December 31, 2002.

In 2003, Tuscarora repaid its Credit Facility which had $4.6 million outstanding
at the beginning of the year. In 2002, Tuscarora received net proceeds of $10.0
million from the issuance of its Series C Senior Secured Notes. The proceeds
from these notes were used to finance the construction of Tuscarora's expansion
facilities. Also, in 2002, Tuscarora drew on its Credit Facility to partially
fund its 2002 expansion. At December 31, 2002, $4.6 million was outstanding on
the Credit Facility.

For the years ended December 31, 2003 and 2002 Tuscarora made debt repayments of
$4.7 million and $4.1 million, respectively.

Tuscarora received contributions from its partners of $10.0 million and $15.5
million for the years ended December 31, 2003 and 2002, respectively. These
contributions were used to fund the construction of Tuscarora's expansion
facilities.

Tuscarora paid cash distributions of $14.2 million and $9.3 million to its
general partners for the years ended December 31, 2003 and 2002, respectively.

Cash flows used in financing activities were $9.3 million in 2001. In 2001,
Tuscarora made debt repayments of $4.2 million and paid cash distributions of
$5.0 million. Tuscarora's 2001 cash distributions represent three quarterly
payments due to the timing of the implementation of Tuscarora's cash
distribution policy.

SIERRA PACIFIC RESOURCES

Sierra Pacific Resources, the parent company to Sierra Pacific Power Company
(Sierra Pacific Power), Tuscarora's largest shipper with approximately 68% of
contracted capacity through 2015, issued a press release on August 28, 2003 and
filed a Current Report on Form 8-K with the SEC advising that the federal
bankruptcy court judge overseeing the bankruptcy case of Enron Power Marketing
Inc. (Enron Power Marketing) rendered a decision in the lawsuit filed by Enron
Power Marketing in its bankruptcy case asserting claims for damages related to
the termination of its power supply agreements with Nevada Power Company (Nevada
Power) and Sierra Pacific Power (together, the Utilities). The bankruptcy court
judge granted Enron Power Marketing's motion for summary judgment with respect
to Enron Power Marketing's claims against Nevada Power and Sierra Pacific Power
for approximately $235 million and $102 million, respectively, of liquidated
damages, for power supply contracts terminated by Enron Power Marketing in May
2002. The bankruptcy court judge also dismissed the Utilities' counter claims
against Enron Power Marketing, dismissed the Utilities' counter claims against
Enron Corp., the parent of Enron Power Marketing, and denied the Utilities'
motion to dismiss or stay the proceedings pending the final outcome of their
FERC proceedings against Enron Power Marketing. In addition to the claims for
termination payments described above, Nevada Power and Sierra Pacific Power had
previously deposited approximately $17.7 million and $6.7 million, respectively,
into an escrow account for energy delivered by Enron Power Marketing to each of
Nevada Power and Sierra Pacific Power in April 2002, for which the Utilities had
not paid.

Sierra Pacific Power to date remains current on its shipping contracts with
Tuscarora.

NEW ACCOUNTING PRONOUNCEMENTS

During 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 149,"Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" and Interpretation (FIN) No. 46, "Consolidation of Variable Interest
Entities," and reissued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits."

SFAS No. 149 amends and clarifies accounting for derivative instruments and
hedging activities under SFAS No. 133. As at December 31, 2003, TC PipeLines
does not engage in any hedging activities and is not affected by the changes
resulting from this standard.

- 33 -

SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This standard is effective for financial instruments entered into or
modified after May 31, 2003. As at December 31, 2003, TC PipeLines has not
entered into any financial instruments that would be affected by this standard
and, therefore, is not affected by the changes resulting from this standard.

FIN No. 46 is an interpretation of Accounting Research Bulletin No. 51 and
provides guidance on the identification of, and financial reporting for, certain
entities over which control is achieved through financial controls (variable
interests) rather than voting rights. Such entities are referred to as variable
interest entities. The holder of the majority of an entity's variable interests
will be required to consolidate the variable interest entity. Neither Northern
Border Pipeline nor Tuscarora qualifies as a variable interest entity of the
Partnership and, therefore, the application of this Interpretation does not
impact the financial statements of TC PipeLines.

SFAS No. 132 (Revised) revises employers' disclosures about pension plans and
other postretirement benefits plans. It does not change the measurement or
recognition of those plans in earlier Statements or the disclosure requirements
contained in the original SFAS No. 132. This revision requires additional
disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. As at December 31, 2003, TC PipeLines does not have a pension plan or
other postretirement benefit plans and is not affected by the changes resulting
from this standard.

RISK FACTORS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

A number of statements made by TC PipeLines, LP, in this Form 10-K filing made
with the SEC, 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. 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 "anticipate," "believe," "estimate," "expect," "plan," "intend,"
"forecast," and similar expressions, identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. By its nature, such
forward-looking information is subject to various risks and uncertainties, which
could cause TC PipeLines' actual results and experience to differ materially
from the anticipated results or other expectations expressed in this Form 10-K.
Readers are cautioned not to place undue reliance on this forward-looking
information, which is as of the date of this Form 10-K.

RISK FACTORS

TC PIPELINES IS DEPENDENT UPON NORTHERN BORDER PIPELINE AND TUSCARORA AND MAY
NOT BE ABLE TO GENERATE SUFFICIENT CASH FROM THE DISTRIBUTIONS FROM EACH OF
NORTHERN BORDER PIPELINE AND TUSCARORA TO PAY THE MINIMUM QUARTERLY DISTRIBUTION
ON THE COMMON UNITS EVERY QUARTER

While TC PipeLines has a significant ownership interest in each of Northern
Border Pipeline and Tuscarora, it does not control or operate either of these
pipelines. The actual amount of cash TC PipeLines has available to pay the
minimum quarterly distribution will depend upon numerous factors relating to
each of Northern Border Pipeline's and Tuscarora's business, most of which are
beyond the control of TC PipeLines or the general partner, including:

o the amount of cash distributed to TC PipeLines by each of Northern
Border Pipeline and Tuscarora;

o the ability of Northern Border Pipeline to recontract capacity for
maximum transportation rates as existing contracts terminate;

o the tariff and transportation charges collected by Northern Border
Pipeline and Tuscarora for transportation services on their pipeline
systems;

o increases in Northern Border Pipeline's and Tuscarora's operating and
maintenance costs;

o payment defaults of shippers on Northern Border's pipeline system and
payment defaults of shippers on Tuscarora's pipeline system;

o the amount of cash set aside and the adjustment in reserves made by
the general partner at its discretion;

- 34 -

o the amount of cash required to be contributed by TC PipeLines to
either Northern Border Pipeline or Tuscarora in the future;

o required principal and interest payments on TC PipeLines' debt;

o the cost of acquisitions, including related debt service payments;

o TC PipeLines' issuance of debt and equity securities;

o pipelines competing with Northern Border Pipeline and Tuscarora; and

o expansion costs related to these systems.

CASH DISTRIBUTIONS ARE DEPENDENT PRIMARILY ON TC PIPELINES' CASH FLOW, FINANCIAL
RESERVES AND WORKING CAPITAL BORROWINGS

Cash distributions are not dependent solely on TC PipeLines' profitability,
which is affected by non-cash items. Therefore, TC PipeLines may make cash
distributions during periods when losses are reported and may not make cash
distributions during periods when profits are reported.

NORTHERN BORDER PIPELINE'S AND TUSCARORA'S INDEBTEDNESS MAY LIMIT THEIR ABILITY
TO BORROW ADDITIONAL FUNDS, MAKE DISTRIBUTIONS TO TC PIPELINES OR CAPITALIZE ON
BUSINESS OPPORTUNITIES

Northern Border Pipeline is prohibited from making cash distributions during an
event of default under its indebtedness. Provisions in Northern Border
Pipeline's indebtedness limit its ability to incur indebtedness and engage in
specific transactions which could reduce its ability to capitalize on business
opportunities that arise in the course of its business. Tuscarora is prohibited
from making cash distributions during an event of default under its
indebtedness. Under Tuscarora's indebtedness, Tuscarora has granted a security
interest in certain of its transportation contracts, which are available to
noteholders during an event of default. Any future refinancing of Tuscarora's
existing indebtedness or any new indebtedness could have similar or greater
restrictions.

IF NORTHERN BORDER PIPELINE, AS A SUBSIDIARY OF NORTHERN BORDER PARTNERS, L.P.
AND ENRON AS DEFINED UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT (PUHCA), IS
UNABLE TO OBTAIN AN EXEMPTION FROM SUBSIDIARY STATUS UNDER PUHCA, IT WILL BECOME
SUBJECT TO REGULATION BY THE SEC

The SEC would regulate the acquisition of assets and interests of Northern
Border Pipeline, the declaration and payment of certain cash distributions;
intra-system borrowings or indemnifications; sale, services or construction
transactions with other holding system companies; the issuance of certain debt;
equity securities and borrowings under credit facilities.

IF TC PIPELINES IS UNABLE TO MAKE ACQUISITIONS ON ECONOMICALLY AND OPERATIONALLY
ACCEPTABLE TERMS, EITHER FROM THIRD PARTIES OR TRANSCANADA, TC PIPELINES' FUTURE
FINANCIAL PERFORMANCE WILL BE LIMITED TO PARTICIPATION IN NORTHERN BORDER
PIPELINE AND TUSCARORA

The Partnership may not be able to:

o identify attractive acquisition candidates in the future;

o acquire assets on economically acceptable terms;

o make acquisitions that will not be dilutive to earnings and operating
surplus; or

o incur additional debt to finance an acquisition without affecting its
ability to make distributions to unitholders.

Future acquisitions may involve the expenditure of significant funds. Depending
upon the nature, size and timing of future acquisitions, TC PipeLines may be
required to secure additional financing. Additional financing may not be
available to TC PipeLines on acceptable terms.

In addition, TC PipeLines may not be able to acquire any more of TransCanada's
United States pipeline assets. Substantially all of TransCanada's United States
pipeline assets are subject to restrictions on sale, such as rights of first
refusal. Under a right of first refusal another party, usually a partner, has a
right to acquire the particular asset

- 35 -

at the price offered. Only if the other party declines to purchase the asset at
the price offered could TransCanada sell it to TC PipeLines.

MAJORITY CONTROL OF THE NORTHERN BORDER PIPELINE MANAGEMENT COMMITTEE BY
AFFILIATES OF ENRON MAY LIMIT TC PIPELINES' ABILITY TO INFLUENCE NORTHERN BORDER
PIPELINE

TC PipeLines owns a 30% general partner interest in Northern Border Pipeline.
The remaining 70% general partner interest in Northern Border Pipeline is owned
by Northern Border Partners, a publicly traded limited partnership. The general
partners of Northern Border Partners are Northern Plains and Pan Border, both
subsidiaries of Enron, and Northwest Border, a subsidiary of TransCanada. Except
as to any matters requiring unanimity, such as significant expansions or
extensions to the pipeline system, the acceptance of rate cases and changes to,
or suspensions of, the cash distribution policy, management committee members
designated by subsidiaries of Enron have the voting power to approve a
particular matter requiring a majority vote despite the fact that TC PipeLines'
representative may vote against the project or matter. Conversely, with respect
to any matter requiring a majority vote, management committee members designated
by subsidiaries of Enron may disapprove of a particular matter despite the fact
that TC PipeLines' representative may vote in favor of that matter.

NORTHERN BORDER PIPELINE AND TUSCARORA ARE EXTENSIVELY REGULATED BY THE FERC

If the FERC requires that Northern Border Pipeline's or Tuscarora's tariff be
changed, Northern Border Pipeline's or Tuscarora's respective cash flows may be
adversely affected.

Northern Border Pipeline and Tuscarora are subject to extensive regulation by
the FERC. The FERC's regulatory authority extends to matters including:

o transportation of natural gas;

o rates and charges;

o construction of new facilities;

o acquisitions, extension or abandonment of services and facilities;

o accounts and records;

o depreciation and amortization policies; and

o operating terms and conditions of service.

Given the extent of regulation by the FERC and potential changes to regulations,
the Partnership cannot give assurance regarding:

o the likely federal regulations under which Northern Border Pipeline or
Tuscarora will operate in the future;

o the effect that regulation will have on Northern Border Pipeline's,
Tuscarora's or the Partnership's financial positions, results of
operations and cash flows; or

o whether the Partnership's cash flow will be adequate to make
distributions to unitholders.

Northern Border Pipeline's ability to file for an increase of its rates before
November 2005 to recover increases in most types of costs has been substantially
eliminated by the settlement of its last rate case.

IF NORTHERN BORDER PIPELINE OR TUSCARORA DO NOT MAINTAIN OR INCREASE THEIR
RESPECTIVE RATE BASES BY SUCCESSFULLY COMPLETING FERC-APPROVED PROJECTS, THE
AMOUNT OF REVENUE ATTRIBUTABLE TO THE RETURN ON THE RATE BASE THEY COLLECT FROM
THEIR SHIPPERS WILL DECREASE OVER TIME

The Northern Border and Tuscarora pipeline systems are generally allowed to
collect from their customers a return on their assets or "rate base" as
reflected in their financial records as well as recover that rate base through
depreciation. The amount they may collect from customers decreases as the rate
base declines as a result of, among other things, depreciation and amortization.
In order to avoid a reduction in the level of cash available for distributions
to its partners based on its current FERC-approved tariff, each of these
pipelines must maintain or increase its rate base through projects that maintain
or add to existing pipeline facilities. These projects will depend

- 36 -

upon many factors including:

o sufficient demand for natural gas;

o an adequate supply of proved natural gas reserves;

o available capacity on pipelines that connect with these pipelines;

o the execution of natural gas transportation contracts;

o the approval of any expansion or extension of the pipeline systems by
their respective management committees, or in some cases, a ruling
from an arbitrator;

o obtaining financing for these projects; and

o receipt and acceptance of necessary regulatory approvals.

Northern Border Pipeline's and Tuscarora's ability to complete these projects is
also dependent on numerous business, economic, regulatory, competitive and
political uncertainties beyond its control, and neither Northern Border Pipeline
nor Tuscarora may be able to complete these projects.

IF ANY SHIPPER FAILS TO PERFORM ITS CONTRACTUAL OBLIGATIONS, NORTHERN BORDER
PIPELINE'S OR TUSCARORA'S RESPECTIVE CASH FLOWS AND FINANCIAL CONDITION COULD BE
ADVERSELY IMPACTED

If any shipper fails to perform its contractual obligations, Northern Border
Pipeline's or Tuscarora's cash flows and financial condition could be adversely
impacted. As a result, the cash available for distribution by TC PipeLines to
unitholders could be reduced.

As of December 31, 2003, the three largest shippers on the Northern Border
pipeline system accounted for approximately 49% of contracted capacity, with one
shipper, BP Canada Energy Marketing Corp. (Canada), being obligated for
approximately 21%.

Sierra Pacific Power, a wholly owned subsidiary of Sierra Pacific Resources, is
Tuscarora's largest shipper with firm contracts for 68.1% of its capacity.
Sierra Pacific Resources and Sierra Pacific Power have below-investment grade
credit ratings. While TC PipeLines has no current indication that Sierra Pacific
Power is unable to meet its ongoing contractual obligations, TC PipeLines is
unable to predict the future financial condition of Sierra Pacific Power and its
long-term ability to meet its obligations under existing agreements.

NORTHERN BORDER PIPELINE'S ABILITY TO OPERATE ITS PIPELINE ON CERTAIN TRIBAL
LANDS WILL DEPEND ON ITS SUCCESS IN RENEGOTIATING ITS RIGHT-OF-WAY RIGHTS ON
TRIBAL LANDS WITHIN THE FORT PECK RESERVATION

Northern Border Pipeline's ability to operate the pipeline on certain tribal
lands will depend on its success in renegotiating before 2011 its right-of-way
rights on tribal lands within the Fort Peck Reservation. See Item 2. "Properties
- - Properties of Northern Border Pipeline Company." Northern Border Pipeline and
the Tribes, through a mediation process, have held settlement discussions and
have reached a settlement in principle on the pipeline right-of-way lease and
taxation issues, subject to final documentation and necessary governmental
approvals. If Northern Border Pipeline is unable to recover the additional costs
of the proposed settlement in its future rates, it could have a material adverse
impact on Northern Border Pipeline's results of operations.

THE LONG-TERM FINANCIAL CONDITIONS OF NORTHERN BORDER PIPELINE AND TUSCARORA AND
AS A RESULT, OF TC PIPELINES, ARE DEPENDENT ON THE CONTINUED AVAILABILITY OF
WESTERN CANADIAN NATURAL GAS FOR IMPORT INTO THE UNITED STATES

The development of additional natural gas reserves requires 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 Northern Border's and Tuscarora's pipeline systems. 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 and import and
export of natural gas supplies. Contracts covering approximately 30% of Northern
Border Pipeline's capacity expire prior to November 2004. Northern Border
Pipeline may not be able to replace these contracts with new long-term contracts
providing similarly attractive economic terms. Substantially all of Tuscarora's
capacity is contractually committed through 2015. If the availability of western
Canadian natural gas

- 37 -

were to decline over these periods, existing shippers on the Northern Border and
Tuscarora pipeline systems may be unlikely to extend their contracts and
Northern Border Pipeline and Tuscarora may be unable to find replacement
shippers for lost capacity. Furthermore, additional natural gas reserves may not
be developed in commercial quantities and in sufficient amounts to fill the
capacities of each of the Northern Border or Tuscarora pipeline systems.

NORTHERN BORDER PIPELINE'S AND TUSCARORA'S BUSINESS DEPENDS IN PART ON THE LEVEL
OF DEMAND FOR WESTERN CANADIAN NATURAL GAS IN THE MARKETS THE PIPELINE SYSTEMS
SERVE

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

The Partnership cannot predict whether or how these or other factors will affect
the demand for use of the Northern Border or Tuscarora pipeline systems. If
either of these pipeline systems are used less over the long term, the
Partnership may have lower revenues and less cash to distribute to its
unitholders.

BECAUSE OF THE HIGHLY COMPETITIVE NATURE OF THE NATURAL GAS TRANSMISSION
BUSINESS, NORTHERN BORDER PIPELINE AND TUSCARORA MAY NOT BE ABLE TO MAINTAIN
EXISTING CUSTOMERS OR ACQUIRE NEW CUSTOMERS WHEN THE CURRENT SHIPPER CONTRACTS
EXPIRE

Other pipeline systems that transport natural gas serve the same markets served
by the Northern Border and Tuscarora pipeline systems. As a result, Northern
Border Pipeline and Tuscarora face competition from other pipeline systems.

Northern Border Pipeline may not be able to renew or replace expiring contracts.
The renewal or replacement of the existing contracts with customers of Northern
Border Pipeline depends on a number of factors beyond Northern Border Pipeline's
control, including:

o the supply of natural gas in Canada and the United States;

o competition from alternative sources of supply in the United States;

o competition from other pipelines; and

o the price of, and demand for, natural gas in markets served by the
Northern Border pipeline system.

Contracts covering approximately 30% of Northern Border Pipeline's capacity
expire prior to November 2004. Northern Border Pipeline may not be able to
replace these contracts with new long-term contracts providing similarly
attractive terms.

Tuscarora competes in the northern Nevada natural gas transmission market with
Paiute Pipeline Co., owned by Southwest Gas Co. of Las Vegas, Nevada. The Paiute
pipeline interconnects with Northwest Pipeline Corp. at the Nevada-Idaho border
and transports gas from British Columbia and the U.S. Rocky Mountain Basin to
the northern Nevada market.

TransCanada's main pipeline systems transport natural gas from the same natural
gas reserves in western Canada that are used by Northern Border Pipeline's and
Tuscarora's customers. TransCanada is not prohibited from actively competing
with Northern Border Pipeline for the transport of western Canadian natural gas.

NORTHERN BORDER PIPELINE'S AND TUSCARORA'S OPERATIONS ARE REGULATED BY FEDERAL
AND STATE AGENCIES RESPONSIBLE FOR ENVIRONMENTAL PROTECTION AND OPERATIONAL
SAFETY

TC PipeLines believes that these operations comply in all material respects with
applicable environmental and safety regulations. However, risks of substantial
costs and liabilities are inherent in pipeline operations and each of Northern
Border Pipeline and Tuscarora may incur substantial costs and liabilities in the
future as a result of stricter environmental and safety laws, regulations and
enforcement policies and claims for personal or property damages

- 38 -

resulting from Northern Border Pipeline's or Tuscarora's operations. If either
Northern Border Pipeline or Tuscarora, as applicable, was not able to recover
these costs, cash distributions to TC PipeLines' unitholders could be adversely
affected.

Northern Border Pipeline's and Tuscarora's operations are subject to operational
hazards and unforeseen interruptions, including natural disasters, adverse
weather, accidents or other events beyond its control. A casualty occurrence
might result in a loss of equipment or life, as well as injury and extensive
property or environmental damage.

TC PIPELINES DOES NOT HAVE STAND-ALONE MANAGEMENT RESOURCES TO OPERATE WITHOUT
SERVICES PROVIDED BY TRANSCANADA

TransCanada provides all of TC PipeLines' management resources. Further, TC
PipeLines would not be able to evaluate potential acquisitions and successfully
complete acquisitions without TransCanada's resources.

THE IRS COULD TREAT TC PIPELINES AS A CORPORATION, WHICH WOULD SUBSTANTIALLY
REDUCE THE CASH AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS

Current law may change so as to cause TC PipeLines to be taxable as a
corporation for federal income tax purposes or otherwise to be subject to
entity-level taxation. The partnership agreement provides that, if a law is
enacted or existing law is modified or interpreted in a manner that subjects TC
PipeLines to taxation as a corporation or otherwise subjects TC PipeLines to
entity-level taxation for federal, state or local income tax purposes, then
specified provisions of the partnership agreement relating to distributions will
be subject to change, including a decrease in distributions to reflect the
impact of that law on TC PipeLines.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TC PipeLines may be exposed to market risk through changes in interest rates.
The Partnership does not have any foreign exchange risks. TC PipeLines' interest
rate exposure results from its Revolving Credit Facility and its TransCanada
Credit Facility, which are subject to variability in LIBOR interest rates. At
December 31, 2003, TC PipeLines had $5.5 million outstanding on its Revolving
Credit Facility and zero outstanding on its TransCanada Credit Facility. If
LIBOR interest rates change by one percent compared to the rates in effect as of
December 31, 2003, annual interest expense would change by less than $0.1
million. This amount has been determined by considering the impact of the
hypothetical interest rates on variable rate borrowings outstanding as of
December 31, 2003.

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 swaps as a means to manage interest expense by converting a
portion of fixed rate debt into variable rate debt to take advantage of
declining interest rates. At December 31, 2003, Northern Border Pipeline had
$356.0 million of variable rate debt outstanding, $225.0 million of which was
previously fixed rate debt but had been converted to variable rate debt through
the use of interest rate swaps. For additional information on Northern Border
Pipeline's debt obligations and derivative instruments, see Note 5 and Note 6 to
Northern Border Pipeline's Financial Statements, included elsewhere in this
report. As of December 31, 2003, approximately 56% of Northern Border Pipeline's
debt portfolio was in fixed rate debt.

If average interest rates change by one percent compared to rates in effect as
of December 31, 2003, annual interest expense would change by approximately $3.6
million. This amount has been determined by considering the impact of the
hypothetical interest rates on variable rate borrowings outstanding as of
December 31, 2003.

- 39 -

ITEM 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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation as
of the end of the year covered by this annual report, the President and Chief
Executive Officer and Chief Financial Officer of the general partner of the
Partnership have concluded that the Partnership's disclosure controls and
procedures referred to in paragraph 4(b) of their certifications included as
exhibits to this report were effective.

- 40 -

PART III

ITEM 10. DIRECTORS AND EXECUTIVE 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 who manages the operations of TC PipeLines. 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 which is an indirect wholly
owned subsidiary of TransCanada.

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, Gas Transmission
of TransCanada, a position he has held since March 2003. From December 2000
until March 2003, Mr. Turner was Executive Vice-President, Operations and
Engineering of TransCanada. 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 August 1999 until April 2000, Mr. Turner was President,
International of TransCanada. From July 1998 until April 2000, Mr. Turner was
Senior Vice-President of TransCanada.

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, Corporate Development and Chief Financial Officer of
TransCanada, a position he has held since March 2003. From June 2000 until March
2003, Mr. Girling was Executive Vice-President and Chief Financial Officer of
TransCanada. 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.).

Mr. Helman was appointed a director of the general partner in July 1999. Mr.
Helman has been a partner of Mayer, Brown, Rowe & Maw LLP (law firm) since 1967.
Mayer, Brown, Rowe & Maw LLP provides legal services on U.S. related matters to
TransCanada, the parent of the general partner. In the first half of 2002,
Mayer, Brown, Rowe & Maw LLP provided limited legal services to the general
partner on behalf of the Partnership solely relating to matters arising from
Enron's voluntary petition for bankruptcy protection. Mr. Helman did not
participate, nor was he consulted in the provision of such services. Further,
Mayer, Brown, Rowe & Maw LLP no longer provides such services to the
Partnership. Mr. Helman serves as a director of Northern Trust Corporation and
The Northern Trust Company.

Mr. Jenkins-Stark was appointed a director of the general partner in July 1999.
Mr. Jenkins-Stark is currently Vice-President, Business Operations and
Technology at Itron Inc. (a manufacturer of automated meter reading
technology and a developer of energy management software), a position he has
held since January 2004. In March 2003, Mr. Jenkins-Stark was named a
Managing Director at Itron following the purchase of Silicon Energy Corp.
(internet-

- 41 -

based energy and data management software) by Itron. Prior to the acquisition,
Mr. Jenkins-Stark was Chief Financial Officer of Silicon Energy, a position he
held from April 2000 to March 2003. 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.

Mr. Marshall was appointed a director of the general partner in July 1999. Mr.
Marshall was Vice-Chairman of The Brinks Company (diversified energy, security
and transportation services firm) from 1994 until 1998. Mr. Marshall was a
director of MacMillan Bloedel from 1996 until 1999 and served as Chair of its
Audit Committee from 1998 until 1999.

Mr. Bellstedt was appointed a director of the general partner in December 2001.
Mr. Bellstedt's principal occupation is Executive Vice-President, Law and
General Counsel of TransCanada, a position he has held since June 2000. From
April 2000 until June 2000, Mr. Bellstedt was Senior Vice-President, Law and
General Counsel of TransCanada. From August 1999 until April 2000, Mr. Bellstedt
was Senior Vice-President, Law and Administration of TransCanada. From February
1999 until August 1999, Mr. Bellstedt was Senior Vice-President, Law and Chief
Compliance Officer of TransCanada. Prior to February 1999, Mr. Bellstedt was a
senior partner of Fraser Milner, a Canadian law firm.

Ms. Delkus was appointed a director of the general partner in November 2003. Ms.
Delkus' principal occupation is Vice-President, Law, Power and Regulatory of
TransCanada, a position she has held since July 2001. From July 2000 to July
2001, Ms. Delkus was Vice-President, Law, Trading & Business Development. From
March 1997 to July 2000, Ms. Delkus was Senior Legal Counsel, U.S. Regulatory
Law.

Mr. Becker was appointed Vice-President, Business Development of the general
partner in September 2003. Mr. Becker's principal occupation is Vice-President,
Gas Development of TransCanada, a position he has held since April 2003. From
1999 until April 2003, Mr. Becker was Vice-President, Market Development, and
Vice-President, Gas Strategy.

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.

Mr. Cook was appointed Vice-President, Taxation of the general partner in April
2002. Mr. Cook's principal occupation is Vice-President, Taxation of
TransCanada, a position he has held since April 2002. From June 1997 to April
2002, Mr. Cook served as Director, Taxation of TransCanada.

Mr. Feldman was appointed Vice-President of the general partner in September
2003. Mr. Feldman's principal occupation is Vice-President, Gas Transmission
West of TransCanada, a position he has held since April 2003. From June 2000
until April 2003, Mr. Feldman was Senior Vice-President, Customer Sales and
Service of TransCanada. From September 1999 until June 2000, Mr. Feldman was
Senior Vice-President, Customer Sales and Service, Transmission Division of
TransCanada. Prior to September 1999, Mr. Feldman held several Vice-President
positions in the operations, customer service and marketing areas of
TransCanada.

Ms. Hanrahan was appointed Vice-President of the general partner in September
2003. Ms. Hanrahan's principal occupation is Director, Planning, Evaluation and
Rates of TransCanada, a position she has held since May 2003. From September
2001 until April 2003, Ms. Hanrahan was Director, Corporate Strategy of
TransCanada. From July 1998 until August 2001, Ms. Hanrahan was Director,
Financial Services of TransCanada.

Ms. Leong was appointed Controller of the general partner in September 2003. Ms.
Leong's principal occupation is Manager, Gas Transmission Accounting of
TransCanada, a position she has held since April 2003. From January 2000
until April 2003, Ms. Leong was Manager, Regulatory Accounting and Capital
Accounting of TransCanada. From February 1999 until January 2000, Ms. Leong
was Manager, Corporate Planning of TransCanada. From May 1997 until February
1999, Ms. Leong was Coordinator, Budgeting and Forecasting of TransCanada.

Ms. St.-Laurent was appointed Secretary of the general partner in September
2003. Prior to her appointment, Ms. St.-Laurent acted as recording Secretary
of the general partner since January 2001. Ms. St.-Laurent's principal
occupation is Senior Legal Counsel, Corporate Secretarial Department of
TransCanada, a position she has held since April 2001. From June 1997 until
April 2001, Ms. St.-Laurent was Legal Counsel, Corporate Secretarial Department
of TransCanada.

- 42 -

AUDIT COMMITTEE FINANCIAL EXPERT

The board of directors has determined that David L. Marshall and Jack
Jenkins-Stark are "audit committee financial experts" and "independent" as
defined under applicable SEC and Nasdaq Stock Market Corporate Governance rules.
The board's affirmative determination for both David L. Marshall and Jack
Jenkins-Stark was based on their education and extensive experience as
chief financial officers for corporations that presented a breadth and level of
complexity of accounting issues that are generally comparable to those of TC
PipeLines.

CODE OF ETHICS

TC PipeLines believes that director, management and employee honesty and
integrity are important factors in ensuring good corporate governance. The
employees of the general partner, as employees of TransCanada, are subject to
TransCanada's code of business ethics for employees. In addition, the general
partner has adopted a code of business ethics for its President and Chief
Executive Officer, Chief Financial Officer and Controller and one which
applies to its independent directors, being the code of business ethics for
directors. All codes are published on its website at www.tcpipelineslp.com.
If any substantive amendments are made to the code for senior officers or if
any waivers are granted, the amendment or waiver will be published on TC
PipeLines' website or filed in a report on Form 8-K.

CORPORATE GOVERNANCE

The audit committee has adopted a charter which specifically provides that it is
responsible for the appointment, compensation, retention and oversight of the
work of the independent public accountants engaged in preparing or issuing TC
PipeLines' audit report, that the committee has the authority to engage
independent counsel and other advisors as it determines necessary to carry out
its duties and for the committee to be responsible for establishing procedures
for the receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by employees of the general partner concerns
regarding questionable accounting or auditing matters. The committee has adopted
TransCanada's Ethics help line in fulfillment of its responsibility to establish
a confidential and anonymous whistle blowing process. The toll free Ethics
Help-Line number and the audit committee's charter are published on TC PipeLines
website at www.tcpipelineslp.com.

Mr. Robert Helman has served on the Audit Committee of the Board since July
1999. Mr. Helman has advised the Board that he will be retiring from his
directorship pending appointment of his successor.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Partnership's directors and
executive 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 SEC and the Nasdaq Stock Market.
Executive 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.

Based solely upon a review of reports on Forms 3 and 4 and amendments thereto
furnished to the Partnership during its most recent fiscal year and reports on
Form 5 and amendments thereto furnished to the Partnership with respect to its
most recent fiscal year, and written representations from officers and directors
of the general partner that no Form 5 was required, the Partnership believes
that all filing requirements applicable to its officers, directors and
beneficial owners under Section 16(a) were complied with during the year ended
December 31, 2003.

- 43 -

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes certain information regarding the annual salary
of Ronald J. Turner, President and Chief Executive Officer of the general
partner of the Partnership, for the years ended December 31, 2003, 2002 and 2001
paid by TransCanada, parent company of the general partner. Mr. Turner is an
employee of TransCanada. TC PipeLines reimburses TransCanada for the services
contributed to its operations by Mr. Turner.

(1) Annualized base salary paid by TransCanada. Based on services provided,
approximately 10% of this base salary is allocated 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 December 31, 2003,
2002 and 2001 noon buying rates of 0.7738, 0.6331 and 0.6279, respectively,
as reported by the Bank of Canada.

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
$15,000 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. 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 Chair of the Audit
Committee receives an additional $375 per meeting for his additional duties as
committee chair. 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.

As the Partnership does not have any employees, the Audit and Compensation
Committee of the Board of Directors and subsequently the Board of Directors of
the general partner of TC PipeLines, have not been called upon to make any
determination with respect to the amount of compensation to be paid to the
Partnership's President and CEO. The board does, however, approve the allocation
of the salary of the President and CEO to the Partnership on an annual basis.
The executive officers' salaries are determined on a competitive and market
basis by TransCanada.

- 44 -

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED MATTERS

The following table sets forth the beneficial ownership of the voting securities
of the Partnership as of February 23, 2004 by the general partner's directors,
officers and certain beneficial owners. Executive 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.

(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.

(4) As reported on a schedule 13G/A filed on February 12, 2004, the Goldman
Sachs Group, Inc. (GS Group) and Goldman, Sachs & Co. (Goldman Sachs) each
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) 10,979 units are held in trust accounts for Mr. Helman's benefit.

(6) 2,979 units are held by the Jenkins-Stark Family Trust dated June 16, 1995.

(7) 2,579 units are held directly by Mr. Marshall.

(8) With the exception of the three named directors above, none of the other
directors and executive officers hold any units of TC PipeLines.

(9) Ronald J. Turner holds 322,850 options and 29,330 shares of TransCanada;
Russell K. Girling holds 440,162 options and 9,725 shares of TransCanada;
Albrecht W.A. Bellstedt holds 187,500 options and 12,206 shares of
TransCanada; Kristine L. Delkus holds 73,048 options and 2,252 shares of
TransCanada; Steven D. Becker holds 142,907 options and 888 shares of
TransCanada; Donald R. Marchand holds 111,000 options and 4,397

- 45 -

shares of TransCanada; Ronald L. Cook holds 66,290 options and 8,486 shares
of TransCanada; Max Feldman holds 157,481 options and 25,485 shares of
TransCanada; Wendy L. Hanrahan holds 22,700 options and 977 shares of
TransCanada; Amy W. Leong holds 5,600 options and 2,236 shares of
TransCanada; and Maryse C. St.-Laurent holds 2,600 options and 2,056 shares
of TransCanada. The directors and executive officers as a group hold
1,532,138 options and 98,038 shares of TransCanada.

* Less than 1%.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

An indirect subsidiary of TransCanada owns 2,800,000 common units and the
general partner owns 1,872,870 common units and 936,436 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. As a
result, TransCanada's aggregate ownership interest in the Partnership is 33.4%
by virtue of its indirect ownership of the general partner and a 31.4% aggregate
limited partner interest.

The general partner is accountable to TC PipeLines and the unitholders as a
fiduciary. Neither the Delaware Revised Uniform Limited Partnership Act
(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:

o 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.

o 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.

o 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. Further, the general
partner and its affiliates have no obligation to present business
opportunities to TC PipeLines.

o 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.

- 46 -

The Partnership does not have any employees. The management and operating
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, 2003. Such costs include personnel costs (such as salaries and
employee benefits), overhead costs (such as office space and equipment) and
out-of-pocket expenses related to the provision of services to the Partnership.

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. At December 31, 2003, the Partnership had no amount outstanding
under the TransCanada Credit Facility. As at March 12, 2004, $9.0 million is
outstanding under the TransCanada Credit Facility.

Mr. Helman, a director of the general partner of the Partnership, is a
partner of the law firm Mayer, Brown, Rowe & Maw LLP, which provides legal
services on U.S. related matters to TransCanada, the parent of the general
partner. Also, in the first half of 2002, Mayer, Brown, Rowe & Maw LLP
provided limited legal services to the general partner on behalf of the
Partnership solely relating to matters arising from Enron's voluntary
petition for bankruptcy protection. The payments made by the Partnership and
those made by its parent during the last calendar year did not exceed 5% of
Mayer, Brown, Rowe & Maw LLP's consolidated gross revenues for that year.
Mr. Helman did not participate, nor was he consulted in the provision of
services to the Partnership, and Mayer, Brown, Rowe & Maw LLP have not since
the first half of 2002 provided any further services to the Partnership.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth, for the periods indicated, the fees billed by
the principal accountants.

(1) On April 23, 2002, the Partnership filed a shelf registration statement
with the SEC. These charges include fees paid to KPMG, the Partnership's
external auditors, for services performed related to this filing in the
amount of $3,000 (2002 - $18,860).

(2) The Partnership has not engaged its external auditors for any tax services,
audit-related services, or other services in 2003 or 2002.

- 47 -

PART IV

ITEM 15. 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.

(3)

* Indicates exhibits incorporated by reference.

(b) Reports on Form 8-K

1. Report on Form 8-K dated October 24, 2003 and filed on October
24, 2003 reporting that TC PipeLines, LP issued a press release
announcing third quarter results for the period ended September
30, 2003.

2. Report on Form 8-K dated December 19, 2003 and filed on December
19, 2003 reporting that Northern Border Pipeline advised that its
Management Committee had unanimously agreed to (i) issue equity
cash calls to its partners in the total amount of $130 million in
early 2004 and $90 million in 2007; (ii) fund future growth
capital expenditures with 50% equity capital contributions from
its partners; and (iii) change the cash distribution policy of
Northern Border Pipeline to be effective January 1, 2004.

3. Report on Form 8-K dated December 31, 2003 and filed on December
31, 2003 reporting that Northern Border Pipeline filed a Form
8-K stating that the SEC issued an order on December 29, 2003
denying two applications filed by Enron seeking exemption under
Section 3(a)(1), 3(a)(3) and 3(a)(5) of PUHCA. Northern Border
Pipeline also stated that Enron filed for an exemption under
Section 3(a) (4) of PUHCA, based on the temporary nature of the
applicant's current or proposed interest in Portland General
Electric Company, as described in Enron's and certain of its
subsidiaries' Chapter 11 plan.

4. Report on Form 8-K dated January 16, 2004 and filed on January
20, 2004 reporting that TC PipeLines, LP issued a press release
announcing its fourth quarter distribution.

5. Report on Form 8-K dated January 29, 2004 and filed on January
30, 2004 reporting that TC PipeLines, LP issued a press release
announcing fourth quarter and annual results for the period ended
December 31, 2003.

6. Report on Form 8-K dated February 9, 2004 and filed on February
9, 2004 reporting that Northern Border Pipeline filed an Form 8-K
stating that, as previously reported on December 31, 2003, Enron
and other related entities had filed with the SEC an application
for exemption under Section 3(a)(4) of PUHCA. By SEC order
entered January 30, 2004, the hearing date on Enron's pending
application for

- 50 -

exemption under PUHCA was postponed until February 9, 2004 and by
SEC order entered February 6, 2004, the hearing date has now been
postponed until further notice on the condition that a status
report on Enron's offer of settlement be provided no later than
March 8, 2004.

7. Report on Form 8-K dated March 2, 2004 and filed on March 2,
2004, furnishing the presentation of Mr. Ron Turner, President
and Chief Executive Officer of TC PipeLines, LP at the Master
Limited Partnership Investor Conference 2004, held in New York
City on March 2, 2004.

8. Report on Form 8-K dated March 10, 2004 and filed March 11,
2004, reporting that, on March 9, 2004, Enron registered as a
holding company under the Public Utility Holding Company Act of
1935. This Form 8-K also reported that on March 10, 2004,
Northern Border Pipeline filed a Form 8-K announcing that the
SEC has granted Enron's request on behalf of Northern Border
Partners, which includes its subsidiary Northern Border
Pipeline, to allow Northern Border Partners to declare and pay
distributions. The approval is part of the SEC order issued
March 9, 2004, after Enron registered as a holding company
under PUHCA. The authorizations are effective until the earlier
of the deregistration of Enron under PUHCA or July 31, 2005.

(c) None.

(d) None.

- 51 -

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 12th day of March
2004.

TC PIPELINES, LP
(A Delaware Limited Partnership)
by its general partner,
TC PipeLines GP, Inc.

/s/ Ronald J. Turner
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.

- 52 -

TC PIPELINES, LP
INDEX TO FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

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, 2003 and 2002 and the related statements
of income, comprehensive income, cash flows and changes in partners' equity for
each of the years in the three year period ended December 31, 2003. 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 of America. 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, 2003 and 2002 and the results of its operations and its cash flows for each
of the years in the three year period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Calgary, Canada
March 4, 2004

F-2

TC PIPELINES, LP
BALANCE SHEET

STATEMENT OF INCOME

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

F-3

TC PIPELINES, LP
STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF CASH FLOWS

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

F-4

TC PIPELINES, LP
STATEMENT OF CHANGES IN PARTNERS' EQUITY

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

F-5

TC PIPELINES, LP
NOTES TO FINANCIAL STATEMENTS

NOTE 1 ORGANIZATION

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 was formed by
TransCanada PipeLines Limited, a subsidiary of TransCanada Corporation
(collectively refered to herein as 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 1,249-mile United States interstate pipeline
system that transports natural gas from the Montana-Saskatchewan border to
markets in the midwestern United States.

TC PipeLines also owns a 49% general partner interest in Tuscarora Gas
Transmission Company (Tuscarora), a Nevada general partnership. 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.

TC PipeLines is managed by its general partner, TC PipeLines GP, Inc.
(General Partner), an indirect 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 1,872,870 common units and 936,436
subordinated units, representing an effective 15.7% limited partner interest in
the Partnership at December 31, 2003. TransCanada indirectly holds 2,800,000
common units representing an effective 15.7% limited partner interest in the
Partnership at December 31, 2003.

NOTE 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, 2003 and 2002 and the results of
its operations, cash flows and changes in partners' equity for the years ended
December 31, 2003, 2002 and 2001. 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. Other comprehensive income
recorded by TC PipeLines arises through its equity investments in Northern
Border Pipeline and Tuscarora and relates to cash flow hedges transacted by
Northern Border Pipeline and Tuscarora. 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 as 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.

F-6

(c) 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.

(d) PARTNERS' EQUITY

Costs incurred in connection with the issuance of units are deducted from the
proceeds received. Costs incurred to convert subordinated units to common units
were deducted from Partners' Equity.

(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.

F-7

NOTE 3 INVESTMENT IN NORTHERN BORDER PIPELINE COMPANY

The Partnership owns a 30% general partner interest in Northern Border Pipeline.
The remaining 70% partnership interest in Northern Border Pipeline is held by
Northern Border Partners, L.P. (NBP), a publicly traded limited partnership. 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' equity income amounted to $44.5 million, $42.8 million and
$42.1 million for the years ended December 31, 2003, 2002 and 2001,
respectively, representing 30% of the net income of Northern Border Pipeline for
the same periods. Undistributed earnings of Northern Border Pipeline amounted to
zero, $1.3 million and $8.4 million for the years ended December 31, 2003, 2002
and 2001, respectively.

The following sets out summarized financial information for Northern Border
Pipeline as at December 31, 2003 and 2002 and for the years ended December 31,
2003, 2002 and 2001.

NOTE 4 INVESTMENT IN TUSCARORA GAS TRANSMISSION COMPANY

The Partnership owns a 49% general partner interest in Tuscarora. The remaining
general partner interests in Tuscarora are held 50% by Sierra Pacific Resources
and 1% by TransCanada. Tuscarora is regulated by the FERC.

TC PipeLines' equity income from Tuscarora amounted to $5.3 million, $4.7
million and $3.6 million for the years ended December 31, 2003, 2002 and 2001,
respectively, representing 49% of the net income of Tuscarora for the same
periods. Undistributed earnings of Tuscarora amounted to zero, $0.8 million and
$0.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.

F-8

The following sets out summarized financial information for Tuscarora as at
December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and
2001. TC PipeLines has held its general partner interest since September 1,
2000.

NOTE 5 CREDIT FACILITIES AND LONG-TERM DEBT

On March 8, 2004, the Partnership renewed its credit facility (Revolving
Credit Facility) with Bank One, NA, as administrative agent 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 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 finance capital expenditures and for other
general purposes. At December 31, 2003, the Partnership had borrowings of $5.5
million outstanding under the Revolving Credit Facility (2002 - $11.5 million).
The fair value of the Revolving Credit Facility approximates its carrying value
because the interest rate is a floating rate. The interest rate on the Revolving
Credit Facility averaged 2.58% for the year (2002 - 3.57%; 2001 - 5.19%) and was
2.42% at the end of the year (2002 - 2.70%). Interest paid during the years
ended December 31, 2003, 2002 and 2001 was $0.2 million, $0.4 million and $1.2
million, respectively.

F-9

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 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, 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. At December 31, 2003 and
2002, the Partnership had no amount outstanding under the TransCanada Credit
Facility.

NOTE 6 PARTNERS' CAPITAL AND CASH DISTRIBUTIONS

Partners' capital consists of 16,563,564 common units representing a 92.8%
limited partner interest (which number includes 1,872,870 common units are held
by the General Partner and 2,800,000 common units are owned by an affiliate of
the General Partner), 936,436 subordinated units owned by the General Partner
representing a 5.2% limited partner interest and a 2% general partner interest.
In aggregate the General Partner's and its affiliate's interests represent an
effective 32% ownership of the Partnership's equity.

The Partnership makes cash 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. The Unitholders currently receive a
quarterly distribution of $0.55 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 quarterly
distribution. 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.

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. On August 1, 2002, 936,435
subordinated units, representing one-third of the outstanding subordinated units
held by the General Partner, upon satisfaction of the financial tests set forth
in the partnership agreement, automatically converted into an equal number of
common units as provided for in the partnership agreement of TC PipeLines. On
August 1, 2003, an additional 936,435 subordinated units, representing one-half
of the then remaining subordinated units held by the General Partner, upon
satisfaction of the financial tests set forth in the partnership agreement,
automatically converted into an equal number of common units as provided for in
the partnership agreement of TC PipeLines. This reduces the number of
outstanding subordinated units to 936,436, which will, upon satisfaction of the
financial tests, automatically convert into common units on the first date after
the record date for distributions for the quarter ending June 30, 2004.

F-10

As an incentive, the General Partner's percentage interest in quarterly
distributions is increased after certain specified target levels are met. The
incremental incentive distributions payable to the General Partner are 15%, 25%,
and 50% of all quarterly distributions of Available Cash that exceed target
levels of $0.45, $0.5275 and $0.69, respectively, per unit. For the years ended
December 31, 2003, 2002 and 2001, the Partnership distributed $2.175, $2.075 and
$1.975, respectively, per unit. The distributions for the year ended December
31, 2003, 2002 and 2001 included incentive distributions to the General Partner
in the amount of $1.2 million, $0.8 million and $0.5 million, 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.

NOTE 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:

NOTE 8 RELATED PARTY TRANSACTIONS

The Partnership does not have any employees. The management and operating
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, $0.5
million and $0.5 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Such costs include (i) personnel costs (such as salaries and
employee benefits), (ii) overhead costs (such as office space and equipment) and
(iii) out-of-pocket expenses related to the provision of such services.

F-11

NOTE 9 QUARTERLY FINANCIAL DATA (UNAUDITED)

The following sets forth selected financial data for the four quarters of each
of 2003 and 2002. Certain comparative figures have been redefined to conform to
the 2003 presentation.

NOTE 10 ACCOUNTING PRONOUNCEMENTS

During 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 149,"Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" and Interpretation (FIN) No. 46,"Consolidation of Variable Interest
Entities," and reissued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits."

SFAS No. 149 amends and clarifies accounting for derivative instruments and
hedging activities under SFAS No. 133. As at December 31, 2003, TC PipeLines
does not engage in any hedging activities and is not affected by the changes
resulting from this standard other than any impact arising from the
Partnership's equity investees.

SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. This standard is effective for financial instruments entered into or
modified after May 31, 2003. As at December 31, 2003, TC PipeLines has not
entered into any financial instruments that would be affected by this standard
and, therefore, is not affected by the changes resulting from this standard.

SFAS No. 132 (Revised) revises employers' disclosures about pension plans
and other postretirement benefits plans. It does not change the measurement or
recognition of those plans in earlier Statements or the disclosure requirements
contained in the original SFAS No. 132. This revision requires additional
disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. As at December 31, 2003, TC PipeLines does not have a pension plan or
other postretirement benefit plans and is not affected by the changes resulting
from this standard.

F-12

FIN No. 46 is an interpretation of Accounting Research Bulletin No. 51 and
provides guidance on the identification of, and financial reporting for, certain
entities over which control is achieved through financial controls (variable
interests) rather than voting rights. Such entities are referred to as variable
interest entities. The holder of the majority of an entity's variable interests
will be required to consolidate the variable interest entity. The application of
this Interpretation does not impact the financial statements of TC PipeLines.

NOTE 11 SUBSEQUENT EVENTS

On January 16, 2004, the Board of Directors of the General Partner declared a
cash distribution of $0.55 per unit related to the three months ended December
31, 2003. The $10.1 million distribution was paid on February 13, 2004 in the
following manner: $9.1 million to the holders of common units as of the close of
business on January 30, 2003, $0.5 million to the General Partner as holder of
the subordinated units, $0.3 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.

On January 30, 2004, TC PipeLines paid $19.5 million related to its share of a
capital contribution to Northern Border Pipeline.

F-13

INDEPENDENT AUDITORS' REPORT

Northern Border Pipeline Company:

We have audited the accompanying balance sheets of Northern Border Pipeline
Company (a Texas partnership) as of December 31, 2003 and 2002, and the related
statements of income, comprehensive income, cash flows, and changes in partners'
equity for each of the years in the three-year period ended December 31, 2003.
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 of America. 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, 2003 and 2002, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.

KPMG LLP

Omaha, Nebraska
January 27, 2004

F-14

NORTHERN BORDER PIPELINE COMPANY

BALANCE SHEET

(IN THOUSANDS)

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

F-15

NORTHERN BORDER PIPELINE COMPANY

STATEMENT OF INCOME

(IN THOUSANDS)

NORTHERN BORDER PIPELINE COMPANY

STATEMENT OF COMPREHENSIVE INCOME

(IN THOUSANDS)

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

F-16

NORTHERN BORDER PIPELINE COMPANY

STATEMENT OF CASH FLOWS

(IN THOUSANDS)

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

F-17

NORTHERN BORDER PIPELINE COMPANY

STATEMENT OF CHANGES IN PARTNERS' EQUITY

(IN THOUSANDS)

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

F-18

NORTHERN BORDER PIPELINE COMPANY

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND MANAGEMENT

Northern Border Pipeline Company (Northern Border Pipeline) is a Texas
general partnership formed in 1978. The ownership percentages of the
partners in Northern Border Pipeline (Partners) at December 31, 2003 and
2002 are as follows:

Northern Border Pipeline owns a 1,249-mile natural gas transmission
pipeline system extending from the United States-Canadian border near Port
of Morgan, Montana, to a terminus near North Hayden, Indiana.

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 Intermediate Limited
Partnership (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 TransCanada
PipeLines Limited, which is a subsidiary of TransCanada Corporation and
affiliate of TC PipeLines, 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. The
day-to-day management of Northern Border Pipeline's affairs is the
responsibility of Northern Plains, as defined by an operating agreement
between Northern Border Pipeline and Northern Plains. Northern Border
Pipeline is charged for the salaries, benefits and expenses of Northern
Plains. Northern Plains also utilizes Enron affiliates for management
services related to Northern Border Pipeline. For the years ended
December 31, 2003, 2002, and 2001, Northern Border Pipeline's charges
from Northern Plains and its affiliates totaled approximately $25.6
million, $22.8 million and $29.5 million, respectively. See Note 10 for a
discussion of Northern Border Pipeline's relationships with Enron and
developments involving Enron.

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 of America 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."

F-19

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(B) GOVERNMENT REGULATION (CONTINUED)

Accordingly, certain assets that result from the regulated ratemaking
process are recorded that would not be recorded under accounting
principles generally accepted in the United States of America for
nonregulated entities. Northern Border Pipeline continually assesses
whether the recovery of the regulatory assets is probable by
considering such factors as regulatory changes and the impact of
competition. Northern Border Pipeline believes the recovery of the
existing regulatory assets is probable. If future recovery ceases to
be probable, Northern Border Pipeline would be required to write off
the regulatory assets at that time. At December 31, 2003 and 2002,
Northern Border Pipeline has reflected regulatory assets of
approximately $8.2 million and $10.5 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 five to 44 years.

(C) REVENUE RECOGNITION

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. Revenues for
Northern Border Pipeline are recognized based upon contracted
capacity and actual volumes transported under transportation
service agreements. An allowance for doubtful accounts is recorded in
situations where collectibility is not reasonably assured. Northern
Border Pipeline does not own the gas that it transports, and
therefore it does not assume the related natural gas commodity risk.

(D) 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 $350 million and $343 million at December 31, 2003 and
2002, respectively, and are primarily related to accelerated
depreciation and other plant-related differences.

(E) 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.

F-20

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(F) PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION AND
AMORTIZATION

Property, plant and equipment is stated at original cost. During
periods of construction, Northern Border Pipeline is permitted to
capitalize an allowance for funds used during construction, which
represents the estimated costs of funds used for construction
purposes. 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 retirements or sales of entire regulated operating units.

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 rate applied to Northern
Border Pipeline's transmission plant is 2.25%. Composite rates are
applied to all other functional groups of property having similar
economic characteristics.

(G) 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. Northern Border Pipeline does not use these
instruments for trading purposes. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No.
137 and SFAS No. 138, requires 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. Northern
Border Pipeline adopted SFAS No. 133 beginning January 1, 2001. See
Note 6 for a discussion of Northern Border Pipeline's derivative
instruments and hedging activities.

(H) RECLASSIFICATIONS

Certain reclassifications have been made to the financial statements
for prior years to conform with the current year presentation.

3. RATES AND REGULATORY ISSUES

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. In September 2000, Northern Border Pipeline filed a stipulation and
agreement with the FERC that documented the proposed settlement of its 1999
rate case. The settlement was approved by the FERC in December 2000. 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.

After the FERC approved the rate case settlement and prior to the end of
2000, Northern Border Pipeline made estimated refund payments to its

F-21

3. RATES AND REGULATORY ISSUES (CONTINUED)

shippers totaling approximately $22.7 million, primarily related to the
period from December 1999 to November 2000. During the first quarter of
2001, Northern Border Pipeline paid the remaining refund obligation to its
shippers totaling approximately $6.8 million, which related to periods
through January 2001.

On March 16, 2000, the FERC issued an order granting Northern Border
Pipeline's application for a certificate to construct and operate an
expansion and extension of its pipeline system into Indiana (Project 2000).
The facilities for Project 2000 were placed into service on October 1,
2001.

In February 2003, Northern Border Pipeline filed to amend its FERC tariff
to clarify the definition of company use gas, which is gas supplied by
its shippers for its operations, by adding detailed language to the broad
categories that comprise company use gas. Northern Border Pipeline had
included in its collection of company use gas, quantities that were
equivalent to the cost of electric power at its electric-driven compressor
stations during the period of June 2001 through January 2003. On March 27,
2003, the FERC issued an order rejecting Northern Border Pipeline's
proposed tariff sheet revision and requiring refunds with interest within
90 days of the order. Northern Border Pipeline made refunds to its
shippers of $10.3 million in May 2003.

4. TRANSPORTATION SERVICE AGREEMENTS

Operating revenues are collected pursuant to the FERC tariff through firm
transportation service agreements. The firm service agreements extend for
various terms with termination dates that range from March 2004 to December
2013. Northern Border Pipeline also has interruptible transportation
service agreements and other transportation service agreements with
numerous shippers.

Under the capacity release provisions of Northern Border Pipeline's FERC
tariff, shippers are allowed to release all or part of their capacity
either permanently for the full term of the contract or temporarily. A
temporary capacity release does not relieve the original contract shipper
from its payment obligations if the replacement shipper fails to pay for
the capacity temporarily released to it.

For the year ended December 31, 2003, Northern Border Pipeline's largest
shippers were BP Canada Energy Marketing Corp. (BP Canada), Pan-Alberta Gas
(U.S.) Inc. (Pan-Alberta) and EnCana Marketing U.S.A. Inc. (EnCana). At
December 31, 2003, BP Canada had approximately 21% of the contracted firm
capacity and EnCana had approximately 19% of the contracted firm capacity.
Pan-Alberta's firm service agreements, which had been managed by Mirant
Americas Energy Marketing, LP, terminated October 31, 2003. The BP Canada
firm service agreements extend for various terms with termination dates
from October 2004 to February 2012. The EnCana firm service agreements
extend for various terms with termination dates from March 2004 to June
2009. Operating revenues from BP Canada, EnCana, and Pan-Alberta for the
year ended December 31, 2003, were $54.7 million, $32.9 million, and
$45.5 million, respectively. For the years ended December 31, 2002 and
2001, Northern Border Pipeline's largest shippers were Pan-Alberta and
Mirant with combined operating revenues of $105.5 million and $80.7
million, respectively.

F-22

4. TRANSPORTATION SERVICE AGREEMENTS (CONTINUED)

At December 31, 2003 there is no contracted firm capacity held by shippers
affiliated with Northern Border Pipeline. Previously, some of Northern
Border Pipeline's shippers have been affiliated with its general partners.
Operating revenues from affiliates were $1.4 million and $52.1 million
for the years ended December 31, 2002, and 2001, respectively.

5. CREDIT FACILITIES AND LONG-TERM DEBT

Detailed information on long-term debt is as follows:

Northern Border Pipeline has entered into revolving credit facilities,
which are used for capital expenditures, acquisitions and general business
purposes and for refinancing existing indebtedness. Northern Border
Pipeline entered into a $175 million three-year credit agreement (2002
Pipeline Credit Agreement) with certain financial institutions in May
2002. The 2002 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. Northern Border Pipeline is required to
pay a fee on the principal commitment amount of $175 million.

In April 2002, Northern Border Pipeline completed a private offering of
$225 million of 6.25% Senior Notes due 2007 (2002 Pipeline Senior Notes)
and in September 2001, Northern Border Pipeline completed a private
offering of $250 million of 7.50% Senior Notes due 2021 (2001 Pipeline
Senior Notes). The 2002 Pipeline Senior Notes and 2001 Pipeline Senior
Notes were subsequently exchanged in registered offerings for notes with
substantially identical terms. The proceeds from the senior notes were used
to reduce indebtedness outstanding.

F-23

5. CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)

Interest paid, net of amounts capitalized, during the years ended December
31, 2003, 2002 and 2001 was $47.8 million, $55.3 million and $53.9 million,
respectively.

Aggregate required repayments of long-term debt are as follows: $131
million and $225 million for 2005 and 2007, respectively. Aggregate
required repayments of long-term debt thereafter total $450 million.
There are no required repayment obligations for 2004, 2006 or 2008.

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, leverage ratios and
interest coverage ratios that restrict the incurrence of other indebtedness
by Northern Border Pipeline and also place certain restrictions on
distributions to the partners of Northern Border Pipeline. The 2002
Pipeline Credit Agreement requires the maintenance of a ratio of EBITDA
(net income plus interest expense, income taxes and depreciation and
amortization) to interest expense of greater than 3 to 1. The 2002 Pipeline
Credit Agreement also requires the maintenance of the ratio of indebtedness
to EBITDA of no more than 4.5 to 1. At December 31, 2003, Northern Border
Pipeline was in compliance with its financial covenants.

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 Pipeline Senior Notes, 1999 Pipeline Senior Notes, 2001
Pipeline Senior Notes and 2002 Pipeline Senior Notes was approximately
$675 million and $827 million at December 31, 2003 and 2002, respectively.
Northern Border Pipeline presently intends to maintain the current
schedule of maturities for the 1999 Pipeline Senior Notes, the 2001
Pipeline Senior Notes and the 2002 Pipeline Senior Notes, which will
result in no gains or losses on their respective repayments. 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As a result of the adoption of SFAS No. 133 on January 1, 2001, Northern
Border Pipeline reclassified approximately $11.1 million from long-term
debt to accumulated other comprehensive income related to unamortized
proceeds from the termination of interest rate swap agreements. Also upon
adoption of SFAS No. 133, Northern Border Pipeline designated an
outstanding interest rate swap agreement with a notional amount of
$40 million as a cash flow hedge. As a result, Northern Border Pipeline
recorded a non-cash loss in accumulated other comprehensive income of
approximately $0.8 million. The $40 million interest rate swap agreement
terminated in November 2001.

Prior to the anticipated issuance of fixed rate debt, Northern Border
Pipeline entered into forward starting interest rate swap agreements.
The interest rate swaps were designated as cash flow hedges as they were
entered into to hedge the fluctuations in Treasury rates and spreads
between the execution date of the swaps and the issuance of the fixed rate
debt. The notional amount of the interest rate swaps did not exceed the
expected principal amount of fixed rate debt to be issued. Upon issuance of
the fixed rate debt, the swaps were terminated and the proceeds received or

F-24

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

amounts paid to terminate the swaps were recorded in accumulated other
comprehensive income and amortized to interest expense over the term of the
debt.

For the year ended December 31, 2002, Northern Border Pipeline received
$2.4 million from terminated interest rate swaps. For the year ended
December 31, 2001, Northern Border Pipeline paid approximately $4.1
million to terminate interest rate swaps.

During the years ended December 31, 2003, 2002 and 2001, respectively,
Northern Border Pipeline amortized approximately $1.6 million, $1.4
million, and $1.2 million related to the terminated derivatives as a
reduction to interest expense from accumulated other comprehensive
income. Northern Border Pipeline expects to amortize approximately $1.6
million as a reduction to interest expense in 2004.

Northern Border Pipeline entered into interest rate swap agreements with
notional amounts totaling $225 million in May 2002. Under the interest rate
swap agreements, Northern Border Pipeline makes payments to counterparties
at variable rates based on the London Interbank Offered Rate and in return
receives payments based on a 6.25% fixed rate. At December 31, 2003 and
2002, the average effective interest rate on Northern Border Pipeline's
interest rate swap agreements was 2.31% and 2.70%, respectively. Northern
Border Pipeline's interest rate swap agreements have been designated as
fair value hedges as they were entered into to hedge the fluctuations in
the market value of the 2002 Pipeline Senior Notes. The accompanying
balance sheet at December 31, 2002, reflects a non-cash gain of
approximately $21.2 million in derivative financial assets with a
corresponding increase in long-term debt. The accompanying balance sheet at
December 31, 2003, reflects a non-cash gain of approximately $16.6 million
in derivative financial assets with a corresponding increase in long-term
debt.

7. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

Future minimum lease payments under non-cancelable operating leases on
office space and rights-of-way are as follows (in thousands):

CASH BALANCE PLAN

As further discussed in Note 11, on December 31, 2003, Enron filed a
motion seeking approval of the Bankruptcy Court to provide additional
funding to, and for authority to terminate the Enron Corp. Cash Balance
Plan and certain other defined benefit plans. Northern Border Pipeline
recorded charges associated with the termination of the cash balance plan
of $3.1 million in 2003. Northern Border Pipeline believes this accrual
is adequate to cover the likely allocation of these costs.

F-25

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

CAPITAL EXPENDITURES

Total capital expenditures for 2004 are estimated to be $14.0 million.
Funds required to meet the capital expenditures for 2004 are anticipated
to be provided primarily by debt borrowings under the 2002 Pipeline
Credit Agreement and using operating cash flows.

ENVIRONMENTAL MATTERS

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

OTHER

On July 31, 2001, the Assiniboine and Sioux Tribes of the Fort Peck Indian
Reservation (Tribes) filed a lawsuit in Tribal Court against Northern
Border Pipeline to collect more than $3 million in back taxes, together
with interest and penalties. The lawsuit relates to a utilities tax on
certain of Northern Border Pipeline's properties within the Fort Peck
Indian Reservation. The Tribes and Northern Border Pipeline, through a
mediation process, have held settlement discussions and have reached a
settlement in principle on pipeline rights-of-way lease and taxation
issues. Final documentation has been completed and is subject to the
approval of the Bureau of Indian Affairs, which the parties believe will
be obtained in the very near term. This settlement grants to Northern
Border Pipeline, among other things, (i) an option to renew the pipeline
rights-of-way lease upon agreed terms and conditions on or before
April 11, 2011 for a term of 25 years with a renewal right for an
additional 25 years; (ii) a present right to use additional tribal lands
for expanded facilities; and (iii) release and satisfaction of all tribal
taxes against Northern Border Pipeline. In consideration of this option
and other benefits, Northern Border Pipeline will pay a lump sum amount
of $5.9 million and an annual amount of approximately $1.5 million
beginning April 2004. Northern Border Pipeline intends to seek regulatory
recovery of the costs resulting from the settlement.

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.

8. QUARTERLY FINANCIAL DATA (UNAUDITED)

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9. ACCOUNTING PRONOUNCEMENTS

In 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred, if the liability can be reasonably estimated. When
the liability is initially recorded, the carrying amount of the related
asset is increased by the same amount. Over time, the liability is accreted
to its future value and the accretion is recorded to expense. The initial
adjustment to the asset is depreciated over its useful life. Upon
settlement of the liability, an entity either settles the obligation for
its recorded amount or incurs a gain or loss. In some instances, Northern
Border Pipeline is obligated by contractual terms or regulatory
requirements to remove facilities or perform other remediation upon
retirement. Northern Border Pipeline was unable to estimate and record
liabilities for its obligations that fall under the provisions of this
statement because it cannot reasonably estimate when such obligations would
be settled. Effective January 1, 2003, Northern Border Pipeline adopted
SFAS No. 143, which did not have a material impact on its financial
position or results of operations.

In November 2002, the FASB issued Interpretation No. (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of
this interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. FIN 45 did not have a
material impact on Northern Border Pipeline's financial position or
results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 did not have a material impact
on Northern Border Pipeline's financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003. SFAS No. 150 did not have a
material impact on Northern Border Pipeline's financial position or results
of operations.

In May 2003, the Emerging Issues Task Force of the FASB issued EITF
No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF 00-21
requires companies to separate components of a complex contract into
separate units of accounting. EITF 00-21 was effective for contracts
signed after June 30, 2003, although retroactive application to existing
contracts was permitted. EITF No. 00-21 did not have a material impact
on Northern Border Pipeline's financial position or results of operations.

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10. OTHER INCOME (EXPENSE)

Other income (expense) on the statement of income includes such items as
investment income, nonoperating revenues and expenses, and nonrecurring
other income and expense items. For the year ended December 31, 2003,
other expense included $0.6 million for a repayment of amounts
previously received for vacated microwave frequency bands. For the year
ended December 31, 2002, other income included $0.6 million for amounts
received for previously vacated microwave frequency bands. For the year
ended December 31, 2001 other income included bad debt expense of $1.5
million related to the bankruptcy of a telecommunications company that
had purchased excess capacity on Northern Border Pipeline's
communication system and a $0.7 million charge for reserves established.

11. RELATIONSHIPS WITH ENRON

In December 2001, Enron and certain of its subsidiaries filed voluntary
petitions for Chapter 11 reorganization with the U.S. Bankruptcy Court.
Northern Plains was not included in the bankruptcy filing and management
believes that Northern Plains will continue to be able to meet its
operational and administrative service obligations under the existing
operating agreement. Enron North America Corp. (ENA), a subsidiary of
Enron, was included in the bankruptcy filing.

At the time of the bankruptcy filing, ENA had firm service agreements
representing approximately 3.5% of contracted capacity, a portion of
which (1.1%) had been temporarily released to a third party until
October 31, 2002. Northern Border Pipeline recorded a bad debt expense
of approximately $1.3 million representing ENA's unpaid November and
December 2001 transportation, which is included in operations and
maintenance expense on the statement of income.

On June 13, 2002, the Bankruptcy Court approved a Stipulation and Order
entered into on May 15, 2002, by ENA and Northern Border Pipeline pursuant
to which ENA agreed that all but one of the shipper contracts, representing
1.7% of pipeline capacity, would be deemed rejected and terminated. The
remaining contract was terminated in the third quarter of 2002. For the
year ended December 31, 2002, Northern Border Pipeline has experienced lost
revenues of approximately $1.8 million related to ENA's capacity. Northern
Border Pipeline has filed proofs of claims regarding the amount of damages
for breach of contract and other claims in the bankruptcy proceeding.
However, Northern Border Pipeline cannot predict the amounts, if any, that
it will collect or the timing of collection. Northern Border Pipeline
believes, however, that any amounts collected will not be material.

On December 31, 2003, Enron filed a motion seeking approval of the
Bankruptcy Court to provide additional funding to, and for authority to
terminate the Enron Corp. Cash Balance Plan (Plan) and certain other
defined benefit plans of Enron's affiliates in 'standard terminations'
within the meaning of Section 4041 of the Employee Retirement Income
Security Act of 1974, as amended (ERISA). Such standard terminations
would satisfy all of the obligations of Enron and its affiliates with
respect to funding liabilities under the Plan. In addition, a standard
termination would eliminate the contingent claims of Pension Benefit
Guaranty Corporation (PBGC) against Enron and its affiliates with
respect to funding liabilities under the Plan. On January 30, 2004, the
Bankruptcy Court entered an order authorizing termination, additional
funding and other actions necessary to effect the relief requested.
Pursuant to the Bankruptcy Court order, any contributions to the Plan
are subject to the prior receipt of a favorable determination by the
Internal Revenue Service that the plan is tax-qualified as of the date
of termination. In addition, the Bankruptcy Court order provides that
the rights of PBGC and others to assert that their filed claims have not
been released or adjudicated as a result of the Bankruptcy Court order
and Enron and all other interested parties retained the right to assert
that such claims had been adjudicated or released.

Enron management has informed Northern Plains that it will seek funding
contributions from each member of its ERISA controlled group of
corporations that employs, or employed, individuals who are, or were,
covered under the Plan. Northern Plains has advised Northern Border
Pipeline that Northern Plains is a member of a controlled group of
corporations of Enron that employs, or employed, individuals who are, or
were, covered under the Plan and that an amount of approximately $3.1
million has been assessed for Northern Border Pipeline's proportionate
allocation of Northern Plains' proportionate share of up to $200 million
estimated termination costs authorized by the Bankruptcy Court order.
Under the operating agreement with Northern Plains, these increased
costs may be Northern Border Pipeline's responsiblity. While the final
amounts have not been determined, Northern Border Pipeline believes this
accrual is adequate to cover the allocation of these costs.

Northern Border Pipeline continues to monitor developments at Enron, to
assess the impact on Northern Border Pipeline of its existing agreements
and relationships with Enron, and to take appropriate action to protect
Northern Border Pipeline's interests.

12. SUBSEQUENT EVENTS

In December 2003, Northern Border Pipeline's management committee voted
to (i) issue equity cash calls to its partners in the total amount of
$130 million in early 2004 and $90 million in 2007; (ii) fund future
growth capital expenditures with 50% equity capital contributions from
its partners; and (iii) change the cash distribution policy of Northern
Border Pipeline. Effective January 1, 2004, cash distributions will be
equal to 100% of distributable cash flow as determined from Northern
Border Pipeline's financial statements based upon earnings before
interest, taxes, depreciation and amortization less interest expense and
less maintenance capital expenditures. Effective January 1, 2008 the
cash distribution policy will be adjusted to maintain a consistent
capital structure. Under the previous cash distribution policy,
approximately $28-30 million was retained annually within Northern
Border Pipeline to periodically repay outstanding bank debt. The
additional equity contributions in 2004 will be utilized to fully repay
Northern Border Pipeline's existing bank debt and thereby reduce its
debt leverage in light of existing business conditions. Upon repayment
of the existing bank debt, Northern Border Pipeline's next schedule debt
maturity is May 2007.

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 2003 of approximately $48.1 million was declared
in January 2004 to be paid in January 2004.

In January 2004, the Partnership and TC PipeLines contributed $45.5 million
and $19.5 million, respectively, to Northern Border Pipeline to be used by
Northern Border Pipeline to repay a portion of its existing indebtedness
under the 2002 Pipeline Credit Agreement.

F-28

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

Northern Border Pipeline Company:

We have audited in accordance with auditing standards generally accepted in the
United States of America, the financial statements of Northern Border Pipeline
Company as of December 31, 2003 and 2002 and for each of the years in the
three-year period ended December 31, 2003 included in this Form 10-K, and have
issued our report thereon dated January 27, 2004.

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.

KPMG LLP

Omaha, Nebraska
January 27, 2004

S-1

SCHEDULE II

NORTHERN BORDER PIPELINE COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS)

S-2