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TransCanada Reports First Quarter 2017 Financial Results; Strong Results Build Upon Transformational 2016 – Part 4


The following is a reconciliation of comparable EBITDA and comparable EBIT (our non-GAAP measures) to segmented earnings (the equivalent GAAP measure). Certain costs previously reported in our Corporate segment are now being reported within the business segments to better align with how we measure our financial performance. 2016 results have been adjusted to reflect this change.

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three months ended March 31 ------------------------------ (unaudited - millions of $) 2017 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- NGTL System 230 226 Canadian Mainline 247 231 Other Canadian pipelines(1) 28 32 Business development (1) (1) ---------------------------------------------------------------------------- Comparable EBITDA 504 488 Depreciation and amortization (222) (216) ---------------------------------------------------------------------------- Comparable EBIT and segmented earnings 282 272 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Includes results from Foothills, Ventures LP and our share of equity income from our investment in TQM.

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Canadian Natural Gas Pipelines segmented earnings increased by $10 million for the three months ended March 31, 2017 compared to the same period in 2016 and are equivalent to comparable EBIT.

Net income and comparable EBITDA for our rate-regulated Canadian Natural Gas Pipelines are generally affected by our approved ROE, our investment base, our level of deemed common equity and incentive earnings or losses. Changes in depreciation, financial charges and income taxes also impact comparable EBITDA but do not have a significant impact on net income as they are almost entirely recovered in revenues on a flow-through basis.

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NET INCOME - NGTL SYSTEM AND CANADIAN MAINLINE

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three months ended March 31 ------------------------------ (unaudited - millions of $) 2017 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- NGTL System 82 73 Canadian Mainline 52 50 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

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Net income for the NGTL System increased by $9 million for the three months ended March 31, 2017 compared to the same period in 2016 mainly due to a higher average investment base and OM&A incentive earnings recorded in 2017. The NGTL System is operating under the two-year 2016-2017 Revenue Requirement Settlement which includes an ROE of 10.1 per cent on 40 per cent deemed equity and a mechanism for sharing variances above and below a fixed annual OM&A amount with flow-through treatment of all other costs.

Net income for the Canadian Mainline increased by $2 million for the three months ended March 31, 2017 compared to the same period in 2016 primarily due to higher incentive earnings, partially offset by a lower average investment base. The Canadian Mainline is operating under the NEB 2014 Decision which includes an approved ROE of 10.1 per cent on a 40 per cent deemed equity with a possible range of achieved outcomes between 8.7 per cent and 11.5 per cent. The decision also includes an incentive mechanism that has both upside and downside risk and a $20 million annual after-tax contribution from us.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased by $6 million for the three months ended March 31, 2017 compared to the same period in 2016 mainly due to the NGTL System facilities that were placed in service.

OPERATING STATISTICS - NGTL SYSTEM AND CANADIAN MAINLINE

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---------------------------------------------------------------------------- ---------------------------------------------------------------------------- three months ended March 31 NGTL System(1) Canadian Mainline(2) -------------------- -------------------- (unaudited) 2017 2016 2017 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Average investment base (millions of $) 7,853 7,257 4,103 4,384 Delivery volumes (Bcf): Total 1,090 1,063 521 481 Average per day 12.1 11.7 5.8 5.3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Field receipt volumes for the NGTL System for the three months ended March 31, 2017 were 1,037 Bcf (2016 - 1,074 Bcf). Average per day was 11.5 Bcf (2016 - 11.8 Bcf). (2) Canadian Mainline's throughput volumes represent physical deliveries to domestic and export markets. Physical receipts originating at the Alberta border and in Saskatchewan for the three months ended March 31, 2017 were 235 Bcf (2016 - 274 Bcf). Average per day was 2.6 Bcf (2016 - 3.0 Bcf).

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U.S. Natural Gas Pipelines

The following is a reconciliation of comparable EBITDA and comparable EBIT (our non-GAAP measures) to segmented earnings (the equivalent GAAP measure). Certain costs previously reported in our Corporate segment are now being reported within the business segments to better align with how we measure our financial performance. 2016 results have been adjusted to reflect this change.

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three months ended March 31 ------------------------------ (unaudited - millions of US$, unless otherwise noted) 2017 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Columbia Gas(1) 185 - ANR 122 87 TC PipeLines, LP(2,3) 32 31 Great Lakes(3,4) 27 25 Midstream(1) 23 - Columbia Gulf(1) 18 - Other U.S. pipelines(1,2,3,5) 29 14 Non-controlling interests(6) 108 95 Business development (1) (1) ---------------------------------------------------------------------------- Comparable EBITDA 543 251 Depreciation and amortization (112) (51) ---------------------------------------------------------------------------- Comparable EBIT 431 200 Foreign exchange impact 140 71 ---------------------------------------------------------------------------- Comparable EBIT (Cdn$) 571 271 Specific items: Acquisition related costs - Columbia (10) - TC Offshore loss on sale - (4) ---------------------------------------------------------------------------- Segmented earnings (Cdn$) 561 267 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) We completed the acquisition of Columbia on July 1, 2016 and the remaining publicly held units of Columbia Pipeline Partners LP (CPPL) on February 17, 2017. (2) Results from Northern Border and Iroquois reflect our share of equity income from these investments. We acquired additional interests in Iroquois of 0.65 per cent on May 1, 2016 and 4.87 per cent on March 31, 2016. (3) TC PipeLines, LP periodically conducts at-the-market equity issuances which decrease our ownership in TC PipeLines, LP. The following shows our ownership interest in TC PipeLines, LP and our effective ownership interest of GTN, Great Lakes and PNGTS through our ownership interest in TC PipeLines, LP for the periods presented.
------------------------------------------------------------------------ ------------------------------------------------------------------------ Effective ownership percentage as of ------------------------------ March 31, 2017 March 31, 2016 ------------------------------------------------------------------------ ------------------------------------------------------------------------ TC PipeLines, LP 26.4 27.9 Effective ownership through TC PipeLines, LP: Great Lakes 12.3 13.0 PNGTS 13.2 13.9 ------------------------------------------------------------------------ ------------------------------------------------------------------------ (4) Represents our 53.6 per cent direct interest in Great Lakes. The remaining 46.4 per cent is held by TC PipeLines, LP. (5) Includes our direct ownership in Iroquois and PNGTS and our effective ownership in Millennium and Hardy Storage. (6) Comparable EBITDA for the portions of TC PipeLines, LP, PNGTS and CPPL that we do not own. Effective February 17, 2017, we acquired the remaining publicly held units of CPPL.

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U.S. Natural Gas Pipelines segmented earnings increased by $294 million for the three months ended March 31, 2017 compared to the same period in 2016 primarily due to the acquisition of Columbia and included a $10 million pre-tax charge, primarily due to integration-related costs associated with the Columbia acquisition. Segmented earnings for the three months ended March 31, 2016 included a $4 million pre-tax loss provision ($3 million after tax) as a result of a December 2015 agreement to sell TC Offshore which closed in early 2016. These amounts have been excluded from our calculation of comparable EBIT.

Earnings for our U.S. Natural Gas Pipelines operations, which include Columbia effective July 1, 2016, are generally affected by contracted volume levels, volumes delivered and the rates charged as well as by the cost of providing services. Columbia and ANR results are also affected by the contracting and pricing of their storage capacity and commodity sales. Transmission and storage revenues are generally higher in winter months due to increased seasonal demand for our services.

Comparable EBITDA for U.S. Natural Gas Pipelines increased by US$292 million for the three months ended March 31, 2017 compared to the same period in 2016 and was the net effect of:

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-- US$250 million of earnings as a result of the acquisition of Columbia on

July 1, 2016 and the remaining publicly held common units of CPPL on February 17, 2017 -- higher ANR transportation revenue resulting from a FERC-approved rate settlement, effective August 1, 2016, and higher storage results.

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DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased by US$61 million for the three months ended March 31, 2017 compared to the same period in 2016 mainly due to the acquisition of Columbia.

US$5 million of depreciation related to Columbia information system assets retired as part of the Columbia integration process has been excluded from comparable EBIT and included as part of integration-related costs to arrive at segmented earnings.

Mexico Natural Gas Pipelines

The following is a reconciliation of comparable EBITDA and comparable EBIT (our non-GAAP measures) to segmented earnings (the equivalent GAAP measure). Certain costs previously reported in our Corporate segment are now being reported within the business segments to better align with how we measure our financial performance. 2016 results have been adjusted to reflect this change.

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three months ended March 31 ------------------------------ (unaudited - millions of US$, unless otherwise noted) 2017 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Topolobampo 40 (1) Tamazunchale 29 27 Guadalajara 17 17 Mazatlan 16 - Sur de Texas(1) 4 - Other - (1) Business development - (3) ---------------------------------------------------------------------------- Comparable EBITDA 106 39 Depreciation and amortization (17) (6) ---------------------------------------------------------------------------- Comparable EBIT 89 33 Foreign exchange impact 29 12 ---------------------------------------------------------------------------- Comparable EBITand segmented earnings (Cdn$) 118 45 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Represents our 60 per cent equity interest in a joint venture with IEnova to build, own and operate the Sur de Texas pipeline.

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Mexico Natural Gas Pipelines segmented earnings increased by $73 million for the three months ended March 31, 2017 compared to the same period in 2016 and are equivalent to comparable EBIT.

Earnings from our Mexico operations are underpinned by long-term, stable, primarily U.S. dollar-denominated revenue contracts, and are affected by the cost of providing service.

Comparable EBITDA for Mexico Natural Gas Pipelines increased by US$67 million for the three months ended March 31, 2017 compared to the same period in 2016 and was the net effect of:

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-- US$41 million of incremental earnings from Topolobampo. The Topolobampo

project has experienced a delay in construction which, under the terms of our Transportation Service Agreement (TSA) with the CFE, constitutes a force majeure event with provisions allowing for the collection and recognition of revenue as per the original TSA service commencement date of July 2016 -- US$16 million of incremental earnings from Mazatlan. Construction is complete and the collection and recognition of revenue began per the terms of the TSA in December 2016 -- US$4 million of equity earnings from our investment in the Sur de Texas pipeline which records AFUDC during construction.

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