Summary of TC PIPELINES LP

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discusses the results of operations and liquidity and capital resources of TC PipeLines, LP, along with those of Great Lakes Gas Transmission Limited Partnership (Great Lakes), Northern Border Pipeline Company (Northern Border) and Tuscarora Gas Transmission Company (Tuscarora), (together "our pipeline systems"), as a result of the Partnership's ownership interests.

FORWARD-LOOKING STATEMENTS

The statements in this report that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "forecast" and other words and terms of similar meaning. The absence of these words, however, does not mean that the statements are not forward-looking.

These statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. Certain factors that could cause actual results to differ materially from those contemplated in the forward-looking statements include:

· the ability of Great Lakes and Northern Border to continue to make distributions at their current levels;

· the impact of unsold capacity on Great Lakes and Northern Border being greater or less than expected;

· competitive conditions in our industry and the ability of our pipeline systems to market pipeline capacity on favorable terms, which is affected by:

o future demand for and prices of natural gas;

o competitive conditions in the overall natural gas and electricity markets;

o availability of supplies of Canadian and United States (U.S.) natural gas;

o the oversupply of natural gas in the Mid-continent market;

o availability of additional storage capacity and current storage levels;

o weather conditions;

o competitive developments by Canadian and U.S. natural gas transmission companies, including the construction of the Eastern segment of the Rockies Express Pipeline (REX East) to Clarington, Ohio; and

o development of newly discovered natural gas plays such as the Horn River and Montney shale gas plays in Western Canada, the Louisiana Haynesville shale gas play, and the Marcellus shale gas play in West Virginia, Pennsylvania, and New York.

· the Alberta (Canada) government's decision to implement a new royalty regime effective January 2009 may affect the amount of exploration and drilling in the Western Canada Sedimentary Basin (WCSB);

· the decision by TransCanada to advance the Pathfinder Pipeline Project or the Bison Pipeline Project and the regulatory, financing and construction risks related to construction of interstate natural gas pipelines;

· the successful completion, timing, cost, scope and future financial performance of our pipeline systems' expansion projects could differ materially from our expectations due to availability of contractors or equipment, weather, difficulties or delays in obtaining regulatory approvals or denied applications, land owner opposition, the lack of adequate materials, labor difficulties or shortages, expansion costs that are higher than anticipated and numerous other factors beyond our control;

· performance of contractual obligations by customers of our pipeline systems;

· the imposition of state income taxes on partnerships;

· operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;

· the impact of current and future laws, rulings and governmental regulations, particularly Federal Energy Regulatory Commission (FERC) regulations, on us and our pipeline systems;

· our ability to control operating costs; and

· prevailing economic conditions, including the current uncertainty in the global economic markets, that impact the capital and equity markets and our ability to access these markets.

Other factors described elsewhere in this document, or factors that are unknown or unpredictable, could also have material adverse effects on future results. Please also read Item 1A. "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2007 and Item 1A. "Risk Factors" of this report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. The forward-looking statements and information is made only as of the date of the filing of this report, and except as required by applicable law, we undertake no obligation to update these forward-looking statements and information to reflect new information, subsequent events or otherwise.

The following discussion and analysis should be read in conjunction with our 2007 Annual Report on Form 10-K and the unaudited financial statements and notes thereto included in Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q. All amounts are stated in U.S. dollars.

PARTNERSHIP OVERVIEW

TC PipeLines, LP was formed in 1998 as a Delaware limited partnership by TransCanada PipeLines Limited, a wholly-owned subsidiary of TransCanada Corporation (collectively referred to herein as TransCanada), to acquire, own and participate in the management of energy infrastructure assets in North America. Our strategic focus is on delivering stable, sustainable cash distributions to our unitholders and finding opportunities to increase cash distributions while maintaining a low risk profile.

TC PipeLines, LP and its subsidiaries are collectively referred to herein as "TC PipeLines" or "the Partnership." In this report, references to "we", "us" or "our" collectively refer to TC PipeLines or the Partnership. The general partner of the Partnership is TC PipeLines GP, Inc., a wholly-owned subsidiary of TransCanada.

We own a 46.45 per cent partner interest in Great Lakes, which we acquired on February 22, 2007 from El Paso Corporation. The other 53.55 per cent general partner interest in Great Lakes is held by TransCanada.

We own a 50 per cent general partner interest in Northern Border, while the other 50 per cent interest is held by ONEOK Partners, L.P., a publicly traded limited partnership that is controlled by ONEOK, Inc.

As of December 31, 2007, we acquired the remaining two per cent general partner interest in Tuscarora, thereby making it a wholly-owned subsidiary.

Our partner interests in Great Lakes, Northern Border and Tuscarora represent our only material assets at September 30, 2008. As a result, we are dependent upon our pipeline systems for all of our available cash. Our pipeline systems derive their operating revenue from transportation of natural gas.

Great Lakes Overview

Great Lakes is a Delaware limited partnership formed in 1990. Great Lakes was originally constructed as an operational loop of the TransCanada Mainline Northern Ontario system. Great Lakes receives natural gas from TransCanada at the Canadian border near Emerson, Manitoba and extends across Minnesota, Northern Wisconsin and Michigan, and redelivers gas to TransCanada at the Canadian border at Sault Ste. Marie, Michigan and St. Clair, Michigan.

Northern Border Overview

Northern Border is a Texas general partnership formed in 1978. Northern Border transports natural gas from the Canadian border near Port of Morgan, Montana to a terminus near North Hayden, Indiana. Additionally, Northern Border transports natural gas produced in the Williston Basin of Montana and North Dakota and the Powder River Basin of Wyoming and Montana and synthetic gas produced at the Dakota Gasification plant in North Dakota.

Tuscarora Overview

Tuscarora is a Nevada general partnership formed in 1993. Tuscarora originates at an interconnection point with existing facilities of Gas Transmission Northwest Corporation, a wholly-owned subsidiary of TransCanada, near Malin, Oregon and runs southeast through Northeastern California and Northwestern Nevada. Tuscarora's pipeline system terminates near Wadsworth, Nevada. Along its route, deliveries are made in Oregon, Northern California and Northwestern Nevada.

FACTORS THAT IMPACT THE BUSINESS OF OUR PIPELINE SYSTEMS

Key factors that impact the business of our pipeline systems are the supply of and demand for natural gas in the markets in which our pipeline systems operate; the customers of our pipeline systems and the mix of services they require; competition; and government regulation of natural gas pipelines.

Supply and Demand of Natural Gas

Our pipeline systems depend upon the WCSB for the majority of the natural gas that they transport. Overall flows out of the WCSB were lower for the nine months ended September 30, 2008 as compared to the same period last year, due mainly to a decrease in production, and an increase in Canadian demand. WCSB exports are expected to be lower for the remainder of the year. Factors which may mitigate declines related to WCSB production in the future include strengthening gas prices, decreases in oil prices as they affect demand from Alberta oil sands operations, continued clarification of the Alberta Royalty Regime to take effect January 1, 2009 as it affects natural gas production, and announcements regarding potential natural gas supply discoveries in the Horn River and Montney shale gas plays in Western Canada. Reduced supplies available for Canadian export affects all U.S. pipelines that import natural gas from Canada, but the impact on our pipeline systems will depend upon competitive factors and prevailing market conditions in each of the markets that our pipeline systems serve. Flows on Great Lakes' pipeline system in the third quarter of 2008 were consistent with flows in the third quarter of 2007 due to annual contracts and reduced storage inventories which resulted in strong demand for transportation to Michigan and Ontario storage locations. As expected, flows on Northern Border's pipeline system in the third quarter of 2008 were lower than the third quarter of 2007.

The Rockies Express Pipeline is a proposed 1,679-mile natural gas pipeline system from Rio Blanco County, Colorado, to Monroe County, Ohio. The Western segment of the Rockies Express Pipeline (REX West) from Weld County, Colorado to Audrain County, Missouri went into full service in May 2008. REX West has had a minimal impact on Great Lakes; however, it has caused excess natural gas supply from the Rockies Basin to flow into the Mid-Continent market, which is the market served by Northern Border. Consequently, there is less demand for WCSB supply in the Mid-Continent market which has had a negative impact on Northern Border's flows and sales of available capacity in the second and third quarters of 2008. It is anticipated that increased winter demand will dampen the impact of REX West deliveries into the Mid-Continent that has increased supply in Northern Border's market region.

REX East is planned to extend from Audrain County, Missouri to Clarington, located in Monroe County, Ohio. Once in-service, REX East should improve the competitive position of Canadian supply with gas sourced from other supply basins, including the Rockies Basin, into the Mid-Continent, which may potentially mitigate some of the excess supply in the Mid-Continent market. REX East will compete with Great Lakes in some markets, but will also potentially create demand for Great Lakes' transportation of natural gas from REX East seeking access to and from storage locations in Michigan. It is now anticipated that the partial in-service and full in-service of REX East will occur in the second and fourth quarters of 2009, respectively. Although there can be no assurance on the timing or impact of REX East, we believe that any positive impact on the market Northern Border serves will not occur until 2010.

There are many proposed natural gas pipeline projects that, if built, would impact the markets served by our pipeline systems. Two proposed projects, the Pathfinder Pipeline Project (Pathfinder Project) and the Bison Pipeline Project (Bison Project), if built, would diversify Northern Border's natural gas supply sources and provide another transportation source for shippers to export natural gas supply from the Rockies Basin. Please see the Recent Developments disclosure in this section for information on the Bison Project and the Pathfinder Project.

Reduced storage inventories in Eastern Canada and the U.S. supported demand for Great Lakes' transportation, as customers utilized Great Lakes' transportation to access and fill storage locations adjacent to its pipeline in the last quarter.

Great Lakes' future transportation values have continued to increase throughout this year, partially due to the increase in TransCanada Mainline tolls, and partially because of strong spread values between Alberta and Dawn, Ontario. As a result, Great Lakes sold new and renewed long and short haul contracts at maximum tariff rates for the next two years. However, now that Michigan and Ontario storage fill is approaching capacity, as expected for this time of year, daily and short term transportation values are decreasing.

Discoveries of new gas fields, such as the Horn River Basin and Montney gas plays in Western Canada may increase the amount of Canadian natural gas available for export. Recently, TransCanada gauged interest for new natural gas transportation service connecting the Horn River and Montney areas to its Alberta System. TransCanada received requests for gas transmission service exceeding one billion cubic feet per day (Bcf/d) for each area by 2012. Following this, TransCanada launched two binding open seasons seeking requests for firm transportation service from customers for the Groundbirch Project (a pipeline project designed to connect the Montney area of North East British Columbia to TransCanada's Alberta System) and the Horn River Project (a pipeline project designed to connect the Horn River area of North East British Columbia to TransCanada's Alberta system). The Groundbirch Project has an estimated in-service date of late 2010, while the Horn River Project has an estimate in-service date of early 2011. These gas plays, as well as the development of the Louisiana Haynesville shale gas play and the discovery of the Marcellus shale gas play in West Virginia, Pennsylvania, and New York in the U.S. will affect competitive factors and market conditions in the natural gas industry.

Contracting

Great Lakes - Great Lakes' average contracted capacity for the quarter ended September 30, 2008 was 98 per cent of its design capacity (2007 - 98 per cent). For the nine months ended September 30, 2008, Great Lakes' average contracted capacity was 104 per cent of its design capacity (period of March 1, 2007 to September 30, 2007 - 100 per cent). At September 30, 2008, 103 per cent of capacity was contracted on a firm basis for the remainder of the year and the weighted average remaining life of firm transportation contracts was 2.1 years.

In the third quarter of 2008, Great Lakes sold all of its available long haul capacity beginning November 1, 2008 for one year at maximum rates, sold available annual short haul capacity in Michigan at maximum rates for one to two year terms, and sold its available winter seasonal long haul capacity at maximum rates.

Northern Border - Northern Border's average contracted capacity for the quarter ended September 30, 2008 was 79 per cent of its design capacity (2007 - 102 per cent). For the nine months ended September 30, 2008, Northern Border's average contracted capacity was 86 per cent of its design capacity (2007 - 96 per cent). At September 30, 2008, approximately 78 per cent of Northern Border's design capacity was contracted on a firm basis for the remainder of the year and the weighted average remaining contract life of firm transportation contracts was 2.0 years.

At January 1, 2009, Northern Border's total amount of available transportation capacity is expected to be approximately 800 million cubic feet per day (MMcf/d). Northern Border's capacity to Chicago remains attractive and continues to be fully contracted and legacy contracts set to expire in the near term have been renewed. Additionally, related to a proposed expansion project, Northern Border renewed approximately 350 MMcf/d at maximum and discounted rates, for terms ranging from five to twelve years for various transportation paths to Chicago. See additional information below in Recent Developments - Chicago IV Project for more information.

Prevailing market conditions and increasing competitive factors in North America, including REX West, have caused Northern Border to experience a reduction in its revenues due to lower capacity sales and greater discounting of its rates. These factors, as well as expirations of certain long term contracts, will continue to impact Northern Border's ability to market its available capacity into 2009. Northern Border expects to continue to discount transportation capacity as needed to optimize revenue.

Northern Border has executed long-term contracts of approximately 400 MMcf/d sold at a discounted rate from Port of Morgan, Montana to Ventura, Iowa contingent upon either the Bison Project or Pathfinder Project going forward. These contracts would be effective at the successful project's in-service date projected for late 2010.

Tuscarora - Tuscarora's average contracted capacity for the quarter ended September 30, 2008 was 98 per cent of its design capacity (2007 - 95 per cent). For the nine months ended September 30, 2008, Tuscarora's average contracted capacity was 98 per cent of its design capacity (2007 - 96 per cent). At September 30, 2008, approximately 99 per cent of Tuscarora's design capacity was contracted on a firm basis for the remainder of the year and the weighted average remaining contract life of firm transportation contracts was 12.0 years.

RECENT DEVELOPMENTS

Northern Border

Bison Project - On September 3, 2008, Northern Border announced the sale of its wholly-owned subsidiary, Bison Pipeline LLC, to TransCanada Pipeline USA Ltd., a wholly-owned subsidiary of TransCanada for $20.0 million. Distributions paid by Northern Border to its partners in the third quarter included a special distribution in the amount of $16.4 million, of which the Partnership's share was $8.2 million. As a part of the transaction, TransCanada has assumed the obligations of Northern Border related to the Bison Project, and is continuing to solicit commercial support for the Bison Project.

The assets and obligations of Bison Pipeline LLC included executed precedent agreements subject to certain shipper contingencies, as well as regulatory, environmental and engineering activities completed to date on the Bison Project. Shippers on the Bison Project have executed contracts for capacity on the Northern Border system from Port of Morgan, Montana, to Ventura, Iowa, subject to the in-service date of the Bison Project. Project subscription that is subject to the upstream capacity condition is approximately 400 MMcf/d.

The proposed 297-mile, 24-inch diameter Bison pipeline system would extend from natural gas gathering facilities located in the Powder River Basin in Wyoming to a point of interconnection with the Northern Border pipeline system in Morton County, North Dakota. The initial capacity of the Bison Project is anticipated to be approximately 400 MMcf/d. The projected in-service date is late 2010.

The proposed Pathfinder Project is an approximately 673-mile, 36-inch diameter interstate pipeline that would transport natural gas northeast from Meeker, Colorado, through Montana to the Northern Border pipeline system in North Dakota for delivery into the Ventura and Chicago-area markets. The capacity is between 1.2 to 1.6 Bcf/d. In September 2008, Enterprise Product Partners L.P. terminated their previously-announced commitment to become a 50 per cent partner in Pathfinder with a 500 MMcf/d shipping commitment. TransCanada is continuing to work with prospective Pathfinder shippers to advance this project.

The success of either the Bison or Pathfinder Projects is dependent upon many factors, and there is no certainty that either of these projects will be constructed. For further information regarding the risks related to the construction projects, please refer to the Risk Factors sections in our 2007 Annual Report on Form 10-K and in this report.

Proposed Expansion Project (Chicago IV) - Northern Border conducted a binding open season seeking interest in an expansion project from Harper, Iowa to Manhattan, Illinois and received binding shipper commitments. The proposed expansion capacity was subject to a one-time adjustment right to reduce the Chicago IV commitments resulting from the right of first refusal (ROFR) process in current shipper contracts. During a ROFR process, its bidders are able to obtain existing capacity with similar terms. If the Chicago IV bidders reduce their commitments, it could eliminate the need for an expansion project. Northern Border renewed approximately 350 MMcf/d at maximum and discount rates, for terms ranging from 5 to 12 years for various transportation paths to Chicago.

Des Plaines Project - In February 2008, Northern Border filed with the FERC to construct, own and operate interconnect facilities, including a 1,600 horsepower compressor facility near Joliet, Illinois. It is estimated that the Des Plaines Project will cost approximately $18 million and will be financed by a combination of debt and equity. In June 2008, the FERC issued its environmental assessment report for the Des Plaines Project and no comments were filed during the comment period. A certificate order by FERC authorizing construction of the Des Plaines Project was received on July 25, 2008. Northern Border commenced construction on the Des Plaines Project on September 8, 2008, and it is now expected the facilities will be placed into service by early 2009.

Tuscarora

Compressor Station Expansion Project - Tuscarora's compressor station expansion project to support Sierra Pacific Power Company's Tracy Combined Cycle Power Plant went into service on April 1, 2008, with a final cost within the original cost estimate. The new contract for 40,000 Dth/d for a term of 22-1/2 years will generate approximately $5.8 million of annual revenue.

REGULATORY DEVELOPMENTS

Composition of Proxy Groups for Rates of Return Determinations - On July 19, 2007, the FERC issued a policy statement proposing to update its standards regarding the composition of proxy groups for determining the appropriate returns on equity (ROE) for natural gas and oil pipelines, which is used by pipelines to establish rates for services. On April 17, 2008, the FERC issued a policy statement (2008 Policy Statement) that allows master limited partnerships (MLPs) to be included in a proxy group used to determine a pipeline's ROE. The 2008 Policy Statement is effective immediately and provides that there should be no cap on the level of distributions included in the current Discounted Cash Flow (DCF) methodology for MLPs, but there should be an adjustment to the long-term growth rate used to calculate DCF for an MLP (halving the long-term GDP factor which has a one-third weighting in the total growth rate computation in the DCF methodology).

The impact of applying this new policy to our pipeline systems will not be known until one of our pipeline systems files a rate case.

Promotion of a More Efficient Capacity Release Market Docket No. RM08-1 - On June 19, 2008, the FERC issued a Final Rule to modify capacity release regulations (Capacity Release Final Rule). The Capacity Release Final Rule, in addition to other items, allows market-based pricing for short-term capacity releases by shippers through a permanent lifting of the maximum rate cap on short-term capacity releases (of one year or less terms). The Capacity Release Final Rule was effective July 30, 2008.

While implementation of the Capacity Release Final Rule is not expected to have a significant impact on our pipeline systems, the Interstate Natural Gas Association of America (INGAA), of which our pipeline systems are members, filed on July 21, 2008 a request for rehearing of the Capacity Release Final Rule, contending that as the FERC removed the rate cap for short-term released capacity, it should also remove the rate cap for short-term pipeline capacity. INGAA notes that short-term released capacity and short-term pipeline capacity compete in the same market, and argues that removing the rate cap for short-term released capacity and maintaining the cap for short-term pipeline capacity results in a bifurcated and distorted short-term capacity market. On August 15, 2008, the FERC agreed to further consider the issues raised in the rehearing request. A FERC Order is pending on this matter.

Homeland Security - The Department of Homeland Security Appropriations Act of 2007 required the Transportation Security Administration (TSA) to issue regulations establishing risk-based performance standards for the security of chemical and industrial facilities, including oil and gas facilities that were deemed to present high levels of security risk. The TSA will conduct a critical facility identification process, which will include our pipeline systems, anticipated in 2009 or 2010. The TSA has also released a draft of the Pipeline Security Guidelines, which is likely to become regulation in 2009 or 2010. These guidelines distinguish between baseline security requirements for all pipeline facilities and enhanced measures for identified critical facilities. Based on the draft guidelines it is not anticipated that if our pipeline systems are deemed to be critical facilities that there would be a significant additional costs related to compliance.

RESULTS OF OPERATIONS OF TC PIPELINES

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with Generally Accepted Accounting Principles (GAAP) requires us to make estimates and assumptions with respect to values or conditions which cannot be known with certainty, that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenue and expenses during the reporting period. Although we believe these estimates and assumptions are reasonable, actual results could differ. There were no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2008.

Information about our critical accounting estimates is included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2007.

Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162) which codifies the sources of accounting principles and the related framework to be utilized in preparing financial statements in conformity with GAAP. The requirements of this standard are not expected to have a material impact on our results of operations or financial position.

In March 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities . . .