Mary L. Schapiro
Securities Exchange Commission
100 F Street, NE
Washington, DC 20549
January 26, 2012
Dear Ms. Schapiro:
This letter is intended to inform you and the recipients listed below that TransCanada (“TRP”) is using false or misleading statements about the proposed Keystone XL pipeline project (“KXL”).
TRP has consistently used public statements and information it knows are false in a concerted effort to secure permitting approval of KXL from the U.S. government. In the process, it has misled investors, U.S. and Canadian officials, the media, and the public at large in order to bolster its balance sheets and share price. We think these statements violate U.S. securities disclosure laws, notably SEC Rule 10b(5) – Employment of Manipulative and Deceptive Practices. It is incumbent on TRP to immediately and publicly correct this information – or be forced to do so by the Securities and Exchange Commission.
Specifically, TRP has asserted that each mile of KXL pipeline constructed in the U.S. would
create American jobs at a rate that is 67 times higher than job creation totals given by the
company to Canadian officials for the Canadian portion of the pipeline.
These false and misleading job creation numbers are part of TRP’s lobbying and public relations campaign designed to create congressional pressure on the U.S. government to issue a
Presidential Permit approving construction of KXL. Without government approval, TRP will not be able to build KXL, which will significantly impact the company’s future earnings and share price. That government approval was thrown into serious doubt last week when President Obama rejected the current KXL pipeline proposal at the State Department’s recommendation.
High Stakes for Investors
The President did, however, invite future modified proposals from TRP, and congressional
leadership has indicated it wants to override the President’s decision – something the
Congressional Research Service has determined Congress can do. This means the stakes for
investors remain high.
In fact, TRP’s most recent investor disclosures highlight the importance of KXL to your company’s business model. TRP’s November 2011 presentation to investors states that KXL accounts for $7.8 billion of its current $12 billion capital spending program.1 Your company claims the full Keystone pipeline complex will contribute $1.7bn in EBITDA when fully operational – or 26% of TRP’s EBITDA in 2015, up from 0% in 2010. KXL alone is forecast to contribute around $1 billion in EBITDA.
Equity analysts have used TRP’s disclosures in making bullish recommendations on TRP to
investors. According to a September 2011 report from Canadian securities firm Desjardins Capital Markets, the entire Keystone pipeline project is worth C$9-11 per share for TRP. Desjardins forecasts that upon completion of KXL, half of TRP’s revenue growth will be from the Keystone complex. Throughout 2011, Desjardins has recommended that investors buy TRP shares. It
1 In addition, according to investor disclosures, TRP has already spent or committed at least $3.1 billion for KXL, mainly on pipes and pumping components.
claims that regulatory uncertainty has depressed TRP share prices and that final U.S. regulatory
approval will provide a “catalyst” to rally undervalued company shares.
Therefore securing the Presidential Permit (or not) is a materially significant event that impacts
TRP’s revenue forecasts and share price and, indeed, the very future of the company.
TRP CEO Russ Girling made the direct connection between the U.S. government granting the
Presidential Permit and profits for the company on April 29, 2011 during TRP’s Q1 earnings
conference call with equity analysts:
“We expect completion of the environmental review in July or August, and from there,
there will be a 90-day national interest determination period. I'm confident that the
Keystone XL project will pass that test, and that we'll receive a positive decision by the
end of the year. The President of the United States this spring said that they will continue
to rely on Canada as a steady and stable and reliable supplier of oil. And I think our
Prime Minister said it even better after his meeting with the President. He said that the
US faces a choice between the nation's receiving its ongoing needs for imported crude oil
from unstable sources such as the Middle East, or from the most secure, most stable and
friendliest location, which is Canada. The choice is clear, and TransCanada's Keystone
pipeline can help provide that energy security. As well, it creates 20,000 jobs and injects
CAD20 billion into the US economy without CAD1 of government support. So clearly, our
view is this project is in the public interest.”
Use of the False Informationvia one of the Center for American Progress blogs
KXL’s job creation potential is the central component of TRP’s lobbying and public relations
campaign, which was launched in June 2010. It is almost entirely based on a misleading report
TRP commissioned from economist Ray Perryman – The Impact of Developing the Keystone XL Pipeline Project on Business Activity in the U.S. Based on this report, TRP has claimed that the “$7 billion (KXL) pipeline project is expected to directly create more than 20,000 high-wage manufacturing jobs and construction jobs in 2011-2012 across the U.S., stimulating significant additional economic activity.”
TRP and its allies also promote two other key Perryman claims – that construction of the pipeline will inject $20 billion into the U.S. economy and create more than 118,000 “spin-off” jobs. These claims are false and in conflict with TRP’s own filings to Canadian and U.S. regulators. Ye tthey have been used by TRP executives and representatives in public forums, the company website, investor presentations, and press releases. TRP executives have also used them under oath before Congress....Four MORE PDF Pages