QuickLinks -- Click here to rapidly navigate through this document



U.S. Securities and Exchange Commission
Washington, D.C. 20549

Form 40-F


o

REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT of 1934

OR

ý

ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007        Commission File Number 1-8887

TRANSCANADA PIPELINES LIMITED
(Exact Name of Registrant as specified in its charter)

Canada
(Jurisdiction of incorporation or organization)

4922, 4923, 4924, 5172
(Primary Standard Industrial Classification Code Number (if applicable))

Not Applicable
(I.R.S. Employer Identification Number (if applicable))

TransCanada Tower, 450 - 1 Street S.W.
Calgary, Alberta, Canada, T2P 5H1
(403) 920-2000
(Address and telephone number of Registrant's principal executive offices)

CT Corporation, Suite 2610, 520 Pike Street
Seattle, Washington, 98101; (206) 622-4511; (800) 456-4511
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

For annual reports, indicate by check mark the information filed with this Form:
ý    Annual Information Form   ý    Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

At December 31, 2007, 4,000,000 Cumulative Redeemable First Preferred Shares Series U
and 4,000,000 Cumulative Redeemable First Preferred Shares Series Y
were issued and outstanding
All of the Registrant's common shares are owned by TransCanada Corporation.

Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to the Registrant in connection with such Rule.    Yes o            No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes ý            No o




The following document is hereby filed with the Securities and Exchange Commission for the purpose of being and hereby is incorporated by reference into Registration Statement on Form F-9 (File No. 333-145980) of TransCanada PipeLines Limited.


CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION & ANALYSIS

A.    Audited Annual Financial Statements

For consolidated audited financial statements, including the report of the independent chartered accountants, see pages 72 through 126 of the TransCanada PipeLines Limited ("TCPL") 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements included herein. See the related supplementary note entitled "Reconciliation to United States GAAP" for a reconciliation of the differences between Canadian and United States generally accepted accounting principles, including the auditors' report, attached as document 13.4.

B.    Management's Discussion & Analysis

For management's discussion and analysis, see pages 2 through 71 of the TCPL 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements included herein.

For the purposes of this Report, only pages 2 through 71 and 72 through 126 of the TCPL 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements shall be deemed incorporated herein by reference and filed, and the balance of such 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements, except as otherwise specifically incorporated by reference in the TCPL Annual Information Form, shall be deemed not filed with the U.S. Securities and Exchange Commission (the "Commission") as part of this Report under the Exchange Act.

C.    Management's Report on Internal Control Over Financial Reporting

For information on management's internal control over financial reporting, see:

The effectiveness of internal control over financial reporting as of December 31, 2007 has been audited by TCPL's independent auditors, KPMG LLP, a registered public accounting firm, as stated in their audit report. KPMG LLP has issued a report on the effectiveness of internal control over financial reporting as of December 31, 2007, filed as document 13.6.


UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the staff of the Commission, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an Annual Report on Form 40-F arises; or transactions in said securities.


DISCLOSURE CONTROLS AND PROCEDURES

For information on disclosure controls and procedures, see "Controls and Procedures" in Management's Discussion and Analysis on page 60 of the TCPL 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements.

2



AUDIT COMMITTEE FINANCIAL EXPERT

The Registrant's board of directors has determined that it has at least one audit committee financial expert serving on its audit committee. Mr. Kevin E. Benson has been designated an audit committee financial expert and is independent, as that term is defined by the New York Stock Exchange's listing standards applicable to the Registrant. The Commission has indicated that the designation of Mr. Benson as an audit committee financial expert does not make Mr. Benson an "expert" for any purpose, impose any duties, obligations or liability on Mr. Benson that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee.


CODE OF ETHICS

The Registrant has adopted codes of business ethics for its employees, its President and Chief Executive Officer, Chief Financial Officer and Controller and its directors. The Registrant's codes are available on its website at www.transcanada.com. There has been no waiver of the codes granted during the 2007 fiscal year.


PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate fees for professional services rendered by KPMG LLP for the TransCanada group of companies for the 2007 and 2006 fiscal years are shown in the table below:

Fees in millions of Canadian dollars     2007 (1)   2006 (1)
   
 
 
Audit Fees   $ 6.27   $ 6.52  
   
 
 
Audit-Related Fees     0.07     0.07  
   
 
 
Tax Fees     0.06     0.22  
   
 
 
All Other Fees     0.00     0.07  
   
 
 
Total   $ 6.40   $ 6.88  
   
 
 

(1)
The disclosure of audit fees paid has been revised to be based on aggregate fees billed during the fiscal year as opposed to aggregate fees for professional services rendered during the fiscal year. For comparison purposes, both the 2007 and the 2006 amounts have been disclosed based on the aggregate fees billed during the year.

The nature of each category of fees is described below.

Audit Fees

Aggregate fees for audit services rendered for the audit of the annual consolidated financial statements or services provided in connection with statutory and regulatory filings or engagements, the review of interim consolidated financial statements and information contained in various prospectuses and other offering documents.

Audit-Related Fees

Aggregate fees for assurance and related services that are reasonably related to performance of the audit or review of the consolidated financial statements and are not reported as Audit Fees. The nature of services comprising these fees is related to the audit of the financial statements of certain pension plans.

Tax Fees

Aggregate fees for primarily tax compliance and tax advice. The nature of these services consisted of: tax compliance including the review of income tax returns; and tax items and tax services related to domestic and international taxation including income tax, capital tax and Goods and Services Tax.

3


All Other Fees

Aggregate fees for products and services other than those reported elsewhere in this table. The nature of these services consisted of advice related to compliance with the United States Sarbanes-Oxley Act of 2002.

Pre-Approval Policies and Procedures

TCPL's Audit Committee has adopted a pre-approval policy with respect to permitted non-audit services. Under the policy, the Audit Committee has granted pre-approval for specified non-audit services. For engagements of $25,000 CDN or less which are not within the annual pre-approved limit, approval by the Audit Committee is not required, and for engagements between $25,000 CDN and $100,000 CDN, approval of the Audit Committee Chair is required, and the Audit Committee is to be informed of the engagement at the next scheduled Audit Committee meeting. For all engagements of $100,000 CDN or more, pre-approval of the Audit Committee is required. In all cases, regardless of dollar amount involved, where there is a potential for conflict of interest involving the external auditor on an engagement, the Audit Committee Chair must pre-approve the assignment.

To date, TCPL has not approved any non-audit services on the basis of the de-minimis exemptions. All non-audit services have been pre-approved by the Audit Committee in accordance with the pre-approval policy described above.


OFF-BALANCE SHEET ARRANGEMENTS

The Registrant has no off-balance sheet arrangements, as defined in this Form, other than the guarantees described in Note 24 of the Notes to the Audited Consolidated Financial Statements which are incorporated herein by reference.


TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

For information on Tabular Disclosure of Contractual Obligations, see "Management's Discussion and Analysis — Contractual Obligations", which is incorporated herein by reference on page 48 of the TCPL 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements.


IDENTIFICATION OF THE AUDIT COMMITTEE

The Registrant has a separately-designated standing Audit Committee. The members of the Audit Committee are:

Chair:
Members:
  K.E. Benson
D.H. Burney
P. Gauthier
P.L. Joskow
J.A. MacNaughton

4



FORWARD-LOOKING INFORMATION

This document, the documents incorporated by reference, and other reports and filings made with the securities regulatory authorities may contain certain information that is forward-looking and is subject to important risks and uncertainties. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward looking information. All forward-looking statements reflect TCPL's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things, the ability of TCPL to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of the Company's natural gas pipeline and energy assets, the availability and price of energy commodities, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the natural gas pipeline and energy industry sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and the current economic conditions in North America. By its nature, forward-looking information is subject to various risks and uncertainties, which could cause TCPL's actual results and experience to differ materially from the anticipated results or other expectations expressed. The Company's material risks and assumptions are discussed further in TCPL's Management's Discussion and Analysis filed as document 13.2 hereto including under the headings "Pipelines — Opportunities and Developments", "Pipelines — Business Risks", "Energy — Opportunities and Developments", "Energy — Business Risks" and "Risk Management and Financial Instruments". Additional information on these and other factors is available in the reports filed by TCPL with Canadian securities regulators and with the U.S. Securities and Exchange Commission ("SEC"). Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this document or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. TCPL undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

5



SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Calgary, Province of Alberta, Canada.

    TRANSCANADA PIPELINES LIMITED

 

 

Per:

/s/  
GREGORY A. LOHNES      
GREGORY A. LOHNES
Executive Vice-President and Chief Financial Officer

 

 

 

Date: February 28, 2008

DOCUMENTS FILED AS PART OF THIS REPORT

13.1   Annual Information Form for the year ended December 31, 2007.

13.2

 

Management's Discussion and Analysis (included on pages 2 through 71 of the TCPL 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements).

13.3

 

2007 Audited Consolidated Financial Statements (included on pages 72 through 126 of the TCPL 2007 Management's Discussion and Analysis and Audited Consolidated Financial Statements).

13.4

 

Related supplementary note entitled "Reconciliation to United States GAAP" and the auditors' report thereon.

13.5

 

Management's Report on Internal Control Over Financial Reporting.

13.6

 

Report of the Independent Registered Public Accounting Firm on the effectiveness of TCPL's Internal Control Over Financial Reporting as at December 31, 2007.

99.1

 

Comments by Auditors for United States Readers on Canada—United States Reporting Differences.

EXHIBITS

23.1   Consent of KPMG LLP, Chartered Accountants.

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1

 

Certification of Chief Executive Officer regarding Periodic Report containing Financial Statements.

32.2

 

Certification of Chief Financial Officer regarding Periodic Report containing Financial Statements.

 

 

 

TRANSCANADA PIPELINES LIMITED

 

 

ANNUAL INFORMATION FORM

 

 

February 25, 2008

 


 

TRANSCANADA PIPELINES LIMITED

i

 

TABLE OF CONTENTS

 

 

Page

TABLE OF CONTENTS

i

PRESENTATION OF INFORMATION

ii

FORWARD-LOOKING INFORMATION

ii

TRANSCANADA PIPELINES LIMITED

1

Corporate Structure

1

GENERAL DEVELOPMENT OF THE BUSINESS

2

Developments in the Pipelines Business

2

Developments in the Energy Business

4

BUSINESS OF TCPL

6

Pipelines Business

6

Regulation of the Pipeline Business

8

Energy Business

8

HEALTH, SAFETY AND ENVIRONMENT RISK MANAGEMENT

10

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

11

TRANSFER AGENT AND REGISTRAR

11

INTEREST OF EXPERTS

11

RISK FACTORS

12

DIVIDENDS

12

DESCRIPTION OF CAPITAL STRUCTURE

12

DEBT

13

CREDIT RATINGS

13

MARKET FOR SECURITIES

14

DIRECTORS AND OFFICERS

15

CORPORATE GOVERNANCE

18

Audit Committee

18

Other Board Committees

19

Conflicts of Interest

20

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

20

SECURITIES OWNED BY DIRECTORS

20

COMPENSATION OF DIRECTORS

21

MINIMUM SHARE OWNERSHIP GUIDELINES

21

BOARD AND COMMITTEE REMUNERATION

21

EXECUTIVE COMPENSATION AND OTHER INFORMATION

23

ADDITIONAL INFORMATION

23

GLOSSARY

24

SCHEDULE “A” Metric Conversion Table

25

SCHEDULE “B” Disclosure of Corporate Governance Practices

26

SCHEDULE “C” Charter of the Audit Committee

30

SCHEDULE “D” Description of Board Committees and Their Charters

37

SCHEDULE “E” Charter of the Board of Directors

40

SCHEDULE “F’ Executive Compensation and Other Information

43

Report on Executive Compensation

43

Performance Graph

52

Remuneration of Executive Officers of TCPL

52

Executive Compensation

53

Pension and Retirement Benefits for Executives

60

Executive Separation Agreements

63

Supplemental Disclosure - Total Direct Compensation Awards

64

 


 

TRANSCANADA PIPELINES LIMITED

ii

 

 

 

PRESENTATION OF INFORMATION

 

Unless otherwise noted, the information contained in this Annual Information Form (“AIF”) is given at or for the year ended December 31, 2007 (“Year End”). Amounts are expressed in Canadian dollars unless otherwise indicated. Financial information is presented in accordance with Canadian generally accepted accounting principles.

 

Unless the context indicates otherwise, a reference in this AIF to “TCPL” or the “Company” includes TCPL’s parent, TransCanada Corporation (“TransCanada”) and the subsidiaries of TCPL through which its various business operations are conducted and a reference to “TransCanada” includes TransCanada Corporation and the subsidiaries of TransCanada Corporation, including TCPL. Where TCPL is referred to with respect to actions that occurred prior to its 2003 plan of arrangement with TransCanada, which is described below under the heading “TransCanada PipeLines Limited — Corporate Structure”, these actions were taken by TCPL or its subsidiaries. The term “subsidiary”, when referred to in this AIF, with reference to TCPL means direct and indirect wholly owned subsidiaries of, and entities controlled by, TransCanada or TCPL, as applicable.

 

Certain portions of TCPL’s Management’s Discussion and Analysis dated February 25, 2008 (“MD&A”) are incorporated by reference into this AIF as stated below. The MD&A can be found on SEDAR at www.sedar.com under TCPL’s profile.

 

Information relating to metric conversion can be found at Schedule “A” to this AIF.

 

FORWARD-LOOKING INFORMATION

 

This AIF, the documents incorporated by reference into this AIF, and other reports and filings made with the securities regulatory authorities may contain certain information that is forward-looking and is subject to important risks and uncertainties. The words “anticipate”, “expect”, “believe”, “may”, “should”, “estimate”, “project”, “outlook”, “forecast” or other similar words are used to identify such forward looking information. All forward-looking statements reflect TCPL’s beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things, the ability of TCPL to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of the Company’s natural gas pipeline and energy assets, the availability and price of energy commodities, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the natural gas pipeline and energy industry sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and the current economic conditions in North America. By its nature, forward-looking information is subject to various risks and uncertainties, including those material risks discussed in this AIF under “Risk Factors”, which could cause TCPL’s actual results and experience to differ materially from the anticipated results or expectations expressed. Additional information on these and other factors is available in the reports filed by TCPL with Canadian securities regulators and with the U.S. Securities and Exchange Commission (“SEC”). Readers are cautioned to not place undue reliance on this forward-looking information, which is given as of the date it is expressed in this AIF or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. TCPL undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

 


 

TRANSCANADA PIPELINES LIMITED

1

 

TRANSCANADA PIPELINES LIMITED

 

Corporate Structure

 

TCPL’s head office and registered office are located at 450 - 1st Street S.W., Calgary, Alberta, T2P 5H1.

 

TCPL is a Canadian public company. Significant dates and events are set forth below.

 

 

Date

 

Event

 

March 21, 1951

 

Incorporated by Special Act of Parliament as Trans-Canada Pipe Lines Limited.

 

April 19, 1972

 

Continued under the Canada Corporations Act by Letters Patent, which included the alteration of its capital and change of name to TransCanada PipeLines Limited.

 

June 1, 1979

 

Continued under the Canada Business Corporations Act.

 

July 2, 1998

 

Certificate of Arrangement issued in connection with the Plan of Arrangement with NOVA Corporation (“NOVA”) under which the companies merged and then split off the commodity chemicals business carried on by NOVA into a separate public company.

 

January 1, 1999

 

Certificate of Amalgamation issued reflecting TCPL’s vertical short form amalgamation with a wholly owned subsidiary, Alberta Natural Gas Company Ltd.

 

January 1, 2000

 

Certificate of Amalgamation issued reflecting TCPL’s vertical short form amalgamation with a wholly owned subsidiary, NOVA Gas International Ltd.

 

May 4, 2001

 

Restated TransCanada PipeLines Limited Articles of Incorporation filed.

 

June 20, 2002

 

Restated TransCanada PipeLines Limited By-Laws filed.

 

May 15, 2003

 

Certificate of Arrangement issued in connection with the plan of arrangement with TransCanada. TransCanada was incorporated pursuant to the provisions of the Canada Business Corporations Act on February 25, 2003. The arrangement was approved by TCPL common shareholders on April 25, 2003 and following court approval, Articles of Arrangement were filed making the arrangement effective May 15, 2003. The common shareholders of TCPL exchanged each of their TCPL common shares for one common share of TransCanada. The debt securities and preferred shares of TCPL remained obligations and securities of TCPL. TCPL continues to hold the assets it held prior to the arrangement and continues to carry on business as the principal operating subsidiary of the TransCanada group of entities.

 

At Year End, TCPL had approximately 3,500 employees, substantially all of whom were employed in Canada and the United States.

 

TCPL’s subsidiaries whose assets exceed ten per cent of TCPL’s consolidated assets or whose sales and operating revenues exceeded ten per cent of TCPL’s consolidated sales and operating revenues at year end are noted below. Also noted is the jurisdiction under which each subsidiary was incorporated. TCPL owns, directly or indirectly, 100 per cent of the voting shares of each of these subsidiaries.

 

 


 

TRANSCANADA PIPELINES LIMITED

2

 

 

 

GENERAL DEVELOPMENT OF THE BUSINESS

 

The general development of TCPL’s business during the last three financial years, and the significant acquisitions, dispositions, events or conditions which have had an influence on that development, are described below.

 

Effective June 1, 2006, TCPL revised the composition and names of its reportable business segments to Pipelines and Energy. Pipelines are principally comprised of the Company’s pipelines in Canada, the U.S. and Mexico and its regulated natural gas storage operations in the U.S. Energy includes the Company’s power operations, the non-regulated natural gas storage business, and liquefied natural gas (“LNG”) projects.

 

Developments in the Pipelines Business

 

TCPL’s strategy in pipelines is focused on both growing its North American natural gas transmission network and maximizing the long-term value of its existing pipeline assets. Summarized below are significant developments that have occurred in TCPL’s pipelines business over the last three years.

 

Recent Pipeline Developments

 

·                  January 4 2008. The State of Alaska announced that TCPL had submitted a complete Alaska Gasline Inducement Act application for a license to construct the Alaska Pipeline Project and would be advancing to the public comment stage.

 

·                  January 2008. Gas Transmission Northwest Corporation (“GTNC”) filed a Stipulation and Agreement with the U.S. Federal Regulatory Commission (“FERC”) on October 31, 2007 comprised of an uncontested settlement of all aspects of its 2006 General Rate Case.  On January 7, 2008, the FERC issued an order approving the settlement. The settlement rates are effective retroactive to January 1, 2007.

 

·                  January 11, 2008. Keystone U.S. received, from the U.S. Department of State, the Final Environmental Impact Statement (“FEIS”) regarding the construction of the Keystone U.S. pipeline and its Cushing extension. The FEIS stated the pipeline would result in limited adverse environmental impacts. The FEIS is a requirement to proceed with the Presidential Permit process, which governs the construction and operation of facilities at the U.S. – Canada border crossing. The Presidential Permit is expected to be issued in March 2008. Construction and material supply contracts totaling approximately $3.0 billion have been awarded for pipe, tanks, pumps and related materials, and engineering and construction management services.

 

·                  February 2008. In 2005, certain subsidiaries of Calpine Corporation (“Calpine”) filed for bankruptcy protection in both Canada and the U.S. The Portland Natural Gas Transmission System (“Portland”) and GTNC reached agreement with Calpine for allowed unsecured claims in the Calpine bankruptcy of US$125 million and US$192.5 million, respectively. Creditors were to receive shares in the re-organized Calpine and these shares will be subject to market price fluctuations as the new Calpine shares begin to trade. In February 2008, Portland and GTNC received partial distributions of 6.1 million shares and 9.4 million shares, respectively. Claims for Nova Gas Transmission Limited and Foothills Pipe Lines (South B.C.) Ltd. for $31.6 million and $44.4 million, respectively, were received in cash in January 2008 and will be passed on to shippers on these systems.

 

2007

 

Pipeline Developments

 

·                 February 9, 2007. TCPL received approval from the National Energy Board (the “NEB”) to transfer a section of the Canadian Mainline (as defined below) natural gas transmission facilities to the Keystone oil pipeline project to transport crude oil from Alberta to refining centres in the U.S. Midwest and to construct and operate new oil pipeline facilities in Canada. TCPL announced in January 2007 the start of a binding open season for an expansion and extension of the proposed Keystone oil pipeline. The purpose of the open season was to obtain binding commitments to support the expansion of the proposed Keystone pipeline from approximately 435,000 barrels per day to 590,000 barrels per day and the construction of a 468 kilometre (“km”) extension of the U.S. portion of the pipeline.

 

·                  February 22, 2007. TCPL closed its acquisitions of American Natural Resources Company and ANR Storage Company (collectively, “ANR”) and acquired an additional 3.6 per cent interest in Great Lakes Gas Transmission Partnership (“Great Lakes”) from El Paso Corporation for a total of US$3.4 billion, subject to certain post-closing adjustments, including approximately US$491 million of assumed long-term debt. Additionally, TCPL increased

 



 

TRANSCANADA PIPELINES LIMITED

3

 

its ownership in TC PipeLines, LP to 32.1 per cent in conjunction with the TC PipeLines, LP acquisition of a 46.4 per cent interest in the Great Lakes. TCPL subsequently became the operator of the Northern Border Pipeline Company (“NBPL”) and now operates all three TC PipeLines, LP investments.

 

·                  November 2007. Keystone Canada filed an application with the NEB to add new pumping facilities to accommodate the increase in scope and scale of the project.  An NEB oral hearing is scheduled to commence in April 2008.

 

·                  November 20, 2007. A non-routine application was filed with the Alberta Energy and Utilities Board (“EUB”) for the North Central Corridor pipeline expansion of the Alberta System (as defined below). The estimated cost of this project is $983 million with construction expected to begin late 2008, subject to regulatory approval. The project is expected to be completed in two stages with the first stage completed in April 2009 and the second in April 2010.

 

·                  December 2007. ConocoPhillips contributed $207 million to acquire a 50 per cent ownership interest in the Keystone oil pipeline project.  Affiliates of TCPL will be responsible for constructing and operating Keystone, which is expected to have a capital cost of approximately US$5.2 billion.

 

·                  TCPL continued funding of the Mackenzie Valley Aboriginal Pipeline Limited Partnership for its participation in the Mackenzie Gas Pipeline Project.

 

Regulatory Matters

 

·                  February 2007. TCPL received approval from the NEB to integrate the B.C. System into the Foothills System (as defined below) in southern B.C. which was effective April 1, 2007.

 

·                  May 2007. TCPL’s five-year settlement with interested stakeholders for the years 2007 to 2011 on its Canadian Mainline was approved by the NEB. The settlement reflects, among other things, a deemed common equity ratio of 40 per cent.

 

Further information about these developments can be found in the MD&A under the heading “TCPL’s Strategy” and “Pipelines - Opportunities and Developments”.

 

2006

 

Pipeline Developments

 

·                  April 2006. TC PipeLines, LP, an affiliate of TCPL, acquired an additional 20 per cent general partnership interest in NBPL for approximately US$307 million which brought its total general partnership interest in NBPL owned by TC Pipelines, LP to 50 per cent. TC PipeLines, LP also indirectly assumed approximately US$122 million of the debt of NBPL. TCPL is the parent company of TC PipeLines GP, Inc., the general partner of TC PipeLines, LP.

 

·                  April 2006. TCPL sold its 17.5 per cent general partner interest in Northern Border Partners, L.P. for proceeds of $35 million, net of current taxes.

 

·                  December 2006. The 130 km Tamazunchale natural gas pipeline in east-central Mexico went into commercial service.

 

·                  December 2006. TC PipeLines, LP acquired 49 per cent in Tuscarora Gas Transmission Company (“Tuscarora”). TCPL became the operator of Tuscarora.

 

Regulatory Matters

 

·                  February 2006. TCPL filed an application with the FERC for a certificate for a two-phase expansion of its existing natural gas pipeline in southern California, the North Baja system (“North Baja”) and the construction of a new lateral pipeline in California’s Imperial Valley.

 

·                  April 2006. The NEB approved a negotiated settlement of the 2006 Canadian Mainline tolls which included a deemed common equity ratio of 36  per cent from 33 per cent and incentives for managing cost through fixing certain components of the revenue requirement.

 

·                  June 2006. TCPL filed an application with the NEB seeking approval to transfer a portion of TCPL’s Canadian Mainline natural gas transmission facilities to the Keystone oil pipeline project which was approved by the NEB in February 2007. Additionally, in December 2006, TCPL filed an application with the NEB for approval to construct and operate the Canadian portion of the Keystone oil pipeline.

 


 

TRANSCANADA PIPELINES LIMITED

4

 

 

 

2005

 

Pipeline Developments

 

·                  February 2005. TransCanada announced the Keystone oil pipeline project. In November 2005, TransCanada announced a memorandum of understanding with ConcoPhillips which committed ConocoPhillips to ship crude oil on this pipeline and gave them the right to acquire a 50 per cent ownership interest in the oil pipeline project.

 

·                  June 2005. TCPL acquired an additional interest in the Iroquois Gas Transmission System L.P. (“Iroquois System”) for US$13.6 million. The acquisition increased TCPL’s ownership interest from 40.96 per cent to 44.48 per cent.

 

·                  June 2005. TCPL commenced construction of the Tamazunchale natural gas pipeline.

 

Regulatory Matters

 

·                  March 2005. TCPL reached a settlement with shippers and other interested parties regarding the annual revenue requirements of its Alberta System for the years 2005, 2006 and 2007. The settlement was approved by the regulator.

 

·                  May 2005. TCPL received the NEB’s decision on the Canadian Mainline 2004 Tolls and Tariff Application (Phase II), approving an increase in the deemed common equity component of the Canadian Mainline’s capital structure from 33 per cent to 36 per cent effective January 1, 2004.

 

Developments in the Energy Business

 

TCPL has built a substantial energy business over the past decade and has achieved a significant presence in power generation in selected regions of Canada and U.S. More recently, TCPL has also developed a significant non-regulated natural gas storage business in Alberta. Summarized below are significant developments that have occurred in TCPL’s energy business over the last three years.

 

Recent Energy Developments

 

·                  January 11, 2008. The FERC issued its FEIS for the Broadwater LNG project (“Broadwater”), a proposed offshore LNG facility in Long Island Sound, New York. The FEIS confirmed project need, supported the location of the project with acknowledgement of its target market and delivery goals, and found safety and security risks to be limited and acceptable.  The FEIS concluded that with adherence to federal and state permit requirements and regulations, Broadwaters’s proposed mitigation measures and the FERC’s recommendations, the project will not result in a significant impact on the environment.

 

·                  January 2008. A milestone in the Bruce Power A L.P. (“Bruce A”) Units 1 and 2 refurbishment and restart project was completed when the sixteenth and final new steam generator was installed. With the completion of this stage of the project, the authorized funding for Units 1 and 2 was increased from $2.75 billion to approximately $3.0 billion. Bruce Power is currently preparing a comprehensive estimate of the cost to complete the Unit 1 and 2 restart. This process is expected to result in a further increase in the total project cost. Project cost increases are subject to the capital cost-risk and reward-sharing mechanism under the agreement with the Ontario Power Authority. Bruce A Units 1 and 2 are expected to produce an additional 1,500 megawatts (“MW”) when completed in 2010.

 

·                  February 2008. The potential anchor LNG supplier for the Cacouna LNG project (“Cacouna”) terminal announced it would no longer be pursuing the development of its LNG supply as originally planned. As a result of this announcement, TCPL and Petro-Canada are currently reviewing their strategy for the project.

 

2007

 

Energy Developments

 

·                June 2007. Following public hearings in 2006, the Québec government granted a provincial decree approving the Cacouna terminal. Cacouna also received federal approvals pursuant to the Canadian Environmental Assessment Act.

 

·                September 2007. Cacouna announced that it was delaying the planned in-service date for the regassification terminal from 2010 to 2012. This delay resulted from a need to assess impacts of permit conditions, to review the

 


 

TRANSCANADA PIPELINES LIMITED

5

 

facility design in light of escalating costs and to align the schedule with potential LNG supply facilities.

 

·                August 2007. TransCanada announced the expansion of the Unit 4 refurbishment on the revised Bruce A restart project that includes installing new fuel channels in Unit 4.

 

·                  November 2007. The second phase of the Cartier Wind Energy Project, the 101 MW Anse-à-Valleau wind farm, was placed into service.  In addition, the Cartier Wind Energy Project began construction of a third project, the 110 MW Carleton wind farm.

 

·              November 2007. TCPL entered into an agreement with Hydro-Québec to temporarily suspend all electricity generation from the Bécancour power plant during 2008. The agreement contains an option for Hydro-Québec to extend the suspension to 2009. TCPL will receive payments under the agreement similar to those that would have been received under the normal course of operation.

 

Further information about each of these energy developments can be found in the MD&A under the heading “TCPL’s Strategy” and “Energy - Opportunities and Developments”.

 

2006

 

Energy Developments

 

·                  TCPL continued construction of the Cartier Wind Energy Project, of which 62 per cent is owned by TCPL. The first of six proposed wind farm projects, Baie-des-Sables, went into commercial service in late 2006.

 

·                  September 2006. Portlands Energy Centre L.P., 50 per cent owned by TCPL, signed a 20-year Accelerated Clean Energy Supply contract with the Ontario Power Authority for Portlands Energy Centre.

 

·                  September 2006. Construction of the 550 MW Bécancour cogeneration plant near Trois Rivières, Québec, was completed and placed into service providing power to Hydro-Québec Distribution.

 

·                  November 2006. TCPL was awarded a 20-year Clean Energy Supply contract by the Ontario Power Authority to build, own and operate a 683 MW natural gas-fired power plant near the Town of Halton Hills, Ontario.

 

·                  December 2006. The Edson gas storage facility was placed in service.

 

Regulatory Matters

 

·                  January 2006. TCPL, on behalf of Broadwater, filed an application with the FERC for approval of the LNG regasification project to be located in Long Island Sound, New York. Coincident with the FERC process, Broadwater applied to the New York Department of State for a determination that the project is consistent with New York’s coastal zone policies.

 

·                  December 2006. A public hearing on Cacouna was held in May and June of 2006 and in December 2006 the Minister of the Environment for Québec and the federal Minister of the Environment, jointly released the report of the Joint Commission on Cacouna.

 

2005

 

Energy Developments

 

·                  February 2005. TCPL advanced the Cartier Wind Energy Project with the signing of long-term electricity supply contracts.

 

·                  April 2005. TCPL acquired hydroelectric power generation assets from USGen New England, Inc. for approximately US$503 million.

 

·                  September 2005. TCPL sold all of its interests in TransCanada Power, L.P. to EPCOR Utilities Inc. for net proceeds of $523 million.

 

·                  October 2005. Bruce A entered into agreements with the Ontario Power Authority to restart units 1 and 2, extend the operating life of unit 3 and replace the generators on unit 4 at Bruce A.

 

·                  December 2005. TCPL sold its approximate 11 per cent interest in P.T. Paiton Energy Company to subsidiaries of The Tokyo Electric Power Company, resulting in gross proceeds of US$103 million.

 

·                  December 2005. TCPL acquired the remaining rights and obligations of the 756 MW Sheerness Power Purchase Arrangement (“PPA”) from the Alberta Balancing Pool for $585 million.

 


 

TRANSCANADA PIPELINES LIMITED

6

 

 

 

·                  TCPL commenced construction of a natural gas storage facility located near Edson, Alberta.

 

·                  Ocean State Power successfully restructured its long-term natural gas fuel supply contracts with its suppliers.

 

BUSINESS OF TCPL

 

TCPL is a leading North American energy infrastructure company focused on pipelines and energy. At Year End, Pipelines accounted for approximately 53 per cent of revenues and 73 per cent of TCPL’s total assets and the Energy business accounted for approximately 47 per cent of revenues and 23 per cent of TCPL’s total assets. The following is a description of each of TCPL’s two main areas of operation.

 

The following table shows TCPL’s revenues from operations by segment, classified geographically, for the years ended December 31, 2007 and 2006.

 

 Revenues From Operations (millions of dollars)

 

 

2007

 

 

2006

 

 Pipelines

 

 

 

 

 

 

 

Canada - Domestic

 

 

$2,227

 

 

$2,390

 

Canada - Export(1)

 

 

1,003

 

 

971

 

United States

 

 

1,482

 

 

629

 

 

 

 

4,712

 

 

3,990

 

 Energy(2)

 

 

 

 

 

 

 

Canada – Domestic

 

 

2,792

 

 

2,566

 

Canada - Export(1)

 

 

3

 

 

1

 

United States

 

 

1,321

 

 

963

 

 

 

 

4,116

 

 

3,530

 

 Total Revenues(3)

 

 

$8,828

 

 

$7,520

 

 

(1)    Exports include pipeline revenues attributable to deliveries to U.S. pipelines and power deliveries to U.S. markets.

 

(2)    Revenues include sales of natural gas.

 

(3)    Revenues are attributed to countries based on country of origin of product or service.

 

Pipelines Business

 

TCPL is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas pipelines, regulated gas storage facilities and projects related to oil pipelines. TCPL’s network of wholly owned pipelines extends more than 59,000 km (36,500 miles), tapping into virtually all major gas supply basins in North America.

 

TCPL has substantial Canadian and U.S. natural gas pipeline and related holdings, and one oil pipeline project, including those listed below.

 

Canada

 

·                  TCPL’s 100 per cent owned, 14,957 km natural gas transmission system in Canada that extends from the Alberta/Saskatchewan border east to the Québec/Vermont border and connects with other natural gas pipelines in Canada and the U.S. (“Canadian Mainline”).

 

·                  TCPL’s 100 per cent owned natural gas transmission system in Alberta gathers natural gas for use within the province and delivers it to provincial boundary points for connection with the Canadian Mainline and the Foothills System as well as the natural gas pipelines of other companies. The 23,570 km system is one of the largest carriers of natural gas in North America (“Alberta System”).

 

·                  TCPL’s 100 per cent owned, 1,241 km natural gas transmission system in Western Canada carries natural gas for export from central Alberta to the U.S. border to serve markets in the U.S. Midwest, Pacific Northwest, California and Nevada. Effective April 1, 2007, the B.C. System was integrated into the Foothills System (“Foothills System”).

 

·      TransCanada Pipeline Ventures LP, which is 100 per cent owned by TCPL, owns a 121 km pipeline and related facilities that supply natural gas to the oilsands region of northern Alberta as well as a 27 km pipeline that supplies natural gas to a petrochemical complex at Joffre, Alberta.

 

 

TRANSCANADA PIPELINES LIMITED

7

 

·      Keystone is a 3,456 km oil pipeline project under construction that is expected to transport crude oil from Hardisty, Alberta to U.S. Midwest markets at Wood River and Patoka in Illinois, and to Cushing, Oklahma. Keystone is 50 per cent owned by TCPL.

 

·      TransCanada Québec & Maritimes Pipeline Inc. (“TQM”) is 50 per cent owned by TCPL. TQM is a 572 km pipeline system that connects with the Canadian Mainline and transports natural gas from Montréal to Québec City in Québec, and connects with the Portland system. TQM is operated by TCPL.

 

United States

 

·      TCPL’s ANR System (“ANR System”) is a 100 per cent owned, 17,000 km natural gas transmission system which transports natural gas from producing fields located primarily in Texas and Oklahoma on its southwest leg. Its southeast leg transports natural gas from producing fields located primarily in the Gulf of Mexico and Louisiana. The system extends to markets located mainly in Wisconsin, Michigan, Illinois, Ohio and Indiana. ANR’s natural gas pipeline also connects with other natural gas pipelines to give access to diverse sources of North American supply, including Western Canada and the Rocky Mountain supply region, and a variety of markets in the midwestern and northeastern U.S. ANR also owns and operates underground regulated natural gas storage facilities in Michigan with a total capacity of approximately 235 billion cubic feet (“Bcf”).

 

·      The GTN System (“GTN System”) System is TCPL’s 100 per cent owned natural gas transmission system which extends 2,174 km and links the Foothills System with Pacific Gas and Electric Company’s California Gas Transmission System, with Williams Companies, Inc.’s Northwest Pipeline in Washington and Oregon, and with Tuscarora.

 

·      North Baja is TCPL’s 100 per cent owned natural gas transmission system which extends 129 km from Ehrenberg in southwestern Arizona to a point near Ogilby, California on the California/Mexico border and connects with the Gasoducto Bajanorte natural gas pipeline system in Mexico.

 

·      The Great Lakes Gas Transmission System (“Great Lakes System”) is owned 53.6 per cent by TCPL and 46.4 per cent by TC Pipelines, LP. The 3,404 km Great Lakes natural gas transmission system connects with the Canadian Mainline at Emerson, Manitoba, and serves markets in Central Canada and the Midwestern U.S. TCPL operates Great Lakes and effectively owns 68.5 per cent of the system through its 53.6 per cent ownership interest and its indirect ownership through its 32.1 per cent interest in TC Pipelines, LP.

 

·      The Iroquois System connects with the Canadian Mainline near Waddington, New York and delivers natural gas to customers in the northeastern U.S. TCPL has a 44.5 per cent ownership interest in this 666 km pipeline system.

 

·      The Portland system is a 474 km pipeline that connects with TQM near East Hereford, Québec and delivers natural gas to customers in the northeastern U.S. TCPL has a 61.7 per cent ownership interest in the Portland system and operates this pipeline.

 

·      The Northern Border Pipeline System (“NBPL System”) is 50 per cent owned by TC PipeLines, LP and is a 2,250 km natural transmission pipeline system, which serves the U.S. Midwest from a connection with the Foothills System near Monchy, Saskatchewan. TCPL operates and effectively owns 16.1 per cent of NBPL through its 32.1 per cent interest in TC PipeLines, LP.

 

·      The Tuscarora System is 100 per cent owned by TC PipeLines, LP and is a 491 km pipeline system transporting natural gas from the GTN System at Malin, Oregon to Wadsworth, Nevada with delivery points in northeastern California and northwestern Nevada. TCPL operates Tuscarora and its 32.1 per cent ownership interest in TC PipeLines, LP gives TCPL a 32.1 per cent interest in the system.

 

·      TCPL holds a 32.1 per cent interest in TC PipeLines, LP, a publicly held limited partnership of which a subsidiary of TCPL acts as the general partner. The remaining interest of TC PipeLines, LP is widely held by the public. TC PipeLines, LP owns a 50 per cent interest in NBPL, the remaining 46.4 per cent in the Great Lakes System and 100 per cent of Tuscarora.

 

International

 

TCPL also has the following natural gas pipeline and related holdings in Mexico and South America:

 

·      TransGas is a 344 km natural gas pipeline system which runs from Mariquita in the central region of Colombia to Cali in the southwest of Colombia. TCPL holds a 46.5 per cent ownership interest in this pipeline.

 


 

TRANSCANADA PIPELINES LIMITED

8

 

 

 

 

·      Gas Pacifico is a 540 km natural gas pipeline extending from Loma de la Lata, Argentina to Concepción, Chile. INNERGY is an industrial natural gas marketing company based in Concepción that markets natural gas transported on Gas Pacifico. TCPL holds a 30 per cent ownership interest both in Gas Pacifico and INNERGY.

 

·      Tamazunchale is a 100 per cent owned, 130 km natural gas pipeline in east-central Mexico which extends from the facilities of Pemex Gas near Naranjos, Veracruz to an electricity generating station near Tamazunchale, San Luis Potosi. This pipeline went into service on December 1, 2006.

 

Further information about TCPL’s pipeline holdings, developments and opportunities and significant regulatory developments which relate to pipelines can be found in the MD&A under the headings “Pipelines - Opportunities and Developments” and “Pipelines - Financial Analysis”.

 

Regulation of the Pipeline Business

 

Canada

 

CANADIAN MAINLINE, TQM AND FOOTHILLS SYSTEM

Under the terms of the National Energy Board Act (Canada), the Canadian Mainline, TQM and the Foothills Systems are regulated by the NEB. The NEB sets tolls which provide TCPL the opportunity to recover projected costs of transporting natural gas, including the return on the Canadian Mainline, TQM and Foothills Systems’ average investment base. In addition, new facilities are approved by the NEB before construction begins and the NEB regulates the operation of the Canadian Mainline, TQM and Foothills Systems. Net earnings of the Canadian Mainline, TQM and Foothills Systems may be affected by changes in investment base, the allowed return on equity, the level of deemed common equity and any incentive earnings.

 

ALBERTA SYSTEM

The Alberta System was regulated in 2007 by the EUB primarily under the provisions of the Gas Utilities Act (“GUA”) and the Pipeline Act. Under the GUA, the Alberta System rates, tolls and other charges, and terms and conditions of services were subject to approval by the EUB. Under the provisions of the Pipeline Act, the EUB oversaw various matters including the economic, orderly and efficient development of pipeline facilities, the operation and abandonment of the facilities and certain related pollution and environmental conservation issues. In addition to requirements under the Pipeline Act, the construction and operation of natural gas pipelines in Alberta are subject to certain provisions of other provincial legislation such as the Environmental Protection and Enhancement Act.

 

Effective January 1, 2008, the EUB was reorganized into the Energy Resources Conservation Board and the Alberta Utilities Commission (“AUC”). The AUC will regulate all the physical and economic aspects of the Alberta System which were previously regulated by the EUB.

 

United States

TCPL’s wholly owned and partially owned U.S. pipelines, including the ANR System, the GTN System, the Great Lakes System, the Iroquois System, the Portland system, the NBPL System, North Baja and the Tuscarora System, are “natural gas companies” operating under the provisions of the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978, and are subject to the jurisdiction of the FERC. The Natural Gas Act of 1938 grants the FERC authority over the construction and operation of pipelines and related facilities. The FERC also has authority to regulate rates for natural gas transportation and interstate commerce.

 

Energy Business

 

The Energy segment of TCPL’s business includes the acquisition, development, construction, ownership and operation of electrical power generation plants, the purchase and marketing of electricity, the provision of electricity account services to energy and industrial customers, and the development, construction, ownership and operation of non-regulated natural gas storage in Alberta, and LNG facilities in Canada and the U.S.

 

The electrical power generation plants and power supply that TCPL has an interest in, including those under development, in the aggregate, represent approximately 7,700 MW of power generation capacity. Power plants and power supply in Canada account for approximately 85 per cent of this total, and power plants in the U.S. account for the balance, being approximately 15 per cent.

 


 

TRANSCANADA PIPELINES LIMITED

9

 

TCPL owns and operates the following facilities:

 

·      Natural gas-fired cogeneration plants in Alberta at Carseland (80 MW), Redwater (40 MW), Bear Creek (80 MW) and MacKay River (165 MW).

 

·      Grandview, a 90 MW natural gas-fired cogeneration power plant located in Saint John, New Brunswick. Under a 20-year operating lease for tolls, Irving Oil Limited receives 100 per cent of the plant’s heat and electricity output.

 

·      Cancarb, a 27 MW facility at Medicine Hat, Alberta fuelled by waste heat from TCPL’s adjacent thermal carbon black facility.

 

·      OSP, a 560 MW natural gas-fired, combined-cycle facility in Rhode Island.

 

·      TC Hydro, TCPL’s hydroelectric facilities located in New Hamphire, Vermont and Massachusetts on the Connecticut and Deerfield Rivers consist of 13 stations and associated dams and reservoirs with a total generating capacity of 583 MW.

 

·      Bécancour, a 550 MW natural gas-fired cogeneration power plant located near Trois-Rivières, Québec. The entire power output is supplied to Hydro-Québec under a 20-year power purchase contract. Steam is also sold to an industrial customer for use in commercial processes.

 

·      Edson, an underground natural gas storage facility connected to the Alberta System near Edson, Alberta. The facility’s central processing system is capable of maximum injection and withdrawal rates of 725 million cubic feet per day (“mmcf/d”) of natural gas. Edson has a working natural gas storage capacity of approximately 50 Bcf.

 

·      A long-term natural gas storage lease with a third party located in Alberta.

 

TCPL has the following long-term power purchase arrangements in place:

 

·      The largest coal-fired electric generating facility in Western Canada, Sundance is located in south-central. Alberta, TCPL has the rights to 100 per cent of the generating capacity of the 560 MW Sundance A facility under a PPA, which expires in 2017. TCPL also has the rights to 50 per cent of the generating capacity of the 706 MW Sundance B facility under a PPA which expires in 2020 (“Sundance”).

 

·      The Sheerness facility, which consists of two 390 MW coal-fired thermal power generating units, is located in southeastern Alberta. TCPL has the rights to 756 MW of generating capacity from the Sheerness facility PPA, which expires in 2020 (“Sheerness”).

 

TCPL has interest in the following:

 

·      A 60 per cent ownership in CrossAlta, which is an underground natural gas storage facility connected to the Alberta System and is located near Crossfield, Alberta. CrossAlta has a working natural gas capacity of 54 Bcf with a maximum deliverability capability of 480 mmcf/d.

 

·      A 62 per cent interest in Baie-des-Sables (110 MW) and Anse á Valleau (101 MW) wind farms.

 

·      Consisting of two generating stations, Bruce A with approximately 3,000 MW of generating capacity and Bruce Power L.P. (“Bruce B”) with approximately 3,200 MW of generating capacity. Bruce Power is located in Ontario. TCPL owns 48.7 per cent of Bruce A., which has four power generating units, two of which have been idled for refurbishing and are expected to restart in 2010. TCPL owns 31.6 per cent of Bruce B, which also has four power generating units.

 

TCPL owns the following facilities which are under construction or development:

 

·      The third phase of the 740 MW Cartier Wind Energy Project, the Carleton wind farms, which began construction in late 2007 as well as the remaining three projects which are under planning and development.

 

·      The Portlands Energy Centre, a 550 MW high efficiency, combined-cycle natural gas generation power plant located near downtown Toronto, Ontario is 50 percent owned by TCPL and is under construction. The plant is expected to be operational in simple-cycle mode, delivering 340 MW of electricity beginning June in 2008. It is anticipated to be fully commissioned in its combined-cycle mode, delivering 550 MW of power in the second quarter of 2009.

 

·      A 683 MW natural gas-fired power plant near the town of Halton Hills, Ontario is under construction and is expected to be placed in service in the third quarter of 2010.

 

·      A joint venture with Shell, Broadwater is a proposed offshore LNG project located in the New York waters of Long Island Sound, capable of receiving, storing and regasifying imported LNG with an average send-out capacity of approximately one Bcf per day of natural gas. TCPL holds a 50 per cent interest in Broadwater.

 


 

TRANSCANADA PIPELINES LIMITED

10

 

 

 

·      A joint venture with Petro-Canada, Cacouna is a proposed LNG project in Québec at Gros Cacouna harbour on the St. Lawrence River in Québec, Cacouna would be capable of receiving, storing and regasifying imported LNG with an average send-out capacity of approximately 500 mmcf/d of natural gas. TCPL has a 50 per cent interest in Cacouna.

 

·      The proposed Kibby wind power project is located in Kibby and Skinner Townships in northwestern Franklin County, Maine. Subject to receipt of U.S. federal and state approvals, construction of the new facilities could begin in early 2008 with an expected in-service date of 2009/2010.

 

Further information about TCPL’s energy holdings and significant developments and opportunities relating to energy can be found in the MD&A under the headings “Energy - Financial Analysis” and “Energy - Opportunities and Developments”.

 

HEALTH, SAFETY AND ENVIRONMENT RISK MANAGEMENT

 

TCPL is committed to providing a safe and healthy environment for its employees, contractors and the public, and to protecting the environment. Health, safety and environment (“HS&E”) is a priority in all of TCPL’s operations and the Company is committed to ensuring it is in conformance with its internal policies and regulated requirements, and is an industry leader. The HS&E Committee of TCPL’s Board of Directors monitors conformance with TCPL’s HS&E corporate policy through regular reporting. TCPL’s HS&E management system is modeled to the elements of the International Organization of Standardization’s (“ISO”) standard for environmental management systems, ISO 14001, and focuses resources on the areas of significant risk to the organization’s HS&E business activities. Management is regularly advised of all important HS&E operational issues and initiatives by way of formal reporting processes. TCPL’s HS&E management system and performance are assessed by an independent outside firm every three years or more often if requested by the HS&E Committee. The most recent assessment was conducted in November 2006. These assessments involve senior management and employee interviews, review of policies, procedures, objectives, performance measurement and reporting.

 

Safety

 

In 2007, employee and contractor health and safety performance continued to improve relative to previous years and benchmarked within the top level of industry peers.  The Company’s assets were highly reliable in 2007 and there were no incidents that were material to the Company’s operations.

 

Under the approved regulatory models in Canada, pipeline integrity expenditures on NEB and AUC regulated pipelines are treated on a flow-through basis and, as a result, have no impact on TCPL’s earnings.  The Company expects to spend approximately $120 million in 2008 for pipeline integrity on its wholly owned pipelines, which is slightly higher than the amount spent in 2007, reflecting the acquisition of ANR and slightly increased spending in Canada.  Spending associated with public safety on the Energy assets is focused primarily on hydro dams and associated equipment, and is consistent with previous years.

 

Environment

 

TCPL’s operations are subject to various environmental laws and regulations that establish compliance and remediation obligations.  There are no outstanding orders, material claims or lawsuits against the Company in relation to the release or discharge of any material into the environment or in connection with environmental protection.  The Company believes that it has established appropriate reserves, where required, for environmental liabilities.

 

Environmental risks from TCPL’s facilities typically include air emissions such as nitrogen oxides (NOx), particulate matter and greenhouse gases, potential land impacts, including land reclamation following construction, releases, chemical and hydrocarbon storage, and waste management control to minimize hazardous wastes, and water impacts such as water discharge. TCPL utilizes a risk-based environmental assessment approach.  All businesses are assessed annually and specific facilities, installations and activities are reviewed on a one- to three-year cycle, depending on the Company’s assessment risk.  Business and/or facility inspections are also completed on a monthly, quarterly or annual basis, depending on the entity and the assessment of risk. There were no materially significant environmental matters arising from these assessments conducted during 2007.

 

Climate change policy continues to evolve at regional, national and international levels.  Under the Specified Gas Emitters Regulation, as of July 1, 2007, industrial facilities in Alberta are required to reduce their greenhouse gas emissions intensities by 12 per cent.  TCPL’s Alberta-based facilities are subject to this regulation which also extends to the Sundance and Sheerness facilities with which the Company has PPAs.  Plans have been developed to manage the costs of compliance incurred by these assets.  The regulation is not expected to have a material impact on the Company’s results.  Compliance

 


 

TRANSCANADA PIPELINES LIMITED

11

 

costs related to the Alberta System are expected to be recovered through tolls paid by customers.  Recovery of compliance costs related to the Company’s power generation facilities in Alberta is dependent ultimately on market prices for electricity.  The Company recorded in 2007 a charge of $14 million for the period from July 1, 2007 to December 31, 2007 related to the new Alberta environmental regulation.

 

A hydrocarbon royalty tax took effect in Québec on October 1, 2007 and is expected to affect mainly the Bécancour power generation facility.  A regulatory proceeding is under way to determine the method of collecting the tax.  The Company recorded a charge of $2 million for the period October 1, 2007 to December 31, 2007 for Québec royalties.

 

British Columbia recently announced a carbon tax, with an effective date of July 2008, which is expected to be applied to fuel usage at the Company's pipeline compressor facilities in that province.  The specifics of the application of the tax are still being assessed.  Compliance costs related to this tax are anticipated to be recovered through tolls paid by customers. 

 

The Government of Canada released in April 2007 the Regulatory Framework for Air Emissions ("Framework").  The Framework outlines short-, medium- and long-term objectives for managing both greenhouse gas emissions and air pollutants in Canada.  The Company expects a number of its facilities will be affected by pending Federal climate change regulations that will be put in place to meet the Framework’s objectives.  It is unknown at this time whether the impacts from the pending regulations will be material as the final form of compliance options is still evolving.

 

Climate change legislation is evolving at both the federal and state levels in the U.S.  The Company expects a number of its facilities could be affected by these legislative initiatives, but timing and specific policy objectives remain uncertain.

 

The Company continues to be involved in discussions with governments in jurisdictions where TCPL has operations and where climate change policy is under development. TCPL is also continuing its programs to manage greenhouse gas emissions from its facilities and to evaluate new processes and technologies that result in improved efficiencies and lower greenhouse gas emission rates.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

The Canadian Alliance of Pipeline Landowners’ Association (“CAPLA”) and two individual landowners commenced an action in 2003 under Ontario’s Class Proceedings Act, 1992, against TCPL and Enbridge Inc. for damages of $500 million alleged to arise from the creation of a control zone within 30 metres of a pipeline pursuant to Section 112 of the National Energy Board Act. On November 20, 2006, TCPL and Enbridge Inc. were granted a dismissal of the case but CAPLA has appealed that decision. The appeal was heard on December 18, 2007 and the Ontario Court of Appeal reserved their decision. TCPL continues to believe the claim is without merit and will vigorously defend the action. TCPL has made no provision for any potential liability. Liabilities, if any, would be dealt with through the NEB.

 

TCPL and its subsidiaries are subject to various other legal proceedings and actions arising in the normal course of business. While the final outcome of such legal proceedings and actions cannot be predicted with certainty, it is the opinion of TCPL’s management that the resolution of such proceedings and actions will not have a material impact on TCPL’s consolidated financial position or results of operations.

 

TRANSFER AGENT AND REGISTRAR

 

TCPL’s transfer agent and registrar is Computershare Trust Company of Canada with transfer facilities in the Canadian cities of Vancouver, Calgary, Winnipeg, Toronto, Montréal and Halifax.

 

INTEREST OF EXPERTS

 

Our auditors, KPMG LLP, have confirmed that they are independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Alberta.

 


 

TRANSCANADA PIPELINES LIMITED

12

 

 

 

RISK FACTORS

 

A discussion of the Company’s risk factors can be found in the MD&A for the year ended December 31, 2007, which is incorporated by reference herein, under the headings “Pipelines - Opportunities and Developments”, “Pipelines - Business Risks”, “Energy - Opportunities and Developments”, “Energy - Business Risks” and “Risk Management and Financial Instruments”.

 

DIVIDENDS

 

All of TCPL’s common shares are held by TransCanada and as a result, any dividends declared by TCPL on its common shares are paid to TransCanada. TCPL’s Board of Directors has not adopted a formal dividend policy. The Board reviews the financial performance of TCPL quarterly and makes a determination of the appropriate level of dividends to be declared on its common shares in the following quarter. Provisions of various trust indentures and credit arrangements to which TCPL is a party, restrict TCPL’s ability to declare and pay dividends to TransCanada and preferred shareholders under certain circumstances and, if such restrictions apply, they may, in turn, have an impact on TransCanada’s ability to declare and pay dividends on its common and preferred shares. In the opinion of TCPL management, such provisions do not currently restrict or alter TCPL’s ability to declare or pay dividends.

 

The dividends declared per share during the past three completed financial years are set forth in the following table.

 

 

 

 

2007

 

 

2006

 

 

2005

 

Dividends declared on common shares(1)

 

 

$1.39

 

 

$1.28

 

 

$1.23

 

Dividends declared on preferred shares, Series U

 

 

$2.80

 

 

$2.80

 

 

$2.80

 

Dividends declared on preferred shares, Series Y

 

 

$2.80

 

 

$2.80

 

 

$2.80

 

 

(1)  TCPL dividends on its common shares are declared in an amount equal to the aggregate cash dividend paid by TransCanada to its public shareholders. The amounts presented reflect the aggregate amount divided by the total outstanding common shares of TCPL.

 

DESCRIPTION OF CAPITAL STRUCTURE

 

Share Capital

 

TCPL’s authorized share capital consists of an unlimited number of common shares, of which 533,008,044 were issued and outstanding at Year End, and an unlimited number of first preferred shares and second preferred shares, issuable in series. There were 4,000,000 Series U and 4,000,000 Series Y first preferred shares issued and outstanding at Year End. The following is a description of the material characteristics of each of these classes of shares.

 

Common Shares

As the holder of all of TCPL’s common shares, TransCanada holds all the voting rights in those common shares.

 

First Preferred Shares, Series U

Subject to certain limitations, the Board may, from time to time, issue first preferred shares in one or more series and determine for any such series, its designation, number of shares and respective rights, privileges, restrictions and conditions. The first preferred shares as a class, have, among others, provisions to the following effect.

 

The holders of the first preferred shares, Series U are entitled to receive as and when declared by the Board, fixed cumulative preferential cash dividends at an annual rate of $2.80 per share, payable quarterly.

 

The first preferred shares of each series shall rank on a parity with the first preferred shares of every other series, and shall be entitled to preference over the common shares and any other shares ranking junior to the first preferred shares with respect to the payment of dividends, the repayment of capital and the distribution of assets to TCPL in the event of a liquidation, dissolution or winding up of TCPL.

 

TCPL is entitled to purchase for cancellation, some or all of the first preferred shares, Series U outstanding at the lowest price which such shares are obtainable, in the opinion of the Board, but not exceeding $50.00 per share plus costs of purchase. Furthermore, TCPL may redeem, on or after October 15, 2013, some or all of the first preferred shares, Series U upon payment for each share at $50.00 per share.

 

Except as provided by the Canada Business Corporations Act or as referred to below, the holders of the first preferred shares will not have any voting rights nor will they be entitled to receive notice of or to attend shareholders’ meetings unless and until TCPL fails to pay, in the aggregate, six quarterly dividends on the first preferred shares, Series U.

 


 

TRANSCANADA PIPELINES LIMITED

13

 

The provisions attaching to the first preferred shares as a class may be modified, amended or varied only with the approval of the holders of the first preferred shares as a class. Any such approval to be given by the holders of the first preferred shares may be given by the affirmative vote of the holders of not less than 662/3 per cent of the first preferred shares represented and voted at a meeting or adjourned meeting of such holders.

 

First Preferred Shares, Series Y

The rights, privileges, restrictions and conditions attaching to the first preferred shares, Series Y are substantially identical to those attaching to the first preferred shares, Series U except that the first preferred shares, Series Y are redeemable by TCPL after March 5, 2014.

 

DEBT

 

The following table sets out the issuances by TCPL of senior unsecured notes and junior subordinated notes with terms to maturity in excess of one year, during the 12 months ended December 31, 2007.

 

Date Issued

 

 

Issue Price per
$1,000 Principal
Amount of Notes

 

 

Aggregate
Issue Price

 

May 3, 2007

 

 

US$998.21

 

 

US$998,210,000

 

October 5, 2007

 

 

US$995.65

 

 

US$995,650,000

 

There are no provisions associated with this debt that entitle debt holders to voting rights. From time to time, TCPL issues commercial paper for terms not exceeding nine months.

 

CREDIT RATINGS

 

The following table sets out the credit ratings assigned to those outstanding classes of securities of TCPL which have been rated:

 

Overall

 

 

DBRS

 

 

Moody’s

 

 

S&P

 

Senior Unsecured Debt

 

 

 

 

 

 

 

 

 

 

Debentures

 

 

A

 

 

A2

 

 

A-

 

Medium-term Notes

 

 

A

 

 

A2

 

 

A-

 

Junior Subordinated Notes(1)

 

 

BBB (high)

 

 

A3

 

 

BBB

 

Preferred Shares

 

 

Pfd-2 (low)

 

 

Baa1

 

 

BBB

 

Commercial Paper

 

 

R-1 (low)

 

 

P-1

 

 

-

 

Trend/Rating Outlook

 

 

Stable(1)

 

 

Stable

 

 

Negative

 

 

(1)      Issued May 3, 2007.

 

Credit ratings are intended to provide investors with an independent measure of credit quality of an issue of securities. Credit ratings are not recommendations to purchase, hold or sell securities and do not address the market price or suitability of a specific security for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant. A description of the rating agencies’ credit ratings listed in the table above is set out below.

 

DBRS

 

DBRS has different rating scales for Short and Long-Term Debt and preferred shares. "High" or "low" grades are used to indicate the relative standing within a rating category. The absence of either a "high" or "low" designation indicates the rating is in the "middle" of the category. The R-1 (low) rating assigned to TCPL's Short-Term Debt is the third highest of ten rating categories and indicates satisfactory credit quality. The overall strength and outlook for key liquidity, debt and profitability ratios is not normally as favourable as with higher rating categories, but these considerations are still respectable. Any qualifying negative factors that exist are considered manageable, and the entity is normally of sufficient size to have some influence in its industry. The A rating assigned to TCPL's Senior Unsecured Debt is the third highest of ten categories for Long-Term Debt. Long-Term Debt rated A is of satisfactory credit quality. Protection of interest and principal is still substantial, but the degree of strength is less than that of AA rated securities. While a respectable rating, entities in the A category are considered to be more susceptible to adverse economic conditions and have greater cyclical tendencies than higher rated entities.  The BBB (high) rating assigned to Junior Subordinated Notes is the fourth highest of the ten categories for Long-Term Debt.  Long-Term Debt rated BBB is of adequate credit quality.  Protection of interest and principal is considered acceptable but there may be other

 


 

TRANSCANADA PIPELINES LIMITED

14

 

 

 

adverse conditions present which reduce the strength of the entity and its rated securities. The Pfd-2 (low) rating assigned to TCPL's preferred shares is the second highest of six rating categories for preferred shares. Preferred shares rated Pfd-2 are of satisfactory credit quality. Protection of dividends and principal is still substantial; however, earnings, the balance sheet and coverage ratios are not as strong as Pfd-1 rated companies.

 

Moody’s Investor Services (Moody’s)

 

Moody’s has different rating scales for short and long-term obligations. Numerical modifiers 1, 2 and 3 are applied to each rating classification, with 1 being the highest and 3 being the lowest. The P-1 rating assigned to TCPL’s Short-Term Debt is the highest of four rating categories and indicates a superior ability to repay Short-Term Debt obligations. The A2 rating assigned to TCPL’s senior secured and Senior Unsecured Debt and the A3 rating assigned to its junior subordinated debt is the third highest of nine rating categories for long-term obligations. Obligations rated A are considered upper-medium grade and are subject to low credit risk. The Baa1 rating assigned to TCPL’s preferred shares is the fourth highest of nine rating categories for long-term obligations. Obligations rated Baa are subject to moderate credit risk, are considered medium-grade, and as such, may possess certain speculative characteristics.

 

Standard & Poor’s (S&P)

 

S&P has different rating scales for short and long-term obligations. Ratings may be modified by the addition of a plus (+) or minus (-) sign to show the relative standing within a particular rating category. The A- rating assigned to TCPL’s senior unsecured debt is the third highest of ten rating categories for long-term obligations. An A rating indicates the obligor’s capacity to meet its financial commitment is strong; however, the obligation is somewhat susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. The BBB ratings assigned to TCPL’s Junior Subordinated Notes and preferred shares are the fourth highest of ten rating categories for long-term obligations. An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

 

MARKET FOR SECURITIES

 

TransCanada holds all of the common shares of TCPL and these are not listed on a public market. TransCanada’s common shares are listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”). The following table sets forth the reported monthly high and low trading prices and monthly trading volumes of the common shares of TransCanada on the TSX for the period indicated:

 

Common Shares (TRP)

 

Month

 

 

High
($)

 

 

Low
($)

 

 

Volume
Traded

 

December 2007

 

 

40.73

 

 

38.95

 

 

17,822,199

 

November 2007

 

 

40.69

 

 

38.10

 

 

28,532,491

 

October 2007

 

 

40.24

 

 

36.47

 

 

30,876,596

 

September 2007

 

 

37.19

 

 

35.80

 

 

28,163,823

 

August 2007

 

 

38.62

 

 

35.43

 

 

29,811,560

 

July 2007

 

 

39.83

 

 

36.17

 

 

33,442,298

 

June 2007

 

 

39.36

 

 

35.77

 

 

30,897,359

 

May 2007

 

 

40.29

 

 

38.77

 

 

25,520,203

 

April 2007

 

 

40.26

 

 

37.75

 

 

22,302,817

 

March 2007

 

 

39.80

 

 

36.75

 

 

30,461,884

 

February 2007

 

 

39.28

 

 

37.17

 

 

28,769,671

 

January 2007

 

 

41.35

 

 

38.28

 

 

29,422,031

 

 


 

TRANSCANADA PIPELINES LIMITED

15

 

In addition, the following securities of TCPL are listed:

 

TCPL’s Cumulative Redeemable First Preferred Shares,
Series U (TCA.PR.X) and Series Y (TCA.PR.Y), which are listed on the TSX

 

 

 

 

Series U

 

 

Series Y

 

Month

 

 

High
($)

 

 

Low
($)

 

 

Volume Traded

 

 

High
($)

 

 

Low
($)

 

 

Volume Traded

 

December 2007

 

 

50.75

 

 

49.80

 

 

36,215

 

 

51.65

 

 

50.11

 

 

37,319

 

November 2007

 

 

50.50

 

 

49.96

 

 

60,707

 

 

50.75

 

 

50.05

 

 

55,112

 

October 2007

 

 

50.44

 

 

49.25

 

 

39,635

 

 

50.44

 

 

49.51

 

 

47,627

 

September 2007

 

 

51.80

 

 

49.00

 

 

30,091

 

 

51.95

 

 

49.61

 

 

32,310

 

August 2007

 

 

51.80

 

 

50.50

 

 

37,226

 

 

51.25

 

 

50.50

 

 

28,572

 

July 2007

 

 

51.98

 

 

50.50

 

 

27,358

 

 

51.80

 

 

50.01

 

 

32,150

 

June 2007

 

 

52.88

 

 

51.50

 

 

56,999

 

 

52.80

 

 

51.50

 

 

50,316

 

May 2007

 

 

54.33

 

 

51.85

 

 

271,282

 

 

54.15

 

 

51.60

 

 

157,425

 

April 2007

 

 

54.69

 

 

54.00

 

 

29,521

 

 

54.60

 

 

53.75

 

 

44,051

 

March 2007

 

 

54.99

 

 

53.80

 

 

33,430

 

 

54.80

 

 

54.25

 

 

42,213

 

February 2007

 

 

54.98

 

 

53.95

 

 

35,035

 

 

54.96

 

 

54.01

 

 

24,557

 

January 2007

 

 

54.65

 

 

53.60

 

 

37,913

 

 

54.58

 

 

53.85

 

 

28,836

 

 

DIRECTORS AND OFFICERS

 

As of February 25, 2008, the directors and officers of TransCanada as a group beneficially owned, directly or indirectly, or exercised control or direction over an aggregate of 312,558 common shares of TransCanada. This constitutes less than one per cent of TransCanada’s common shares and less than one per cent of the voting securities of any of its subsidiaries or affiliates. In additions, officers held exercisable options to acquire an aggregate of 2,296,740 additional common shares. TransCanada collects this information from its directors and officers but otherwise has no direct knowledge of individual holdings of its securities.

 

Directors

 

Set forth below are the names of the thirteen directors who served on the Board at Year End, together with their jurisdictions of residence, all positions and offices held by them with TCPL and its significant affiliates, their principal occupations or employment during the past five years and the year from which each director has continually served as a director of TCPL. Positions and offices held with TransCanada are also held by such person at TCPL.

 

Name and
Place of Residence

 

Principal Occupation During the Five Preceding Years

 

Director Since

Kevin E. Benson(1) Wheaton, Illinois United States

 

President and Chief Executive Officer, Laidlaw International, Inc. (transportation services) from June 2003 to October 2007, and Laidlaw, Inc. from September 2002 to June 2003.

 

2005

Derek H. Burney, O.C. Ottawa, Ontario
Canada

 

Senior strategic advisor at Ogilvy Renault LLP (law firm) and Chairman, CanWest Global Communications Corp. (communications). Lead director at Shell Canada Limited (oil and gas) from April 2001 to May 2007. President and Chief Executive Officer, CAE Inc. (technology) from October 1999 to August 2004.

 

2005

Wendy K. Dobson Uxbridge, Ontario
Canada

 

Professor, Rotman School of Management and Director, Institute for International Business, University of Toronto. Vice Chair, Canadian Public Accountability Board. Director, Toronto-Dominion Bank.

 

1992

E. Linn Draper
Lampasas, Texas United States

 

Director, Alliance Data Systems Corporation (data processing and sevices), Alpha Natural Resources, Inc. (mining), NorthWestern Corporation (conducting business as NorthWestern Energy) (oil and gas) Lead Director of and Temple-Inland Inc. (materials), Chairman, President and Chief Executive Officer of Columbus, Ohio-based American Electric Power Co., Inc. from April 1993 to April 2004.

 

2005

 


 

TRANSCANADA PIPELINES LIMITED

16

 

 

 

Name and
Place of Residence

 

Principal Occupation During the Five Preceding Years

 

Director Since

The Hon. Paule Gauthier, P.C., O.C., O.Q., Q.C. Québec, Québec
Canada

 

Senior Partner, Stein Monast LLP (law firm). Director, Cossette Communication Group Inc., Institut Québecois des Hautes Études Internationales, Laval University, Metro Inc., RBC Dexia Investor Services Trust, Rothmans Inc. and Royal Bank of Canada.

 

2002

Kerry L. Hawkins Winnipeg, Manitoba Canada

 

Director, NOVA Chemicals Corporation. President, Cargill Limited (agricultural) from September 1982 to December 2005.

 

1996

S. Barry Jackson
Calgary, Alberta
Canada

 

Chair of the Board, TCPL since April 2005. Director, Cordero Energy Inc. (oil and gas) and Nexen Inc. (oil and gas), Chair of Resolute Energy Inc. (oil and gas) from January 2002 to April 2005 and Chair of Deer Creek Energy Limited (oil and gas) from April 2001 to September 2005.

 

2002

Paul L. Joskow
New York, New York United States

 

Economist and President of the Alfred P. Sloan Foundation. On leave from his position as Professor of Economics and Management, Massachusetts Institute of Technology (“MIT”) where he has been on the faculty since 1972. Director of the MIT Center for Energy and Environmental Policy Research from 1999 to 2007. Director of Exelon Corporation (energy) since July 2007. Trustee of Putnam Mutual Funds. President of the Yale University Council until July 1, 2006 and was on the Board of Directors of the Whitehead Institute of Biological Research until February 2005.

 

2004

Harold N. Kvisle
Calgary,Alberta
Canada

 

President and Chief Executive Officer of TCPL since May 2003 and TCPL since May 2001. Director, Bank of Montreal.

 

2001

John A. MacNaughton, C.M.
Toronto, Ontario
Canada

 

Chairman of the Business Development Bank of Canada and of the Canadian Trading and Quotation System Inc. (stock exchange). Director, Nortel Networks Corporation and Nortel Networks Limited (the principal operating subsidiary of Nortel Networks Corporation) (technology). Founding President and Chief Executive Officer of the Canadian Pension Plan Investment Board from 1999 to 2005.

 

2006

David P. O’Brien(2) Calgary, Alberta
Canada

 

Chair, EnCana Corporation (oil and gas) since April 2002 and Chair, Royal Bank of Canada since February 2004. Director, Molson Coors Brewing Company, and C.D. Howe Institute. Chancellor, Concordia University and a member of the Science, Technology and Innovation Council of Canada.

 

2001

W. Thomas Stephens Greenwood Village, Colorado
United States

 

Chairman and Chief Executive Officer of Boise Cascade, LLC (paper, forest products and timberland assets) since November 2005. Trustee of Putnam Mutual Funds.

 

2007(3)

D. Michael G. Stewart Calgary, Alberta
Canada

 

Principal of the privately held Ballinacurra Group of Investment Companies since March 2002. Director, Canadian Energy Services Inc. and Pengrowth Corporation. Director of Esprit Exploration Ltd. (oil and gas) from May 2002 to September 2004; a director of Canada Southern Petroleum Ltd. from June 2003 to August 2004; a trustee of Esprit Energy Trust (oil and gas) from August 2004 to October 2006; and a director of Creststreet Power & Income General Partner Limited, the General Partner of Creststreet Power & Income Fund L.P. (wind power) from December 2003 to February 2006.

 

2006

 

(1)      Mr. Benson was President and Chief Executive Officer of Canadian Airlines International Ltd. from July 1996 to February 2000. Canadian Airlines International Ltd. filed for protection under the Companies’ Creditors Arrangement Act (Canada) and applicable bankruptcy protection statutes in the U.S. on March 24, 2000.

 

(2)      Mr. O’Brien was a director of Air Canada in April 2003 when Air Canada filed for protection under the Companies’ Creditors Arrangement Act (Canada) and applicable bankruptcy protection statutes in the U.S.

 

(3)      Mr. Stephens previously served on the Board from 2000 to 2005.

 

 

TRANSCANADA PIPELINES LIMITED

17

 

TransCanada will hold its annual meeting of common shareholders on Friday, April 25, 2008, and subject to the election of the thirteen nominees proposed for election to TransCanada’s board, these directors will be elected by the sole shareholder of TCPL as directors of TCPL on that date. Each director holds office until TCPL’s next annual meeting or until his or her successor is earlier elected or appointed.

 

Officers

 

All of the executive officers and corporate officers of TCPL reside in Calgary, Alberta, Canada. Current positions and offices held with TCPL are also held by such person at TransCanda. As of the date hereof, the officers of TCPL, their present positions within TCPL and their principal occupations during the five preceding years are as follows:

 

Executive Officers

 

Name

 

Present Position Held

 

Principal Occupation During
the Five Preceding Years

Harold N. Kvisle

 

President and Chief Executive Officer

 

President and Chief Executive Officer

Russell K. Girling

 

President, Pipelines

 

Executive Vice-President, Corporate Development and Chief Financial Officer, March 2003 to June 2006. Prior to March 2003, Executive Vice-President and Chief Financial Officer.

Gregory A. Lohnes

 

Executive Vice-President and Chief Financial Officer

 

Prior to June 2006, President and Chief Executive Officer of Great Lakes Gas Transmission Company.

Dennis J. McConaghy

 

Executive Vice-President, Pipeline Strategy and Development

 

Prior to June 2006, Executive Vice-President, Gas Development.

Sean McMaster

 

Executive Vice-President, Corporate and General Counsel and Chief Compliance Officer

 

Prior to October 2006, General Counsel and Chief Compliance Officer. Prior thereto, General Counsel since June 2006. Vice-President, Transactions, Power Division, TCPL from April 2003 to June 2006. President TransCanada Power Services Ltd., general partner of TransCanada Power, L.P. from June 2003 to August 2005. Prior to June 2003, Vice-President, TransCanada Power Services Ltd.

Alexander J. Pourbaix

 

President, Energy

 

Executive Vice-President, Power, March 2003 to June 2006. Prior to March 2003, Executive Vice-President, Power Development.

Sarah E. Raiss

 

Executive Vice-President, Corporate Services

 

Executive Vice-President, Corporate Services

Donald M. Wishart

 

Executive Vice-President, Operations and Engineering

 

Prior to March 2003, Senior Vice-President, Field Operations.

 

Corporate Officers

 

Name

 

Present Position Held

 

Principal Occupation During
the Five Preceding Years

Ronald L. Cook

 

Vice-President, Taxation

 

Vice-President, Taxation.

Donald J. DeGrandis

 

Corporate Secretary

 

Prior to June 2006, Associate General Counsel, Corporate.

Garry E. Lamb

 

Vice-President, Risk Management

 

Vice-President, Risk Management

Donald R. Marchand

 

Vice-President, Finance and Treasurer

 

Vice-President, Finance and Treasurer

G. Glenn Menuz

 

Vice President and Controller

 

Prior to June 2006, Assistant Controller.

 


 

TRANSCANADA PIPELINES LIMITED

18

 

 

 

CORPORATE GOVERNANCE

 

The Board and the members of TCPL’s management are committed to the highest standards of corporate governance. TCPL’s corporate governance practices comply with the governance rules of the Canadian Securities Administrators (“CSA”), those of the NYSE applicable to foreign issuers and of the U.S. Securities and Exchange Commission (“SEC”), and those mandated by the U.S. Sarbanes-Oxley Act of 2002 (“SOX”). As a non-U.S. company, TCPL is not required to comply with most of the NYSE corporate governance listing standards; however, except as summarized on its website at www.transcanada.com, the governance practices followed are in compliance with the NYSE standards for U.S. companies in all significant respects. TCPL is in compliance with the CSA’s Multilateral Instrument 52-110 pertaining to audit committees. TCPL is also in compliance with the CSA’s National Policy 58-201, Corporate Governance Guidelines, and National Instrument 58-101, Disclosure of Corporate Governance Practices. Further information about TCPL’s corporate governance can be found on TransCanada’s website at www.transcanada.com under the heading “Corporate Governance”.

 

Compliance with Canadian Governance Guidelines

 

The “Disclosure of Corporate Governance Practices” addressing disclosure in accordance with the Canadian Governance Guidelines is attached to this AIF at Schedule “B”. It has been approved by the Governance Committee and the Board.

 

Audit Committee

 

TCPL has an Audit Committee which is responsible for assisting the Board in overseeing the integrity of TCPL’s financial statements and compliance with legal and regulatory requirements and in ensuring the independence and performance of TCPL’s internal and external auditors. The members of the Audit Committee at Year End were Kevin E. Benson (Chair), Derek H. Burney, Paule Gauthier, Paul L. Joskow and John A. MacNaughton.

 

The Board believes that the composition of the Audit Committee reflects a high level of financial literacy and expertise. Each member of the Audit Committee has been determined by the Board to be “independent” and “financially literate” within the meaning of the definitions under Canadian and U.S. securities laws and the NYSE rules. In addition, the Board has determined that Mr. Benson is an “Audit Committee Financial Expert” as that term is defined under U.S. securities laws. The Board has made these determinations based on the education and breadth and depth of experience of each member of the Audit Committee. The following is a description of the education and experience, apart from their respective roles as directors of TCPL, of each member of the Audit Committee that is relevant to the performance of his or her responsibilities as a member of the Audit Committee:

 

Mr. Benson earned a Bachelor of Accounting from the University of Witwatersrand (South Africa) and was a member of the South African Society of Chartered Accountants. Mr. Benson was the President and Chief Executive Officer of Laidlaw International, Inc. until October, 2007. In prior years, he has held several executive positions including one as President and Chief Executive Officer of Canadian Airlines International Ltd. and has served on other public company boards.

 

Mr. Burney earned a Bachelor of Arts (Honours) and Master of Arts from Queen’s University. He is currently a senior strategic advisor at Ogilvy Renault LLP. Mr. Burney previously served as President and Chief Executive Officer of CAE Inc. and as Chairman and Chief Executive Officer of Bell Canada International Inc. Mr. Burney was the lead director at Shell Canada Limited until May 2007 and is the Chairman of CanWest Global Communications Corp. He has served on one other organization’s audit committee.

 

Mme. Gauthier earned a Bachelor of Arts from the Collège Jésus-Marie de Sillery, a Bachelor of Laws from Laval University and a Master of Laws in Business Law (Intellectual Property) from Laval-University. She has served on the boards of several public companies and other organizations and on the audit committees of certain of those boards.

 

Mr. Joskow earned a Bachelor of Arts with Distinction in Economics from Cornell University, a Masters of Philosophy in Economics from Yale University, and Ph.D. in Economics from Yale University. He is currently the President of the Alfred P. Sloan Foundation and on leave from his position as a Professor of Economics and Management, MIT. He has served on the boards of several public companies and other organizations and on the audit committees of certain of those boards.

 

Mr. MacNaughton earned a Bachelor of Arts in Economics from the University of Western Ontario. Mr. MacNaughton is currently the Chairman of the Business Development Bank of Canada and of Canadian Trading and Quotation System Inc. In prior years, he has held several executive positions including founding President and Chief Executive Officer of the Canadian Pension Plan Investment Board and President of Nesbitt Burns Inc. He is currently the Chair of an audit committee of one other public company.

 


 

TRANSCANADA PIPELINES LIMITED

19

 

The Charter of the Audit Committee can be found in Schedule “C” of this AIF and on TCPL’s website under the Corporate Governance - Board Committees page, at www.transcanada.com.

 

Pre-Approval Policies and Procedures

TCPL’s Audit Committee has adopted a pre-approval policy with respect to permitted non-audit services. Under the policy, the Audit Committee has granted pre-approval for specified non-audit services. For engagements of $25,000 or less which are not within the annual pre-approved limit, approval by the Audit Committee is not required, and for engagements between $25,000 and $100,000, approval of the Audit Committee Chair is required, and the Audit Committee is to be informed of the engagement at the next scheduled Audit Committee meeting. For all engagements of $100,000 or more, pre-approval of the Audit Committee is required. In all cases, regardless of the dollar amount involved, where there is a potential for conflict of interest involving the external auditor to arise on an engagement, the Audit Committee Chair must pre-approve the assignment.

 

To date, TCPL has not approved any non-audit services on the basis of the de-minimis exemptions. All non-audit services have been pre-approved by the Audit Committee in accordance with the pre-approval policy described above.

 

External Auditor Service Fees

The aggregate fees for external auditor services rendered by, KPMG LLP, the External Auditor for the TransCanada group of companies for the 2007 and 2006 fiscal years, are shown in the table below:

 

Fee Category

 

2007

 

2006

 

Description of Fee Category

 

 

(millions of dollars)

 

 

Audit Fees(1)

 

$6.27

 

$6.52

 

Aggregate fees for audit services rendered for the audit of the annual consolidated financial statements or services provided in connection with statutory and regulatory filings or engagements, the review of interim consolidated financial statements and information contained in various prospectuses and other offering documents.

Audit Related Fees

 

0.07

 

0.07

 

Aggregate fees for assurance and related services that are reasonably related to performance of the audit or review of the consolidated financial statements and are not reported as Audit Fees. The nature of services comprising these fees related to the audit of the financial statements of certain pension plans.

Tax Fees

 

0.06

 

0.22

 

Aggregate fees rendered for primarily tax compliance and tax advice. The nature of these services consisted of: tax compliance including the review of income tax returns; and tax items and tax services related to domestic and international taxation including income tax, capital tax and Goods and Services Tax.

All Other Fees

 

0.00

 

0.07

 

Aggregate fees for products and services other than those reported elsewhere in this table. The nature of these services consisted of advice related to compliance with SOX.

Total

 

$6.40

 

$6.88

 

 

 

(1) The disclosure of audit fees paid has been revised to be based on aggregate fees billed during the fiscal year as opposed to aggregate fees for professional services rendered during the fiscal year. For comparison purposes, both the 2007 and the 2006 amounts have been disclosed based on the aggregate fees billed during the year.

 

Other Board Committees

 

In addition to the Audit Committee, TCPL has three other Board committees: the Governance Committee, the Health, Safety and Environment Committee and the Human Resources Committee. Mr. Jackson, the Chair of the Board, is a non-voting member of the Human Resources Committee and the Governance Committee. The voting members of each of these committees, as of Year End, are identified below:

 

Governance Committee

Health, Safety & Environment Committee

Human Resources Committee

Chair:

W.K. Dobson

Chair:

E.L. Draper

Chair:

K.L. Hawkins

Members:

D.H. Burney

Members:

P. Gauthier

Members:

W.K. Dobson

 

P.L. Joskow

 

K.L. Hawkins

 

E.L. Draper

 

J.A. MacNaughton

 

W.T. Stephens

 

D.P. O’Brien

 

D.P. O’Brien

 

D.M.G. Stewart

 

W.T. Stephens

 


 

TRANSCANADA PIPELINES LIMITED

20

 

 

 

The charters of the Governance Committee, the Health, Safety & Environment Committee and the Human Resources Committee can be found on TransCanada’s website under the Corporate Governance - Board Committees page located at www.transcanada.com.

 

Further information about the Board committees and the text of the Charter of the Board of Directors can be found in Schedule “D” and “E”, respectively, attached to this AIF and on TransCanada’s website at www.transcanada.com.

 

Conflicts of Interest

 

Directors and officers of TCPL and its subsidiaries are required to disclose the existence of existing or potential conflicts in accordance with TCPL policies governing directors and officers and in accordance with the Canada Business Corporations Act. Although some of the directors sit on boards or may be otherwise associated with companies that ship natural gas on TCPL’s pipeline systems, TCPL, as a common carrier in Canada, cannot, under its tariff, deny transportation service to a credit-worthy shipper. Further, due to the specialized nature of the industry, TCPL believes that it is important for its Board to be composed of qualified and knowledgeable directors, so some of them must come from oil and gas producers and shippers; the Governance Committee closely monitors relationships among directors to ensure that business associations do not affect the Board’s performance. In a circumstance where a director declares an interest in any material contract or material transaction being considered at a meeting, the director generally absents himself or herself from the meeting during the consideration of the matter, and does not vote on the matter.

 

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

 

As at the date hereof and since the beginning of the most recently completed financial year, no executive officer, director, or former executive officer or director of TCPL or its subsidiaries, no proposed nominee for election as a director of TCPL, or any associate of any such director, executive officer or proposed nominee has been indebted to TCPL or any of its subsidiaries. There is no indebtedness of any such person to another entity that is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by TCPL or any of its subsidiaries.

 

SECURITIES OWNED BY DIRECTORS

 

The following table sets out the number of each class of securities of TCPL or any of its affiliates beneficially owned, directly or indirectly, or over which control or direction is exercised and the number of deferred share units credited to each director, as of February 25, 2008.

 

Director

 

 

TransCanada Common Shares(2)

 

 

Deferred Share Units(1)

 

K. Benson

 

 

3,000

 

 

13,377

 

D. Burney

 

 

1,070

 

 

12,479

 

W. Dobson

 

 

3,000

 

 

33,631

 

E.L. Draper

 

 

0

 

 

13,299

 

P. Gauthier

 

 

1,000

 

 

25,876

 

K. Hawkins(3)

 

 

4,932

 

 

39,346

 

S.B. Jackson

 

 

39,000

 

 

24,366

 

P.L. Joskow

 

 

5,000

 

 

13,809

 

H. Kvisle(4)(5)

 

 

869,297

 

 

N/A

 

J. MacNaughton

 

 

30,000

 

 

8,610

 

D. O’Brien

 

 

19,164

 

 

25,876

 

W. T. Stephens

 

 

1,470

 

 

3,236

 

D.M.G. Stewart(6)

 

 

7,500

 

 

6,156

 

 

(1)         The information as to shares beneficially owned or over which control or direction is exercised, not being within the knowledge of TCPL, has been furnished by each of the nominees. Except as indicated in these notes, the nominees have sole voting and dispositive power with respect to the securities listed above. As to each class of shares of TCPL, its subsidiaries and affiliates, the percentage of outstanding shares beneficially owned by any one director or nominee or by all directors and officers of TCPL as a group does not exceed 1% of the class outstanding.

 

(2)         The value of a deferred share unit is tied to the value of TransCanada’s common shares. A deferred share unit is a bookkeeping entry, equivalent to the value of a TransCanada common share, and does not entitle the holder to voting or other shareholder rights, other than the accrual of additional deferred share units for the value of dividends. A director cannot redeem deferred share units until the director ceases to be a member of the Board. Canadian directors can then redeem their units for cash or shares while U.S. directors can only redeem their units for cash.

 

(3)         The shares listed include 3,500 shares held by Mr. Hawkins’ wife.

 


 

TRANSCANADA PIPELINES LIMITED

21

 

(4)       Securities owned, controlled or directed include common shares that Mr. Kvisle has a right to acquire through the exercise of stock options that are vested under the Stock Option Plan, which is described elsewhere in this AIF. Directors as such do not participate in the Stock Option Plan. Mr. Kvisle, as an employee of TCPL, has the right to acquire 814,981 common shares under vested stock options, which amount is included in this column.

 

(5)         Mr. Kvisle is an employee of TCPL and participates is the ESU program; he does not participate in the DSU program.

 

(6)         The shares listed include 500 shares held by Mr. Stewart’s wife.

 

COMPENSATION OF DIRECTORS

 

Unless as otherwise defined in the following sections, all capitalized terms used from herein shall have the same meaning ascribed to them in TransCanada’s Management Proxy Circular (the “Proxy Circular”), dated February 25, 2008.

 

TransCanada’s directors also serve as directors of TCPL. An aggregate fee is paid for serving on the Boards of TransCanada and TCPL. Since TransCanada does not hold any assets directly, other than the common shares of TCPL and receivables from certain of TransCanada’s subsidiaries, all directors’ costs are assumed by TCPL according to a management services agreement between the two companies. The meetings of the boards and committees of TransCanada and TCPL run concurrently.

 

MINIMUM SHARE OWNERSHIP GUIDELINES

 

The Board believes that directors can more effectively represent the interests of shareholders if they have a significant investment in the common shares of TransCanada, or their economic equivalent. As a result, TCPL requires each director (other than Mr. Kvisle who is subject to executive share ownership guidelines) to acquire and hold a minimum number of common shares of TransCanada, or their economic equivalent, equal in value to five times the director’s annual cash retainer fee. Directors have a maximum of five years to reach this level of ownership. The level of ownership can be achieved by direct purchase of common shares, by participation in the TransCanada Dividend Reinvestment Plan or by means of directing all or a portion of their retainer fees, attendance fees and travel fees into, or otherwise acquiring Deferred Share Units under, the Share Unit Plan for Non-Employee Directors (1998) (the “Deferred Share Unit Plan”), described under the heading “Share Unit Plan for Non-Employee Directors” below.

 

All of the directors have achieved the minimum share ownership.

 

BOARD AND COMMITTEE REMUNERATION

 

TCPL’s director compensation practices are designed to reflect the size and complexity of TCPL and to reinforce the emphasis TCPL places on shareholder value by linking a portion of directors’ compensation to the value of common shares. The market competitiveness of director compensation is assessed against the Comparator Group (as defined in Schedule “F”)under the heading “Executive Compensation and Other Information - Report on Executive Compensation” and a general industry sample of Canadian companies of similar size and scope to TCPL.

 

For the financial year ended December 31, 2007, each director who was not an employee of TCPL, other than the Chair, was paid in quarterly installments in arrears as follows:

 

  Retainer fee

 

 

$30,000 per annum

  Committee retainer fee

 

 

$3,000 per annum

  Committee Chair retainer fee

 

 

$4,000 per annum

  Board and Committee attendance fee

 

 

$1,500 per meeting

  Committee Chair attendance fee

 

 

$1,500 per meeting

 

The Chair, who was paid none of the directors’ fees outlined above, was paid a retainer fee of $330,000 per annum in respect of his duties as Chair, $3,000 per chaired Board meeting, and was reimbursed for certain office and other expenses. Approximately half of Mr. Jackson’s retainer fee for acting as Chair was paid in Deferred Share Units, which was represented by a grant of 5,000 Deferred Share Units. Mr. Jackson also elected to direct the remaining portion of his retainer fee to be paid in Deferred Share Units. Each committee chair is entitled to claim a per diem for time spent on committee activities outside of the committee meetings. Additionally, directors other than the Chair and the CEO receive, in respect of their service as directors, an annual grant of units under the Deferred Share Unit Plan, see “Share Unit Plan for Non-Employee Directors” below for details on this plan. Fees are paid quarterly and are pro-rated from the date of the director’s appointment to the Board and the relevant committees.

 


 

TRANSCANADA PIPELINES LIMITED

22

 

 

 

TCPL pays a travel fee of $1,500 per meeting for which round trip travel time exceeds three hours, and reimburses the directors for out-of-pocket expenses incurred in attending such meetings.

 

Directors who are U.S. residents are paid the same amounts as outlined above in U.S. dollars.

 

Fees Paid to Directors in 2007

 

The following table sets out the total fees paid in cash and the value of the Deferred Share Units awarded or credited for each non-employee director in 2007 as at the date of the grant, unless otherwise stated. Mr. Kvisle, as an employee of TCPL, receives no cash fees or Deferred Share Units as a director.

 

Directors may direct their retainer fees, attendance fees and travel fees to be paid in Deferred Share Units until the minimum share ownership guideline is reached, and are always entitled to direct all or a portion of their retainer fees, attendance fees and travel fees to be paid in Deferred Share Units. In 2007, Mr. Benson, Mr. Burney, Dr. Draper, Mr. Hawkins, Mr. MacNaughton and Mr. Stephens directed all of their retainer fees, attendance fees and travel fees to the Deferred Share Unit Plan. Ms. Gauthier and Mr. O’Brien directed their Board retainer fees to the Deferred Share Unit Plan. In addition, Mr. Jackson directed the cash portion of his Chair retainer fee as well as his Board attendance fee and travel fees to the Deferred Share Unit Plan. For further information on the Deferred Share Unit Plan, see the description under the heading “Share Unit Plan for Non-Employee Directors” below.

 

Name

 

Board
Retainer
Fee

 

 

Committee
Retainer
Fee

 

 

Committee
Chair Retainer
Fee

 

 

Board
Attendance
Fee

 

 

Committee
Attendance
Fee

 

 

Travel
Fee

 

 

Strategic
Planning
Sessions

 

 

Total Fees
Paid in Cash

 

 

Total Value of
DSUs
Credited(2)

 

 

Total Cash &
Value of DSUs
Credited(1)

 

K.E. Benson(3)(4)

 

$30,000

 

 

$3,000

 

 

$2,703

 

 

$13,500

 

 

$16,500

 

 

$12,000

 

 

$1,500

 

 

$0

 

 

$188,523

 

 

$188,523

 

D.H. Burney

 

30,000

 

 

6,000

 

 

N/A

 

 

12,000

 

 

13,500

 

 

7,500

 

 

1,500

 

 

0

 

 

179,820

 

 

179,820

 

W.K. Dobson(3)

 

30,000

 

 

6,000

 

 

4,000

 

 

15,000

 

 

13,500

 

 

6,000

 

 

1,500

 

 

76,000

 

 

109,320

 

 

185,320

 

E.L. Draper(3)(4)

 

30,000

 

 

6,000

 

 

4,000

 

 

15,000

 

 

16,500

 

 

10,500

 

 

1,500

 

 

0

 

 

192,820

 

 

192,820

 

P. Gauthier

 

30,000

 

 

6,000

 

 

N/A

 

 

15,000

 

 

16,500

 

 

7,500

 

 

1,500

 

 

46,500

 

 

139,320

 

 

185,820

 

K.L. Hawkins(3)

 

30,000

 

 

6,000

 

 

4,000

 

 

15,000

 

 

19,500

 

 

10,500

 

 

1,500

 

 

0

 

 

195,820

 

 

195,820

 

S.B. Jackson(5)

 

330,000

 

 

N/A

 

 

N/A

 

 

30,000

 

 

0

 

 

1,500

 

 

3,000

 

 

0

 

 

364,500

 

 

364,500

 

P.L. Joskow(4)

 

30,000

 

 

6,000

 

 

N/A

 

 

15,000

 

 

15,000

 

 

10,500

 

 

1,500

 

 

78,000

 

 

109,320

 

 

187,320

 

J.A. MacNaughton

 

30,000

 

 

6,000

 

 

N/A

 

 

15,000

 

 

16,500

 

 

7,500

 

 

0

 

 

0

 

 

184,320

 

 

184,320

 

D.P. O’Brien

 

30,000

 

 

6,000

 

 

N/A

 

 

13,500

 

 

10,500

 

 

1,500

 

 

1,500

 

 

33,000

 

 

139,320

 

 

172,320

 

H.G. Schaefer(3)(6)

 

12,725

 

 

1,945

 

 

1,296

 

 

7,500

 

 

16,500

 

 

0

 

 

0

 

 

39,967

 

 

0

 

 

39,967

 

W.T. Stephens(4)(7)

 

20,275

 

 

4,055

 

 

N/A

 

 

7,500

 

 

6,000

 

 

6,000

 

 

1,500

 

 

0

 

 

118,210

 

 

118,210

 

D.M.G. Stewart

 

30,000

 

 

3,000

 

 

N/A

 

 

15,000

 

 

9,000

 

 

1,500

 

 

1,500

 

 

60,000

 

 

109,320

 

 

169,320

 

 

(1)        Total Deferred Share Units credited includes the amount of the retainer fees, attendance fees and travel fees elected to be received in Deferred Share Units and the grant of 3,000 Deferred Share Units made in September 2007 to all directors except Mr. Stephens who received 2,000 Deferred Share Units (prorated from April 27, 2007), which had an initial cash value of approximately $36.44 per Deferred Share Unit.

 

(2)        Fees are aggregate amounts respecting duties performed on both TransCanada and TCPL Boards.

 

(3)        The committee chair retainer fee amount includes per diem fees paid in addition to the committee retainer fee in respect of duties performed and meetings held in preparation for committee meetings.

 

(4)        U.S. directors are paid or credited these amounts, including Deferred Share Unit equivalents, based on U.S. dollars.

 

(5)        Mr. Jackson’s Board attendance fee includes the fee of $3,000 in respect of each Board meeting chaired. Approximately half of Mr. Jackson’s retainer fee for acting as Chair was paid in Deferred Share Units, which was represented by a grant of 5,000 Deferred Share Units in September 2007. These Deferred Share Units had an initial cash value of approximately $36.44 per Deferred Share Unit.

 

(6)        Mr. Schaefer’s retainer fee amount includes the fee of $3,000 in respect of duties performed as Vice-Chair from January 1, 2007 to April 27, 2007. Mr. Schaefer retired from the Board on April 27, 2007.

 

(7)        Mr. Stephens was elected to the Board on April 27, 2007. Mr. Stephens previously served on the Board from 2000 to 2005.

 

Share Unit Plan for Non-Employee Directors

 

The Share Unit Plan for Non-Employee Directors (1998) was established in 1998 and was amended and restated effective January 1, 2007. Prior to the January 1, 2007 amendment, the Deferred Share Unit Plan allowed eligible Board members, on a quarterly basis, to direct their annual directors’ retainer fee or, at the discretion of the Governance Committee, other Board related fees, to acquire units representing the right to acquire common shares or their cash equivalent. Subsequent to January 1, 2007, Board members are permitted to elect to receive any portion of their fees (including travel fees) in Deferred Share Units. The Deferred Share Unit Plan also allows the Governance Committee to grant units as additional directors’

 


 

TRANSCANADA PIPELINES LIMITED

23

 

compensation. In September 2007, a grant of 3,000 Deferred Share Units was made to each director other than the Chair, the CEO and Mr. Stephens. As the Chair of the Board, Mr. Jackson received 5,000 Deferred Share Units and Mr. Stephens received 2,000 Deferred Share Units as he joined the Board on April 27, 2007.

 

Initially the value of a Deferred Share Unit is equal to the market value of a common share at the time the directors are credited with the units. Thus each grant of 3,000 Deferred Share Units in September 2007 had an initial cash value of approximately $109,320. Mr. Stephen’s grant of 2,000 units had an initial cash value of approximately $72,880 and Mr. Jackson’s grant of 5,000 units had an initial cash value of approximately $182,200. The value of a Deferred Share Unit, when redeemed, is equivalent to the market value of a common share at the time the redemption takes place. In addition, at the time dividends are declared and paid on the common shares, each Deferred Share Unit accrues an amount equal to such dividends, which amount is then reinvested in additional Deferred Share Units at a price equal to the then market value of a common share. Deferred Share Units cannot be redeemed until the director ceases to be a member of the Board. Canadian directors may redeem for cash or common shares at their option. U.S. directors may only redeem for cash.

 

EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

Information relating to TCPL’s executive compensation and other information is provided in Schedule “F” to this AIF. The information is excerpts from TransCanada’s Proxy Circular. Board and committee meetings of TransCanada and TCPL run concurrently. TCPL is the principal operating subsidiary of TransCanada.

 

ADDITIONAL INFORMATION

 

1.               Additional information in relation to TCPL may be found under TCPL’s profile on SEDAR at www.sedar.com.

 

2.              Additional financial information is provided in TCPL’s audited consolidated financial statements and MD&A for its most recently completed financial year.

 


 

TRANSCANADA PIPELINES LIMITED

24

 

 

 

GLOSSARY

 

AIF

 

Annual Information Form of TransCanada PipeLines Limited dated February 25, 2008

 

HS&E

 

Health, Safety and Environment

Alberta System

 

A natural gas transmission system throughout the province of Alberta

 

Iroquois System

 

A natural gas pipeline system in New York and Connecticut

ANR

 

American Natural Resources Company and ANR Storage Company

 

LNG

 

Liquefied Natural Gas

ANR Purchase and Sale Agreement

 

An agreement between TransCanada and El Paso Corporation, dated December 22, 2006, whereby TransCanada agreed to acquire ANR from El Paso Corporation

 

MD&A

 

TCPL’S Management’s Discussion and Analysis dated February 25, 2008

ANR System

 

A natural gas transmission system which extends approximately 17,000 km from producing fields in Louisiana, Oklahoma, Texas and the Gulf of Mexico to markets in Wisconsin, Michigan, Illinois, Ohio and Indiana

 

mmcf/d

 

Million cubic feet per day

AUC

 

Alberta Utilities Commission

 

MW

 

Megawatts

Bcf

 

Billion cubic feet

 

NBPL

 

Northern Border Pipeline Company

Bécancour

 

A power plant near Trois-Rivieères, Québec

 

NBPL System

 

A natural gas transmission system located in the upper midwestern portion of the U.S.

Board

 

TCPL’s Board of Directors

 

NEB

 

National Energy Board

Broadwater

 

A proposed offshore LNG facility in Long Island Sound, New York

 

Noarth Baja

 

A natural gas pipeline in southern California

Bruce A

 

Bruce Power A L.P.

 

NOVA

 

NOVA Corporation

Bruce B

 

Bruce Power L.P.

 

NYSE

 

New York Stock Exchange

Cacouna

 

The Cacouna Energy LNG facility in Cacouna, Québec

 

Portland

 

A natural gas pipeline that runs through Maine and New Hampshire into Massachusetts

Canadian Mainline

 

A natural gas pipeline system running from the Alberta border east to delivery points in eastern Canada and along the U.S. border

 

PPA

 

Power Purchase Arrangement

CAPLA

 

Canadian Alliance of Pipeline Landowner’s Association

 

Proxy Circular

 

TransCanda’s Management Proxy Circular dated February 25, 2008

Cartier Wind Energy Project

 

Six wind energy projects contracted by Hydro-Québec Distribution representing a total of 740 MW in the Gaspé region of Québec

 

Sheerness

 

A power plant consisting of two 390 MW coal-fired thermal powered generating units

CSA

 

Canadian Securities Administrators

 

Shell

 

Shell US Gas & Power LLC

EUB

 

Alberta Energy and Utilities Board

 

SOX

 

U.S. Sarbanes-Oxley Act of 2002

External Auditors

 

KPMG LLP

 

Sundance

 

Two coal fired electrical generating facilities which produce 560 MW and 706 MW, respectively.

FEIS

 

Final Environment Impact Statement

 

TCPL or the Company

 

TransCanada PipeLines Limited

FERC

 

Federal Energy Regulatory Commission (USA)

 

TQM

 

Trans Québec & Maritimes Pipeline Inc.

Framework

 

The Regulatory Framework for Air Emissions

 

TransCanada

 

TransCanda Corporation

Foothills System

 

A natural gas pipeline system in southeastern B.C., southern Alberta and southwestern Saskatchewan

 

TSX

 

Toronto Stock Exchange

GTNC

 

Gas Transmission Northwest Corporation

 

Tuscarora

 

Tuscarora Gas Transmission Company

GTN System

 

A natural gas transmission system running from northwestern Idaho, through Washington and Oregon to the California border

 

Tuscarora System.

 

A natural gas pipeline that runs from Oregon through northeast California to Reno, Nevada

Great Lakes

 

Great Lakes Gas Transmission Limited Partnership

 

U.S.

 

United States

Great Lakes System

 

A natural gas pipeline system in the north central U.S., roughly parallel to the Canada-U.S. Border

 

Year End

 

December 31, 2007

GUA

 

Gas Utilities Act (Alberta)

 

 

 

 

 


 

TRANSCANADA PIPELINES LIMITED

25

 

 

SCHEDULE “A”

 

METRIC CONVERSION TABLE

 

The conversion factors set out below are approximate factors. To convert from Metric to Imperial multiply by the factor indicated. To convert from Imperial to Metric divide by the factor indicated.

 

  Metric

 

 

Imperial

 

 

Factor

  Kilometres (km)

 

 

Miles

 

 

0.62

  Millimetres

 

 

Inches

 

 

0.04

  Gigajoules

 

 

Million British thermal units

 

 

0.95

  Cubic metres*

 

 

Cubic feet

 

 

35.3

  Kilopascals

 

 

Pounds per square inch

 

 

0.15

  Degrees Celsius

 

 

Degrees Fahrenheit

 

 

to convert to Fahrenheit multiply by 1.8,

then add 32 degrees; to convert to Celsius

subtract 32 degrees, then divide by 1.8

 

*                                          The conversion is based on natural gas at a base pressure of 101.325 kilopascals and at a base temperature of 15 degrees Celsius.

 

TRANSCANADA PIPELINES LIMITED

26

 

 

 

SCHEDULE “B”

 

DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

 

The Board and the members of TCPL’s management are committed to the highest standards of corporate governance. TCPL’s corporate governance practices comply with the governance rules of the Canadian Securities Administrators (“CSA”), those of the New York Stock Exchange (“NYSE”) applicable to foreign issuers and of the U.S. Securities and Exchange Commission (“SEC”), and those mandated by the United States Sarbanes Oxley Act of 2002 (“SOX”). As a non-U.S. company, TCPL is not required to comply with most of the NYSE corporate governance listing standards; however, except as summarized on its website at www.transcanada.com, the governance practices followed are in compliance with the NYSE standards for U.S. companies in all significant respects. TCPL is in compliance with the CSA’s Multilateral Instrument 52-110 pertaining to audit committees (“Canadian Audit Committee Rules”); National Policy 58-201, Corporate Governance Guidelines; and National Instrument 58-101, Disclosure of Corporate Governance Practices (collectively, the “Canadian Governance Guidelines”). TCPL’s principal objective in directing and managing its business and affairs is to enhance shareholder value. TCPL believes that effective corporate governance improves corporate performance and benefits all shareholders. TCPL also believes that director, management and employee honesty and integrity are vital factors in ensuring good corporate governance. The discussion that follows relates primarily to the Canadian Governance Guidelines and highlights various elements of the Company’s corporate governance program. It has been approved by the Governance Committee and by the Board.

 

Board of Directors

 

The Board believes that, as a matter of policy, there should be a majority of independent directors on TCPL’s Board. The Board is charged with making this determination. The Board is currently comprised of 13 directors, of whom 11 (85%) were determined by the Board in 2007 to be independent directors. Thirteen nominees are being put forward for election at the Meeting, 11 (85%) of whom have been determined by the Board to be independent. The Board annually determines the independent status of each of its members and each nominee for election, based on a written set of criteria developed in accordance with the definition of “independent” in the Canadian Audit Committee Rules and the Canadian Governance Guidelines. The independence criteria also conforms with the applicable rules of the SEC, the NYSE and those set out under SOX. The Board has determined that none of the nominees for director, with the exception of Mr. Kvisle and Mr. Stewart, have a direct or indirect material relationship with TCPL that could interfere with their ability to act in the best interests of TCPL.

 

Mr. Kvisle, as the President and CEO of TCPL, is not independent. Mr. Stewart was determined not to be independent as the company of which he is the sole shareholder provided consulting services to TCPL and received more than $75,000 in compensation during the 2005 financial year. Mr. Stewart’s consulting contract terminated on December 31, 2005 and, assuming no other factors affect his status as an independent director, he will be considered independent on November 1, 2008.

 

The Governance Committee reviews, at least annually, the existence of any relationship between each director and TCPL to ensure that the majority of directors are independent of TCPL.

 

Further, the Board considered whether directors serving on boards of non-profit organizations which receive donations from TCPL pose any potential conflict. The Board determined that such relationships, where they exist, do not interfere with any such director’s ability to act in the best interests of TCPL, as all decisions on making donations to non-profit organizations are made by a management committee on which no directors serve. The Board also considered family relationships and possible associations with companies which have relationships with TCPL, in its determination of independence.

 

Although some of the proposed nominees sit on boards or may be otherwise associated with companies that ship natural gas on TCPL’s pipeline systems, TCPL as a common carrier in Canada cannot, under its tariff, deny transportation service to a credit-worthy shipper. Further, due to the specialized nature of the industry, TCPL believes that it is important for its Board to be composed of qualified and knowledgeable directors, so some of them must come from oil and gas producers and shipper community; the Governance Committee closely monitors relationships among directors to ensure that business associations do not affect the Board’s performance. In a circumstance where a director declares an interest in any material contract or material transaction being considered at a meeting, the director generally absents himself or herself from the meeting during the consideration of the matter, and does not vote on the matter.

 

All reporting issuers of which the nominees are presently directors of are set out in the table in TransCanada’s Proxy Circular under the heading “Business to be Transacted at the Meeting - Election of Directors – Other Public Entity Directorships and Committee Memberships”.

 

In 2007, independent directors of the Board met separately after every regularly scheduled meeting. There were seven such meetings during 2007.

 

Mr. Jackson has served as the Chair of TCPL since April 30, 2005. He has also acted as chair-person for Deer Creek Energy Limited (from 2001 to 2005) and Resolute Energy Inc. (from 2002 to 2005).

 


 

TRANSCANADA PIPELINES LIMITED

27

 

The attendance record of each director for all Board and committee meetings held for the 12-month period ending December 31, 2007 is set out with each director’s biography in TransCanada’s Proxy Circular under the heading “Business to be Transacted at the Meeting - Election of Directors”.

 

Board Mandate

 

The Board discharges its responsibilities directly and through committees. At regularly scheduled meetings, members of the Board and management discuss a broad range of issues relevant to TCPL’s strategy and business interests and the Board is responsible for the approval of TCPL’s strategic plan. In addition, the Board receives reports from management on TCPL’s operational and financial performance. The Board had seven scheduled meetings in 2007. Unscheduled meetings are held from time to time as required; there were three unscheduled meetings of the Board in 2007. There was also four strategic issue sessions and one full-day strategic planning session of the Board held in 2007.

 

The Board operates under a written charter while retaining plenary power. Any responsibility not delegated to management or a committee of the Board remains with the Board. The Charter of the Board of Directors addresses Board composition and organization, and the Board’s duties and responsibilities for managing the affairs of TCPL and its oversight responsibilities with respect to: management and human resources; strategy and planning; financial and corporate issues; business and risk management; policies and procedures; compliance reporting and corporate communications; and general legal obligations of TCPL. The charter is available on TransCanada’s website at www.transcanada.com and is attached to this TCPL’s AIF under Schedule “E”.

 

The Board also closely oversees any potential conflicts of interest between the Company and its affiliates including TC PipeLines, LP, a public limited partnership.

 

Charters have been adopted for each of the committees outlining their principal responsibilities. The Board and each committee reviews its charter annually to ensure it is in line with the current developments in corporate governance. The Board and each committee is responsible to update its respective charter. All charters are available on TransCanada’s website at www.transcanada.com.

 

Position Descriptions

 

The Board has developed written position descriptions for its chair, the chair of each of the Board committees and for the CEO. The responsibilities of each committee chair are set out in each respective committee’s Charter. The written position descriptions and the committee charters are available on TransCanada’s website at www.transcanada.com.

 

The Human Resources Committee and the Board annually review and approve the CEO’s personal performance objectives and review with him his performance against the previous year’s objectives. The Human Resources Committee’s report on executive compensation can be found in TCPL’s AIF under Schedule “F” under the heading “Executive Compensation and Other Information - Report on Executive Compensation”.

 

Orientation and Continuing Education

 

New directors are provided with an orientation and education program that includes a directors’ manual containing information about the duties and obligations of directors, the business and operations of TransCanada, copies of governance charters, copies of past public filings and documents from recent Board meetings. New directors are given additional historical and financial information, a session on corporate strategy, are provided opportunities to visit TransCanada’s facilities and project sites, and are provided with opportunities for meetings and discussions with the executive leadership team and other directors. Briefing sessions are also held for new committee members, as appropriate. The directors’ manual and the director induction and continuing education process are reviewed annually by the Governance Committee. The details of the orientation of each new director are tailored to each director’s individual needs and expressed areas of interest.

 

Senior management as well as external experts make presentations to the Board and to its committees periodically on various business-related topics and on changes in legal, regulatory and industry requirements. Directors tour certain TransCanada operating facilities and project sites on an annual basis. TransCanada encourages continuing education for its directors, periodically suggests programs which may be relevant to the directors and provides funding for director education where appropriate. All Canadian directors are members of the Canadian Institute of Corporate Directors which provides another source of director education.

 


 

TRANSCANADA PIPELINES LIMITED

28

 

 

 

Ethical Business Conduct

 

The Board has formally adopted and published a set of Corporate Governance Guidelines, which affirms TCPL’s commitment to maintaining a high standard of corporate governance. The guidelines address the structure and composition of the Board and its committees and also provide guidance to both the Board and management in clarifying their respective responsibilities. The Board’s strengths include: an independent, non-executive Chair; well informed and experienced directors who ensure that standards exist to promote ethical behaviour throughout TCPL; an effective board size; alignment with shareholders through director share ownership requirements; and annual assessments of Board, committee and individual director effectiveness. TransCanada’s Corporate Governance Guidelines are available on TransCanada’s website at www.transcanada.com.

 

The Board has also adopted a code of business ethics for directors which incorporates as its basis, principles of good conduct and highly ethical behaviour. TCPL has adopted codes of business ethics for its employees and one applicable to its CEO, Chief Financial Officer and Controller, all of which must be certified on an annual basis. Compliance with the Company’s various codes is monitored by the Audit Committee and reported to the Board. Any waiver of the codes of business ethics by executive officers or directors must be approved by the Board or appropriate committee and disclosed.  There have been no material departures from these codes in 2007. TCPL’s codes of business ethics may be viewed on TransCanada’s website at www.transcanada.com.

 

In a circumstance where a director declares an interest in any material contract or material transaction being considered at a meeting, the director generally absents himself or herself from the meeting during the consideration of the matter, and does not vote on the matter.

 

Nomination of Directors

 

The Governance Committee, which is composed entirely of independent directors, is responsible for proposing new nominees to the Board, which in turn is responsible for identifying suitable candidates for election by the shareholders. The Governance Committee annually reviews the qualifications of persons proposed for election to the Board and submits its recommendations to the Board for consideration. The objective of this review is to maintain the composition of the Board in a way that provides the best mix of skills and experience to guide the long-term strategy and ongoing business operations of TCPL. New nominees must have experience in the industries in which TCPL participates or experience in general business management of corporations that are a similar size and scope to TCPL, the ability to devote the time required, and a willingness to serve. The Governance Committee also advises the Board on the criteria for, and determination of, the independence of each director.

 

The Governance Committee maintains a matrix of skills and requirements and periodically assesses the skill set of the current Board members to identify necessary skills and backgrounds for Board candidates. The Governance Committee also maintains a list of potential candidates for its future consideration.

 

The Board has determined that no person shall stand for election or re-election to the Board if he or she attains the age of 70 years on or before the date of the annual meeting held in relation to the election of directors; provided however, that if a director attains the age of 70 before serving a full seven consecutive years on the Board, that director may stand for re-election, upon the recommendation of the Board each year until that director has served a full seven years on the Board.

 

Further information relating to the Governance Committee can be found in TCPL’s AIF under Schedule “D”, under the heading “Description of Board Committees and Their Charters - Governance Committee”.

 

Compensation

 

The Governance Committee reviews the compensation of the directors on an annual basis, taking into account such matters as time commitment, responsibility, and compensation provided by comparable companies, and makes an annual recommendation to the Board for consideration. Towers Perrin provides an annual report on directors’ compensation paid by comparable companies to facilitate the Governance Committee’s review of director compensation. Directors may receive their annual retainer, committee and/or chair fees in the form of cash and/or Deferred Share Units. With the exception of Mr. Kvisle, who follows the Share Ownership Guidelines for executives, Directors must hold a minimum of five times their annual cash retainer fee in common shares or related Deferred Share Units of TransCanada. Directors have a maximum of five years from the time they join the Board to reach this level of share ownership. The value of ownership levels is recalibrated when the annual cash retainer is increased.

 

The Human Resources Committee, which is composed entirely of independent directors, is accountable, on behalf of the Board to determine the compensation for the executive officers of TCPL and to recommend to the Board the remuneration package for the CEO. The Human Resources Committee reviews the executive compensation disclosure prior to publicly disclosing this information. The process the Human Resources Committee uses for these determinations can be found in TCPL’s AIF under Schedule “F” under the heading “Executive Compensation and Other Information - Report on Executive Compensation”.

 


 

TRANSCANADA PIPELINES LIMITED

29

 

Further information relating to the Human Resources Committee can be found in TCPL’s AIF under Schedule “D” under the heading “Description of Board Committees and Their Charters - Human Resources Committee”.

 

Information relating to compensation consulting services provided by Towers Perrin during the 2007 financial year can be found in TCPL’s AIF under Schedule “F” under the heading “Executive Compensation and Other Information - Report on Executive Compensation - Executive Compensation Advisory Services”.

 

Other Board Committees

 

The Board has the following Committees: Audit; Health, Safety and Environment; Governance; and Human Resources. Details relating to these committees can be found in TCPL’s AIF under Schedule “D” under the heading “Description of Board Committees and Their Charters”.

 

Assessments

 

The Governance Committee is responsible for making an annual assessment of the overall performance of the Board, its committees and its individual members, and reporting its findings to the Board. An annual questionnaire is utilized as part of this process. This questionnaire is circulated to each of the directors and is administered by the Corporate Secretary.

 

The questionnaire examines the effectiveness of the Board as a whole, and of each committee, and solicits input on areas of potential vulnerability or areas that the members believe could be improved or enhanced to ensure the continued effectiveness of the Board and its committees. The questionnaire also includes questions regarding personal and peer individual performance. Each committee also conducts an annual self-assessment, based on specific questions in the annual questionnaire. Responses are provided to the Chair and collated results are distributed to directors and discussed at the Board.

 

The annual questionnaire and individual director’s terms of reference are then used in the evaluation of the contribution of individual directors. Formal interviews with each director and each member of TCPL’s executive leadership team are carried out annually by the Chair. The Chair of the Governance Committee also interviews each director annually on his or her assessment of the Chair’s performance. Each of these assessments are reported annually to the full Board. One outcome of this process in the past year was a streamlining of the meeting schedule to make more effective use of directors’ time.

 

TCPL believes that due to the specialized nature of the industry, it is important for its Board to be composed of qualified and knowledgeable directors. During the last year, all directors demonstrated a strong commitment to their roles and responsibilities through an average 97% overall attendance rate at Board meetings and an average 99% attendance.

 

Financial Literacy of Directors

 

The Board has determined that all of the members of its Audit Committee are financially literate. An individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by TCPL’s financial statements.

 

Majority Voting for Directors

 

TransCanada has adopted a policy whereby, at any meeting where the number of nominees for election is the same as the number of director positions on the Board, if proxy votes withheld for the election of any particular director are greater than 5% of the votes cast by proxy, a ballot pertaining to the election of each of the directors will be held at that meeting. A director is required to tender his resignation if the director receives more votes “withheld” than “for” that director’s election when such ballot is held. In the absence of extenuating circumstances, the Board is expected to accept that resignation within 90 days. The Board may fill a vacancy in accordance with TransCanada’s by-laws and the Canada Business Corporations Act. The policy does not apply in the event of a proxy contest with respect to the election of directors. This policy is part of TransCanada’s Corporate Governance Guidelines which are published on its website at www.transcanada.com.

 



 

TRANSCANADA PIPELINES LIMITED

30

 

 

 

SCHEDULE “C”

 

CHARTER OF THE AUDIT COMMITTEE

 

1.                                      Purpose

 

The Audit Committee shall assist the Board of Directors (the ”Board”) in overseeing and monitoring, among other things, the:

 

·                  Company’s financial accounting and reporting process;

 

·                  integrity of the financial statements;

 

·                  Company’s internal control over financial reporting;

 

·                  external financial audit process;

 

·                  compliance by the Company with legal and regulatory requirements; and

 

·                  independence and performance of the Company’s internal and external auditors.

 

To fulfill its purpose, the Audit Committee has been delegated certain authorities by the Board of Directors that it may exercise on behalf of the Board.

 

2.                                      Roles and Responsibilities

 

I.                                        Appointment of the Company’s External Auditors

 

Subject to confirmation by the external auditors of their compliance with Canadian and U.S. regulatory registration requirements, the Audit Committee shall recommend to the Board the appointment of the external auditors, such appointment to be confirmed by the Company’s shareholders at each annual meeting. The Audit Committee shall also recommend to the Board the compensation to be paid to the external auditors for audit services and shall pre-approve the retention of the external auditors for any permitted non-audit service and the fees for such service. The Audit Committee shall also be directly responsible for the oversight of the work of the external auditor (including resolution of disagreements between management and the external auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The external auditor shall report directly to the Audit Committee.

 

The Audit Committee shall also receive periodic reports from the external auditors regarding the auditors’ independence, discuss such reports with the auditors, consider whether the provision of non-audit services is compatible with maintaining the auditors’ independence and the Audit Committee shall take appropriate action to satisfy itself of the independence of the external auditors.

 

II.                                   Oversight in Respect of Financial Disclosure

 

The Audit Committee, to the extent it deems it necessary or appropriate, shall:

 

(a)          review, discuss with management and the external auditors and recommend to the Board for approval, the Company’s audited annual financial statements, annual information form including management discussion and analysis, all financial statements in prospectuses and other offering memoranda, financial statements required by regulatory authorities, all prospectuses and all documents which may be incorporated by reference into a prospectus, including without limitation, the annual proxy circular, but excluding any pricing supplements issued under a medium term note prospectus supplement of the Company;

 

(b)                                 review, discuss with management and the external auditors and recommend to the Board for approval the release to the public of the Company’s interim reports, including the financial statements, management discussion and analysis and press releases on quarterly financial results;

 


 

TRANSCANADA PIPELINES LIMITED

31

 

(c)          review and discuss with management and external auditors the use of “pro forma” or “adjusted” non-GAAP information and the applicable reconciliation;

 

(d)                                 review and discuss with management and external auditors financial information and earnings guidance provided to analysts and rating agencies; provided, however, that such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made). The Audit Committee need not discuss in advance each instance in which the Company may provide earnings guidance or presentations to rating agencies;

 

(e)                                  review with management and the external auditors major issues regarding accounting and auditing principles and practices, including any significant changes in the Company’s selection or application of accounting principles, as well as major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies that could significantly affect the Company’s financial statements;

 

(f)                                    review and discuss quarterly reports from the external auditors on:

 

(i)                                     all critical accounting policies and practices to be used;

 

(ii)         all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the external auditor;

 

(iii)        other material written communications between the external auditor and management, such as any management letter or schedule of unadjusted differences;

 

(g)                                 review with management and the external auditors the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements;

 

(h)                                 review with management, the external auditors and, if necessary, legal counsel, any litigation, claim or contingency, including tax assessments, that could have a material effect upon the financial position of the Company, and the manner in which these matters have been disclosed in the financial statements;

 

(i)                                     review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the periodic reports filed with securities regulators about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls;

 

(j)                                     discuss with management the Company’s material financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.

 

III.                              Oversight in Respect of Legal and Regulatory Matters

 

(a)          review with the Company’s General Counsel legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies.

 

IV.                               Oversight in Respect of Internal Audit

 

(a)          review the audit plans of the internal auditors of the Company including the degree of coordination between such plan and that of the external auditors and the extent to which the planned audit scope can be relied upon to detect weaknesses in internal control, fraud or other illegal acts;

 

(b)                                 review the significant findings prepared by the internal auditing department and recommendations issued by the Company or by any external party relating to internal audit issues, together with management’s response thereto;

 

(c)                                  review compliance with the Company’s policies and avoidance of conflicts of interest;

 


 

TRANSCANADA PIPELINES LIMITED

32

 

 

 

(d)          review the adequacy of the resources of the internal auditor to ensure the objectivity and independence of the internal audit function, including reports from the internal audit department on its audit process with associates and affiliates;

 

(e)          ensure the internal auditor has access to the Chair of the Audit Committee and of the Board and to the Chief Executive Officer and meet separately with the internal auditor to review with him any problems or difficulties he may have encountered and specifically:

 

(i)                                     any difficulties which were encountered in the course of the audit work, including restrictions on the scope of activities or access to required information, and any disagreements with management;

 

(ii)                                  any changes required in the planned scope of the internal audit; and

 

(iii)                               the internal audit department responsibilities, budget and staffing;

 

and to report to the Board on such meetings;

 

(f)                                    bi-annually review officers’ expenses and aircraft usage reports.

 

V.                                    Insight in Respect of the External Auditors

 

(a)                                  review the annual post-audit or management letter from the external auditors and management’s response and follow-up in respect of any identified weakness, inquire regularly of management and the external auditors of any significant issues between them and how they have been resolved, and intervene in the resolution if required;

 

(b)                                 review the quarterly unaudited financial statements with the external auditors and receive and review the review engagement reports of external auditors on unaudited financial statements of the Company;

 

(c)          receive and review annually the external auditors’ formal written statement of independence delineating all relationships between itself and the Company;

 

(d)                                 meet separately with the external auditors to review with them any problems or difficulties the external auditors may have encountered and specifically:

 

(i)                                     any difficulties which were encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information, and any disagreements with management; and

 

(ii)                                  any changes required in the planned scope of the audit;

 

and to report to the Board on such meetings;

 

(e)                                  review with the external auditors the adequacy and appropriateness of the accounting policies used in preparation of the financial statements;

 

(f)                                    meet with the external auditors prior to the audit to review the planning and staffing of the audit;

 

(g)                                 receive and review annually the external auditors’ written report on their own internal quality control procedures; any material issues raised by the most recent internal quality control review, or peer review, of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, and any steps taken to deal with such issues;

 

(h)                                 review and evaluate the external auditors, including the lead partner of the external auditor team;

 

(i)          ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law.

 


 

TRANSCANADA PIPELINES LIMITED

33

 

VI.                               Oversight in Respect of Audit and Non-Audit Services

 

(a)          pre-approve all audit services (which may entail providing comfort letters in connection with securities underwritings) and all permitted non-audit services, other than non-audit services where:

 

(i)                                     the aggregate amount of all such non-audit services provided to the Company constitutes not more than 5% of the total fees paid by the Company and its subsidiaries to the external auditor during the fiscal year in which the non-audit services are provided;

 

(ii)         such services were not recognized by the Company at the time of the engagement to be non-audit services; and

 

(iii)        such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee to whom authority to grant such approvals has been delegated by the Audit Committee;

 

(b)                                 approval by the Audit Committee of a non-audit service to be performed by the external auditor shall be disclosed as required under securities laws and regulations;

 

(c)                                  the Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals required by this subsection. The decisions of any member to whom authority is delegated to pre-approve an activity shall be presented to the Audit Committee at its first scheduled meeting following such pre-approval;

 

(d)                                 if the Audit Committee approves an audit service within the scope of the engagement of the external auditor, such audit service shall be deemed to have been pre-approved for purposes of this subsection.

 

VII.                          Oversight in Respect of Certain Policies

 

(a)                                  review and recommend to the Board for approval policy changes and program initiatives deemed advisable by management or the Audit Committee with respect to the Company’s codes of business conduct and ethics;

 

(b)         obtain reports from management, the Company’s senior internal auditing executive and the external auditors and report to the Board on the status and adequacy of the Company’s efforts to ensure its businesses are conducted and its facilities are operated in an ethical, legally compliant and socially responsible manner, in accordance with the Company’s codes of business conduct and ethics;

 

(c)                                  establish a non-traceable, confidential and anonymous system by which callers may ask for advice or report any ethical or financial concern, ensure that procedures for the receipt, retention and treatment of complaints in respect of accounting, internal controls and auditing matters are in place, and receive reports on such matters as necessary;

 

(d)                                 annually review and assess the adequacy of the Company’s public disclosure policy;

 

(e)                                  review and approve the Company’s hiring policies for employees or former employees of the external auditors (recognizing the Sarbanes-Oxley Act of 2002 does not permit the CEO, controller, CFO or chief accounting officer to have participated in the Company’s audit as an employee of the external auditors’ during the preceding one-year period) and monitor the Company’s adherence to the policy.

 

VIII.                     Oversight in Respect of Financial Aspects of the Company’s Pension Plans, specifically:

 

(a)                                  provide advice to the Human Resources Committee on any proposed changes in the Company’s pension plans in respect of any significant effect such changes may have on pension financial matters;

 

(b)                                 review and consider financial and investment reports and the funded status relating to the Company’s pension plans and recommend to the Board on pension contributions;

 

(c)          receive, review and report to the Board on the actuarial valuation and funding requirements for the Company’s pension plans;

 


 

TRANSCANADA PIPELINES LIMITED

34

 

 

 

(d)                                 review and approve annually the Statement of Investment Policies and Procedures (“SIP&P”);

 

(e)                                  approve the appointment or termination of auditors and investment managers.

 

IX.                               Oversight in Respect of Internal Administration

 

(a)                                  review annually the reports of the Company’s representatives on certain audit committees of subsidiaries and affiliates of the Company and any significant issues and auditor recommendations concerning such subsidiaries and affiliates;

 

(b)                                 review the succession plans in respect of the Chief Financial Officer, the Vice President, Risk Management and the Director, Internal Audit;

 

(c)                                  review and approve guidelines for the Company’s hiring of employees or former employees of the external auditors who were engaged on the Company’s account.

 

X.                                    Oversight Function

 

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate or are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the external auditors. The Audit Committee, its Chair and any of its members who have accounting or related financial management experience or expertise, are members of the Board, appointed to the Audit Committee to provide broad oversight of the financial disclosure, financial risk and control related activities of the Company, and are specifically not accountable nor responsible for the day to day operation of such activities. Although designation of a member or members as an “audit committee financial expert” is based on that individual’s education and experience, which that individual will bring to bear in carrying out his or her duties on the Audit Committee, designation as an “audit committee financial expert” does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and Board in the absence of such designation. Rather, the role of any audit committee financial expert, like the role of all Audit Committee members, is to oversee the process and not to certify or guarantee the internal or external audit of the Company’s financial information or public disclosure.

 

3.                                      Composition of Audit Committee

 

The Audit Committee shall consist of three or more Directors, a majority of whom are resident Canadians (as defined in the Canada Business Corporations Act), and all of whom are unrelated and/or independent for the purposes of applicable Canadian and U.S. securities law and applicable rules of any stock exchange on which the Company’s shares are listed. Each member of the Audit Committee shall be financially literate and at least one member shall have accounting or related financial management expertise (as those terms are defined from time to time under the requirements or guidelines for audit committee service under securities laws and the applicable rules of any stock exchange on which the Company’s securities are listed for trading or, if it is not so defined as that term is interpreted by the Board in its business judgment).

 

4.                                      Appointment of Audit Committee Members

 

The members of the Audit Committee shall be appointed by the Board from time to time, on the recommendation of the Governance Committee and shall hold office until the next annual meeting of shareholders or until their successors are earlier appointed or until they cease to be Directors of the Company.

 


 

TRANSCANADA PIPELINES LIMITED

35

 

5.                                      Vacancies

 

Where a vacancy occurs at any time in the membership of the Audit Committee, it may be filled by the Board on the recommendation of the Governance Committee.

 

6.                                      Audit Committee Chair

 

The Board shall appoint a Chair of the Audit Committee who shall:

 

(a)                                  review and approve the agenda for each meeting of the Audit Committee and as appropriate, consult with members of management;

 

(b)                                 preside over meetings of the Audit Committee;

 

(c)                                  report to the Board on the activities of the Audit Committee relative to its recommendations, resolutions, actions and concerns; and

 

(d)                                 meet as necessary with the internal and external auditors.

 

7.                                      Absence of Audit Committee Chair

 

If the Chair of the Audit Committee is not present at any meeting of the Audit Committee, one of the other members of the Audit Committee present at the meeting shall be chosen by the Audit Committee to preside at the meeting.

 

8.                                      Secretary of Audit Committee

 

The Corporate Secretary shall act as Secretary to the Audit Committee.

 

9.                                      Meetings

 

The Chair, or any two members of the Audit Committee, or the internal auditor, or the external auditors, may call a meeting of the Audit Committee. The Audit Committee shall meet at least quarterly. The Audit Committee shall meet periodically with management, the internal auditors and the external auditors in separate executive sessions.

 

10.                               Quorum

 

A majority of the members of the Audit Committee, present in person or by telephone or other telecommunication device that permit all persons participating in the meeting to speak to each other, shall constitute a quorum.

 

11.                               Notice of Meetings

 

Notice of the time and place of every meeting shall be given in writing or facsimile communication to each member of the Audit Committee at least 24 hours prior to the time fixed for such meeting; provided, however, that a member may in any manner waive a notice of a meeting. Attendance of a member at a meeting is a waiver of notice of the meeting, except where a member attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

 

12.                               Attendance of Company Officers and Employees at Meeting

 

At the invitation of the Chair of the Audit Committee, one or more officers or employees of the Company may attend any meeting of the Audit Committee.

 


 

TRANSCANADA PIPELINES LIMITED

36

 

 

 

13.                               Procedure, Records and Reporting

 

The Audit Committee shall fix its own procedure at meetings, keep records of its proceedings and report to the Board when the Audit Committee may deem appropriate but not later than the next meeting of the Board.

 

14.                               Review of Charter and Evaluation of Audit Committee

 

The Audit Committee shall review its Charter annually or otherwise, as it deems appropriate, and if necessary propose changes to the Governance Committee and the Board. The Audit Committee shall annually review the Audit Committee’s own performance.

 

15.                               Outside Experts and Advisors

 

The Audit Committee is authorized, when deemed necessary or desirable, to retain independent counsel, outside experts and other advisors, at the Company’s expense, to advise the Audit Committee or its members independently on any matter.

 

16.                               Reliance

 

Absent actual knowledge to the contrary (which shall be promptly reported to the Board), each member of the Audit Committee shall be entitled to rely on (i) the integrity of those persons or organizations within and outside the Company from which it receives information, (ii) the accuracy of the financial and other information provided to the Audit Committee by such persons or organizations and (iii) representations made by Management and the external auditors, as to any information technology, internal audit and other non-audit services provided by the external auditors to the Company and its subsidiaries.

 

TRANSCANADA PIPELINES LIMITED

 

37

 

SCHEDULE “D”

 

DESCRIPTION OF BOARD COMMITTEES AND THEIR CHARTERS

 

The Board has four standing committees: the Audit Committee; the Governance Committee; the Health, Safety and Environment Committee; and the Human Resources Committee. The Board does not have an Executive Committee. The Audit, Human Resources and Governance committees are required to be composed entirely of independent directors. The Health, Safety and Environment Committee is required to have a majority of independent directors.

 

Each of the committees has the authority to retain advisors to assist in the discharge of its respective responsibilities. Each of the committees reviews its respective charter at least annually and, as required, recommends changes to the Governance Committee and to the Board. Each of the committees also reviews its respective performance annually.

 

Each of the committees has a charter; the committee charters are published on TransCanada’s website at www.transcanada.com.

 

 

AUDIT COMMITTEE

Chair:  K.E. Benson

Members:  D.H. Burney, P. Gauthier, P.L. Joskow, J.A. MacNaughton

 

This committee is comprised of five independent directors and is mandated to assist the Board in monitoring, among other things, the integrity of the financial statements of TCPL, the compliance by TCPL with legal and regulatory requirements, and the independence and performance of TCPL’s internal and external auditors. The committee is also mandated to review and recommend to the Board approval of TCPL’s audited annual and unaudited interim consolidated financial statements and related management discussion and analysis, and other corporate disclosure documents including information circulars, the annual information form, all financial statements in prospectuses and other offering memoranda, any financial statements required by regulatory authorities and all prospectuses and documents which maybe incorporated by reference into a prospectus, before they are released to the public or filed with the appropriate regulatory authorities. In addition, the committee reviews and recommends to the Board the appointment and compensation of the external auditor, oversees the accounting, financial reporting, control and audit functions, and recommends funding of TCPL’s pension plans.

 

Audit Committee information as required under the Canadian Audit Committee Rules (as defined in Schedule "B" of TCPL’s AIF) is contained in TCPL’s Annual Information Form for the year ending December 31, 2007 in the section "Corporate Governance - Audit Committee". Audit committee information includes the charter, committee composition, relevant education and experience of each member, reliance on exemptions, financial literacy of each member, committee oversight, pre-approval policies and procedures, and external auditor service fees by category. The Annual Information Form is available on SEDAR at www.sedar.com under TCPL’s profile and is published on TransCanada's website at www.transcanada.com.

 

The committee oversees the operation of an anonymous and confidential toll-free telephone number for employees, contractors and the public to call with respect to perceived accounting irregularities and ethical violations, and has set up a procedure for the receipt, retention, treatment and regular review of any such reported activities. This telephone number is published on TransCanada’s website at www.transcanada.com, on its intranet for employees and in the Company’s Annual Report to shareholders.

 

The committee reviews the audit plans of the internal and external auditors and meets with them at the time of each committee meeting, in each case both with and without the presence of management. The committee annually receives and reviews the external auditor's formal written statement of independence delineating all relationships between itself and TCPL and its report on recommendations to management regarding internal controls and procedures, and ensures the rotation of the lead audit partner having primary responsibility for the audit as required by law. The committee pre-approves all audit services and all permitted non-audit services. In addition, the committee discusses with management TCPL’s material financial risk exposures and the actions management has taken to monitor and control such exposures, reviews the internal control procedures to oversee their effectiveness, monitors compliance with TCPL’s policies and codes of business ethics, and reports on these matters to the Board. The committee reviews and approves the investment objectives and choice of investment managers for the Canadian pension plans and considers and approves any significant changes to those plans relating to financial matters.

 

There were eight meetings of the Audit Committee in 2007 (six regularly scheduled and two special).

 


 

TRANSCANADA PIPELINES LIMITED

38

 

GOVERNANCE COMMITTEE

Chair:  W.K. Dobson

Members:  D.H. Burney, P.L. Joskow, J.A. MacNaughton, D.P. O’Brien

 

This committee is comprised of five independent directors and is mandated to enhance TCPL’s governance through a continuing assessment of TCPL’s approach to corporate governance. The committee is mandated to identify qualified individuals to become Board members, to recommend to the Board nominees for election as directors at each annual meeting of shareholders and to annually recommend to the Board placement of directors on committees. The committee annually reviews the independence status of each director in accordance with written criteria in order to provide the Board with guidance for its annual determination of director independence and for the placement of members on committees.

 

The committee reviews and reports to the Board on the performance of individual directors, the Board as a whole and each of the committees, in conjunction with the Chair of the Board. The committee also monitors the relationship between management and the Board, and reviews TCPL’s structures to ensure that the Board is able to function independently of management. The committee chair annually reviews the performance of the Chair of the Board. The committee is also responsible for an annual review of director compensation and for the administration of the Share Unit Plan for Non-Employee Directors (1998), including the granting of units under the plan.

 

The committee monitors best governance practice and ensures any corporate governance concerns are raised with management. The committee ensures the Company has a best practice orientation package and monitors continuing education for all directors. In addition, the Committee has responsibility for oversight of the Company’s Strategic Planning process.

 

There were two meetings of the Governance Committee in 2007.

 

 

HUMAN RESOURCES COMMITTEE

Chair:  K.L. Hawkins

Members:  W.K. Dobson, E.L. Draper, D.P. O’Brien, W.T. Stephens

 

This committee is comprised of five independent directors and is mandated to review the Company’s human resources policies and plans, monitor succession planning and to assess the performance of the CEO and other senior officers of TCPL against pre-established performance objectives. The committee approves the salary and other remuneration to be awarded to senior executive officers of TCPL. A report on senior management development and succession is prepared annually for presentation to the Board. The committee reports to the Board with recommendations on the remuneration package for the CEO. The committee approves executive compensation plans, including actual compensation awards for the most senior officers and approves any major changes to TCPL’s compensation and benefit plans. The committee considers and approves any changes to TCPL’s pension plans relating to benefits provided under these plans. The committee approves grants under the Stock Option Plan and accruals pursuant to the Performance Unit Plan and has oversight responsibilities for the Executive Share Unit Plan, the Performance Share Unit Plan, the Stock Option Plan and the Performance Unit Plan. The Committee is also responsible for the review of the executive share ownership levels.