40-F/A 1 a2202478z40-fa.htm FORM 40-F/A
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 40-F/A
Amendment No. 1

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, 2010   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)

TransCanada PipeLine USA Ltd., 717 Texas Street
Houston, Texas, 77002-2761; (832) 320-5201
(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   o 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, 2010, 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.
675,673,927 common shares which are all 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

        Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

   
   
  Yes o   No o

        The documents (or portions thereof) forming part of this Form 40-F/A are incorporated by reference into the following registration statement under the Securities Act of 1933, as amended:

  Form   Registration No.
  F-9   333-163641



EXPLANATORY NOTE

        TransCanada PipeLines Limited ("TCPL") is filing this Form 40-F/A Amendment No. 1 to its Annual Report on Form 40-F for the year ended December 31, 2010 which was filed with the Securities and Exchange Commission on February 18, 2010, to correct the amount of the annual bonus awarded to the President and Chief Executive Officer in 2011 and to provide an enhanced explanation for that award, disclosed in Schedule "F" — Compensation, Discussion and Analysis in TCPL's Amended Annual Information Form.

        Other than as expressly set forth above, this Form 40-F/A does not, and does not purport to, update, or restate the information in any Item of the Form 40-F or reflect any events that have occurred after the Form 40-F was filed.


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.


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. Forward-looking statements in this document are intended to provide TCPL's securityholders and potential investors with information regarding TCPL and its subsidiaries, including management's assessment of TCPL's and its subsidiaries' future financial and operational plans and outlook. Forward-looking statements in this document may include, among others, statements regarding the anticipated business prospects, projects, and financial performance of TCPL and its subsidiaries, expectations or projections about the future, strategies and goals for growth and expansion, expected and future cash flows, costs, schedules (including anticipated construction and completion dates), operating and financial results and expected impact of future commitments and contingent liabilities. 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 others, the ability of TCPL to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of TCPL's pipeline and energy assets, the availability and price of energy commodities, capacity payments, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the pipeline and energy sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and 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 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 "Natural Gas Pipelines — Opportunities and Developments", "Natural Gas Pipelines — Business Risks", "Oil Pipelines — Opportunities and Developments", "Oil 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 Commission. 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 not to 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.



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/A and has duly caused this amendment to the 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

 

 

By:

 

/s/ DONALD J. DEGRANDIS

Donald J. Degrandis
Vice-President and Corporate Secretary

 

 

 

 

Date: March 3, 2011

DOCUMENTS FILED AS PART OF THIS REPORT

13.1   TCPL's Amended Annual Information Form for the year ended December 31, 2010.

EXHIBITS

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.

 

 

 

 

 

 

 

 

TRANSCANADA PIPELINES LIMITED

 

AMENDED

 

ANNUAL INFORMATION FORM

 

 

 

 

 

 

 

 

February 14, 2011

 

 

 

 

 

 

 



 

TRANSCANADA PIPELINES LIMITED      1

 

 

TABLE OF CONTENTS

 

PRESENTATION OF INFORMATION

2

FORWARD LOOKING INFORMATION

2

TRANSCANADA PIPELINES LIMITED

3

Corporate Structure

3

Intercorporate Relationships

4

GENERAL DEVELOPMENT OF THE BUSINESS

5

Developments in the Natural Gas Pipelines Business

5

Developments in the Oil Pipelines Business

7

Developments in the Energy Business

8

BUSINESS OF TCPL

9

Natural Gas Pipelines Business

10

Oil Pipelines Business

12

Regulation of the Natural Gas and Oil Pipelines Businesses

13

Energy Business

13

GENERAL

15

Employees

15

Social and Environmental Policies

16

Environmental Protection

16

RISK FACTORS

17

Environmental Risk Factors

17

Other Risk Factors

20

DIVIDENDS

20

DESCRIPTION OF CAPITAL STRUCTURE

20

Share Capital

20

Debt

21

CREDIT RATINGS

21

DBRS Limited (DBRS)

22

Moody’s Investors Service, Inc. (Moody’s)

22

Standard & Poor’s (S&P)

22

MARKET FOR SECURITIES

22

Common Shares

23

Series 1 Preferred Shares

23

Series 3 Preferred Shares

23

Series 5 Preferred Shares

24

Series U Preferred Shares and Series Y Preferred Shares

24

DIRECTORS AND OFFICERS

24

Directors

24

Board Committees

26

Officers

26

Conflicts of Interest

27

CORPORATE GOVERNANCE

28

AUDIT COMMITTEE

28

Relevant Education and Experience of Members

28

Pre-Approval Policies and Procedures

29

External Auditor Service Fees

29

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

30

SECURITIES OWNED BY DIRECTORS

30

COMPENSATION OF DIRECTORS

30

DIRECTOR COMPENSATION TABLE

31

RETAINERS AND FEES PAID TO DIRECTORS

31

2010 Retainers and Fees

32

Minimum Share Ownership Guidelines

32

Share Unit Plan for Non-Employee Directors

33

COMPENSATION DISCUSSION AND ANALYSIS

33

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

33

TRANSFER AGENT AND REGISTRAR

33

INTEREST OF EXPERTS

33

ADDITIONAL INFORMATION

33

GLOSSARY

34

SCHEDULE “A” - METRIC CONVERSION TABLE

A-1

SCHEDULE “B” - DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

B-1

SCHEDULE “C” - CHARTER OF THE AUDIT COMMITTEE

C-1

SCHEDULE “D” - DESCRIPTION OF BOARD COMMITTEES AND THEIR CHARTERS

D-1

SCHEDULE “E”- CHARTER OF THE BOARD OF DIRECTORS

E-1

SCHEDULE “F” - COMPENSATION DISCUSSION AND ANALYSIS

F-1

 



 

TRANSCANADA PIPELINES LIMITED      2

 

 

PRESENTATION OF INFORMATION

 

Unless the context indicates otherwise, a reference in this Annual Information Form (“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 legal entities controlled by, TransCanada or TCPL, as applicable.

 

Unless otherwise noted, the information contained in this AIF is given at or for the year ended December 31, 2010 (“Year End”). Amounts are expressed in Canadian dollars unless otherwise indicated.  Financial information is presented in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).

 

Certain portions of TCPL’s Management’s Discussion and Analysis dated February 14, 2011 (“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.

 

The Canadian Institute of Chartered Accountants’ (“CICA”) Accounting Standards Board (“AcSB”) previously announced that Canadian publicly accountable enterprises are required to adopt International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), effective January 1, 2011. As a United States (“U.S.”) Securities and Exchange Commission (“SEC”) registrant, TCPL prepares and files a “Reconciliation to United States GAAP” and has the option to prepare and file its consolidated financial statements using U.S. generally accepted accounting principles (“U.S. GAAP”). Previously, TCPL disclosed that effective January 1, 2011, the Company expected to begin reporting under IFRS. As a result of the developments noted below, management expects that the Company will adopt U.S. GAAP effective January 1, 2012. The Company’s IFRS conversion project was proceeding as planned to meet the conversion date of January 1, 2011, prior to these developments. In accordance with Canadian GAAP, TCPL follows specific accounting policies unique to a rate-regulated business. These rate-regulated accounting (“RRA”) standards allow the timing of recognition of certain expenses and revenues to differ from the timing that may otherwise be expected in a non-rate-regulated business under Canadian GAAP in order to appropriately reflect the economic impact of regulators’ decisions regarding the Company’s revenues and tolls. In October 2010, the AcSB and the Canadian Securities Administrators (“CSA”) amended their policies applicable to Canadian publicly accountable enterprises that use RRA in order to permit these entities to defer the adoption of IFRS for one year. Due to the continued uncertainty around the timing, scope and eventual adoption of an RRA standard under IFRS, TCPL will defer its adoption of IFRS accordingly and continue preparing its consolidated financial statements in 2011 in accordance with Canadian GAAP, as defined by Part V of the CICA Handbook, in order to continue using RRA. TCPL will continue to actively monitor IASB developments with respect to RRA and other IFRS. The impact of adopting U.S. GAAP is consistent with that currently reported in the Company’s publicly filed “Reconciliation to United States GAAP”. Significant changes to existing systems and processes are not required to implement U.S. GAAP as the Company’s primary accounting standard. For more information on TCPL’s conversion project, see TCPL’s MD&A under the headings “Accounting Changes – Future Accounting Changes – International Financial Reporting Standards” and “Accounting Changes – Future Accounting Changes – U.S. GAAP Conversion Project”.

 

Information in relation to metric conversion can be found at Schedule “A” to this AIF.  Terms defined throughout this AIF are listed in the Glossary found at the end of 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.  Forward-looking statements in this document are intended to provide securityholders and potential investors with information regarding TCPL and its subsidiaries, including management’s assessment of TCPL’s and its subsidiaries’ future financial and operational plans and outlook.  Forward-looking statements in this document may include, among others, statements regarding the anticipated business prospects and financial performance of TCPL and its subsidiaries, expectations or projections about the future, strategies and goals for growth and expansion, expected and future cash flows, costs, schedules (including anticipated construction and completion dates), operating and financial results and expected impact of future commitments and contingent liabilities.  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

 



 

TRANSCANADA PIPELINES LIMITED      3

 

 

forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among others, 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 pipeline and energy assets, the availability and price of energy commodities, capacity payments, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the pipeline and energy sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and 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 the heading “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 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 AIF or otherwise, and not to 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

 

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 (“CBCA”).

July 2, 1998

 

Certificate of Arrangement issued in connection with the Plan of Arrangement with NOVA Corporation under which the companies merged and then split off the commodity chemicals business carried on by NOVA Corporation 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 CBCA 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 common shares (“common share(s)”) of TCPL 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.

 



 

TRANSCANADA PIPELINES LIMITED      4

 

 

Intercorporate Relationships

 

The following diagram presents the name and jurisdiction of incorporation, continuance or formation of TCPL’s principal subsidiaries as at December 31, 2010. Each of the subsidiaries shown has total assets that exceeded 10 per cent of the total consolidated assets of TransCanada or revenues that exceeded 10 per cent of the total consolidated revenues of TransCanada as at and for the year ended December 31, 2010. TCPL owns, directly or indirectly, 100 per cent of the voting shares in each of each of these subsidiaries, with exception to TransCanada Keystone Pipeline, LP which TransCanada indirectly holds 100 per cent of the partnership interests thereof.

 

 

 

The above diagram does not include all of the subsidiaries of TCPL.  The assets and revenues of excluded subsidiaries in the aggregate did not exceed 20 per cent of the total consolidated assets or total consolidated revenues of TCPL as at and for the year ended December 31, 2010.

 


 

TRANSCANADA PIPELINES LIMITED      5

 

 

GENERAL DEVELOPMENT OF THE BUSINESS

 

Commencing in 2011, TCPL’s reportable business segments are “Natural Gas Pipelines”, “Energy” and “Oil Pipelines”. Natural Gas and Oil Pipelines are principally comprised of the Company’s respective natural gas and oil 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 and the non-regulated natural gas storage business in Canada.

 

TCPL’s strategy in Natural Gas and Oil Pipelines is focused on growing its North American natural gas and crude oil transmission network and maximizing the long-term value of its existing pipeline assets. The Company has built a substantial energy business over the past decade and has achieved a major presence in power generation in selected regions of Canada and the U.S. More recently, TCPL has also developed a substantial non-regulated natural gas storage business in Alberta.

 

Summarized below are significant developments that have occurred in TCPL’s Natural Gas Pipelines, Oil Pipelines and Energy businesses, respectively, and the significant acquisitions, dispositions, events or conditions which have had an influence on that development, during the last three financial years.

 

Developments in the Natural Gas Pipelines Business

 

Date

 

Description of Development

 

CANADIAN MAINLINE (“Canadian Mainline”)

 

March 2008

 

The National Energy Board (“NEB”) approved the amended interim tolls for Canadian Mainline effective April 1, 2008. TCPL had filed an application with the NEB to increase the interim tolls previously approved in December 2007. This toll increase was a result of a significant decrease in forecasted flows on the system and was intended to allow TCPL to meet its 2008 revenue requirement.

December 2009

 

The NEB approved TCPL’s application for 2010 final tolls for Canadian Mainline, effective January 1, 2010. The 2010 calculated return on equity was 8.52 per cent. Reduced throughput and greater use of shorter distance transportation contracts resulted in an increase in its tolls for 2010 compared to 2009.

August 2010

 

TCPL’s open season to transport Marcellus volumes on the Canadian Mainline closed. The open season was initiated at the request of prospective shippers.

December 2010

 

TCPL filed an application with the NEB for approval of the interim 2011 tolls for the Canadian Mainline which contained certain changes to the tolling mechanism to reduce long haul tolls. The NEB decided not to approve the tolls as requested in the interim tolls application and set the current 2010 tolls as interim commencing January 1, 2011.

January 2011

 

TCPL filed for revised interim tolls effective March 1, 2011 based on the existing 2007–2011 settlement with customers. If approved, the revised interim tolls will allow for collection of revenues that will more closely reflect TCPL’s costs and forecast throughput in 2011. TCPL is continuing its discussions with stakeholders with the intent of increasing the level of support for a potential settlement and expects to file a subsequent application for final 2011 tolls for the Canadian Mainline later in 2011.

 

ALBERTA SYSTEM (“Alberta System”)

 

April 2008

 

An expansion of the Alberta System in the Fort McMurray area was placed in service on its projected on-stream date.

February 2009

 

The NEB approved TCPL’s June 2008 application for federal regulation of the Alberta System effective April 29, 2009.

June 2010

 

TCPL reached a three year settlement agreement with the Alberta System shippers and other interested parties and filed a 2010-2012 Revenue Requirement Settlement Application with the NEB.

August 2010

 

The NEB approved TCPL’s November 2009 application for the Alberta System’s Rate Design Settlement and the commercial integration of the ATCO Pipeline system with the Alberta System.

September 2010

 

The NEB approved the Alberta System’s 2010-2012 Revenue Requirement Settlement Application.

October 2010

 

The NEB approved final 2010 rates for the Alberta System, which reflect the Alberta System 2010-2012 Revenue Requirement Settlement and Rate Design Settlement.

December 2010

 

The NEB approved the interim 2011 tolls for the Alberta System reflecting the 2010-2012 Revenue Requirement Settlement and continuing to transition to the toll methodology approved in the Rate Design Settlement. TCPL expects to file for final 2011 tolls on the Alberta System which will reflect the outcome of further discussions with stakeholders with respect to 2011 tolls and commercial integration of the ATCO Pipeline system.

 

North Central Corridor Expansion (“North Central Corridor”)

 

October 2008

 

The Alberta Utilities Commission (“AUC”), which previously regulated the Alberta System, approved TCPL’s application for a permit to construct the North Central Corridor.

October 2008

 

Construction of the North Central Corridor commenced.

May 2009

 

The 140 kilometer (“km”) North Star section of the North Central Corridor was completed.

September 2009

 

Work on the final phase of the North Central Corridor commenced.

March 2010

 

The North Central Corridor was completed, on schedule and under budget.

 



 

TRANSCANADA PIPELINES LIMITED      6

 

 

Date

 

Description of Development

 

Groundbirch Pipeline Project (“Groundbirch”)

 

March 2010

 

The NEB approved TCPL’s application after a public hearing, to construct and operate Groundbirch.

August 2010

 

TCPL received final regulatory approvals and commenced construction of Groundbirch.

December 2010

 

Groundbirch was completed on schedule and under budget, and began transporting natural gas from the Montenay shale gas formation into the Alberta System.

 

Horn River Pipeline Project (“Horn River”)

 

February 2009

 

TCPL announced the successful completion of a binding open season, securing support for firm transportation contracts of 378 million cubic feet per day (“MMcf/d”) for the pipeline.

February 2010

 

TCPL filed an application with the NEB for approval to construct and operate the pipeline.

April 2010

 

The NEB announced that it would hold a public hearing process on TCPL’s February 2010 application for approval to construct and operate the pipeline. The NEB hearing relating to the Horn River pipeline concluded in November 2010.

January 2011

 

TCPL received approval from the NEB to construct the Horn River pipeline.

 

FOOTHILLS SYSTEM (“Foothills System”)

 

June 2010

 

TCPL reached an agreement to establish a cost of capital for Foothills System. The NEB approved final tolls for 2010, effective July 1, 2010.

 

MACKENZIE GAS PIPELINE PROJECT (“Mackenzie Gas Project”)

 

December 2009

 

A Joint Review Panel of the Canadian government released a report on environmental and socio-economic factors in relation to the Mackenzie Gas Project. The report was submitted to the NEB as part of the review process for approval of the project.

December 2010

 

The NEB approved the proponents’ application to construct the Mackenzie Gas Project subject to numerous conditions.

 

ALASKA PIPELINE PROJECT (“Alaska Pipeline”)

 

December 2008

 

The Alaska Commissioners of Revenue and Natural Resources issued the Alaska Gasline Inducement Act (“AGIA”) license to TCPL to advance the Alaska Pipeline. Subsequently, TCPL commenced the engineering, environmental, field and commercial work. Under AGIA, the State of Alaska has agreed to reimburse a share of the eligible pre-construction costs to TCPL to a maximum of US$500 million.

June 2009

 

TCPL reached an agreement with ExxonMobil Corporation (“ExxonMobil”) to jointly advance the Alaska Pipeline. A joint project team is developing the engineering, environmental, aboriginal relations and commercial work.

April 2010

 

The Alaska Pipeline open season commenced.

Third Quarter 2010

 

Interested shippers on the proposed Alaska Pipeline project submitted conditional commercial bids in the open season that closed July 30, 2010. The project is now working with shippers to resolve those conditions within the project’s control.

 

BISON PIPELINE (“Bison”)

 

September 2008

 

TCPL acquired Bison Pipeline LLC from Northern Border Pipeline Company (“NBPL”) for US$20 million. The assets of Bison Pipeline LLC included executed precedent agreements as well as regulatory, environmental and engineering work on Bison.

December 2010

 

Construction of Bison was completed.

January 2011

 

Bison was placed in commercial service upon receiving final regulatory approvals to commence operations.

 

GREAT LAKES SYSTEM (“Great Lakes System”)

 

November 2009

 

The U.S. Federal Energy Regulatory Commission (“FERC”) initiated an investigation to determine whether rates on the Great Lakes System were just and reasonable. In response, Great Lakes Gas Transmission Limited Partnership (“Great Lakes”) filed a cost and revenue study with the FERC in February 2010.

July 2010

 

FERC approved, without modification, the settlement stipulation agreement reached among Great Lakes, active participants and the FERC trial staff. As approved, the stipulation and agreement applies to all current and future shippers on the Great Lakes System.

 



 

TRANSCANADA PIPELINES LIMITED      7

 

 

Date

 

Description of Development

 

NORTH BAJA SYSTEM (“North Baja System”)

 

July 2009

 

TCPL completed the sale of North Baja Pipeline, LLC (“North Baja”) to its affiliate, TC PipeLines, LP. As part of the transaction, TCPL agreed to amend its incentive distribution rights with TC PipeLines, LP. Under the amendment, TCPL received additional common units in exchange for a resetting of its incentive distribution rights at a lower percentage which escalates with increases in TC PipeLines, LP distributions. The aggregate consideration received from the partnership included a combination of cash and common units totaling approximately US$395 million.

 

GUADALAJARA (“Guadalajara”)

 

May 2009

 

TCPL announced that it was the successful bidder on a contract to build, own and operate the Guadalajara pipeline.

December 2010

 

The Guadalajara pipeline was 70 per cent complete at Year End.

 

Further information about developments in the Natural Gas Pipelines business can be found in the MD&A under the headings “TransCanada’s Strategy”, “Natural Gas Pipelines – Highlights”, “Natural Gas Pipelines – Financial Analysis” and “Natural Gas Pipelines – Opportunities and Developments”.

 

Developments in the Oil Pipelines Business

 

Date

 

Description of Development

 

KEYSTONE

 

2008

 

TCPL increased its equity ownership in TransCanada Keystone Pipeline, LP (“Keystone U.S.”) and TransCanada Keystone Pipeline Limited Partnership (“Keystone Canada”) to 79.99 per cent from 50 per cent with ConocoPhillips’ equity ownership being reduced concurrently to 20.01 per cent.

March 2008

 

Keystone U.S. received a Presidential Permit authorizing the construction, maintenance and operation of facilities at the U.S. and Canada border for the transportation of crude oil between the two countries. The Presidential Permit, was issued following the issuance by the U.S. Department of State of the Final Environmental Impact Statement on January 11, 2008 for the construction of the Keystone U.S. pipeline and its Cushing extension (the “Cushing Extension”).

June 2008

 

The NEB approved the application for additional pumping facilities required to expand the Canadian portion of Keystone (as defined below and referred to in this section as “Keystone”) from approximately 435,000 barrels per day (“Bbl/d”) to 591,000 Bbl/d to accommodate volumes to be delivered to the Cushing markets.

July 2008

 

TCPL announced plans for Keystone U.S. Gulf Coast expansion (the “U.S. Gulf Coast Expansion”) to provide additional capacity in 2013 of 500,000 Bbl/d from Western Canada to the U.S. Gulf Coast, near existing terminals in Port Arthur, Texas.

October 2008

 

The Company successfully conducted an open season for the U.S. Gulf Coast Expansion by securing additional firm, long term transportation contracts.

August 2009

 

TCPL became sole owner of Keystone project through the purchase of ConocoPhillips’ remaining interest (approximately 20 per cent) for US$553 million and the assumption of US$197 million of short-term debt.

March 2010

 

The NEB approved TCPL’s application to construct and operate the Canadian portion of the U.S. Gulf Coast Expansion.

April 2010

 

The U.S. Department of State issued a Draft Environmental Impact Statement for the U.S. Gulf Coast Expansion.

June 2010

 

Keystone oil pipeline commenced operating at a reduced maximum operating pressure as the first phase of Keystone began delivering oil to Wood River and Patoka in Illinois (“Wood River/Patoka”).

November 2010

 

The open season for the Bakken Marketlink (“Bakken Marketlink”) project, which commenced in September 2010, closed successfully. The Company secured firm, five year shipper contracts of 65,000 Bbl/d.

November 2010

 

The open season for the Cushing Marketlink (“Cushing Marketlink”) project, which commenced in September 2010, closed successfully. The Company secured contractual support sufficient to proceed with the Cushing Marketlink project, which would when completed have the ability to provide 150,000 Bbl/d of crude oil from Cushing, Oklahoma to the U.S. Gulf Coast.

December 2010

 

The reduced maximum operating pressure restriction on the Canadian conversion phase of the base Keystone oil pipeline was removed by the NEB following the completion of in-line inspections.

Fourth Quarter 2010

 

Construction of the Cushing Extension was completed, and line fill commenced in late 2010.

January 2011

 

The required operational modifications were completed on the Wood River/Patoka phase of Keystone oil pipeline. As a result, the system was capable of operating at the approved design pressure and the Company commenced recording earnings for the Wood River/Patoka phase in February 2011.

February 2011

 

The commercial in service of the Cushing Extension commenced.

 



 

TRANSCANADA PIPELINES LIMITED      8

 

 

Further information about developments in the Oil Pipelines business can be found in the MD&A under the headings “TransCanada’s Strategy”, “Oil Pipelines – Highlights”, “Oil Pipelines – Financial Analysis” and “Oil Pipelines – Opportunities and Developments”.

 

Developments in the Energy Business

 

Date

 

Description of Development

 

RAVENSWOOD GENERATING STATION (“Ravenswood”)

 

August 2008

 

TCPL completed its acquisition of Ravenswood for US$2.9 billion, subject to certain post-closing adjustments, pursuant to a purchase agreement with KeySpan Corporation and certain subsidiaries.

 

BÉCANOUR (“Bécancour”)

 

June 2010

 

Hydro-Québec Distribution (“Hydro-Québec”) notified TCPL it would exercise its option to extend the agreement to suspend all electricity generation from Bécancour throughout 2011. Hydro-Québec had previously announced that it would exercise its option to extend the agreement to suspend all electricity generation from Bécancour throughout 2010. Under the original agreement, Hydro-Québec has the option, subject to certain conditions, to extend the suspension on an annual basis until such time as regional electricity demand levels recover. TCPL will continue to receive payments under the agreement similar to those that would have been received under the normal course of operation.

 

BRUCE POWER (“Bruce Power”)

 

January 2008

 

The sixteenth and final new steam generator was installed in Bruce A (as defined below and referred in this section as “Bruce A”) Units 1 and 2.

Fourth Quarter 2008

 

A review of the end of life estimates for Units 3 and 4 was completed. As a result of the review, Unit 3 was expected to be in commercial service until 2011, providing an additional two years of generation before refurbishment. After the refurbishment, the end of life estimate for Unit 3 was to be extended to 2038. The review also showed that Unit 4 was expected to remain in commercial service until 2016, providing seven years of generation before refurbishment, after which the end of life estimate for Unit 4 was expected to be extended to 2042.

July 2009

 

Bruce Power and the Ontario Power Authority (“OPA”) amended certain terms and conditions included in the Bruce Power Refurbishment Implementation Agreement. The amendments were consistent with the intent of the agreement, originally signed in 2005, and recognize the significant changes in Ontario’s electricity market. Under the original agreement, Bruce A committed to refurbish and restart the currently idle Units 1 and 2, extend the operating life of Unit 3 and replace the steam generators on Unit 4. An amendment in 2007 provided for a full refurbishment of Unit 4, which will extend the expected operating life of the unit. This most recent amendment included amendments to Bruce B (as defined below and referred in this section as “Bruce B”) floor price mechanism, the removal of a support payment cap for Bruce A, an amendment to the capital cost-sharing mechanism, and provision for deemed generation payments to Bruce Power at the contract prices under circumstances where generation from Bruce A and Bruce B is reduced due to system curtailments on the Independent Electricity System Operator controlled grid in Ontario.

October 2010

 

The last of the 960 calandria tubes were successfully installed in Bruce A Units 1 and 2.

December 2010

 

The last of the fuel channel assemblies into Bruce A Unit 2 were successfully installed.

February 2011

 

A maintenance outage of approximately three weeks commenced on February 1, 2011 on Bruce B Unit 8 and outages of approximately seven weeks each are scheduled to begin in mid-April 2011 for Bruce B Unit 7 and mid-October 2011 for Bruce B Unit 5. Bruce A expects an outage of approximately one week on Unit 3 in July 2011 and, following approval from the Canadian Nuclear Safety Commission, the West Shift Plus outage of approximately six months is scheduled to commence in early November 2011 on Unit 3. The West Shift Plus outage is a key part of the life extension strategy for Unit 3 and is an extension of the West Shift program which was successfully executed in 2009. Subject to regulatory approval, Bruce Power expects to load fuel into Unit 2 in second quarter 2011 and achieve a first synchronization of the generator to the electrical grid by the end of 2011, with commercial operation expected to occur in first quarter 2012. Bruce Power expects to load fuel into Unit 1 in third quarter 2011, with a first synchronization of the generator during first quarter 2012 and commercial operation expected to occur during third quarter 2012. Plant commissioning and testing are underway and will accelerate in second quarter 2011 when construction activities are essentially complete.

February 2011

 

The Bruce Power Refurbishment Implementation Agreement was amended to reflect: the suspension date for contingent support payments on Bruce A output was extended to June 1, 2012 from December 31, 2011, and as a result, all output from Bruce A will receive spot prices from June 1, 2012 until the restart of Units 1 and 2 is complete; and a recovery of costs incurred by Bruce A in connection with development of fuel programs.

 

PORTLANDS ENERGY CENTRE (“Portlands Energy”)

 

April 2009

 

Portlands Energy was fully commissioned, ahead of time and under budget.

 

OAKVILLE GENERATING STATION

 

September 2009

 

The OPA advised TCPL that it was awarded a 20 year Clean Energy Supply contract to build, own and operate a 900 MW a generating station in Oakville, Ontario.

 



 

TRANSCANADA PIPELINES LIMITED      9

 

 

Date

 

Description of Development

October 2010

 

The Government of Ontario announced that it would not proceed with the Oakville generating station. TCPL commenced negotiations with the OPA on a settlement which would terminate the Clean Energy Supply contract and compensate TCPL for the economic consequences associated with the contract’s termination.

 

CARTIER WIND (“Cartier Wind”)

 

November 2008

 

The 109 MW Carleton wind farm, the third of five phases of Cartier Wind, became operational.

Third Quarter 2009

 

Construction activity began on the Cartier Wind’s 212 MW Gros-Morne and 58 MW Montagne-Sèche wind farms. The Montagne-Sèche project and phase one of the Gros-Morne project are expected to be operational in 2011, and phase two of the Gros-Morne project is expected to be operational in 2012, subject to the necessary approvals.

 

COOLIDGE (“Coolidge”)

 

May 2008

 

TCPL announced that the Phoenix, Arizona based utility, Salt River Project Agricultural Improvement and Power District, signed a 20 year power purchase agreement to secure 100 per cent of the output from Coolidge.

December 2008

 

The Arizona Corporation Commission granted a Certificate of Environmental Compatibility approving Coolidge.

August 2009

 

TCPL began construction of Coolidge.

December 2010

 

At Year End, construction of Coolidge was approximately 95 per cent complete and commissioning was approximately 80 per cent finished.

 

KIBBY WIND (“Kibby Wind”)

 

July 2008

 

Kibby Wind received unanimous final development plan approval from Maine’s Land Use Regulation Commission.

October 2009

 

The first phase of Kibby Wind, including 22 turbines capable of producing a combined 66 MW of power, was completed and placed in service ahead of schedule and under budget.

October 2010

 

The 66 MW second phase of the Kibby Wind was completed and placed in service. This phase included the installation of an additional 22 turbines, ahead of schedule and on budget.

 

SUNDANCE (“Sundance”)

 

February 2011

 

On February 8, 2011, TransCanada received from TransAlta Corporation ("TransAlta") notice under the Sundance A power purchase arrangement that TransAlta has determined that the Sundance 1 and 2 generating units cannot be economically repaired, replaced, rebuilt or restored and that TransAlta therefore seeks to terminate the power purchase arrangement in respect of those units. TransCanada has not received any information that would validate TransAlta’s determination that the units cannot be economically restored to service. TransCanada has 10 business days from the date of TransAlta’s notice to either agree with or dispute TransAlta’s determination that the Sundance 1 and 2 generating units cannot be economically repaired, replaced, rebuilt or restored. TransCanada will assess any information provided by TransAlta during this 10 -day period. If TransCanada disputes TransAlta’s determination, the issue will be resolved using the dispute resolution procedure under the terms of the power purchase arrangement. In December 2010, the Sundance 1 and 2 generating units were withdrawn from service for testing. In January 2011, these same units were subject to a force majeure claim by TransAlta under the power purchase arrangement. TransCanada has received insufficient information to make an assessment of TransAlta’s force majeure claim and therefore has recorded revenues under the power purchase arrangement as though this event was a normal plant outage.

Second Quarter 2010

 

Sundance B Unit 3 experienced an unplanned outage related to mechanical failure of certain generator components that the facility operator, TransAlta, has asserted is a force majeure event. TransCanada has received no information that validates a claim of force majeure and therefore has recorded revenues under the power purchase arrangement as though this event was a normal plant outage. TransCanada is pursuing the remedies available to it under the terms of the power purchase arrangement.

 

HALTON HILLS GENERATING STATION (“Halton Hills”)

 

September 2010

 

Halton Hills, which was constructed pursuant to a 20 year Clean Energy Supply contract with the OPA in November 2006, was completed and placed in service.

 

ZEPHYR (“Zephyr”) AND CHINOOK (“Chinook”) POWER TRANSMISSION LINES

 

February 2009

 

The FERC approved the application filed by TCPL in December 2008 requesting approval to charge negotiated rates and to proceed with open seasons in the spring of 2009 for Zephyr and Chinook, respectively. Zephyr is a proposed 1,609 km (1,000 mile), 500 kilovolt high voltage direct current (“HVDC”) line that would be capable of delivering primarily wind generated power from Wyoming to Nevada. Chinook is a proposed 1,609 km (1,000 mile), 500 kilovolt HVDC line that would be capable of delivering primarily wind generated power to markets from Montana to Nevada. The open seasons commenced in October 2009.

May 2010

 

TCPL concluded a successful open season for Zephyr. Support from key markets and a positive regulatory environment are necessary before the significant siting and permitting activities required to construct Zephyr will commence and TCPL anticipates making a decision on whether to proceed in 2011.

December 2010

 

TCPL closed the open season for Chinook without allocating capacity to Montana shippers. TCPL continues to advance the Chinook project, and discussions with Montana wind developers and other market participants is ongoing.

 

Further information about developments in the Energy business can be found in the MD&A under the headings “TCPL’s Strategy”, “Energy – Highlights”, “Energy – Financial Analysis” and “Energy – Opportunities and Developments”.

 

BUSINESS OF TCPL

 

TCPL is a leading North American energy infrastructure company focused on Natural Gas Pipelines, Oil Pipelines and Energy. At Year End, Natural Gas Pipelines accounted for approximately 54 per cent of revenues and 49 per cent of TCPL’s total assets, Oil Pipelines had not yet recorded any revenues but accounted for 18 per cent of TCPL’s total assets and Energy accounted for approximately 46 per cent of revenues and 27 per cent of TCPL’s total assets.  The following is a description of each of TCPL’s three main areas of operation.

 

The following table shows TCPL’s revenues from operations by segment, classified geographically, for the years ended December 31, 2010 and 2009.

 



 

TRANSCANADA PIPELINES LIMITED      10

 

 

 Revenues From Operations (millions of dollars)

 

2010

 

 

2009

 

 Natural Gas Pipelines

 

 

 

 

 

 

Canada - Domestic

 

$2,125

 

 

$2,389

 

Canada - Export(1) 

 

837

 

 

755

 

United States and other

 

1,411

 

 

1,585

 

 

 

4,373

 

 

4,729

 

 Oil Pipelines

 

Nil

 

 

Nil

 

 Energy(2) 

 

 

 

 

 

 

Canada – Domestic

 

2,243

 

 

2,690

 

Canada - Export(1) 

 

1

 

 

1

 

United States and other

 

1,447

 

 

761

 

 

 

3,691

 

 

3,452

 

 Total Revenues(3) 

 

$8,064

 

 

$8,181

 

 

(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.

 

Natural Gas Pipelines Business

 

TCPL is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas and regulated gas storage facilities. TCPL’s network of wholly owned natural gas pipelines extends more than 60,000 km (37,000 miles), and its partially owned natural gas pipelines extend more than 8,800 km (5,500 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, including those listed below.  The following natural gas pipelines are owned 100 per cent by TCPL unless otherwise stated.

 

TCPL has the following natural gas pipelines and related holdings in Canada:

 

·                  TCPL’s Canadian Mainline is a 14,101 km (8,762 mile) 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.

 

·                  TCPL’s Alberta System is a natural gas transmission system in Alberta and Northeast British Columbia (“B.C.”) which gathers natural gas for use within the province of Alberta and delivers it to provincial boundary points for connection with the Canadian Mainline and the Foothills System and with third party natural gas pipelines. The 24,187 km (15,029 mile) Alberta System is one of the largest carriers of natural gas in North America.  During the past three completed financial years TCPL has enhanced the Alberta System as follows:

 

o                 North Central Corridor, which extends the northern section of the Alberta System, was completed in March 2010; and

 

o                 TCPL continues to advance further pipeline development in B.C. and Alberta to transport unconventional shale gas supply as follows:

 

 

Groundbirch was completed in December 2010, connecting the Alberta System to natural gas supplies from the Montney shale gas formation in Northeast B.C. TCPL has entered into firm transportation agreements with Groundbirch pipeline customers for 1.24 billion cubic feet per day (“Bcf/d”) by 2014;

 

 

 

 

TCPL has applied to build the proposed Horn River pipeline, an extension of the Alberta System to serve production from the new shale gas supply in the Horn River basin north of Fort Nelson, B.C. TCPL received approval from the NEB to construct the Horn River pipeline in January 2011. The Horn River pipeline is scheduled to be operational in second quarter 2012 with commitments for contracted natural gas of over 634 MMcf/d by 2014; and

 

 

 

 

the Company has received requests for additional natural gas transmission service throughout the northwest portion of the Western Canadian Sedimentary Basin, including the Horn River and Montney areas of B.C. These new requests are expected to result in the need for further extensions and expansions of the Alberta System.

 



 

TRANSCANADA PIPELINES LIMITED      11

 

 

·                  TCPL’s Foothills System is a 1,241 km (771 mile) natural gas transmission system in Western Canada which 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.

 

·                  TransCanada Pipeline Ventures LP owns a 161 km (100 mile) pipeline and related facilities that supply natural gas to the oil sands region near Fort McMurray, Alberta as well as a 27 km (17 mile) pipeline that supplies natural gas to a petrochemical complex at Joffre, Alberta.

 

·                  TQM (“TQM”) is 50 per cent owned by TCPL. TQM is a 572 km (355 mile) pipeline system that connects with the Canadian Mainline near the Québec/Ontario border and transports natural gas to markets in Québec, and connects with the Portland System. TQM is operated by TCPL.

 

·                  The Mackenzie Gas Project is a proposed natural gas pipeline extending 1,196 km (743 mile) that would connect northern onshore natural gas fields with North American markets. TCPL has the right to acquire an equity interest in the project.

 

TCPL has the following natural gas pipeline and related holdings in the U.S.:

 

·                  The proposed Alaska Pipeline is a 4.5 Bcf/d natural gas pipeline and treatment plant. The pipeline would extend 2,737 km (1,700 miles) from the natural gas treatment plant at Prudhoe Bay, Alaska to Alberta, or an alternative pipeline to Valdez, Alaska. TCPL received approval of its plan to conduct an open season from the FERC in March 2010. An open season commenced at the end of April 2010, and continued until July 2010. TCPL is continuing to negotiate with potential shippers from the initial open season. The Alaska Pipeline project is a joint effort between TCPL and ExxonMobil pursuant to the AGIA.

 

·                  TCPL’s ANR System (“ANR System”) is a 17,000 km (10,563 mile) natural gas transmission system which transports natural gas from producing fields located in the Texas and Oklahoma panhandle regions, from the offshore and onshore regions of the Gulf of Mexico, and from the U.S. Midcontinent region to markets located mainly in Wisconsin, Michigan, Illinois, Indiana and Ohio. ANR System also connects with other natural gas pipelines, providing access to diverse sources of North American supply, including Western Canada, and the mid-continent and Rocky Mountain supply regions, and a variety of markets in the Midwestern and Northeastern U.S.

 

Underground gas storage facilities owned and operated by American Natural Resources Company and ANR Storage Company (collectively, “ANR”) provide regulated gas storage services to customers on the ANR System and the Great Lakes System in upper Michigan. In total, the ANR business unit owns and operates natural gas storage facilities throughout the State of Michigan with total natural gas storage capacity of 250 billion cubic feet (“Bcf”).

 

·                  The GTN System (“GTN System”) is TCPL’s 2,178 km (1,353 miles) natural gas transmission system that transports Western Canada Sedimentary Basin and Rocky Mountain sourced natural gas to third party natural gas pipelines and markets in Washington, Oregon and California, and connects with the Tuscarora Gas Transmission Company (“Tuscarora”) pipeline.

 

·                  The Bison pipeline is a 487 km (303 mile) natural gas pipeline from the Powder River Basin in Wyoming connecting to the Northern Border Pipeline System (“NBPL System”) in Morton County, North Dakota. The Company commenced construction of the Bison pipeline in July 2010 and the pipeline became operational in January 2011. The Bison pipeline has long term shipping commitments for 407 MMcf/d.

 

·                  The Great Lakes System is a 3,404 km (2,115 mile) natural gas transmission system connecting to the Canadian Mainline and serves markets primarily in Eastern Canada and the Northeastern and Midwestern U.S. TCPL operates the Great Lakes System and effectively owns 71.3 per cent of the system through its 53.6 per cent ownership interest and its indirect ownership, which it has through its 38.2 per cent interest in TC PipeLines, LP.

 

·                  The NBPL System is 50 per cent owned by TC PipeLines, LP and is a 2,250 km (1,398 mile) natural gas transmission system, which serves the U.S. Midwest. TCPL operates and effectively owns 19.1 per cent of the NBPL System through its 38.2 per cent interest in TC PipeLines, LP.

 

·                  Tuscarora is 100 per cent owned by TC PipeLines, LP.  TCPL operates the Tuscarora System (“Tuscarora System”) a 491 km (305 mile) pipeline system transporting natural gas from the GTN System at Malin, Oregon to Wadsworth,

 


 

TRANSCANADA PIPELINES LIMITED      12

 

 

Nevada with delivery points in Northeastern California and Northwestern Nevada. TCPL effectively owns 38.2 per cent of the system through its 38.2 per cent interest in TC PipeLines, LP.

 

·                  North Baja is 100 per cent owned by TC PipeLines, LP. TCPL operates the North Baja System, a natural gas transmission system which extends 138 km (86 miles) from Ehrenberg, Arizona to a point near Ogilby, California on the California/Mexico border and connects with a third party natural gas pipeline system in Mexico.  TCPL effectively owns 38.2 per cent of the same through its 38.2 per cent interest in TC PipeLines, LP.

 

·                  The Iroquois System (“Iroquois System”) is a gas transmission system that 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 (414 mile) pipeline system.

 

·                  The Portland System (“Portland System”) is a 474 km (295 mile) 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.

 

·                  TCPL holds a 38.2 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 the NBPL System, 46.4 per cent in the Great Lakes System, 100 per cent of the Tuscarora System and 100 per cent of the North Baja System.

 

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

 

·                  TransGas is a 344 km (214 mile) 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.

 

·                  Owned 30 per cent by TransCanada, Gas Pacifico is a 540 km (336 mile) natural gas pipeline extending from Loma de la Lata, Argentina to Concepción, Chile. TransCanada also has a 30 per cent ownership interest in INNERGY, an industrial natural gas marketing company based in Concepción that markets natural gas transported on Gas Pacifico.

 

·                  Tamazunchale is a 130 km (81 mile) 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.

 

·                  The proposed Guadalajara pipeline is under construction and when completed will extend approximately 305 km (190 miles) transporting natural gas from a LNG terminal under construction near Manzanillo on Mexico’s Pacific coast to Guadalajara, the second largest city in Mexico. The Guadalajara pipeline is supported by a twenty-five year contract for its entire capacity with Comisión Federal de Electridad, Mexico’s state-owned electric power company. Guadalajara pipeline has an expected in service date of mid-2011 and was 70 per cent complete at Year End.

 

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

 

Oil Pipelines Business

 

With increasing production from crude oil sands in Alberta and new crude oil discoveries in the U.S., including the Bakken shale play in Montana and North Dakota, along with growing demand for secure, reliable sources of energy, TCPL has identified opportunities to develop new oil pipeline capacity. The Company’s Keystone crude oil pipeline and other opportunities in TCPL’s oil pipeline business are described below.

 

Keystone (“Keystone”) is a crude oil pipeline system designed to initially carry 1.1 million Bbl/d which is comprised of the completed 3,467 km (2,154 mile) Wood River/Patoka and Cushing Extension phases, and the proposed 2,673 (1,661 mile) U.S. Gulf Coast Expansion. The Wood River/Patoka phase transports crude oil from Hardisty, Alberta to U.S. Midwest markets at Wood River and Patoka, Illinois and is designed for an initial nominal capacity of 435,000 Bbl/d. The Wood River/Patoka phase was placed in service in June 2010. The Cushing Extension extends the pipeline to Cushing, Oklahoma and increases nominal capacity to 591,000 Bbl/d if design capacity is achieved. The Cushing Extension was placed in service in February 2011. The proposed U.S. Gulf Coast Expansion, which would expand and extend Keystone from Hardisty to a delivery point near existing terminals in Port Arthur, Texas, is expected to provide additional

 



 

TRANSCANADA PIPELINES LIMITED      13

 

 

pipeline capacity in 2013, pending U.S. regulatory approval.

 

The Company is pursuing the opportunity to transport growing Bakken shale crude oil production from the Williston Basin in Montana and North Dakota for delivery to major U.S. refining markets. Following an open season conducted in the second half of 2010, the Company secured firm, five year shipper contracts totaling 65,000 Bbl/d for its proposed Bakken Marketlink project, which would transport U.S. crude oil from Baker, Montana to Cushing, Oklahoma on facilities that form part of the U.S. Gulf Coast Expansion. Following an open season conducted in the second half of 2010, the Company secured contractual support sufficient to proceed with the Cushing Marketlink project, which would when completed transport up to 150,000 Bbl/d of crude oil from Cushing, Oklahoma to the U.S. Gulf Coast on facilities that form part of the U.S. Gulf Coast Expansion. With these commitments, TCPL will file for the necessary regulatory approvals in the U.S. to construct and operate the Bakken and Cushing Marketlink pipelines. Commercial in service is anticipated in 2013.

 

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

 

Regulation of the Natural Gas and Oil Pipelines Businesses

 

Canada

 

Under the terms of the National Energy Board Act (Canada), the Canadian Mainline, TQM, and the Foothills and Alberta systems (collectively referred to in this section as the “Systems”) are regulated by the NEB (the Alberta System became subject to federal jurisdiction on April 29, 2009 following NEB approval of an application by TCPL).  The NEB sets tolls which provide TCPL the opportunity to recover projected costs of transporting natural gas, including the return on the average investment base for each of the Systems.  In addition, new facilities are approved by the NEB before construction begins and the NEB regulates the operations of each of the Systems.  Net earnings of the Systems may be affected by changes in investment base, the allowed return on equity, the level of deemed common equity and any incentive earnings.

 

The NEB regulates the terms and conditions of service, including rates, and the physical operation of the Canadian portion of Keystone. NEB approval is also required for facility additions, such as the Canadian portion of the proposed U.S. Gulf Coast Expansion project which was approved by the NEB in March 2010.

 

United States

 

TCPL’s wholly owned and partially owned U.S. pipeline systems, including the ANR, GTN, Great Lakes, Iroquois, Portland, NBPL, North Baja and Tuscarora systems, are considered “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.

 

The FERC also regulates the terms and conditions of service, including transportation rates, on the U.S. portion of Keystone system. Certain states in which Keystone has right of ways also regulate construction and siting of Keystone.

 

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, the development, construction and ownership and operation of non-regulated natural gas storage in Alberta.

 

The electrical power generation plants and power supply that TCPL has an interest in, including those under development, in the aggregate, represent more than 10,800 MW of power generation capacity. Power plants and power supply in Canadian power

 



 

TRANSCANADA PIPELINES LIMITED      14

 

 

account for approximately 65 per cent of this total, and power plants in U.S. power account for the balance, being approximately 35 per cent.

 

TCPL owns and operates the following facilities:

 

·                  Ravenswood generating station, located in Queen’s, New York, is a 2,480 MW power plant that consists of multiple units employing steam turbine, combined cycle and combustion turbine technology. Ravenswood has the capacity to serve approximately 20 per cent of New York City’s peak load.

 

·                  Halton Hills, a 683 MW natural gas-fired power plant in Halton Hills, Ontario, which was placed in service in September 2010. All of the power produced by the facility is sold to the OPA under a 20 year Clean Energy Supply contract.

 

·                  Kibby Wind, a 132 MW wind farm located in the Kibby and Skinner Townships in Maine. The first 66 MW phase of Kibby Wind was place in service in October 2009 and the second 66 MW phase was placed in service in October 2010.

 

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

 

·                  Ocean State Power (“Ocean State Power”), a 560 MW natural gas-fired, combined-cycle facility in Burrillville, Rhode Island.

 

·                  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 agreement expiring in 2026.  Steam is also sold to an industrial customer for use in commercial processes. Since 2008, electricity generation at the Bécancour power plant has been temporarily suspended under an agreement entered into with Hydro-Québec. Under the agreement, TCPL receives payments that are similar to those that would have been received under the normal course of operation.

 

·                  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 on the site of the Irving Oil Limited oil refinery in Saint John, New Brunswick. Irving Oil Limited is under a 20 year tolling arrangement that expires in 2025, to supply fuel for the plant and to contract 100 per cent of the plant’s heat and electricity output.

 

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

 

·                  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 MMcf/d of natural gas. Edson has a working natural gas storage capacity of approximately 50 Bcf.

 

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

 

·                  TCPL has the rights to 100 per cent of the generating capacity of the 560 MW Sundance A coal-fired power generation facility under a power purchase arrangement that 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 power purchase arrangement, which expires in 2020. The Sundance A and Sundance B facilities are located in South Central Alberta.

 

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

 



 

TRANSCANADA PIPELINES LIMITED      15

 

 

TCPL has interests in the following:

 

·                  Two nuclear power generating stations, Bruce A, which is owned 48.8 per cent by TCPL and has four 750 MW reactors, of which two are currently operating and two are being refurbished, and Bruce B, which is owned 31.6 per cent by TCPL and has four operating reactors with a combined capacity of approximately 3,200 MW.  Bruce Power is two partnerships with generating facilities and offices located on 2,300 acres northwest of Toronto, Ontario on which are housed Bruce A and Bruce B. The two units of Bruce A which are being refurbished are expected to re-commence commercial operations in first quarter and third quarter 2012.

 

·                  A 60 per cent ownership in CrossAlta, which is a 68 Bcf underground natural gas storage facility connected to the Alberta System near Crossfield, Alberta. The facility’s central processing system is capable of maximum injection and withdrawal rates of 550 MMcf/d of natural gas.

 

·                  A 62 per cent interest in the Carleton (109 MW), Anse-à-Valleau (101 MW), and Baie-des-Sables (110 MW) wind farms, the first three phases of the Cartier Wind energy project, which commenced commercial operation in November 2008, November 2007 and November 2006, respectively.

 

·                  Portlands Energy, a 550 MW, combined-cycle natural gas power plant located in Toronto, Ontario is 50 per cent owned by TCPL. This facility, which was fully commissioned in April 2009, provides electricity under a 20 year Accelerated Clean Air Energy Supply contract with the OPA.

 

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

 

·                  The Cartier Wind energy project consists of five wind projects in the Gaspé region of Québec contracted by Hydro-Québec representing a total of 590 MW when complete. Three of the wind farms are in service, and two are currently under construction. The Montagne-Sèche project and phase one of the Gros-Morne project (101 MW) are expected to be operational in 2011, and phase two of the Gros-Morne project (111 MW) is expected to be operational in 2012, subject to the necessary approvals. Cartier Wind is 62 per cent owned by TCPL. All of the power produced by Cartier Wind is sold to Hydro-Québec under a 20 year power purchase agreement.

 

·                  Coolidge is a simple-cycle, natural gas-fired peaking power generation station under construction in Coolidge, Arizona. Based on optimal operating conditions, TCPL expects an electrical output of approximately 575 MW from this facility, designed to provide a quick response to peak power demands. Construction commenced in August 2009 and was approximately 95 per cent complete at Year End. The generating station is expected to be placed in service in accordance with its 20 year power purchase agreement with the Salt River Project Agricultural Improvement and Power District in second quarter 2011.

 

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

 

GENERAL

 

Employees

 

At Year End, TCPL had approximately 4,230 full time active employees, substantially all of whom were employed in Canada and the U.S., as set forth in the following table.

 

Calgary

1,862

 

 

Western Canada (excluding Calgary)

460

 

 

Houston

453

 

 

U.S. Midwest

453

 

 

U.S. Northeast

409

 

 

Eastern Canada

264

 

 

U.S. Southeast/Gulf Coast

233

 

 

U.S. West Coast

86

 

 

Mexico and South America

10

 

 

Total

4,230

 

 

 



 

TRANSCANADA PIPELINES LIMITED      16

 

 

Social and Environmental Policies

 

Health, safety and environment (“HS&E”) are top priorities in all of TCPL’s operations and activities. These areas are guided by the Company’s HS&E Commitment Statement, which outlines guiding principles for a safe and healthy environment for TCPL’s employees, contractors and the public, and for TCPL’s commitment to protect the environment. All employees are responsible for TCPL’s HS&E performance. TCPL is committed to being an industry leader in conducting its business so that it meets or exceeds all applicable laws and regulations, and minimizes risk to people and the environment. TCPL is committed to tracking and improving its HS&E performance, and to promoting safety on and off the job, in the belief that all occupational injuries and illnesses are preventable. TCPL endeavors to do business with companies and contractors that share its perspective on HS&E performance and to influence them to improve their collective performance. TCPL is committed to respecting the diverse environments and cultures in which it operates and to support open communication with its stakeholders.

 

The Health, Safety and Environment Committee of the Board of Directors (the “Board”) monitors compliance with the Company’s HS&E corporate policy through regular reporting.  TCPL’s HS&E management system is modeled on the International Organization for 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 informed regularly of all important HS&E operational issues and initiatives through formal reporting processes. TCPL’s HS&E management system and performance are assessed by an independent outside firm every three years. The most recent assessment occurred in December 2009 and did not identify any material issues.  The HS&E management system is subject to ongoing internal review to ensure that it remains effective as circumstances change.

 

As one of TCPL’s priorities, safety is an integral part of the way its employees work. In 2010, one of TCPL’s objectives was to sustain health and safety performance. Overall, TCPL’s safety frequency rates in 2010 continued to be better than most industry benchmarks.

 

The safety and integrity of the Company’s existing and newly developed infrastructure also continued to be top priorities. All new assets are designed, constructed and commissioned with full consideration given to safety and integrity, and are brought into service only after all necessary requirements have been satisfied. The Company expects to spend approximately $250 million in 2011 for pipeline integrity on its wholly owned pipelines, an increase of approximately $95 million over 2010 primarily due to increased levels of in-line pipeline inspection on all systems and pipeline enhancements in areas of population encroachment. Under the approved regulatory models in Canada, non-capital pipeline integrity expenditures on NEB regulated pipelines are treated on a flow-through basis and, as a result, these expenditures have no impact on TCPL’s earnings. Under the Keystone contracts, pipeline integrity expenditures are recovered through the tolling mechanism and, as a result, these expenditures have no impact on TCPL’s earnings. Expenditures for GTN System may also be recovered through a cost recovery mechanism in its rates if threshold expenditures are achieved. TCPL’s pipeline safety record in 2010 continued to be above industry benchmarks. TCPL experienced no pipeline breaks in 2010. Spending associated with public safety on the Energy assets is focused primarily on the Company’s hydro dams and associated equipment, and is consistent with previous years.

 

Aboriginal and Stakeholder Relations

 

TCPL has recognized the enhanced level of engagement of a wide variety of stakeholders in its business activities that can have a significant impact on the Company’s ability to obtain approvals for new assets and to maintain its licences to operate.  TCPL has adopted a code of business ethics which applies to the Company’s employees that is based on the Company’s four core values of integrity, collaboration, responsibility and innovation, which guide the interaction between and among the Company’s employees and serve as a standard for TCPL in its dealings with all stakeholders. The code, which may be viewed on TransCanada’s website at www.transcanada.com, sets out the fundamental principles of compliance with the law, fair dealing and a commitment to HS&E.

 

TCPL’s approach to stakeholder engagement is based on building relationships, mutual respect and trust while recognizing the unique values, needs and interests of each community. Key principles that guide TCPL’s engagement include: the Company’s respect for the diversity of Aboriginal/Native American communities and recognition of the importance of the land to these communities; and the Company’s belief in engaging stakeholders from the earliest stages of its projects, through the project development process and into operations.

 

Environmental Protection

 

TCPL’s facilities are subject to stringent federal, provincial, state and local environmental statutes and regulations regarding environmental protection, including requirements that establish compliance and remedial obligations.  Such laws and regulations generally require facilities to obtain and comply with a wide variety of environmental restrictions, licences, permits and other approvals.  Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal

 



 

TRANSCANADA PIPELINES LIMITED      17

 

 

penalties, the imposition of remedial requirements, and/or the issuance of orders respecting future operations. TCPL has ongoing inspection programs designed to keep all of its facilities in compliance with environmental requirements.

 

At December 31, 2010, TCPL recorded liabilities of approximately $84 million (2009 - $91 million) for remediation obligations and compliance costs associated with environmental regulations. The Company believes it has considered all necessary contingencies and established appropriate reserves for environmental liabilities, however, there is the risk that unforeseen matters may arise requiring the Company to set aside additional amounts.

 

TCPL is not aware of any material outstanding orders, claims or lawsuits against it in relation to the release or discharge of any material into the environment or in connection with environmental protection.

 

In 2010, the Company owned assets in four regions, Alberta, Québec, B.C., and the Northeastern U.S., where regulations exist to address industrial greenhouse gas (“GHG”) emissions. TCPL has procedures in place to address these regulations. In Alberta, under the Specified Gas Emitters Regulation, industrial facilities emitting GHGs over an intensity threshold level are required to reduce GHG emissions intensities by 12 per cent below an average baseline. TCPL’s Alberta-based facilities are subject to this regulation, as are the Sundance and Sheerness coal-fired power facilities with which TCPL has power purchase arrangements. As an alternative to reducing emissions intensities, compliance can be achieved through acquiring offsets or making payments to a technology fund at a cost of $15 per tonne of carbon dioxide (“CO2”) equivalents in excess of the mandated reduction. A program is in place to manage the compliance costs incurred by these assets as a result of regulation. Compliance costs on the Alberta System are recovered through tolls paid by customers. Some of the compliance costs from the Company’s power generation facilities in Alberta are recovered through market pricing and contract flow-through provisions. TCPL has estimated and recorded related costs of $22 million for 2010, after contracted cost recovery.

 

In Québec, the natural gas distributor collects the hydrocarbon royalty on behalf of the provincial government through a green fund contribution charge on gas consumed. In 2010, the cost pertaining to the Bécancour facility arising from the hydrocarbon royalty was less than $1 million as a result of an agreement between TCPL and Hydro-Québec to temporarily suspend the facility’s power generation. The cost is expected to increase substantially when the plant returns to service.

 

The carbon tax in B.C., which came into effect in mid-2008, applies to CO2 emissions from fossil fuel combustion. Compliance costs for fuel combustion at the Company’s compressor and meter stations in B.C. are recovered through tolls paid by customers. Costs related to the carbon tax in 2010 were estimated at $4 million.  As specified by this law, the cost per tonne of CO2 will increase in July 2011 to $25.00 from $20.00.

 

Northeastern U.S. states that are members of the Regional Greenhouse Gas Initiative (“RGGI”) implemented a CO2 cap-and-trade program for electricity generators effective in January 2009. Under the RGGI, both the Ravenswood and Ocean State Power generation facilities will be required to submit allowances following the end of the first compliance period on December 31, 2011. TCPL participated in the quarterly auctions of allowances for the Ravenswood and Ocean State Power generation facilities and incurred related costs of approximately $5 million in 2010.  These costs were generally recovered through the power market and the net impact on TCPL was not significant.

 

RISK FACTORS

 

Environmental Risk Factors

 

Environmental Risks

 

Environmental risks from TCPL’s operating facilities typically include: air emissions, such as nitrogen oxides, particulate matter and GHGs; potential impacts on land, including land reclamation or restoration following construction; the use, storage and release of chemicals or hydrocarbons; the generation, handling and disposal of wastes and hazardous wastes; and water impacts such as uncontrolled water discharge. Environmental controls including physical design, programs, procedures and processes are in place to effectively manage these risks.

 

As mentioned above, TCPL’s operations are subject to various environmental laws and regulations that establish compliance and remediation obligations. Compliance obligations can result in significant costs associated with installing and maintaining pollution controls, fines and penalties resulting from any failure to comply, and potential limitations on operations. Remediation obligations can result in significant costs associated with the investigation and remediation of contaminated properties, and with damage claims arising from the contamination of properties. It is not possible for TCPL to estimate the amount and timing of all future expenditures related to environmental matters due to:

 



 

TRANSCANADA PIPELINES LIMITED      18

 

 

·                  uncertainties in estimating pollution control and clean up costs, including at sites where only preliminary site investigation or agreements have been completed;

·                  the potential discovery of new sites or additional information at existing sites;

·                  the uncertainty in quantifying the Company’s liability under environmental laws that impose joint and several liability on all potentially responsible parties;

·                  the evolving nature of environmental laws and regulations, including the interpretation and enforcement of them; and

·                  the potential for litigation on existing or discontinued assets.

 

Oil Leaks and Spills

 

In 2010, the Wood River/Patoka phase of Keystone became operational. Steel pipelines are a safe, efficient and economical method of transporting crude oil. The equipment and procedures put in place with respect to Keystone provide the capability to contain oil leaks quickly and safely.

 

TCPL’s pipelines are designed, constructed and operated to the highest industry standards and meet or exceed all regulatory requirements. Keystone is continuously monitored and is fully automated with remotely started secure pumps and valves. A variety of methods are used to detect and prevent leaks. In the unlikely event of a leak or spill, valves can be closed to isolate the leak and limit spill volumes.

 

The Company has established emergency response plans to be enacted in the unlikely event of a leak or spill along TCPL’s operational crude oil pipeline. The plans encompass the necessary personnel and equipment to respond to any size of spill as well as clean-up and remediation operations to minimize any effects on the environment. The plan outlines specific environmental features in the vicinity of the pipeline and containment and remediation efforts are based on practices that are well-understood and tested. In addition, TCPL has an on-going program to provide local emergency responders with the information and training necessary to ensure their preparedness for responding to events.

 

Changing Legislation and Regulations

 

The impact of new or proposed provincial, state and/or federal safety and environmental laws, regulations, guidelines and enforcement in Canada and the U.S. on TCPL’s business is not yet certain. TCPL makes assumptions about possible expenditures to safety and environmental matters based on current laws and regulations and interpretations thereof. If the laws or regulations or the interpretation thereof changes, the Company’s assumptions may change.  Incremental costs may or may not be recoverable under existing rate structures or commercial agreements. Proposed changes in environmental policy, legislation or regulation are routinely monitored by TCPL, and where the risks are potentially large or uncertain, the Company works independently or through industry associations to comment on proposals.

 

In April 2010, the Environmental Protection Agency (“EPA”) published an Advanced Notice of Proposed Rulemaking to solicit comments with respect to EPA’s reassessment of current regulations under the Toxic Substances Control Act, governing the authorized use of polychlorinated biphenyls (“PCBs”) in certain equipment. The proposed changes could require notification to the EPA when PCBs are discovered in any pipeline system, a phase out and eventual elimination of PCB use in pipeline systems and air compressor systems and the immediate elimination of the storage of PCB equipment for reuse. If finalized as proposed, these changes are likely to have significant cost implications for the Company’s U.S. assets.

 

Regulation of air pollutant emissions under the U.S. Clean Air Act (“CAA”) and state regulations continue to evolve. A number of EPA initiatives could lead to impacts ranging from requirements to install emissions control equipment, to additional administrative and reporting requirements. At this time, there is insufficient detail to accurately determine the potential impacts of these initiatives. While the majority of the proposals are not expected to be material to TCPL, the Company anticipates additional future costs related to the monitoring and control of air emissions.

 

In addition to those climate change policies already in force, there are also several federal (Canada and U.S.), regional and provincial initiatives currently in development. While recent political and economic events may significantly affect the scope and timing of new policies, TCPL anticipates that most of the Company’s facilities in Canada and the U.S. are or will be subject to federal and/or regional climate change regulations to manage industrial GHG emissions. Certain of these initiatives are outlined below.

 

The Canadian government has continued to express interest in pursuing a harmonized continental climate change strategy. In January 2010, Environment Canada submitted a revised GHG reduction target to the United Nations Framework Convention on

 



 

TRANSCANADA PIPELINES LIMITED      19

 

 

Climate Change as part of its submission for the Copenhagen Accord. The revised target represents a 17 per cent reduction in GHG emissions by 2020 relative to 2005 levels. In June 2010, the Federal government initiated consultation on its policy for coal-fired power operations with the stated intention of publishing the draft regulatory framework in Canada Gazette in early 2011. TCPL participated in this consultation process directly through meetings with government officials and through the Canadian Electricity Association. The new regulations to reduce GHG emissions for coal-fired operations are expected to come into effect in July 2015.

 

In the U.S., the EPA is proceeding towards regulating industrial GHG emissions under the CAA. In May 2010, the EPA issued its final version of the Tailoring Rule which outlines emissions thresholds and a schedule for phasing in certain permitting requirements under the CAA. Under this rule, the Prevention of Significant Deterioration program stipulates the air pollution protection criteria a company must meet to obtain a construction permit. Requirements will apply to GHG emissions starting in January 2011. The second phase of the program will commence in July 2011, with new rulemaking in 2012 to establish emission thresholds and permitting requirements to take effect in 2013. In addition to the Prevention of Significant Deterioration requirements, the Tailoring Rule sets comparable emissions thresholds and timetables for new and existing facilities to obtain operating permits under Title V of the CAA. The regulation of GHG emissions by the EPA under the CAA would have implications for TCPL with respect to permitting for existing, new and modified facilities.

 

The Western Climate Initiative (“WCI”) continues to work toward implementing a regional cap-and-trade program expected to come into effect in 2012. The cap-and-trade program would be a key component of the plan to help WCI members reach their goal of reducing GHG emissions 15 per cent below 2005 by 2020. Beginning in 2012, the cap would cover utilities and large industrial sectors, and expand by 2015 to cover transportation fuels, and commercial and residential fuels. The WCI comprises seven Western states and four Canadian provinces. While TCPL has assets located in all four Canadian member provinces (B.C., Manitoba, Ontario and Québec) and five of the member states (California, Oregon, Washington, Montana and Arizona), the cap-and-trade program is proposed to begin in 2012 in California and the Canadian provinces of B.C., Québec, and Ontario. The programs would cover TCPL’s pipeline and power facilities, however, TCPL expects the cost of compliance would be largely recoverable on the facilities that trigger emissions thresholds.

 

TCPL monitors climate change policy developments and, when warranted, participates in policy discussions in jurisdictions where the Company has operations. The Company is also continuing its programs to manage GHG emissions from its facilities and to evaluate new processes and technologies that result in improved efficiencies and lower GHG emission rates.

 

With respect to business opportunities, the Company has well established processes and criteria for assessing new business opportunities including those that may arise as a result of climate change policies. These processes have been and continue to be key contributors to TCPL’s financial strength and success. Governments in North America are developing long-term plans for limiting GHG emissions. These plans, combined with a shift in consumer attitude and demand for low-emissions fuels, will require changes in energy supply and infrastructure. With the Company’s experience in pipeline transmission and power generation, TCPL is well-positioned to participate in these opportunities.

 

With respect to physical risks arising from climate change, TCPL has in place a set of procedures to manage its response to natural disasters such as forest fires, tornadoes, earthquakes, floods, volcanic eruptions and hurricanes regardless of cause. These procedures are included in TCPL Operating Procedures and are part of the Company’s Incident Management System. The procedures ensure that the health and safety of the Company’s employees and the environment are not compromised during natural disasters.

 

TCPL’s assets are located throughout North America and the Company’s facility design must deal with different geographical areas. In northern regions, changing permafrost levels due to warmer temperatures have been experienced, however, very few kilometers of TCPL’s pipeline systems are currently in permafrost regions. If TCPL builds new facilities in northern areas, the Company’s facility designs will take into account the potential for changing permafrost levels.

 



 

TRANSCANADA PIPELINES LIMITED      20

 

 

Other Risk Factors

 

A discussion of the Company’s risk factors can be found in the MD&A under the headings “Natural Gas Pipelines – Opportunities and Developments”, “Natural Gas Pipelines – Business Risks”, “Natural Gas Pipelines – Outlook”, “Oil Pipelines – Opportunities and Developments”, “Oil Pipelines – Business Risks”, “Oil Pipelines – Outlook”, “Energy – Opportunities and Developments”, “Energy – Business Risks”, “Energy – Outlook” 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 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 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 holders of TCPL’s cumulative redeemable first preferred shares, series U (the “Series U Preferred Shares”) are entitled to receive as and when declared by the Board, fixed cumulative cash dividends at an annual rate of $2.80 per share, payable quarterly.  The dividends declared per share on TCPL’s respective common shares, Series U Preferred Shares, and cumulative redeemable first preferred shares, series Y (the “Series Y Preferred Shares”) during the past three completed financial years are set forth in the following table.

 

 

 

2010

 

2009

 

2008

 

 Dividends declared on common shares(1)

 

$1.67

 

$1.62

 

$1.49

 

 Dividends declared on Series U Preferred Shares

 

$2.80

 

$2.80

 

$2.80

 

 Dividends declared on Series Y Preferred Shares

 

$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 675,673,927 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 Preferred Shares and 4,000,000 Series Y 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.

 

Series U Preferred Shares

 

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 Series U Preferred Shares are entitled to receive dividends as set out above under “Dividends”.

 

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 of 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 Series U Preferred Shares 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,

 



 

TRANSCANADA PIPELINES LIMITED      21

 

 

TCPL may redeem, on or after October 15, 2013, some or all of the Series U Preferred Shares upon payment for each share at $50.00 per share.

 

Except as provided by the CBCA 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 Series U Preferred Shares.

 

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 66 2¤3 per cent of the first preferred shares represented and voted at a meeting or adjourned meeting of such holders.

 

Series Y Preferred Shares

 

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

 

Debt

 

The following table sets out the issuances by TCPL of senior unsecured notes, medium term unsecured note debentures and junior subordinated notes with terms to maturity in excess of one year, during the 12 months ended December 31, 2010.

 

 Date Issued

 

Issue Price per

$1,000 Principal

Amount of Notes

 

Aggregate

Issue Price

 

 May 27, 2010

 

US$997.43

 

US$1,000,000,000

 

 September 21, 2010

 

US$998.81 (1)

 

US$500,000,000

 

 September 21, 2010

 

US$996.86 (1)

 

US$750,000,000

 

 

(1)          These notes were issued under the same prospectus supplement.  Notes maturing in 2015 were issued at 99.881 per cent and notes maturing in 2040 were issued at 99.686 per cent.

 

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 current credit ratings assigned to those outstanding classes of securities of TCPL which have been rated by DBRS Limited (“DBRS”), Moody’s Investors Service, Inc. (“Moody’s”) and Standard and Poor’s (“S&P”):

 

 

 

DBRS

 

Moody’s

 

S&P

 

 Senior Unsecured Debt

 

 

 

 

 

 

 

 Debentures

 

A

 

A3

 

A-

 

 Medium-Term Notes

 

A

 

A3

 

A-

 

 Junior Subordinated Notes

 

BBB (high)

 

Baa1

 

BBB

 

 Preferred Shares

 

Pfd-2 (low)

 

Baa2

 

P-2

 

 Commercial Paper

 

R-1 (low)

 

-

 

-

 

 Trend/Rating Outlook

 

Stable

 

Stable

 

Stable

 

 

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. The following information concerning the Company’s credit ratings relates to the Company’s financing costs, liquidity and operations. The availability of TCPL’s funding options may be affected by certain factors, including the global capital market environment and outlook as well as the Company’s financial performance. TCPL’s access to capital markets at competitive rates is dependent on its credit rating and rating outlook, as determined by credit rating agencies such as DBRS, Moody’s and S&P, and if TCPL’s ratings were downgraded the Company’s financing costs and future debt issuances could be unfavorably impacted. A description of the rating agencies’ credit ratings listed in the table above is set out below.

 



 

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DBRS Limited (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 all rating categories other than AAA and D. 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 in the third highest of ten rating categories and indicates good credit quality.  The overall strength is not as favourable as higher rating categories, but any qualifying negative factors that exist are considered manageable.  The A rating assigned to TCPL’s senior unsecured debt is in the third highest of ten categories for long-term debt. Long-term debt rated A is good credit quality.  The capacity for the payment of interest and principal is substantial, but the degree of strength is less than that of AA rated securities.  The BBB (high) rating assigned to junior subordinated notes is in the fourth highest of the ten categories for long-term debt.  Long-term debt rated BBB is of adequate credit quality.  The capacity for the payment of interest and principal is considered acceptable, but it may be vulnerable to future events.  The Pfd-2 (low) rating assigned to TCPL’s and TransCanada’s preferred shares is in 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.  In general, Pfd-2 ratings correspond with long-term debt rated in the A category.

 

Moody’s Investors Service, Inc. (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 from Aa through Caa, with 1 being the highest and 3 being the lowest.  The A3 rating assigned to TCPL’s senior unsecured debt is in 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 Baa 1 and Baa2 ratings assigned to TCPL’s junior subordinated debt and preferred shares, respectively, are in the fourth highest of nine rating categories for long-term obligations, with the junior subordinated debt ranking slightly higher within the Baa rating category with a modifier of 1 as opposed to the modifier of 2 on the preferred shares.  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 from AA through CCC 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 in 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 slightly more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories.  The BBB and P-2 ratings assigned to TCPL’s junior subordinated notes and TCPL’s and TransCanada’s preferred shares 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. During 2010, 26,121,204 common shares of TCPL were issued to TransCanada as set out in the following table:

 

Date

 

Number of TCPL Common Shares

 

Price per TCPL Common Share

 

Aggregate Issuance Price

April 7, 2010

 

10,674,455

 

$37.66

 

$402,000,000

August 4, 2010

 

4,642,271

 

$36.62

 

$170,000,000

October 14, 2010

 

10,804,478

 

$38.41

 

$415,000,000

 

TransCanada’s common shares are listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”) under the symbol “TRP”. TransCanada’s cumulative redeemable first preferred, series 1 (the “Series 1 Preferred Shares”), cumulative redeemable first preferred, series 3 (the “Series 3 Preferred Shares”), and cumulative redeemable first preferred, series 5 (the “Series 5 Preferred Shares”) have been listed for trading on the TSX since September 30, 2009, March 12, 2010 and June 29, 2010, respectively, under the symbols “TRP.PR.A”, “TRP.PR.B”, and “TRP.PR.C”, respectively. The following tables set forth the reported monthly high, low, and month-end closing trading prices and monthly trading volumes of the common shares of TransCanada on the TSX and the NYSE, and the respective Series 1 Preferred Shares, Series 3 Preferred Shares and Series 5 Preferred Shares on the TSX, for the period indicated:

 


 

TRANSCANADA PIPELINES LIMITED      23

 

 

Common Shares

 

 

 

TSX (TRP)

 

NYSE (TRP)

 

Month

 

High
($)

 

Low
($)

 

Close
($)

 

Volume
Traded

 

High
(US$)

 

Low
(US$)

 

Close
(US$)

 

Volume
Traded

 

December 2010

 

38.71

 

36.53

 

37.99

 

36,564,145

 

38.44

 

35.86

 

38.04

 

8,743,709

 

November 2010

 

38.04

 

35.49

 

36.20

 

47,122,180

 

37.72

 

34.77

 

35.33

 

8,000,248

 

October 2010

 

39.28

 

37.06

 

37.67

 

24,452,953

 

38.59

 

36.33

 

36.95

 

6,887,287

 

September 2010

 

38.88

 

37.25

 

38.17

 

35,287,579

 

37.75

 

36.00

 

37.12

 

5,548,775

 

August 2010

 

38.45

 

35.75

 

38.00

 

23,551,406

 

36.53

 

34.23

 

35.64

 

6,079,595

 

July 2010

 

37.25

 

35.50

 

36.33

 

30,315,925

 

35.85

 

32.86

 

35.35

 

8,077,360

 

June 2010

 

37.31

 

34.57

 

35.61

 

30,159,655

 

36.69

 

33.02

 

33.43

 

8,154,916

 

May 2010

 

36.92

 

30.01

 

35.50

 

32,936,332

 

36.47

 

25.80

 

33.17

 

9,235,485

 

April 2010

 

38.16

 

35.18

 

35.84

 

30,450,870

 

38.01

 

34.92

 

35.20

 

6,424,836

 

March 2010

 

37.87

 

34.75

 

37.22

 

42,951,844

 

37.11

 

33.20

 

36.76

 

5,806,751

 

February 2010

 

35.30

 

33.96

 

34.78

 

25,627,521

 

33.68

 

31.58

 

33.00

 

5,669,857

 

January 2010

 

36.44

 

34.00

 

34.17

 

23,180,090

 

35.07

 

31.85

 

31.91

 

6,314,623

 

 

Series 1 Preferred Shares

 

 

 

TSX (TRP.PR.A)

 

 

 

Month

 

High
($)

 

Low
($)

 

Close
($)

 

Volume
Traded

 

 

 

 

 

 

 

 

 

December 2010

 

26.00

 

25.50

 

26.00

 

559,051

 

 

 

 

 

 

 

 

 

November 2010

 

26.79

 

25.95

 

25.97

 

583,072

 

 

 

 

 

 

 

 

 

October 2010

 

26.45

 

26.13

 

26.29

 

528,964

 

 

 

 

 

 

 

 

 

September 2010

 

27.89

 

25.90

 

26.24

 

613,195

 

 

 

 

 

 

 

 

 

August 2010

 

26.11

 

25.80

 

26.00

 

623,916

 

 

 

 

 

 

 

 

 

July 2010

 

25.95

 

25.35

 

25.95

 

454,853

 

 

 

 

 

 

 

 

 

June 2010

 

25.90

 

25.15

 

25.45

 

552,510

 

 

 

 

 

 

 

 

 

May 2010

 

25.45

 

25.00

 

25.11

 

1,147,115

 

 

 

 

 

 

 

 

 

April 2010

 

25.85

 

25.06

 

25.25

 

619,658

 

 

 

 

 

 

 

 

 

March 2010

 

26.59

 

25.08

 

25.69

 

1,289,162

 

 

 

 

 

 

 

 

 

February 2010

 

26.29

 

25.80

 

25.95

 

727,716

 

 

 

 

 

 

 

 

 

January 2010

 

27.15

 

25.80

 

26.15

 

1,561,414

 

 

 

 

 

 

 

 

 

 

Series 3 Preferred Shares

 

 

 

TSX (TRP.PR.B)

 

 

 

Month

 

High
($)

 

Low
($)

 

Close
($)

 

Volume
Traded

 

 

 

 

 

 

 

 

 

December 2010

 

25.59

 

24.65

 

25.57

 

219,795

 

 

 

 

 

 

 

 

 

November 2010

 

25.98

 

24.85

 

24.98

 

342,225

 

 

 

 

 

 

 

 

 

October 2010

 

25.48

 

24.85

 

25.10

 

522,319

 

 

 

 

 

 

 

 

 

September 2010

 

25.66

 

24.95

 

25.36

 

431,061

 

 

 

 

 

 

 

 

 

August 2010

 

25.20

 

24.85

 

24.98

 

533,912

 

 

 

 

 

 

 

 

 

July 2010

 

25.00

 

24.60

 

24.94

 

291,835

 

 

 

 

 

 

 

 

 

June 2010

 

24.75

 

24.16

 

24.65

 

425,787

 

 

 

 

 

 

 

 

 

May 2010

 

24.84

 

23.99

 

24.20

 

458,273

 

 

 

 

 

 

 

 

 

April 2010

 

25.07

 

23.90

 

23.90

 

497,079

 

 

 

 

 

 

 

 

 

March 2010

 

25.08

 

24.83

 

25.02

 

1,817,221

 

 

 

 

 

 

 

 

 

 



 

TRANSCANADA PIPELINES LIMITED      24

 

 

Series 5 Preferred Shares

 

 

 

TSX (TRP.PR.C)

 

 

 

Month

 

High
($)

 

Low
($)

 

Close
($)

 

Volume
Traded

 

 

 

 

 

 

 

 

 

December 2010

 

26.26

 

25.00

 

25.81

 

351,359

 

 

 

 

 

 

 

 

 

November 2010

 

26.45

 

25.50

 

25.65

 

397,725

 

 

 

 

 

 

 

 

 

October 2010

 

26.17

 

25.36

 

25.56

 

499,857

 

 

 

 

 

 

 

 

 

September 2010

 

26.50

 

25.28

 

25.69

 

597,352

 

 

 

 

 

 

 

 

 

August 2010

 

25.82

 

25.20

 

25.70

 

613,671

 

 

 

 

 

 

 

 

 

July 2010

 

25.41

 

24.84

 

25.30

 

1,084,450

 

 

 

 

 

 

 

 

 

June 2010

 

24.98

 

24.75

 

24.95

 

944,707

 

 

 

 

 

 

 

 

 

 

In addition, the Series U Preferred Shares and Series Y Preferred Shares are listed on the TSX under the symbols “TCA.PR.X and TCA.PR.Y, respectively.  The following table sets forth the reported monthly high and low trading prices and monthly trading volumes of the Series U Preferred Shares and the Series Y Preferred Shares.

 

Series U Preferred Shares and Series Y Preferred Shares

 

 

 

Series U (TCA.PR.X)

 

Series Y (TCA.PR.Y)

 

Month

 

High
($)

 

Low
($)

 

Close
($)

 

Volume
Traded

 

High
($)

 

Low
($)

 

Close
($)

 

Volume
Traded

 

December 2010

 

51.06

 

49.72

 

49.98

 

52,579

 

50.74

 

49.03

 

49.90

 

49,336

 

November 2010

 

50.96

 

50.12

 

50.60

 

36,146

 

51.00

 

50.20

 

50.40

 

27,331

 

October 2010

 

50.60

 

49.72

 

50.31

 

33,895

 

50.39

 

49.80

 

50.08

 

33,761

 

September 2010

 

50.70

 

49.10

 

50.09

 

47,937

 

50.60

 

49.25

 

49.95

 

41,626

 

August 2010

 

49.49

 

48.60

 

49.28

 

29,179

 

49.49

 

48.50

 

49.25

 

29,827

 

July 2010

 

49.24

 

48.65

 

49.15

 

26,727

 

49.34

 

48.69

 

48.70

 

38,686

 

June 2010

 

49.05

 

46.11

 

48.61

 

33,108

 

49.50

 

46.32

 

48.90

 

76,367

 

May 2010

 

47.81

 

45.60

 

46.70

 

40,984

 

47.14

 

45.01

 

46.25

 

59,507

 

April 2010

 

48.45

 

46.60

 

47.20

 

52,186

 

48.60

 

46.65

 

47.00

 

44,835

 

March 2010

 

49.70

 

48.54

 

48.55

 

67,659

 

49.49

 

48.50

 

48.51

 

28,358

 

February 2010

 

49.19

 

48.50

 

48.60

 

86,737

 

49.20

 

48.10

 

48.90

 

40,250

 

January 2010

 

50.97

 

48.75

 

48.75

 

166,685

 

50.00

 

48.57

 

49.10

 

42,244

 

 

DIRECTORS AND OFFICERS

 

As of February 14, 2011, the directors and officers of TransCanada as a group beneficially owned, or exercised control or direction, directly or indirectly, over an aggregate of 517,667 common shares of TransCanada.  This constitutes less than one per cent of TransCanada’s 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.  Each director holds office until the next annual meeting or until his or her successor is earlier elected or appointed.

 


 

TRANSCANADA PIPELINES LIMITED     25

 

 

Name and
Place of Residence

Principal Occupation During the Five Preceding Years

 

Director Since

Kevin E. Benson
DeWinton, Alberta
Canada

President and Chief Executive Officer, Laidlaw International, Inc. (transportation services) from June 2003 to October 2007. Director, Emergency Medical Services Corporation.

 

2005

Derek H. Burney(1), O.C.
Ottawa, Ontario
Canada

Senior strategic advisor at Ogilvy Renault LLP (law firm). Chair (not a Director), International Advisory Board for Garda World Consulting & Investigation, a division of Garda World Security Corporation since 2008. Chair, Canwest Global Communications Corp. (communications) from August 2006 (director since April 2005) to October 2010 and Lead Director at Shell Canada Limited (oil and gas) from April 2001 to May 2007.

 

2005

Wendy K. Dobson
Uxbridge, Ontario
Canada

Professor, Rotman School of Management. Director, Institute for International Business, University of Toronto and Director, the Toronto-Dominion Bank. Vice Chair, Canadian Public Accountability Board until February 2010 and Chair of the Audit Committee of the same organization from 2003 to 2009.

 

1992

E. Linn Draper
Lampasas, Texas
U.S.

Director, Alliance Data Systems Corporation (data processing and services) and Director, Alpha Natural Resources, Inc. (mining). Chair, NorthWestern Corporation (conducting business as NorthWestern Energy) (oil and gas). Lead Director, Temple-Inland Inc. (materials).

 

2005

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

Senior Partner, Stein Monast LLP (law firm). Director, Metro Inc., RBC Dexia Investor Services Trust, Royal Bank of Canada and Care Canada. Director, Institut Québecois des Hautes Études Internationales, Laval University from 2002 until 2009.

 

2002

Russell K. Girling
Calgary, Alberta
Canada

President and Chief Executive Officer, TransCanada since July 1, 2010. Chief Operating Officer from July 2009 to June 30, 2010 and President, Pipelines from June 2006 to June 30, 2010. Prior to June 2006, Chief Financial Officer and Executive Vice-President, Corporate Development. Director, Agrium Inc.

 

2010

Kerry L. Hawkins
Winnipeg, Manitoba
Canada

Director, NOVA Chemicals Corporation until July 2009. President, Cargill Limited (agricultural) from September 1982 to December 2005.

 

1996

S. Barry Jackson
Calgary, Alberta
Canada

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

 

2002

Paul L. Joskow
New York, New York
U.S.

Economist and President of the Alfred P. Sloan Foundation. Professor of Economics, Emeritus, Massachusetts Institute of Technology (“MIT”) where he has been on the faculty since 1972. Trustee of Yale University since July 1, 2008 and member of the Board of Overseers of the Boston Symphony Orchestra since September 2005. Director of the MIT Center for Energy and Environmental Policy Research from 1999 to 2007 and Director of National Grid plc from 2000 to 2007. Director, Exelon Corporation (energy), and a trustee of Putnam Mutual Funds.

 

2004

John A. MacNaughton(2), C.M.
Toronto, Ontario
Canada

Chair of the Business Development Bank of Canada. Chair, CNSX Markets Inc. (formerly the Canadian Trading and Quotation System Inc.) (stock exchange) from 2006 to July 2010. Director, Nortel Networks Corporation and Nortel Networks Limited (the principal operating subsidiary of Nortel Networks Corporation) (technology) from 2005 to September 2010. Chair of the Independent Nominating Committee of the Canada Employment Insurance Financing Board since 2008. Founding President and Chief Executive Officer of the Canada Pension Plan Investment Board from 1999 to 2005.

 

2006

David P. O’Brien(3)
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 Enerplus Corporation. Member of the Science, Technology and Innovation Council of Canada.

 

2001

 



 

TRANSCANADA PIPELINES LIMITED      26

 

Name and
Place of Residence

Principal Occupation During the Five Preceding Years

 

Director Since

W. Thomas Stephens
Greenwood Village, Colorado
U.S.

Chair and Chief Executive Officer of Boise Cascade, LLC from November 2004 to November 2008. Director, Boise Inc. until April 2010. Trustee, Putnam Mutual Funds.

 

2007(4)

D. Michael G. Stewart
Calgary, Alberta
Canada

Director, Canadian Energy Services & Technology Corp. (previously Canadian Energy Services LP (Director, Canadian Energy Services Inc., the GP)), Pengrowth Energy Corporation (previously Pengrowth Corporation (the administrator of Pengrowth Energy Trust)) and C&C Energia Ltd. Director, Orleans Energy Ltd. from October 2008 to December 2010. Chairman and a trustee of Esprit Energy Trust (oil and gas) from August 2004 to October 2006. Director, 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)          Canwest Global Communications Corp. (“Canwest”) voluntarily entered into, and successfully obtained an Order from the Ontario Superior Court of Justice (Commercial Division) commencing proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) on October 6, 2009. Although no cease trade orders were issued, following the filing Canwest shares were de-listed from trading on the TSX and now trade on the TSX Venture Exchange. Canwest emerged from CCAA protection and its newspaper business was acquired by Postmedia Network on July 13, 2010 and its broadcast media business was acquired by Shaw Communications Inc. on October 27, 2010. Mr. Burney ceased to be a director of Canwest on October 27, 2010.

 

(2)          Nortel Networks Limited is the principal operating subsidiary of Nortel Networks Corporation (collectively referred to as “Nortel”). Mr. MacNaughton became a director of Nortel on June 29, 2005. Nortel was subject to a management cease trade order on April 10, 2006 issued by the Ontario Securities Commission (“OSC”) and other provincial securities regulators. The cease trade order related to a delay in filing certain of Nortel’s 2005 financial statements. The order was revoked by the OSC on June 8, 2006 and by the other provincial securities regulators very shortly thereafter. On January 14, 2009, Nortel, and certain of Nortel’s other Canadian subsidiaries filed for creditor protection under the CCAA.

 

(3)          Air Canada filed for protection under the CCAA and applicable bankruptcy protection statutes in the U.S. in April 2003. Mr. O’Brien resigned as a director of Air Canada on November 26, 2003.

 

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

 

Board Committees

 

TCPL has four committees of the Board: the Audit Committee, the Governance Committee, the Health, Safety and Environment Committee and the Human Resources Committee.  The voting members of each of these committees, as of Year End, are identified below:

 

Audit Committee

 

Governance Committee

 

Health, Safety and
Environment Committee

 

Human Resources Committee

Chair:

K.E. Benson

 

Chair:

J.A. MacNaughton

 

Chair:

 

E.L. Draper

 

Chair:

 

W.T. Stephens

Members:

D.H. Burney

 

Members:

K.E. Benson

 

Members:

 

W.K. Dobson

 

Members:

 

W.K. Dobson

 

E.L. Draper

 

 

D.H. Burney

 

 

 

P. Gauthier

 

 

 

P. Gauthier

 

P.L. Joskow

 

 

P.L. Joskow

 

 

 

K.L. Hawkins

 

 

 

K.L. Hawkins

 

J.A. MacNaughton

 

 

D.P. O’Brien

 

 

 

W.T. Stephens

 

 

 

D.P. O’Brien

 

D.M.G. Stewart

 

 

D.M.G. Stewart

 

 

 

 

 

 

 

S.B. Jackson

 

 

 

 

S.B. Jackson

 

 

 

 

 

 

 

 

 

The charters of the Audit Committee, Governance Committee, the Health, Safety and 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.  Information about the audit committee can be found in this AIF under the heading “Audit Committee”.

 

Further information about the Board committees and corporate governance can also be found on TransCanada’s website.

 

Officers

 

All of the executive officers and corporate officers of TCPL reside in Calgary, Alberta, Canada, with the exception of Mr. Hobbs who resides in Houston, Texas, U.S. References to positions and offices with TCPL prior to May 15, 2003 are references to the positions and offices held with TCPL. Current positions and offices held with TCPL are also held by such person at TCPL. 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:

 



 

TRANSCANADA PIPELINES LIMITED      27

 

 

Executive Officers

 

 

Name

Present Position Held

Principal Occupation During the Five Preceding Years

Russell K. Girling

President and Chief Executive Officer

Prior to July 2010, Chief Operating Officer since July 2009 and President, Pipelines since June 2006. Prior to June 2006, Executive Vice-President, Corporate Development, since March 2003 and Chief Financial Officer, since August 1999.

Gregory A. Lohnes

Executive Vice-President and President, Natural Gas Pipelines

Prior to July 2010, Executive Vice-President and Chief Financial Officer. Prior to June 2006, President and Chief Executive Officer of Great Lakes Gas Transmission Company, since August 2000.

Donald R. Marchand

Executive Vice-President and Chief Financial Officer

Prior to July 2010, Vice-President, Finance and Treasurer, since September 1999.

Dennis J. McConaghy

Executive Vice-President, Corporate Development

Prior to July 2010, Executive Vice-President, Pipeline Strategy and Development. Prior to June 2006, Executive Vice-President, Gas Development, since May 2001.

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 2006. Prior to June 2006, Vice-President, Transactions, Power Division, TCPL, since April 2003.

Alexander J. Pourbaix

President, Energy and Oil Pipelines

President, Energy from June 2006 to June 2010 and Executive Vice-President, Corporate Development from July 2009 to June 2010. Prior to June 2006, Executive Vice-President, Power, since March 2003.

Sarah E. Raiss

Executive Vice-President, Corporate Services

Executive Vice-President, Corporate Services, since January 2002.

Donald M. Wishart

Executive Vice-President, Operations and Major Projects

Prior to July 2009, Executive Vice-President, Operations and Engineering, since March 2003.

 

Corporate Officers

 

 

Name

Present Position Held

Principal Occupation During the Five Preceding Years

Sean M. Brett

Vice-President and Treasurer

Prior to July 2010, Vice-President, Commercial Operations of TC Pipelines GP, Inc., and Director, LP Operations of TCPL. Prior to November 2009, Director, Joint Venture Management, Keystone Pipeline Project of TCPL. Prior to December 2008, Vice-President and Treasurer of TC Pipelines GP, Inc. Prior to January 2007, Mr. Brett held a number of positions of increasing responsibility with TransCanada’s Finance and Treasury Group.

Ronald L. Cook

Vice-President, Taxation

Vice-President, Taxation, since April 2002.

Donald J. DeGrandis

Vice-President and Corporate Secretary

Prior to February 2009, Corporate Secretary. Prior to June 2006, Associate General Counsel, Corporate Services, since June 2004.

Lee G. Hobbs

President, U.S. Natural Gas Pipelines

Senior Vice-President and General Manager, U.S. Pipelines, Pipelines Division, TCPL, June 2009 to July 2010. Vice-President and General Manager, U.S. Pipelines Central, Pipelines Division, TCPL, March 2007 to June 2009. President, Great Lakes Gas Transmission Company and Great Lakes Gas Transmission Limited Partnership, September 2006 to March 2007. Prior to September 2006, Vice-President and Controller, TCPL, since July 2001.

Joel E. Hunter

Vice-President, Finance

Director, Corporate Finance, January 2008 to July 2010. Prior to January 2008, Senior Analyst, Corporate Finance. Prior to January 2007 Mr. Hunter held a number of positions of increasing responsibility with TransCanada’s Finance and Treasury Group.

Garry E. Lamb

Vice-President, Risk Management

Vice-President, Risk Management, since October 2001.

G. Glenn Menuz

Vice-President and Controller

Prior to June 2006, Assistant Controller, since October 2001.

 

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 CBCA. 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

 


 

TRANSCANADA PIPELINES LIMITED     28

 

 

directors, so some of them must come from the oil and gas producer and shipper community; the Governance Committee 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.

 

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 CSA, those of the NYSE and of the SEC applicable to foreign issuers. 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 our 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 National Instrument 52-110, Audit Committees; 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” or at Schedule “B” to TransCanada’s Management Proxy Circular (the “Proxy Circular”) dated February 14, 2011.

 

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

 

Relevant Education and Experience of Members

 

The members of the Audit Committee at Year End were Kevin E. Benson (Chair), Derek H. Burney, E. Linn Draper, Paul L. Joskow, John A. MacNaughton and D. Michael G. Stewart.

 

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 responsibilities as a member of the Audit Committee:

 

Kevin E. Benson

 

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 The Insurance Corporation of British Columbia and has served on other public company boards and on the audit committees of certain of those boards.

 

Derek H. Burney

 

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 Chair and Chief Executive Officer of Bell Canada International Inc. Mr. Burney was the lead director at Shell Canada Limited until May 2007 and was the Chair of Canwest Global Communications Corp. until October 2010. He has served on one other organization’s audit committee.

 

E. Linn Draper

 

Dr. Draper holds a Bachelor of Science in Chemical Engineering from Rice University and a Ph.D. in Nuclear Science and Engineering from Cornell University.  Dr. Draper was Chair, President and Chief Executive Officer of American Electric Power Co., Inc. until 2004.  He previously served as Chair, President and Chief Executive Officer of Gulf States Utilities Company.  Dr. Draper has served and continues to serve on several other public company boards.

 



 

TRANSCANADA PIPELINES LIMITED     29

 

 

Paul L. Joskow

 

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

 

John A. MacNaughton

 

Mr. MacNaughton earned a Bachelor of Arts in Economics from the University of Western Ontario. Mr. MacNaughton is currently the Chair of the Business Development Bank of Canada, and was Chair of CNSX Markets Inc. (formerly Canadian Trading and Quotation System Inc.) until July 2010. 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 has served on the audit committee of other public companies.

 

D. Michael G. Stewart

 

Mr. Stewart earned a Bachelor of Science (Honours) in Geological Science from Queen’s University.  Mr. Stewart has served and continues to serve on the boards of several public companies and other organizations and on the audit committees of certain of those boards.  He has been active in the Canadian energy industry for over 37 years.

 

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-minimus 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 following table provides information about the fees paid by the Company to KPMG LLP, the external auditor of the TransCanada group of companies, for professional services rendered for the 2010 and 2009 fiscal years.

 

Fee Category

2010

2009

Description of Fee Category

 

(millions of dollars)

 

Audit Fees

$6.5

$7.2

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

$0.2

$0.2

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 Company pension plans.

Tax Fees

$1.0

$1.1

Aggregate fees rendered for tax planning and tax compliance advice. The nature of these services consisted of domestic and international tax planning advice and tax compliance matters including the review of income tax returns and other tax filings.

All Other Fees

$0.2

$0.4

Aggregate fees for products and services other than those reported elsewhere in this table. The nature of these services primarily consisted of advice and training primarily related to IFRS.

Total

$7.9

$8.9

 

 



 

TRANSCANADA PIPELINES LIMITED    30

 

 

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 DSUs (as defined below and referred to in this section as “DSU(s)”) credited to each director, as of February 14, 2011.

 

Director

 

TransCanada
Common Shares
(1)

 

Deferred Share
Units
(2)

 

K. Benson

 

13,000

 

34,009

 

D. Burney

 

4,418

 

31,395

 

W. Dobson

 

6,000

 

45,199

 

E.L. Draper

 

0

 

34,919

 

P. Gauthier

 

2,000

 

40,261

 

R. Girling(3)(4)

 

599,971

 

N/A

 

K. Hawkins(5)

 

5,061

 

62,546

 

S.B. Jackson

 

39,000

 

63,781

 

P.L. Joskow

 

5,000

 

22,994

 

J. MacNaughton

 

50,000

 

26,731

 

D. O’Brien

 

52,639

 

42,637

 

W. T. Stephens

 

1,470

 

11,577

 

D.M.G. Stewart(6)

 

13,247

 

13,612

 

 

(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 percent 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 per cent of the class outstanding.

 

(2)          The value of a DSU is tied to the value of TransCanada’s common shares. A DSU is a bookkeeping entry, equivalent to the value of a TransCanada common share, and does not entitle the holder to vote or other shareholder rights, other than the accrual of additional DSUs for the value of dividends. A director cannot redeem DSUs until the director ceases to be a member of the Board. Upon ceasing to be a member of the Board, Canadian directors may redeem their units for cash or common shares at the market price, while U.S. directors may only redeem their units for cash.

 

(3)          Securities owned, controlled or directed include common shares that Mr. Girling has a right to acquire through the exercise of stock options that are vested under the Stock Option Plan, which is described in this AIF under the heading “Equity Compensation Plan Information – Stock Option Plan”. Directors as such do not participate in the Stock Option Plan. Mr. Girling, as an employee of TCPL, has the right to acquire 544,897 common shares under vested stock options, which amount is included in this column.

 

(4)          Mr. Girling is an employee of TCPL and participates is the Company’s Executive Share Unit program; he does not participate in the DSU program.

 

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

 

(6)          The shares listed include 1,723 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 Proxy Circular.

 

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.

 

TCPL’s director compensation practices are designed to reflect the size and complexity of TCPL and to reinforce the emphasis we place on shareholder value by linking a significant portion of directors’ compensation to the value of common shares.  As a result, directors’ compensation consists of annual retainers and meeting fees paid in cash and in equity-based compensation known as deferred share units (“DSUs”).

 

The Governance Committee assesses the market competitiveness of our director compensation on an annual basis against publicly traded autonomous Canadian companies in the Comparator Group (as defined in Schedule “F” to this AIF under the heading

 



 

TRANSCANADA PIPELINES LIMITED     31

 

 

“Compensation Discussion and Analysis”) and a general industry sample of Canadian companies, using an analysis provided by an outside consultant.  Its goal is to provide total compensation to directors that is generally targeted at the median of our peers in both level and form in order to attract and retain qualified individuals.  This goal is reflected in the current compensation paid to directors.  The compensation philosophy for directors’ compensation is different than that for the executive officers discussed under the heading “Compensation Discussion and Analysis” in that it is not directly based on the performance of the Company.

 

DIRECTOR COMPENSATION TABLE

 

The following table sets forth the total compensation paid by TCPL to directors in 2010.

 

Name

Fees Earned(1)
($)

Share-based
Awards
(2)
($)

All Other
Compensation

($)

Total
($)

 

K.E. Benson

117,500

72,000

-

189,500

 

D.H. Burney

112,000

72,000

-

184,000

 

W.K. Dobson

113,500

72,000

-

185,500

 

E.L. Draper

131,000

72,000

-

203,000

 

P. Gauthier

116,500

72,000

-

188,500

 

K.L. Hawkins

116,500

72,000

-

188,500

 

S.B. Jackson(3)

213,000

180,000

36,629

429,629

 

P.L. Joskow

115,000

72,000

-

187,000

 

J.A. MacNaughton

117,500

72,000

-

189,500

 

D.P. O’Brien

103,000

72,000

-

175,000

 

W.T. Stephens

104,800

98,200

-

203,000

 

D.M.G. Stewart

112,000

72,000

-

184,000

 

 

(1)

Includes all annual Board and committee retainers, meeting fees and travel fees paid in cash, including that portion of their cash retainers, meeting fees and travel fees that directors elected to be paid in DSUs.

 

 

(2)

These amounts reflect the portion of the Board retainer ($72,000) and the Board Chair retainer ($180,000) that is required to be paid in DSUs. Directors may also be granted share-based awards in the form of DSUs as additional directors’ compensation under the DSU Plan. There were no DSUs awarded to directors in separate grants in 2010.

 

 

(3)

In 2010, the Chair was reimbursed for certain third-party office and other expenses of approximately $31,137 and received a Company-paid reserved parking stall valued at $5,492.

 

RETAINERS AND FEES PAID TO DIRECTORS

 

Annual Board and committee retainers are paid to each director who is not an employee of TCPL in quarterly installments, in arrears, and are pro-rated from the date of the director’s appointment to the Board and the relevant committees.  Each committee chair is entitled to claim a per diem for time spent on committee activities outside of the committee meetings.  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.  The retainers and fees paid to non-employee directors in 2010 are set forth in the following table.  Directors who are U.S. residents are paid the same amounts as outlined below in U.S. dollars.  There were no changes to directors’ fees in 2010.

 

Board Chair retainer

$360,000 per annum ($180,000 in cash + $180,000 value of DSUs)(1)(2)

Board Chair meeting fee

$3,000 per Chaired Board meeting(1)

Board retainer

$142,000 per annum ($70,000 cash + $72,000 value of DSUs)(2)

Committee retainer

$4,500 per annum

Committee Chair retainer

$5,500 per annum

Board and Committee meeting fee

$1,500 per meeting

Committee Chair meeting fee

$1,500 per meeting

 

(1)          The Chair is paid only the Board Chair retainer fee, the Board Chair meeting fee and the travel fee.  The Chair does not receive any other retainers or meeting fees.

 

(2)          The $180,000 portion of the Board Chair retainer paid in DSUs is equal to an aggregate of 4,836 DSUs and the $72,000 portion of the Board retainer paid in DSUs is equal to an aggregate of 1,934 DSUs for each Canadian director, and 1,984 DSUs for each U.S. director.  DSUs were granted quarterly, in arrears,

 



 

TRANSCANADA PIPELINES LIMITED     32

 

 

based on the closing price of the common shares of TransCanada at the end of each quarter in 2010 of $37.22, $35.61, $38.17 and $37.99, respectively.  Refer to footnote (5) to the table entitled “2010 Retainers and Fees” below for additional information on compensation of U.S. directors.

 

Directors are entitled to direct all or a portion of their cash retainers, meeting fees and travel fees to be paid in DSUs.  In 2010, Mr. Benson, Mr. Burney, Dr. Draper, Mr. Hawkins and Mr. MacNaughton directed all of their retainers, meeting fees and travel fees to be paid in DSUs.  Ms. Gauthier directed her committee retainers, committee meeting fees and travel fees to be paid in DSUs.  Mr. O’Brien directed his Board retainers to be paid in DSUs.  Mr. Stephens directed 20 per cent of his retainers, meeting fees, and travel fees to be paid in DSUs.  In addition, Mr. Jackson directed the cash portion of his Chair retainer as well as his Board Chair meeting fee and travel fees to be paid in DSUs. Dr. Dobson, Mr. Joskow and Mr. Stewart elected to receive the cash portion of their retainers, meeting fees and travel fees in cash.  For further information on the plan for DSUs, see the description under the heading “Share Unit Plan for Non-Employee Directors” below.

 

2010 Retainers and Fees

 

The following table sets out the total fees paid in cash and the value of the DSUs awarded or credited for each non-employee director in 2010 as at the date of the grant, unless otherwise stated. Mr. Girling, as an employee of TCPL, receives no cash fees or DSUs as a director.

 

Name

Board
Retainer

($)

Committee
Retainer

($)

Committee
Chair Retainer

($)

Board
Meeting

 Fee

($)

Committee
Meeting
 Fee
(1)

($)

Travel

Fee

($)

Strategic
Planning
Sessions

($)

Total Fees
Paid in
Cash

($)

Total
Value of
 DSUs
Credited
(2)
($)

Total Cash
& Value of
DSUs
Credited
(3)
($)

K.E. Benson

142,000

9,000

5,500

12,000

18,000

1,500

1,500

-

189,500

189,500

D.H. Burney

142,000

9,000

N/A

10,500

13,500

7,500

1,500

-

184,000

184,000

W.K. Dobson(4)

142,000

9,000

N/A

13,500

13,500

6,000

1,500

113,500

72,000

185,500

E.L. Draper(5)

142,000

9,000

5,500

13,500

21,000

10,500

1,500

-

203,000

203,000

P. Gauthier(4)

142,000

9,000

N/A

13,500

13,500

9,000

1,500

85,000

103,500

188,500

K.L. Hawkins(4)

142,000

9,000

N/A

12,000

13,500

10,500

1,500

-

188,500

188,500

S.B. Jackson(6)

360,000

N/A

N/A

27,000

N/A

3,000

3,000

-

393,000

393,000

P.L. Joskow(5)

142,000

9,000

N/A

13,500

13,500

7,500

1,500

115,000

72,000

187,000

J.A. MacNaughton

142,000

9,000

5,500

10,500

18,000

3,000

1,500

-

189,500

189,500

D.P. O’Brien

142,000

9,000

N/A

10,500

10,500

1,500

1,500

33,000

142,000

175,000

W.T. Stephens(4) (5)

142,000

9,000

5,500

13,500

19,500

12,000

1,500

104,800

98,200

203,000

D.M.G. Stewart(7)

142,000

9,000

N/A

13,500

15,000

3,000

1,500

112,000

72,000

184,000

 

(1)

Amounts shown represent $1,500 per meeting attended paid to each committee member, including the committee chair, plus $1,500 per meeting attended and chaired paid to committee chairs.

 

 

(2)

Amounts shown include the minimum required amount of Board retainers paid in DSUs ($180,000 value of DSUs for the Chair, $72,000 value of DSUs for other Board members) plus the value of the retainers, meeting fees and travel fees elected to be received in DSUs.

 

 

(3)

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

 

 

(4)

Dr. Dobson, Ms. Gauthier, Mr. Hawkins and Mr. Stephens attended the special meeting of the Audit Committee on June 14, 2010 as guests. They were each paid the fee of $1,500 for attending.

 

 

(5)

Directors who are U.S. residents are paid or credited these amounts, including DSU equivalents, in U.S. dollars.

 

 

(6)

Mr. Jackson’s Board meeting fee includes the fee of $3,000 for each Board meeting he chaired.

 

 

(7)

Mr. Stewart chaired the November 2, 2010 Audit Committee meeting in Mr. Benson’s absence. He was paid the fee of $1,500 for chairing the meeting.

 

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. Girling who is subject to executive share ownership guidelines) to acquire and hold a minimum number of common shares, or their economic equivalent, equal in value to five times the director’s annual cash portion of their Board retainer. Directors have a

 


 

TRANSCANADA PIPELINES LIMITED     33

 

 

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 directing all or a portion of their retainer fees, attendance fees and travel fees into DSUs as described under the heading “Share Unit Plan for Non-Employee Directors” below.  Should a director’s shareholdings fall below the minimum threshold at any time after having met such threshold due to subsequent share price fluctuations, the director is expected to ensure he or she re-attains the minimum threshold within a reasonable amount of time as determined and reviewed by the Governance Committee.

 

As of February 14, 2011, all of the directors have achieved the minimum share ownership requirement.

 

Share Unit Plan for Non-Employee Directors

 

The Share Unit Plan for Non-Employee Directors (the “DSU Plan”) was established in 1998.  Pursuant to the DSU Plan, Board members are permitted to elect to receive in DSUs any portion of their retainers and meeting fees (including travel fees) regularly paid in cash.  The DSU Plan also allows the Governance Committee in its discretion, to grant units as additional compensation for directors.

 

Initially the value of a DSU is equal to the market value of a common share at the time the directors are credited with the units.  The value of a DSU, 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 DSU accrues an amount equal to such dividends, which amount is then reinvested in additional DSUs at a price equal to the then market value of a common share.  DSUs cannot be redeemed until the director ceases to be a member of the Board. Canadian directors may redeem DSUs for cash or common shares at the market price, while U.S. directors may only redeem their units for cash.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

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

 

Executive officers of TCPL also serve as executive officers of TransCanada.  An aggregate remuneration is paid for serving as an executive of TCPL and for service as an executive officer of TransCanada.  Since TransCanada does not hold any material assets directly other than the common shares of TCPL and receivables from certain of TransCanada’s subsidiaries, all executive employee costs are assumed by TCPL according to a management services agreement between the two companies.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

TCPL and its subsidiaries are subject to various legal proceedings and regulatory actions arising in the normal course of business.  While the final outcome of such legal proceedings and regulatory actions cannot be predicted with certainty and there can be no assurance that such matters will be resolved in TCPL’s favour, it is the opinion of TCPL’s management that the resolution of such proceedings and regulatory actions will not have a material impact on TransCanada’s consolidated financial position, results of operations or liquidity.

 

TRANSFER AGENT AND REGISTRAR

 

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

 

INTEREST OF EXPERTS

 

TCPL’s 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.

 

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     34

 

 

GLOSSARY

 

AcSB

 

Accounting Standards Board

AGIA

 

Alaska Gasline Inducement Act

AIF

 

Annual Information Form of TransCanada PipeLines Limited dated February 14, 2011

Alaska Pipeline

 

A proposed natural gas pipeline extending from Prudhoe Bay, Alaska to either Alberta or Valdez, Alaska

Alberta System

 

A natural gas transmission system in Alberta and Northeast B.C.

ANR

 

American Natural Resources Company and ANR Storage Company, collectively

ANR System

 

A natural gas transmission system extending from producing fields located primarily in Texas, Oklahoma, the Gulf of Mexico and U.S. Midcontinent region to markets located primarily in Wisconsin, Michigan, Illinois, Ohio and Indiana, and regulated underground natural gas storage facilities in Michigan

AUC

 

Alberta Utilities Commission

Bakken Marketlink

 

A proposed pipeline that would transport crude oil from Baker, Montana to Cushing on facilities that form part of the U.S. Gulf Coast Expansion

Bbl/d

 

Barrels per day

B.C.

 

British Columbia

Bcf

 

Billion cubic feet

Bcf/d

 

Billion cubic feet per day

Bécancour

 

A natural gas-fired cogeneration plant near Trois-Rivières, Québec

Bison

 

A natural gas pipeline extending from the Powder River Basin in Wyoming to the NBPL System in North Dakota

Board

 

TransCanada’s Board of Directors

Bruce A

 

A partnership interest in a nuclear power generation facility consisting of Units 1 to 4 of Bruce Power (Bruce Power A L.P.)

Bruce B

 

A partnership interest in a nuclear power generation facility consisting of Units 5 to 8 of Bruce Power (Bruce Power L.P.)

Bruce Power

 

A nuclear power generating facility located northwest of Toronto, Ontario (Bruce A and Bruce B, collectively)

CAA

 

Clean Air Act

Canadian Audit
Committee Rules

 

As defined in Schedule “B” attached to this AIF

Canadian GAAP

 

Canadian generally accepted accounting principles

Canadian Governance
Guidelines

 

As defined in Schedule “B” attached to this AIF

Canadian Mainline

 

A natural gas transmission system extending from the Alberta/Saskatchewan border east into Québec

Canwest

 

Canwest Global Communications Corp.

Cartier Wind

 

Five wind farms in Gaspé, Québec, three of which are operational and two under construction

CBCA

 

Canada Business Corporations Act

CCAA

 

Companies’ Creditors Arrangement Act

CEO

 

Chief Executive Officer

Chinook

 

A proposed power transmission line project originating in Montana and terminating in Nevada

CICA

 

Canadian Institute of Chartered Accountants

CO2

 

Carbon dioxide

Common shares

 

Common shares of TransCanada or TCPL, as applicable

Coolidge

 

A simple-cycle, natural gas-fired peaking power generation station under construction in Coolidge, Arizona

CSA

 

Canadian Securities Administrators

Cushing Extension

 

The second phase of the Keystone oil pipeline delivering crude oil to Cushing, Oklahoma

Cushing Marketlink

 

A proposed pipeline that would provide crude oil from Cushing, Oklahoma to the U.S. Gulf Coast on facilities that form part of the U.S. Gulf Coast Expansion

DBRS

 

DBRS Limited

DSU(s)

 

Deferred Share Units, as defined in this AIF under the heading “Compensation of Directors”

DSU Plan

 

Share Unit Plan for Non-Employee Directors, as defined in this AIF under the heading “Retainers and Fees Paid to Directors – Share Unit Plan for Non-Employee Directors”

Energy

 

As defined in this AIF under the heading “General Development of the Business”

EPA

 

Environmental Protection Agency (U.S.)

ExxonMobil

 

ExxonMobil Corporation

FERC

 

Federal Energy Regulatory Commission (U.S.)

Foothills System

 

A natural gas transmission system extending from central Alberta to the B.C./U.S. border and to the Saskatchewan/U.S. border

GHG

 

Greenhouse gas

Great Lakes

 

Great Lakes Gas Transmission Limited Partnership

Great Lakes System

 

A natural gas transmission system that connects to the Canadian Mainline and serves markets in Eastern Canada and the Northeastern and Midwestern U.S.

Groundbirch

 

A phase of the Alberta System, connecting natural gas supply primarily from the Montney shale gas formation in Northeast B.C. to existing infrastructure in Northwest Alberta

GTN System

 

A natural gas transmission system extending from the B.C./Idaho border to the Oregon/California border, traversing Idaho, Washington and Oregon

Guadalajara

 

A natural gas pipeline under construction in Mexico extending from Manzanillo, Colima to Guadalajara, Jalisco

Halton Hills

 

A natural gas-fired, combined cycle power plant in Halton Hills, Ontario

Horn River

 

A proposed extension of the Alberta System that would connect new shale gas supply in the Horn River basin north of Fort Nelson, B.C.

HR Committee

 

Human Resources Committee

HS&E

 

Health, safety and environment

HVDC

 

High voltage direct current

Hydro-Québec

 

Hydro-Québec Distribution

IASB

 

International Accounting Standards Board

 



 

TRANSCANADA PIPELINES LIMITED     35

 

 

IFRS

 

International Financial Reporting Standards

Iroquois System

 

A natural gas transmission system connects with the Canadian Mainline near Waddington, New York and delivers natural gas in the Northeastern U.S.

ISO

 

International Organization for Standardization

Keystone Canada

 

TransCanada Keystone Pipeline Limited Partnership

Keystone

 

Wood River/Patoka, the Cushing Extension and the U.S. Gulf Coast Expansion, collectively

Keystone U.S.

 

TransCanada Keystone Pipeline, LP

Kibby Wind

 

A wind farm located in Kibby and Skinner townships in northwestern Franklin County, Maine

km

 

Kilometer(s)

LNG

 

Liquefied Natural Gas

Mackenzie Gas Project

 

A proposed natural gas pipeline extending from a point near Inuvik, Northwest Territories to the northern border of Alberta

MD&A

 

TCPL’s Management’s Discussion and Analysis dated February 14, 2011

MIT

 

Massachusetts Institute of Technology

MMcf/d

 

Million cubic feet per day

Moody’s

 

Moody’s Investors Service, Inc.

MW

 

Megawatt(s)

Natural Gas Pipelines

 

As defined in this AIF under the heading “General Development of the Business”

NBPL

 

Northern Border Pipeline Company

NBPL System

 

A natural gas transmission system extending from a point near Monchy, Saskatchewan to the U.S. Midwest

NEB

 

National Energy Board

Nortel

 

Nortel Networks Limited and Nortel Networks Corporation

North Baja System

 

A natural gas transmission system extending from Arizona to the Baja California, Mexico/California border

North Central Corridor

 

A phase of the Alberta System which extends the northern section thereof

NYSE

 

New York Stock Exchange

Ocean State Power

 

A natural gas-fired, combined-cycle plant in Burrillville, Rhode Island

Oil Pipelines

 

As defined in this AIF under the heading “General Development of the Business”

OPA

 

Ontario Power Authority

OSC

 

Ontario Securities Commission

PCBs

 

Polychlorinated biphenyls

Portland System

 

A natural gas transmission system that extends from a point near East Hereford, Québec to the Northeastern U.S.

Portlands Energy

 

A natural gas-fired combined-cycle power plant near downtown Toronto, Ontario

Proxy Circular

 

TransCanada’s Management Proxy Circular dated February 14, 2011

Ravenswood

 

A natural gas-and oil-fired generating facility located in Queens, New York

RGGI

 

Regional Greenhouse Gas Initiative

RRA

 

Rate-regulated accounting

S&P

 

Standard and Poor’s

SEC

 

U.S. Securities and Exchange Commission

Series 1 Preferred Shares

 

TransCanada’s cumulative, redeemable, first preferred shares, series 1

Series 3 Preferred Shares

 

TransCanada’s cumulative, redeemable, first preferred shares, series 3

Series 5 Preferred Shares

 

TransCanada’s cumulative, redeemable, first preferred shares, series 5

Series U Preferred Shares

 

TCPL’s cumulative, redeemable, first preferred shares, series U

Series Y Preferred Shares

 

TCPL’s cumulative, redeemable, first preferred shares, series Y

Sheerness

 

A coal-fired power generating facility near Hanna, Alberta

Subsidiary

 

As defined in this AIF under the heading “Presentation of Information”

Sundance

 

Two coal-fired power generating facilities near Wabamun, Alberta (Sundance A and Sundance B, collectively)

Systems

 

As defined in this AIF under the heading “Regulation of the Pipeline Business”

TCPL

 

TransCanada PipeLines Limited

TQM

 

A natural gas pipeline that connects with the Canadian Mainline near the Québec/Ontario border and transports natural gas to markets in Québec, and connects with the Portland System

TransCanada or the
Company

 

TransCanada Corporation

TransAlta

 

TransAlta Corporation

TSX

 

Toronto Stock Exchange

Tuscarora