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RNS Number:4664Z
TransCanada Pipelines Ld
07 March 2006
PART 2
Executive Compensation and Other Information
REPORT ON EXECUTIVE COMPENSATION
The following is the Human Resources Committee (the "Committee") Report on
Executive Compensation which outlines the policies of the Committee for
determining compensation of TCPL's Executive Vice-Presidents and of the CEO
(collectively, the "Executives").
Committee Information
Composition of the Committee
The Committee is composed of four directors, K.L. Hawkins (chair), W.K. Dobson,
E.L. Draper, and D.P. O'Brien, all of whom are independent, as required by
securities regulations. There are no interlocking relationships between the
members of the Committee or between any member of the Committee and any of
TCPL's current Executives. E.L. Draper joined the Committee in June 2005 as a
replacement for S.B. Jackson who, as the newly elected Board Chair, became a
non-voting member of the Committee. W.T. Stephens was a member of the Committee
until his resignation in August 2005. The Committee reports to the Board on all
material matters considered, recommended or approved by the Committee.
For further information on the composition and mandate of the Committee please
refer to "Corporate Governance - Statement of Corporate Governance - Human
Resources Committee". For further information on the independence of the
Committee members please refer to "Corporate Governance - Statement of Corporate
Governance - Independence of Directors".
Independent Advice
The Committee engages its own consultants and legal advisors, independent of
those used by management, to gather information and deliver opinions and advice
on various subjects including executive compensation, securities law and
governance practices.
TRANSCANADA PIPELINES LIMITED 29
EXECUTIVE COMPENSATION ADVISORY SERVICES
The Committee engaged Hewitt Associates (the "Consultant") to provide
independent executive compensation consulting services to the Committee during
2005. The mandate of the Consultant was to provide an independent assessment of
management's proposals relating to the compensation of the Executives. In 2005,
the Consultant provided services to the Committee in accordance with this
mandate.
If directed or approved by the chair of the Committee, the Consultant could
also provide advice to management on significant changes to compensation
philosophy or programs, or other compensation matters of the Company. These
additional services were not provided to TCPL in 2005.
Meeting Protocol
In 2005, the Committee revised the timing of annually recurring items on its
rolling agenda to provide better context for the discussion of related items.
For most recurring items requiring Committee approval, a revised two step review
process was adopted. Under this process, initial submissions are provided for
the Committee's consideration at a meeting prior to the approval meeting. This
allows the members time between meetings to request additional information and
to raise and discuss further questions. The discussion is continued at a
subsequent meeting after which a resolution is considered.
Executive Compensation Policies
Compensation Philosophy
The design of TCPL's Executive Compensation Program is based on a compensation
philosophy that:
*
supports employee attraction, engagement and retention;
*
is competitive with the external compensation market;
*
aligns executive interests with shareholders and customers; and
*
rewards accomplishments through "pay-for-performance".
The Executive Compensation Program specifically provides for Total Direct
Compensation ("TDC") which is a combination of base salary and performance-based
incentives that reflect competitive pay in light of business achievement,
fulfillment of individual objectives and overall job performance. The Committee
approves all remuneration to be awarded through the Executive Compensation
Program. TransCanada will continue to monitor market conditions and modify its
Executive Compensation Program, if required, to ensure it remains competitive
and aligned with TransCanada's compensation philosophy.
Determining Individual Executive Compensation
CONTEXT FOR DECISIONS
All compensation awarded annually to the Executives under the following plans is
considered for each individual and approved by the Committee or, in the case of
the CEO, recommended by the Committee to the Board for approval. The Committee
approves or recommends the compensation awards, which are not contingent on the
number, term or current value of other outstanding compensation previously
awarded to the individual. However, the Committee is provided with summaries of
the three-year history of awarded compensation, which is intended to provide
further context for its annual decision-making.
30 TRANSCANADA PIPELINES LIMITED
MARKET COMPETITIVENESS
The Committee considers market compensation data provided by various external
compensation sources. This data consists of summary compensation information
from selected Canadian-based companies that are generally of similar size and
scope to TCPL, and represent the market in which TCPL may compete for talent
(the "Comparator Group").
The composition of the Comparator Group is reviewed annually by the Committee
for its on-going business relevance to TCPL. An overview of the characteristics
of the Comparator Group, as compared to TransCanada, is provided in the
following table:
TCPL Comparator Group
Industry North American Pipelines, Canadian Oil and Gas, Pipelines,
Power Power, Utilities
Location Calgary Principally Alberta
Median 75th Percentile
Revenue(1) $ 5.5 billion $ 3.2 billion $ 8.5 billion
Market Capitalization $15.6 billion $14.5 billion $25.0 billion
(2)
Assets(1) $22.4 billion $11.4 billion $14.2 billion
Employees(1) Approximately 2,300 2,249 4,000
(1)
Revenue, assets and number of employees reflect 2004 information.
(2)
Market Capitalization is calculated as at September 9, 2005.
PAY FOR PERFORMANCE
Awarding Compensation
When awarding annual compensation to the Executives, the Committee considers
actual performance and results achieved against annual corporate and individual
performance objectives. The annual TDC an Executive is awarded will vary in
accordance with the following guidelines:
If Actual Performance... TDC will be...
Meets objectives / satisfactory = Comparable to the median of the Comparator Group
Exceeds objectives / above satisfactory = Comparable to above-median compensation(1)
Falls short of objectives / below satisfactory = Adjusted downward from the previous year(2)
(1)
The degree to which an Executive is compensated above the median is relative
to his or her performance level.
(2)
The degree to which the pay is adjusted downward is relative to individual
performance. However, the adjustment is typically made through variable and
not fixed compensation.
TRANSCANADA PIPELINES LIMITED 31
2005 Corporate Performance
TCPL sets annual corporate objectives directed at achieving the results required
to deliver on TCPL's key longer-term strategies for growth and value creation.
Below is a summary of the performance categories and highlights of results
achieved in 2005.
Performance Category Examples of Performance Measures Highlights of Results Achieved in 2005
Financial performance * Earnings per share Strong financial performance in 2005 including Earnings
* Funds generated from operations per share of $2.49, up from $2.13 in 2004; funds
* Total Shareholder Return generated from operations increased significantly from
2004; the sale of TransCanada Power, L.P.; and a
significant increase in Total Shareholder Return
("TSR").
Operational Excellence * Costs Exceeded objectives on productivity gains, made
* Environment substantial reductions in targeted operating costs and
* Safety significantly reduced carbon-dioxide ("CO2") emissions
from key operations.
Maximize TransCanada's * Stakeholder relationships The annual customer satisfaction survey found that TCPL
competitive strength * Corporate reputation maintained high levels of overall customer satisfaction
and enduring value * Organizational and people and improved significantly in the area of senior
strengths management relationships.
* Financial capacity and Continued to demonstrate strong corporate leadership in
flexibility the areas of social responsibility, community
* Excellence in value-creating investment, and corporate governance as evidenced by
strategy, analysis and investment various honours awarded to TCPL.
execution Improvements in employee performance management
processes including leadership development, talent
management and succession planning.
Maintained strong financial capacity and credit ratings
in Canada and the U.S. which has allowed the Company to
complete large transactions.
Grow and maximize * Progress on longer-term value Significant progress on longer-term initiatives
long-term value of Gas adding initiatives including liquefied natural gas opportunities, northern
Transmission business * Greenfield projects gas pipeline development, Bruce Power "A" restart.
and grow Power * Completed acquisitions Greenfield initiatives - Mexican Tamazunchale Pipeline,
business Keystone oil pipeline project.
Completed acquisitions - Sheerness Power Purchase
Agreement, USGen New England hydroelectric generation
assets.
To assess results achieved against corporate objectives, where appropriate, the
Committee looks at both absolute and relative performance against specific peer
companies. The Committee is of the view that both relative and absolute measures
are required to give a balanced perspective of achievement.
The Committee and the Board were of the opinion that TCPL's 2005 performance
delivered results that exceeded objectives in the areas of financial performance
and growth and above satisfactory results on other notable objectives. On
average, the Committee decided to award above-median TDC for Executives based on
this achievement.
32 TRANSCANADA PIPELINES LIMITED
Value of Awarded Compensation
While annual compensation awards made to the Executives are based on current
year corporate and individual performance, the ultimate value from longer-term
components of the TDC awards is linked to and dependent upon TransCanada's
ability to replicate and sustain annual performance over the longer term.
To ensure that the Company's longer-term compensation programs are effective in
delivering on this intent, in 2005 the Committee reviewed modeled compensation
scenarios for the Executives that illustrated the impact of various future
corporate performance outcomes on previously awarded and outstanding
compensation. The Committee found that the intended relationship between pay and
performance was appropriate for all of the Executives, and that, in aggregate,
the resulting compensation modeled under various performance scenarios was
reasonable, not excessive, and delivered the intended differentiation of
compensation value based on performance.
COMPONENTS OF TDC
TCPL's TDC is structured to place most of the Executive's compensation at risk.
Disclosure of the actual components of TDC for the CEO, the Chief Financial
Officer and the three other most highly compensated executive officers based on
salary and bonus value earned and received during the 2005 financial year
(collectively, the "Named Executive Officers") is noted in the table "Elements
of the Executive Compensation Program" below.
2005 Executive Compensation Program
Elements of the Executive Compensation Program
In 2005, the Executive Compensation Program consisted of four direct
compensation elements: base salary, short-term annual cash incentives,
performance share units issued under the mid-term incentive plan and stock
options issued under the long-term incentive plan. The following table provides
an overview of these elements:
Component of Type of Average Element Form Plan Performance
TDC Compensation Pay Mix Period
(1)
FIXED Annual 28% Base Salary Cash "Base Pay Program" 1 year
of TDC
VARIABLE Annual 27% Short-term Cash "Incentive 1 year
of TDC Incentive Compensation
Program"
Longer-term 31% Medium-term Performance "Executive Share Up to 3 years
of TDC Incentive Share Units Unit Plan" with vesting
at end of
term
14% Long-term Stock Options "Stock Option Plan" Vesting 331/
of TDC Incentive 3% each year
for 3 years
with a 7 year
term
(1)
Mix is the relative emphasis placed on each pay element and is expressed as
an average percentage of TDC in aggregate for the Named Executive Officers.
The relative emphasis on specific forms of variable compensation for
individual Executives is aligned with the Executive's ability to contribute
to short, medium and long-term business achievement based on the Committee's
assessment.
TRANSCANADA PIPELINES LIMITED 33
Overview of Executive Compensation Elements
FIXED COMPENSATION
Base Pay Program
The Base Pay Program provides a fixed level of income based on the market value
of a role. In accordance with TCPL's market-based compensation practices, all
Executive roles are individually matched to similar roles in the Comparator
Group. Base salaries are typically targeted at the median of the market and are
reviewed annually. Variance from the median could occur on the basis of
sustained individual performance or material changes in an Executive's
responsibilities.
VARIABLE COMPENSATION - ANNUAL
The Committee has intentionally moved away from a formulaically driven variable
compensation program to a program based on sound judgement and discretion at the
Board and Committee levels. The Committee is of the view that formulas and
weightings applied to forward-looking objectives may lead to unintended
consequences for compensation purposes. For this reason, there are no
pre-established weightings applied to measures or formulaic calculations used to
determine payments for Executives from TCPL's performance-based annual variable
compensation program. The Committee's comprehensive assessment of overall
business performance of TCPL, including corporate performance against stated
objectives, business circumstances and, where appropriate, relative performance
against peers, provides the context for individual Executive evaluations for
annual variable compensation payments.
Incentive Compensation Program
Short-term annual incentives are awarded through the Incentive Compensation
Program (the "IC Program"). The IC Program provides for the opportunity to
receive annual cash payments based on individual performance measured against
pre-established annual business and individual objectives, within the context of
overall corporate performance.
Corporate performance provides the baseline from which individual assessments
are made. The actual incentive awards for the Executives are based on the
Committee's subjective and discretionary assessment of the Executive's
contribution to the corporate results based on his or her achievement against
individual objectives. The awards are provided under the pay-for-performance
guidelines noted above. Payments from the IC Program are made in the first
quarter following the completion of the financial year.
VARIABLE COMPENSATION - LONGER-TERM
As noted earlier in this report, TDC value awarded to the Executives in a given
year reflects competitive pay in light of individual and corporate performance.
The total value of longer-term variable compensation granted each year is
established as part of an Executive's overall performance-based TDC, where:
34 TRANSCANADA PIPELINES LIMITED
Once the Total LTIP value has been established by the Committee, the value is
divided between the Executive Share Unit Plan (the "ESU" Plan) and the Stock
Option Plan. The Committee determines the actual division of Total LTIP value in
a given year at its discretion and takes into account a number of factors
including:
*
consideration of the funding requirements for awards from both plans;
*
the individual plan designs and each Executive's ability to impact
medium and longer-term performance outcomes; and
*
the valuation of grants.
For the ESU Plan, consideration is given to the budget accrual requirements for
the term of each grant. For stock options, consideration is given to overhang
(i.e., the total number of stock options available for issue, plus all stock
options outstanding that have not yet been exercised) and burn rates (i.e., the
number of stock options issued each year as a percent of the issued and
outstanding Common Shares of TransCanada). The Committee reviews these funding
requirements to balance the impact both may have to TCPL.
From a design perspective, the ESU Plan is intended to align the Executives'
performance with medium-term performance objectives that support the interests
of shareholders and other stakeholders. The Stock Option Plan aligns the
Executives' interests with the longer-term growth and profitability of TCPL,
ultimately enhancing shareholder value. The Committee gives consideration to the
Executive's ability to impact the performance outcomes measured in the different
plan designs.
The value of granted stock options cannot be determined until the date of
grant. Once that economic value of stock options is known, the actual value
ultimately granted via the ESU Plan may be adjusted. This adjustment is
necessary to reconcile the cumulative longer-term value actually granted via the
two plans to the Total LTIP value that is determined by the Committee.
Under this approach the Total LTIP value could potentially be different year
over year based on performance or operational considerations. As a result, the
number of ESU units and stock options granted each year may also vary. In recent
years, approximately 70% of the Total LTIP value has been awarded through the
ESU Plan and 30% through the Stock Option Plan.
Executive Share Unit Plan
Medium-term incentives are granted through the ESU Plan. The purpose of this
plan is to align a considerable portion of each participants' compensation with
medium-term performance objectives that support the interests of shareholders
and other stakeholders. Participants in this plan include all executive and
senior management employees of TCPL.
Under the ESU Plan, participants receive a provisional grant of units that is
valued based on the price of TransCanada's common shares at the time of grant.
Vesting of the grants is subject to the attainment of specific business
performance objectives set by the Committee at the time of grant. Throughout the
three-year term of the grant, participants are credited with additional value
from dividends declared and paid to TransCanada's shareholders.
At the end of the grant term, actual results are compared against the
performance objectives and participant unit totals and provisional dividend
accruals are adjusted based on this assessment. The resulting vested units are
then valued based on the price of TransCanada's common shares at the time of
vesting. Participants receive a cash payment, less statutory withholdings, for
their total settlement value. The dividend value relative to the number of
vested units is added to the vested unit value to calculate the total settlement
value.
TRANSCANADA PIPELINES LIMITED 35
In 2005, participants received a grant of units that was valued based on the
weighted average closing price for TransCanada's common shares on the TSX for
the five trading days prior to and including the grant date. The Committee
established specific objectives for Threshold, Target and Maximum performance
levels, the achievement of which will adjust payment amounts as follows:
Performance Level Unit Total Adjustment
Below Threshold = zero units vest; no payment is made
At Threshold = 50% of units vest for payment
At Target = 100% of units vest for payment
At or Above Maximum = 150% of units vest for payment
The performance criteria which need to be met for the vesting of the 2005 grant
consisted of:
1.
TransCanada's absolute TSR;
2.
TransCanada's relative TSR as compared to specified companies with which
TransCanada may compete for capital (the "ESU Peer Group"); and
3.
Corporate financial measures of earnings per share and funds generated from
operations.
There are no pre-established weightings applied to these measures nor are there
formulaic calculations used to create the performance achievement for the plan.
The Committee uses its judgement and discretion to assess overall performance in
light of the stated criteria and business circumstances surrounding the
performance achievement.
If the actual performance achievement is determined by the Committee to align
at a point between Threshold and Target, or Target and Maximum levels, the
Committee will determine the number of units and dividend accruals that vest on
a pro-rata basis. The formula to determine the value of the vested units is
based on the weighted average closing price of TransCanada's common shares on
the TSX during the five trading days immediately prior to and including the
valuation date.
For the purposes of executive compensation disclosure, grants under the ESU
Plan are reported as long term incentives in this AIF.
Stock Option Plan
Long-term incentives are granted to the Executives through the Stock Option
Plan. This plan aligns the Executives' interests with the longer term growth and
profitability of TransCanada, ultimately enhancing shareholder value.
Participants benefit only if the market value of TransCanada's common shares at
the time of stock option exercise is greater than the market value of such
shares at the time of grant. As of 2005, only executive-level employees
participate in the Stock Option Plan.
The formula to determine the exercise price of a stock option is based on the
price of a TransCanada common share as of the date of grant. The exercise price
is set as the greater of the closing price on the grant date or the weighted
average closing price on the TSX during the five trading days immediately prior
to the grant date. Stock options granted in 2005 vest 331/3% on each anniversary
of the grant date for a period of three years. Vested stock options from this
grant may be exercised until their expiry, which is seven years from the grant
date.
Share Ownership Guidelines
The Committee is of the opinion that executives should hold an interest in
TransCanada in order to align their financial interests with those of
shareholders. In January 2003, all of the Executives and certain additional
executive and senior-level employees of the Company were given guidelines to
achieve an interest level that the Committee viewed as
36 TRANSCANADA PIPELINES LIMITED
significant in relation to each employee's base salary. The specified employees
have five years to meet the following guidelines:
CEO 3 times base salary
Executive Vice Presidents 2 times base salary
Other Senior Employees 1 times base salary
In calculating their interest in TransCanada, these employees may include the
value of shares owned and any outstanding units granted under the ESU Plan. The
Committee receives regular updates on employee ownership levels and compliance
with the guidelines. As of December 31, 2005, all Named Executive Officers have
met or exceeded these guidelines.
Changes Made for the 2005 Executive Compensation Program
ESU Plan
A review of the ESU Plan design was undertaken in 2004 to further enhance its
alignment to TCPL's compensation philosophy. As a result of this review, changes
were approved by the Committee and implemented commencing with the 2005 grant.
Grants reported in the "Summary Compensation Table" (below) for the years 2003
and 2004 were granted under the previous design. The key differences between the
previous and current design include the expansion of the performance levels and
the recalibration of performance objectives as set out below.
Below Threshold Threshold Target Maximum
Previous Zero payout Requires stretch but Very difficult stretch N/A
Design achievable performance; performance
(for 2003 & 50% of granted units requirements;
2004 grants) payout 100% granted units
payout
Current Design Zero payout Requires acceptable Requires stretch but Very difficult stretch
(for 2005 performance; achievable performance; performance
grants onward) 50% of granted units 100% granted units requirements;
payout payout 150% granted units
payout
With the previous design, there was a significant risk of grant forfeiture due
to the difficulty of the performance requirements at both the Threshold and
Target levels. Grants were made with higher nominal values (i.e., more units) in
recognition of this significant risk. The current design provides for
recognition of both satisfactory and excellent performance without the
requirement for higher nominal grant values to deliver the same intended level
of competitive compensation over the longer term.
Previously, the share price used to value units was the closing price on the
TSX on the grant date. Starting with the 2005 grant, the share price used to
value the units at the time of grant reflects the weighted average closing price
for TransCanada's common shares on the TSX for the five trading days prior to
and including the grant date. The change was made to align the grant valuation
process with the payout valuation process.
TRANSCANADA PIPELINES LIMITED 37
Inactive Executive Compensation Plans
The following section provides information pertaining to executive compensation
plans under which grants or awards are no longer made. However, outstanding
grants or awards from these noted plans continue to be disclosed as compensation
for the Named Executive Officers in the various tables contained under the
heading "Executive Compensation" below.
Stock Option Plan Prior to 2003
Prior to 2003 the Stock Option Plan was administered by the Committee to provide
for stock options with an exercise period of ten years with 25% vesting on the
grant date and 25% each year for the next three years.
Performance Unit Plan
The Performance Unit Plan (the "PUP") was established in 1995 and included
participants in the executive and senior management employee groups. In July
2002, the Committee amended the plan so that, starting in 2003, no further
grants would be made under the PUP but accruals on existing grants will continue
until the last grants expire in 2012.
Until 2003, one unit from the PUP ("PUP unit") was granted in tandem with each
stock option granted under the Stock Option Plan. Each PUP unit is eligible for
an annual cash accrual up to the total value of dividends paid on one common
share in the preceding financial year. The accrual is made if TransCanada's TSR
is equal to or greater than the average TSR of other specified Canadian
companies with which TransCanada competes for capital (the "PUP Peer Group").
The Committee has full discretion to award the full or a lesser accrual value if
TransCanada's absolute TSR is below that of the PUP Peer Group average.
A PUP unit vests three years after the grant date and is deemed to be
automatically redeemed on the tenth anniversary of the grant date. Once vested,
a PUP unit may be exercised for the dollar value accrued on the unit at any time
and prior to the tenth anniversary of the grant. However, the vested PUP unit
may only be exercised if the stock option granted in tandem with the PUP unit is
concurrently exercised, or has been previously exercised. If the underlying
stock option is exercised before the PUP unit is vested, the PUP unit is
forfeited.
Compensation of the President and Chief Executive Officer
The components of TDC for the CEO are the same as those for the other
Executives, namely base salary, short-term incentive (from the IC program),
medium-term incentive (from the ESU Plan) and long-term incentive (from the
Stock Option Plan). Annually, the Committee makes recommendations to the Board
regarding the CEO's compensation based on the same market-based,
performance-related basis as for the other Executives. As with the other
Executives, there are no pre-established weightings applied to the CEO's
personal performance objectives or formulaic calculations performed to determine
his annual variable compensation payments.
Overview of Performance
The Committee assesses the performance of the CEO on the basis of achievement
against personal and corporate performance objectives approved by the Committee
at the beginning of the year, as well as his overall contribution to the success
of the Company. For 2005, Mr. Kvisle's personal objectives focused on the
following areas:
ACHIEVEMENT OF CORPORATE OBJECTIVES
As previously noted, the Board has reviewed TCPL's financial and non-financial
results for 2005, and assessed that the Company has met or exceeded all of the
stated performance objectives, and that Mr. Kvisle played a key role in
achieving these outcomes.
38 TRANSCANADA PIPELINES LIMITED
VALUE CREATION
Mr. Kvisle played a key role in delivering major value added initiatives in
2005. The completion of the USGen New England acquisition of hydroelectric
generation facilities and the Sheerness Power Purchase Agreement will add
significant earnings in the Power business. The Company began construction on
the Tamazunchale Pipeline project in Mexico, and commissioned the Grandview
co-generation power plant. Significant progress was made on major longer-term
initiatives including liquefied natural gas opportunities, northern gas pipeline
development, the Keystone oil pipeline project, and a project to restart units
at Bruce Power. All of these initiatives deliver on the Company's objectives of
growing its gas transmission and power businesses.
CREATING A STRONG MANAGEMENT TEAM
The Company continues to focus on developing highly motivated leaders with
strong capabilities, enthused by and aligned with TCPL's strategies and
corporate objectives. Mr. Kvisle provided leadership in 2005 as the organization
focused on improving employee performance management and feedback processes, and
on creating succession plans for key senior level positions.
BUILDING RELATIONSHIPS
Through his actions in 2005, Mr. Kvisle continued to demonstrate his commitment
to building long term winning relationships with key stakeholders, including
customers, governments, shareholders, regulators and first nations. Strong
relationships with these stakeholders are considered key to the Company's long
term success. The Company's annual customer satisfaction survey in 2005
reflected significant improvements in senior level relationships with customers.
OPERATIONAL EXCELLENCE
Mr. Kvisle leads the Company's focus on managing operating and administrative
costs, providing responsive and reliable service, organizational effectiveness
and achieving health, safety and environment standards. For 2005 the Company's
actual operating and administrative costs were under budget. The Company
received excellent scores on its customer survey for its transactional
efficiency and effectiveness, and reduced CO2 emissions from its operations.
INVESTOR CONFIDENCE
Under Mr. Kvisle's leadership, the Company has maintained a disciplined
consistent strategy, delivered strong financial results and allowed the Board
the ability to increase the dividend in 2005 from $1.16 to $1.22. This
contributed to an increase in TransCanada's share price from $29.80 at the end
of 2004 to $36.65 at Year End. TSR in 2005 was approximately 28%.
CORPORATE GOVERNANCE AND REPUTATION
TCPL is proud of its adherence to best practices in corporate governance and the
Company's strong reputation. Mr. Kvisle played a key role in ensuring the
Company is held to the highest standard in this regard. The Company has been
recognized with several awards for its governance practices, social
responsibility and community investment.
TRANSCANADA PIPELINES LIMITED 39
Summary of Performance
The Committee assessed Mr. Kvisle's results and concluded that his performance
exceeded his individual objectives in 2005 and made this recommendation to the
Board.
The Board is of the view that Mr. Kvisle's overall achievements and performance
exceeded his individual objectives in 2005, resulting in his TDC being
positioned in the top quartile TDC for similar roles in the Comparator Group. In
making this determination, the Board considered the achievement of the Company
and Mr. Kvisle's individual objectives (both financial and non financial) as
well as significant economic, industrial and market circumstances that
influenced the performance of TCPL.
This Report on Executive Compensation is submitted on behalf of the Human
Resources Committee of the Board:
K.L. Hawkins (Chair) D.P O'Brien
W.K. Dobson E.L. Draper
PERFORMANCE GRAPH
The following chart compares the five-year cumulative TSR on the TransCanada
(formerly TCPL) common shares to the S&P/TSX composite index (assuming
reinvestment of dividends and considering a $100 investment in common shares on
December 31, 2000).
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Compound
2000 2001 2002 2003 2004 2005 Annual Growth
TransCanada 100 121.1 146.0 185.4 206.6 263.9 21.4%
TSX 100 87.4 76.6 97.0 111.1 137.9 6.6%
40 TRANSCANADA PIPELINES LIMITED
REMUNERATION OF EXECUTIVE OFFICERS OF TCPL
The Executives also serve as executive officers of TCPL. An aggregate
remuneration is paid for serving as an executive of TransCanada and for service
as an executive officer of TCPL. Since TransCanada does not hold any assets
directly other than the common shares of TCPL, all executive employee costs are
assumed by TCPL according to a management services agreement between the two
companies.
EXECUTIVE COMPENSATION
All compensation values noted in this section are derived from compensation
plans and programs that are described in detail under the section "Report on
Executive Compensation" or from retirement arrangements reported under the
section "Pension and Retirement Benefits" elsewhere in this AIF.
Summary Compensation Table
The following table outlines the summary of compensation earned in the 2005,
2004 and 2003 financial years by the Named Executive Officers.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Awards Payouts
Year Salary(1) Bonus(2) Other Securities Shares or LTIP All Other
Name and Principal (b) ($) ($) Annual Under Units Payouts Compensation
Position of the (c) (d) Compensation Options Subject to (5) (6)
Named Executive (3) Granted(4) Resale ($) ($)
Officers ($) (#) Restriction (h) (i)
(a) (e) (f) ($)
(g)
H.N. Kvisle 2005 1,050,003 1,300,000 - 160,000 - 1,852,433 10,417
President and 2004 871,251 1,100,000 - 165,000 - - 8,665
Chief Executive 2003 772,503 900,000 - 200,000 - - 35,703
Officer
R.K. Girling 2005 460,032 500,000 - 60,000 - 740,973 25,600
Executive 2004 457,524 460,000 - 60,000 - - 25,571
Vice-President, 2003 443,751 430,000 - 80,000 - - 21,494
Corporate
Development and
Chief Financial
Officer
A.J. Pourbaix 2005 440,001 500,000 - 60,000 - 740,973 49,691
Executive 2004 407,505 450,000 - 60,000 - - 46,148
Vice-President, 2003 382,506 430,000 - 80,000 - - 36,867
Power
R.J. Turner 2005 450,000 350,000 - 40,000 - 555,730 4,500
Executive 2004 450,000 340,000 - 40,000 - - 42,578
Vice-President, 2003 447,501 300,000 - 60,000 - - 46,779
Gas Transmission
D.M. Wishart 2005 372,504 400,000 - 40,000 - 370,487 3,713
Executive 2004 335,004 330,000 - 40,000 - - 3,325
Vice-President, 2003 279,435 270,000 - 40,000 - - 4,427
Operations and
Engineering
(1)
This column reflects actual base salary earnings during the noted financial
year. Salary adjustments are typically effective April 1.
(2)
Amounts referred to in this table as "Bonus" are paid pursuant to the IC
Program and attributable to the noted financial year. Payments from the IC
Program are made in the first quarter following the completion of the
financial year.
(3)
The value of perquisites for each Named Executive Officer is less than
$50,000 and 10 per cent of total annual salary and bonus for the financial
year and, as such, is not included in this column. For information, the
average annual value for perquisites provided to the Named Executive
Officers in 2005 was $23,102 and included such things as car allowance or
lease and the associated maintenance fees, Company paid parking, luncheon
and/or recreation club memberships and financial counselling/tax
preparation.
(4)
This column shows the number of stock options granted under the Stock Option
Plan to each of the Named Executive Officers during each of the financial
years noted.
TRANSCANADA PIPELINES LIMITED 41
(5)
LTIP Payouts represent the value of the payments made or to be made in 2006
for the proportion of ESU units granted in 2003 that vested and became
eligible for payout in 2005. There were no payouts made under the PUP to the
Named Executive Officers.
(6)
The amounts in this column include payments made to the Named Executive
Officers by subsidiaries and affiliates of TCPL (including directors' fees
paid by affiliates and amounts paid for serving on management committees of
entities in which TCPL holds an interest), specifically: Mr. Girling -
$21,000 for both 2005 and 2004 and $17,067 for 2003; Mr. Pourbaix - $39,000
for both 2005 and 2004 and $22,917 for 2003; Mr. Wishart - $1,650 for 2003
(director's fees paid by an affiliate).
This column also includes the value of salary paid in lieu of vacation based
on the election of the Named Executive Officer and the value of TCPL's
contributions under the Employee Stock Savings Plan made on behalf of the
Named Executive Officer for the noted financial year. Named Executive
Officers may participate in the Employee Stock Savings Plan on the same
basis as all other TCPL employees. Each employee may contribute by payroll
deduction toward the purchase of common shares. TCPL matches the
employee-directed contribution in an amount equal to 25% of the employee
amount to a maximum additional TCPL contribution of 1% of the employee's
base salary. In the 2005 Proxy Circular, the information in this column was
disclosed under column (e). Additionally, the Company is no longer including
the value of employee contributions to the Employee Stock Savings Plan as
these are funded through flex credit allocation and are part of the employee
benefit program available to all employees of TCPL.
Long-Term Incentive Plan Tables
2005 ESU Plan Grants
The following table outlines the grants made under the ESU Plan that were
approved in February 2005. These grants are still unvested and outstanding as of
December 31, 2005. These outstanding grants have not yet been recorded as LTIP
Payouts in the Summary Compensation Table, Column (h), above.
Estimated Future Payouts Under
Securities, Performance or Non-Securities-Price-Based Plans (units)(2)
Units or Other Period
Other Rights Until Maturation
(1) or Payout
Name (#) Below Threshold Target Maximum
Threshold (#) (#) (#)
(#)
H.N. Kvisle 65,320 Dec. 31, 2007 0 32,660 65,320 97,980
R.K. Girling 18,349 Dec. 31, 2007 0 9,175 18,349 27,524
A.J. Pourbaix 15,657 Dec. 31, 2007 0 7,828 15,657 23,485
R.J. Turner 12,458 Dec. 31, 2007 0 6,229 12,458 18,687
D.M. Wishart 12,458 Dec. 31, 2007 0 6,229 12,458 18,687
(1)
This is the grant of units under the ESU Plan.
(2)
Does not include the units related to reinvested dividend value.
42 TRANSCANADA PIPELINES LIMITED
2004 ESU Plan Grants
This section includes information on ESU Plan grants that were made in 2004.
These grants are still unvested and outstanding as of December 31, 2005. These
outstanding grants have not yet been recorded as LTIP Payouts in the Summary
Compensation Table, Column (h), above.
Estimated Future Payouts Under
Securities, Performance or Non-Securities-Price-Based Plans (units)(2)
Units or Other Period
Other Rights Until Maturation
(1) or Payout
Name (#) Below Threshold Target Maximum
Threshold (#) (#) (#)
(#)
H.N. Kvisle 73,185 Dec. 31, 2006 0 36,593 73,185 73,185
R.K. Girling 29,275 Dec. 31, 2006 0 14,638 29,275 29,275
A.J. Pourbaix 26,140 Dec. 31, 2006 0 13,070 26,140 26,140
R.J. Turner 21,540 Dec. 31, 2006 0 10,770 21,540 21,540
D.M. Wishart 21,540 Dec. 31, 2006 0 10,770 21,540 21,540
(1)
This is the grant of units under the ESU Plan.
(2)
Does not include units related to reinvested dividend value.
2003 ESU Plan Grants
The following table outlines the ESU Plan grants that were made in 2003 and
vested in 2005. The table reconciles the value paid to the Named Executive
Officers which is disclosed under LTIP Payouts in the Summary Compensation
Table, Column (h) above.
Name Securities, Performance or Vested Vested Value Vested Value Total
Units or Other Period Units From Grants From Settlement
Other Rights Until Maturation From (3) Dividends(4) (5)
(1) or Payout Grants(2) ($) ($) ($)
(#) (#)
H.N. Kvisle 50,000 Dec. 31, 2005 45,000 1,647,000 205,433 1,852,433
R.K. Girling 20,000 Dec. 31, 2005 18,000 658,800 82,173 740,973
A.J. Pourbaix 20,000 Dec. 31, 2005 18,000 658,800 82,173 740,973
R.J. Turner 15,000 Dec. 31, 2005 13,500 494,100 61,630 555,730
D.M. Wishart 10,000 Dec. 31, 2005 9,000 329,400 41,087 370,487
(1)
This is the grant of units under the ESU Plan that is used to determine
vesting. The range of units that are eligible to vest under this grant are
between 50% and 100%, based on performance between Threshold and Target, or
0% if Threshold performance is not met.
(2)
Based on the Committee's assessment of the performance achieved against
objectives, 90% of the granted units vested for settlement. This number does
not include units related to reinvested dividends.
(3)
The value of granted units that vested based on a valuation price at
December 31, 2005 of $36.60 per unit.
(4)
The additional value related to the accrued value from declared dividends
and paid relative to the vested unit total.
(5)
Includes both the Vested Value from Grant and Vested Value from Dividends.
This settlement value is reported as an LTIP Payout in the Summary
Compensation Table, Column (h) above.
TRANSCANADA PIPELINES LIMITED 43
Supplemental Disclosure - 2006 ESU Plan Grants
Decisions regarding ESU Plan grants are made annually by the Committee in
February prior to the publication of the AIF. Although not a requirement, TCPL
discloses these compensation grants for the Named Executive Officers. The
following table outlines the grants under the ESU Plan made in 2006:
Estimated Future Payouts Under
Securities, Performance or Non-Securities-Price-Based Plans (units)(2)
Units or Other Period
Other Rights Until Maturation
(1) or Payout
Name (#) Below Threshold Target Maximum
Threshold (#) (#) (#)
(#)
H.N. Kvisle 52,391 Dec. 31, 2008 0 26,195 52,391 78,586
R.K. Girling 16,893 Dec. 31, 2008 0 8,447 16,893 25,340
A.J. Pourbaix 16,893 Dec. 31, 2008 0 8,447 16,893 25,340
R.J. Turner 8,958 Dec. 31, 2008 0 4,479 8,958 13,436
D.M. Wishart 8,958 Dec. 31, 2008 0 4,479 8,958 13,436
(1)
This is the grant of units under the ESU Plan.
(2)
Does not include units related to reinvested dividend value.
44 TRANSCANADA PIPELINES LIMITED
PUP Grants Outstanding
The following table outlines PUP grants made to the Named Executive Officers.
The estimated future payouts set out in the table include all accruals up to and
including the accrual approved for the most recently completely financial year.
Estimated Future Payouts Under
Securities, Performance or Non-Securities-Price-Based Plans
Units or Other Period (3)
Other Until Maturation
Rights(1) or Payout(2)
Name (#) Below Threshold(4) Maximum(4) Total
($) ($) Settlement
(5)
($)
H.N. Kvisle 150,000 25-Feb-12 0 620,850 -
100,000 20-Mar-11 0 503,900 -
42,500 27-Feb-11 0 214,158 -
55,000 28-Feb-10 0 325,545 -
50,000 01-Feb-10 0 295,950 -
90,000 01-Sep-09 0 532,710 -
R.K. Girling 65,000 25-Feb-12 0 269,035 -
45,000 27-Feb-11 0 226,755 -
45,000 28-Feb-10 0 266,355 -
50,000 01-Feb-10 0 295,950 -
20,000 29-Jul-09 0 118,380 -
25,000 01-Mar-09 0 147,975 -
25,000 03-Dec-08 0 147,975 -
25,162 09-Dec-07 0 179,380 -
A.J. Pourbaix 65,000 25-Feb-12 0 269,035 -
35,000 27-Feb-11 0 176,365 -
20,000 28-Feb-10 0 118,380 -
20,000 01-Feb-10 0 118,380 -
20,000 01-Mar-09 0 118,380 -
17,500 03-Dec-08 0 103,583 -
R.J. Turner 50,000 25-Feb-12 0 206,950 -
42,500 27-Feb-11 0 214,158 -
35,000 28-Feb-10 0 207,165 -
50,000 01-Feb-10 0 295,950 -
20,000 29-Jul-09 0 118,380 -
40,000 01-Mar-09 0 236,760 -
D.M. Wishart 30,000 25-Feb12 0 124,170 -
35,000 27-Feb-11 0 176,365 -
20,000 28-Feb-10 0 118,380 -
20,000 01-Feb10 0 118,380 -
20,000 01-Mar-09 0 118,380 -
25,162 09-Dec-07 0 179,380 -
(1)
As no further awards will be made under the PUP; it will be phased out over
the remaining life of the outstanding units.
(2)
The exercise period for all PUP units commences upon vesting, which is the
third anniversary of the grant date, and expires on the tenth anniversary of
the grant date, with the exception of the PUP units maturing on February 1,
2010. These units were granted under a one time special performance
incentive program which vested on February 22, 2002.
(3)
The Committee determined in February 2006 that $0.964 per outstanding PUP
unit will accrue for 2005 in respect of the grants made from 1995 to 2002.
TRANSCANADA PIPELINES LIMITED 45
(4)
The Company is no longer including the "Threshold" and "Target" columns
since the values reported were equal to the ones noted here in the "Maximum"
column. Once the accrued value is approved by the Committee and assigned to
each outstanding PUP unit, no further variance of future value may be
applied. However, the plan does provide for a risk of zero value payments
from the plan should the exercise provision in the plan not be met.
(5)
Values contained in this column are amounts received during the current
financial year following the exercise of vested units. A blank ("- ")
denotes that there were no units exercised from the grant. A zero value
denotes that the unit was forfeited. When applicable, Total Settlement
values are also reported as LTIP Payouts in column (h) of the Summary
Compensation Table above.
Equity Compensation Plan Tables
2005 Stock Option Plan Grant
The following table outlines the grants made under the Stock Option Plan to each
of the Named Executive Officers during the 2005 financial year.
Name Date of Number of % of Exercise Price Market Value of Expiration
Grant Common Total ($/common share)(2) Common Shares Date
Shares Options Underlying
Under Granted to Options on the
Options Employees Date of Grant
Granted(1) in 2005 ($/common
share)
H.N. Kvisle 28-Feb-05 160,000 14.88% 30.09 29.72 28-Feb-12
R.K. Girling 28-Feb-05 60,000 5.58% 30.09 29.72 28-Feb-12
A.J. Pourbaix 28-Feb-05 60,000 5.58% 30.09 29.72 28-Feb-12
R.J. Turner 28-Feb-05 40,000 3.72% 30.09 29.72 28-Feb-12
D.M. Wishart 28-Feb-05 40,000 3.72% 30.09 29.72 28-Feb-12
(1)
On each anniversary date of the grant for a period of three years, one-third
of these options vest and are exercisable.
(2)
The exercise price is equal to the greater of the closing price of common
shares on the grant date and the weighted average closing price of common
shares on the TSX during the five trading days immediately prior to the
grant date of the stock options.
Aggregate Stock Option Exercises During 2005 and 2005 Year-End Stock Option
Values
The following table outlines, for each of the Named Executive Officers:
*
the number of stock options, if any, exercised during the financial year
ended December 31, 2005;
*
the aggregate value realized upon exercise;
*
the total number of unexercised stock options, if any; and
*
the value of unexercised "in-the-money" stock options at December 31,
2005.
46 TRANSCANADA PIPELINES LIMITED
Unexercised Options at December Value of Unexercised
Common Aggregate 31, 2005 in-the-Money Options at
Shares Value (#) December 31, 2005(1)
Acquired on Realized ($)
Exercise ($)
Name (#) Exercisable Unexercisable Exercisable Unexercisable
H.N. Kvisle 195,000 2,928,834 480,833 336,667 7,258,529 3,082,271
R.K. Girling 0 0 138,333 126,667 1,949,029 1,167,471
A.J. Pourbaix 100,000 1,030,445 110,833 126,667 1,522,628 1,167,471
R.J. Turner 87,094 1,278,118 165,833 86,667 2,578,063 810,136
D.M. Wishart 40,000 788,835 150,162 80,000 1,924,510 714,665
(1)
The value of unexercised "in-the-money" stock options at December 31, 2005
is the difference between the exercise price and the closing price of $36.65
per share of a common share on the TSX on December 31, 2005. The underlying
stock options have not been and will not necessarily be exercised and the
actual gains, if any, on exercise will depend on the value of common shares
on the date of exercise.
Supplemental Disclosure - 2006 Stock Option Plan Grants
Decisions regarding stock option grants are made annually by the Committee in
February prior to the publication of the AIF. Although not a requirement, TCPL
discloses these compensation grants for the Named Executive Officers. The
following table outlines the stock option grants under the Stock Option Plan
made in 2006:
Name Date of Number of % of Exercise Price Market Value of Expiration
Grant Common Total ($/common share)(3) Common Shares Date
Shares Options Underlying
Under Granted to Options on the
Options Employees Date of Grant
Granted(1) in 2006(2) ($/common
share)
H.N. Kvisle 27-Feb-06 250,000 20.82% 35.23 35.23 27-Feb-13
R.K. Girling 27-Feb-06 90,000 7.49% 35.23 35.23 27-Feb-13
A.J. Pourbaix 27-Feb-06 90,000 7.49% 35.23 35.23 27-Feb-13
R.J. Turner 27-Feb-06 55,000 4.58% 35.23 35.23 27-Feb-13
D.M. Wishart 27-Feb-06 55,000 4.58% 35.23 35.23 27-Feb-13
(1)
On each anniversary date of the grant for a period of three years, one-third
of these stock options vest and are exercisable.
(2)
Based on total stock options granted as at February 27, 2006.
(3)
The exercise price is equal to the greater of the closing price of common
shares on the grant date and the weighted average closing price of common
shares on the TSX during the five trading days immediately prior to the
grant date of the stock options.
TRANSCANADA PIPELINES LIMITED 47
EQUITY COMPENSATION PLAN INFORMATION
Stock Option Plan
The Stock Option Plan is the only compensation plan under which equity
securities of TransCanada have been authorized for issuance. Stock options may
be granted to such employees of TCPL as the Committee may from time to time
determine. Starting in 2005, the Committee determined that only executive-level
employees will participate in the plan. The following provides key information
regarding the Stock Option Plan provisions:
*
the plan was first approved by shareholders in 1995;
*
there was an amendment approved by shareholders at TCPL's annual and
special meeting of shareholders held on April 23, 2004 to increase the
number of shares issuable by 1,000,000;
*
a maximum of 26,000,000 of TransCanada's common shares may be issued
under the plan; this represents 5.3% of common shares issued and
outstanding as at February 27, 2006;
*
as at February 27, 2006, there were approximately 9,661,488 common
shares issuable upon the exercise of outstanding stock options; this
represents 2.0% of issued and outstanding common shares;
*
as at February 27, 2006, there were approximately 2,190,764 common
shares remaining available for issuance; this represents 0.4% of issued
and outstanding common shares;
*
as at February 27, 2006, approximately 14,147,748 common shares have
been issued upon the exercise of stock options, representing 2.9% of
issued and outstanding common shares of TransCanada; and
*
the exercise price for unexercised issued stock options ranges from
$10.03 to $35.23, with expiry periods ranging from April 24, 2006 to
February 27, 2013.
Under the terms of the Stock Option Plan, the maximum number of common shares
reserved for issuance as stock options to any one participant cannot exceed 5%
of TransCanada's common shares then issued and outstanding. There are no
restrictions on the number of stock options that may be granted to insiders,
subject to the foregoing limitation. Stock options cannot be transferred or
assigned by participants other than by will or by participants who for any
reason are unable to manage their affairs.
Stock options granted as of 2003 onward vest as to one-third on each
anniversary of the grant date for a period of three years and have a seven year
expiry date. The exercise price of a stock option is equal to the greater of the
closing price of a common share on the grant date and the weighted average
closing price of a common share on the TSX during the five trading days
immediately prior to the grant date of the stock options.
Administrative changes were made to the use of the Stock Option Plan in 2003
which did not require an amendment to the terms of the plan. More information on
these changes is found in "Inactive Executive Compensation Plans - Stock Option
Plan Prior to 2003".
Under the current terms of the Stock Option Plan, stock options expire on the
earlier of:
1.
the third anniversary of the date of a participant's retirement;
2.
the first anniversary of the date of a participant's death; and
3.
the seven year anniversary of the date of grant.
48 TRANSCANADA PIPELINES LIMITED
The following table outlines the current action prescribed by the Stock Option
Plan, following an employment event:
Employment Event Action
Resignation(1): The participant may exercise outstanding exercisable stock options no later than six
months after the last day of active employment, after which date all outstanding stock
options are forfeited.
Termination without The participant may exercise outstanding exercisable stock options no later than the last
cause: day of the notice period, after which date all outstanding stock options are forfeited.
Termination for cause(1): The participant may exercise outstanding exercisable stock options no later than six
months after the last day of active employment, after which date all outstanding stock
options are forfeited.
(1)
The Committee amended these provisions retroactively in February, 2006.
Subject to applicable securities laws and rules, the Committee has the power to
amend or discontinue this plan at any time; provided, however, that any
amendment which increases the number of common shares that may be issued under
the Plan must be approved by the shareholders of TransCanada. Any such amendment
shall not alter or impair the rights of any participants without their consent.
Securities Authorized for Issuance under Equity Compensation Plans
The following table outlines the number of common shares to be issued upon the
exercise of outstanding stock options under the Stock Option Plan, the
weighted-average exercise price of the outstanding stock options, and the number
of common shares available for future issuance under the Stock Option Plan, all
as at December 31, 2005.
Plan Category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options outstanding options future issuance under
(a) (b) equity compensation plans
(excluding securities
reflected in column (a))
(c)
Equity compensation plans 8,714,390 $22.67 3,391,764
approved by security holders
Equity compensation plans not Nil Nil Nil
approved by security holders
TOTAL 8,714,390 $22.67 3,391,764
PENSION AND RETIREMENT BENEFITS FOR EXECUTIVES
Pension and Retirement Benefits
TCPL's Canadian pension plans are designed to attract and retain employees for
the long term and to provide employees with a lifetime annual retirement income.
Base Pension Plan
All TCPL Canadian employees participate in the TCPL Registered Pension Plan,
which is now solely a non-contributory defined benefit pension plan. The
Registered Pension Plan previously provided three benefit options, a defined
benefit, a defined contribution and a combination option (defined benefit and
defined contribution). It was amended on October 1, 2001 to eliminate the
combination option for new members and on January 1, 2003 to eliminate the
defined contribution option.
TRANSCANADA PIPELINES LIMITED 49
The normal retirement age under the Registered Pension Plan is age 60 or any
age between 55 and 60 where the sum of an employee's age and continuous service
equals 85. Employees are eligible to retire prior to their normal retirement
date, but the benefit payable is subject to early retirement reduction factors.
The defined benefit plan is integrated with Canada Pension Plan benefits. The
benefit calculation is:
1.25% of an employee's Highest Average Earnings(1) up to the Final Average(2)
YMPE(3)
plus
1.75% of an employee's Highest Average Earnings above the Final Average YMPE
multiplied by
the employee's years of credited service in the Registered Pension Plan
("Credited Pensionable Service")
(1)
"Highest Average Earnings" means the average of an employee's best
consecutive 36 months of Pensionable Earnings in the last 15 years before
retirement. "Pensionable Earnings" means an employee's base salary plus
actual Incentive Compensation paid up to a targeted percentage or for
executive employees (as defined in the plan) a fixed percentage of their
base salary, as provided in the plan. Pensionable Earnings do not include
overtime, shift and premium differentials or any other forms of
compensation.
(2)
"Final Average YMPE" means the average of the YMPE in effect for the latest
calendar year from which earnings are included in an employee's highest
earnings calculation plus the two previous years.
(3)
"YMPE" means Year's Maximum Pensionable Earnings under the Canada/Quebec
Pension Plan.
Registered defined benefit pension plans are subject to a maximum annual
benefit accrual under the Income Tax Act (Canada), which is currently $2,111 for
each year of Credited Pensionable Service, with the result that benefits cannot
be earned in the Registered Pension Plan on compensation above approximately
$132,000 per annum.
Supplemental Pension Plan
All TCPL employees with pensionable earnings over the Income Tax Act (Canada)
ceiling of $132,000, including the Named Executive Officers, participate in the
Company's non-contributory defined benefit Supplemental Pension Plan.
Approximately 393 TCPL employees currently participate in the Supplemental
Pension Plan.
The Supplemental Pension Plan is funded through a retirement compensation
arrangement under the Income Tax Act (Canada). Subject to the Board's approval,
contributions to the fund are based on an annual actuarial valuation of the
Supplemental Pension Plan obligations calculated on the basis of the plan
terminating at the beginning of each calendar year.
The annual pension benefit under the Supplemental Pension Plan is equal to
1.75% multiplied by the employee's Credited Pensionable Service multiplied by
the amount by which such employee's highest average earnings exceed the ceiling
imposed under the Income Tax Act (Canada) and are recognized under the
Registered Pension Plan.
Generally, neither the Registered Pension Plan nor the Supplemental Pension
Plan provide for the recognition of past service. However, the Committee may,
under the provisions of the Supplemental Pension Plan, at its sole discretion,
grant additional years of credited service to executive employees.
Under the Registered Pension Plan and the Supplemental Pension Plan, TCPL
employees, including the Named Executive Officers, will receive the following
normal form of pension:
(a)
in respect of credited service prior to January 1, 1990, upon
retirement, a monthly pension payable for life with 60% continuing
thereafter to the participant's designated joint annuitant; and
(b)
in respect of credited service on and after January 1, 1990, upon
retirement, a monthly pension as described in (a) above and, for
unmarried participants, a monthly pension payable for life with payments
to the participant's estate guaranteed for the balance of 10 years if
the participant dies within 10 years of retirement.
50 TRANSCANADA PIPELINES LIMITED
In lieu of the normal form of pension, optional forms of pension payment may be
chosen provided that any legally required waivers are completed.
The following table sets out the estimated annual defined benefit plan benefits
(based on the "joint and 60% survivor" method) payable for credited service
under the Registered Pension Plan and the Supplemental Pension Plan (excluding
amounts payable under the Canada Pension Plan) for employees with the following
Highest Average Earnings and Credited Pensionable Service. The benefits listed
in the table are not subject to any deduction for social security or other
offset amounts such as Canada Pension Plan or the Quebec Pension Plan.
Years of Credited Pensionable Service
Highest Average
Earnings 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
$ 400,000 $68,000 $102,000 $136,000 $170,000 $204,000 $238,000
600,000 103,000 154,000 206,000 257,000 309,000 360,000
800,000 138,000 207,000 276,000 345,000 414,000 483,000
1,000,000 173,000 259,000 346,000 432,000 519,000 605,000
1,200,000 208,000 312,000 416,000 520,000 624,000 728,000
1,400,000 243,000 364,000 486,000 607,000 729,000 850,000
1,600,000 278,000 417,000 556,000 695,000 834,000 973,000
1,800,000 313,000 469,000 626,000 782,000 939,000 1,095,000
2,000,000 348,000 522,000 696,000 870,000 1,044,000 1,218,000
2,200,000 383,000 574,000 766,000 957,000 1,149,000 1,340,000
2,400,000 418,000 627,000 836,000 1,045,000 1,254,000 1,463,000
Based on their current Highest Average Earnings and assuming the Named
Executive Officers remain employed by TCPL until age 60 and that the Registered
Pension Plan and Supplemental Pension Plan remain in force substantially in
their present form, the Named Executive Officers will have the number of years
of Credited Pensionable Service and benefit payable set out below under their
names:
H.N. Kvisle(1) R.K. Girling A.J. Pourbaix(2) R.J. Turner D.M. Wishart
(2)
Years of Credited Service 12.33 7.00 7.00 23.80 8.59
to December 31, 2005
Accrued Pension at $351,000 $87,000 $76,000 $296,000 $72,000
December 31, 2005 and
Payable at age 60(3)
Years of Credited Service 23.16 26.50 29.58 31.14 17.50
to age 60
Annual Benefit Payable at $661,000 $322,000 $316,000 $386,000 $147,000
age 60(3)
(1)
Mr. Kvisle was granted five years of additional Credited Pensionable Service
which vested on his fifth anniversary of employment. Mr. Kvisle is also
eligible for one additional year of Credited Pensionable Service for each of
the next five continuous years of service with the Company. The additional
credited service is to be recognized solely in the Supplemental Pension Plan
with respect to earnings in excess of the maximum set under the Income Tax
Act (Canada).
TRANSCANADA PIPELINES LIMITED 51
(2)
Upon the completion of three years of continuous service from September 8,
2004, Mr. Girling and Mr. Pourbaix will each be granted three years of
additional credited service to be recognized solely in the Supplemental
Pension Plan with respect to earnings in excess of the maximum set under the
Income Tax Act (Canada).
(3)
Amounts noted are rounded to the nearest one thousand dollars.
Fiscal 2005 Pension Expense Related to Service and Compensation
Amounts reported in the table below represent the pension expense related to
2005 service for each of the Named Executive Officers under both the Registered
Pension Plan and the Supplemental Pension Plan including the impact of
differences between actual compensation paid in 2005 and the actuarial
assumptions used for the year.
Name Fiscal 2005 pension expense
related to service and
compensation
H.N. Kvisle $1,604,000
R.K. Girling $158,000
A.J. Pourbaix $218,000
R.J. Turner $7,000
D.M. Wishart $155,000
Accrued Pension Obligations
As at December 31, 2005, TCPL's accrued obligation for the Supplemental Pension
Plan was approximately $177.2 million. The 2005 current service costs and
interest costs of the Supplemental Pension Plan were approximately $4.5 and $9.0
million, respectively, for a total of $13.5 million. The accrued pension
obligation is calculated following the method prescribed by the Canadian
Institute of Chartered Accountants and is based on management's best estimate of
future events that affect the cost of pensions, including assumptions about
future salary adjustments and bonuses. More information on the accrued
obligations and the assumptions utilized may be found in Note 20 (Employee
Future Benefits) of the Notes to TCPL's 2005 Consolidated Financial Statements
which are available on the Company's website at www.transcanada.com and filed on
SEDAR at www.sedar.com.
The accrued pension obligations for the Named Executive Officers under both the
Registered Pension Plan and the Supplemental Pension Plan are outlined in the
following table. Changes include the fiscal 2005 expense attributed to service
and compensation, as well as the normal increases(1) to pension obligations
arising from the annual valuation of the Company's pension plans. The normal
increases include interest on the beginning of year obligations and changes in
interest rate assumptions as a result of changes in long-term bond yields.
Name Accrued Change in accrued Accrued
obligation at obligation for obligation at
December 31, 2005(1)(2) December 31,
2004(1) (B) 2005(1)
(A) (C) = (A) + (B)
H.N. Kvisle $3,611,000 $2,518,000 $6,129,000
R.K. Girling $685,000 $426,000 $1,111,000
A.J. Pourbaix $564,000 $475,000 $1,039,000
R.J. Turner $3,292,000 $733,000 $4,025,000
D.M. Wishart $794,000 $373,000 $1,167,000
(1)
The calculation of reported amounts use actuarial assumptions and methods
that are consistent with those used for calculating pension obligations and
annual expense as disclosed in the Company's 2004 and 2005 consolidated
financial statements. As the assumptions
52 TRANSCANADA PIPELINES LIMITED
reflect the Company's best estimate of future events, the values shown in
the above table may not be directly comparable to similar estimates of
pension obligations that may be disclosed by other corporations.
(2)
Excluded from the change in accrued obligation for 2005 is the impact of
investment returns on the Company's pension plan assets.
EMPLOYMENT AGREEMENTS
In 2005, TCPL entered into executive separation agreements with the Executives,
including each of the Named Executive Officers. Each agreement outlines the
terms and conditions applicable in the event of the Executive's separation from
TCPL due to retirement, termination with or without cause, resignation with or
without good reason, disability or death. Good reason is an event which
constitutes a constructive dismissal of the Executive. A change of control by
itself without an event that constitutes constructive dismissal would not be
good reason. Under the terms of the agreements, in the event of a termination
without cause or a resignation for good reason, an Executive will receive a
severance payment equal to his or her annual salary as of the termination date,
plus the average amount of annual bonus paid in respect of the three years prior
to the year in which the termination occurs (the "Annual Compensation"),
multiplied by a notice period. In the case of Mr. Kvisle, the notice period is
three years. In the case of the other Executives, the notice period is two
years.
The agreements provide that in addition to the severance payment, each
Executive would receive other entitlements in the event of termination without
cause or a resignation for good reason, including:
a)
continuation of benefits during the notice period or a cash payment in
lieu of continued benefits;
b)
a cash payment for perquisites the Executive would have received during
the notice period;
c)
continued accrual of pensionable service until the earlier of
retirement, death and expiry of the notice period; however, if the
termination date is within two years of a change of control, then the
Executive shall immediately receive the credit of pensionable service as
though the full notice period has occurred and any vesting requirements
under the pension plans will be deemed to have been met upon a change of
control;
d)
if the termination date is within two years of a change in control, all
unvested grants under the ESU Plan shall be deemed vested and shall be
paid out in cash to the Executive; and
e)
a cash amount equal to the average amount of the annual bonus paid to
the Executive in respect of the three years prior to the year in which
the termination occurs, pro rated based on the number of days of service
in the year in which the termination occurs up to the termination date.
For Mr. Kvisle, Mr. Girling and Mr. Pourbaix their respective notice periods
would also be considered in the calculation of additional credited pensionable
service as agreed to in their specific arrangements as described below.
A change of control (including, but not limited to, more than 20% of the voting
shares of TransCanada or 50% of the voting shares of TCPL (not including the
voting shares of TCPL held by TransCanada) being controlled by another entity)
in itself does not trigger any payments under the agreements. However, in the
month following the one year anniversary after a change of control, Mr. Kvisle
may provide notice of his intention to leave TransCanada and receive all of the
entitlements of a resignation for good reason. The agreements provide that a
change of control would result in an acceleration of vesting of stock options
under the Stock Option Plan. If for any reason the Company is unable to affect
the acceleration of such vesting, the Company will pay the Executive a cash
payment equal to the net amount of compensation the Executive would have
received if the Executive had, on the date of a change of control, exercised all
of those stock options. In addition, the ESU Plan contemplates fair and
equitable compensation for participants upon a corporate reorganization.
The agreements provide that TCPL may elect to take advantage of a
non-competition provision effective for a period of 12 months from the date of
termination upon payment to the Executive of an amount valued at one additional
year of Annual Compensation.
TRANSCANADA PIPELINES LIMITED 53
In 2002, the Committee approved an arrangement with Mr. Kvisle to grant him
additional credited pensionable service. The arrangement resulted in him
receiving five years of additional credited pensionable service in 2004 on his
fifth anniversary date with TCPL. In addition, for each year after 2004 until
and including 2009, Mr. Kvisle will be granted one additional year of credited
pensionable service on the date of the anniversary of his employment. All such
additional service is not to exceed ten additional years of credited pensionable
service and is only to be recognized on that portion of his pensionable earnings
which exceeds his annual Registered Pension Plan earnings, to be recognized in
the Supplemental Pension Plan.
In 2004, the Committee also approved arrangements for Mr. Girling and Mr.
Pourbaix to obtain additional credited pensionable service. Subject to Mr.
Girling and Mr. Pourbaix maintaining continuous employment with TCPL until
September 8, 2007, each will receive three additional years of credited
pensionable service on that date.
TOTAL COMPENSATION AWARDS
Annually, the Committee approves compensation awards that deliver market
competitive and performance-relevant TDC, which is a combination of base salary
and variable incentives, to the Executives. Although not awarded annually, TCPL
also considers the annual value of the Base and Supplemental Pension Plans to be
an integral part of the Company's Executive Compensation Program. For the
purposes of this supplemental disclosure, Total Compensation is defined as TDC
plus the pension expense related to service and compensation for the fiscal year
noted.
For all tables in this section, the following definitions are applicable for
the noted compensation elements:
Annual Base Salary: The annual base salary rate as at April 1st of the noted financial year.
Cash Bonus: The total lump-sum cash award under the IC Program for performance attributable to the
noted financial year and paid in the first quarter following the completion of the
financial year.
ESUs: The value granted under the ESU Plan on the date of grant. The number of units granted for
each financial year is based on this grant value and is reported in the various ESU Plan
Grant tables in the section "Long-Term Incentive Tables".
The number of units from these grants that vest is subject to specified performance
conditions over a three-year period. Payments received from vested units are variable
based on the valuation price as of the date of vesting.
Stock Options: The stock option values are based on the number of stock options granted for each
financial year as reported in the Summary Compensation Table multiplied by an economic
value per stock option as calculated by an external consulting firm. This valuation
methodology considers, among other things, the exercise price on the date of grant and the
seven year term of the options. This method may not be identical to the methods or
assumptions used by other companies, and as such, may not be directly comparable to other
companies.
Annual Pension Expense: Pension expense related to the year of service under both the Registered Pension Plan and
the Supplemental Pension Plan. The amount includes the impact of differences between
actual compensation paid in the financial year and the actuarial assumptions used for that
year. The value noted is rounded to the nearest one thousand dollars.
54 TRANSCANADA PIPELINES LIMITED
The following tables outline the value of Total Compensation awarded to the
Named Executive Officers as determined by the Committee for the last three
financial years.
H.N. Kvisle 2005 2004 2003
($) ($) ($)
FIXED
Annual Base Salary 1,100,000 900,000 785,000
VARIABLE
Cash Bonus 1,300,000 1,100,000 900,000
ESUs 1,940,004 1,206,089 701,500
Stock Options 360,000 361,350 736,000
Total Direct Compensation 4,700,004 3,567,439 3,122,500
RETIREMENT
Annual Pension Expense 1,604,000 894,000 526,000
Total Compensation 6,304,004 4,461,439 3,648,500
R.K. Girling 2005 2004 2003
($) ($) ($)
FIXED
Annual Base Salary 460,000 460,000 450,000
VARIABLE
Cash Bonus 500,000 460,000 430,000
ESUs 544,965 482,452 280,600
Stock Options 135,000 131,400 294,400
Total Direct Compensation 1,639,965 1,533,852 1,455,000
RETIREMENT
Annual Pension Expense 158,000 86,000 90,000
Total Compensation 1,797,965 1,619,852 1,545,000
A.J. Pourbaix 2005 2004 2003
($) ($) ($)
FIXED
Annual Base Salary 450,000 410,000 400,000
VARIABLE
Cash Bonus 500,000 450,000 430,000
ESUs 465,013 430,787 280,600
Stock Options 135,000 131,400 294,400
Total Direct Compensation 1,550,013 1,422,187 1,405,000
RETIREMENT
Annual Pension Expense 218,000 70,000 107,000
Total Compensation 1,768,013 1,492,187 1,512,000
TRANSCANADA PIPELINES LIMITED 55
R.J. Turner 2005 2004 2003
($) ($) ($)
FIXED
Annual Base Salary 450,000 450,000 450,000
VARIABLE
Cash Bonus 350,000 340,000 300,000
ESUs 370,003 354,979 210,450
Stock Options 90,000 87,600 220,800
Total Direct Compensation 1,260,003 1,232,579 1,181,250
RETIREMENT
Annual Pension Expense 7,000 21,000 77,000
Total Compensation 1,267,003 1,253,579 1,258,250
D.M. Wishart 2005 2004 2003
($) ($) ($)
FIXED
Annual Base Salary 380,000 350,000 290,000
VARIABLE
Cash Bonus 400,000 330,000 270,000
ESUs 370,003 354,979 140,300
Stock Options 90,000 87,600 147,200
Total Direct Compensation 1,240,003 1,122,579 847,500
RETIREMENT
Annual Pension Expense 155,000 190,000 140,000
Total Compensation 1,395,003 1,312,579 987,500
ADDITIONAL INFORMATION
1.
Additional information in relation to TCPL may be found under TCPL's profile
on SEDAR at www.sedar.com.
2.
Additional information including directors' and officers' remuneration and
indebtedness, principal holders of TransCanada's securities and securities
authorized for issuance under equity compensation plans (all where
applicable), is contained in TransCanada's Proxy Circular for its most
recent annual meeting of shareholders that involved the election of
directors and can be obtained upon request from the Corporate Secretary of
TCPL.
3.
Additional financial information is provided in TCPL's audited consolidated
financial statements and MD&A for its most recently completed financial
year.
56 TRANSCANADA PIPELINES LIMITED
GLOSSARY
AIF Annual Information Form of TransCanada Pipelines Limited dated February 27, 2006
Alberta System A natural gas transmission system throughout the province of Alberta
APG Aboriginal Pipeline Group or Mackenzie Valley Aboriginal Pipeline Limited
Partnership
Bcf Billion cubic feet
BC System A natural gas transmission system in southeastern B.C.
Becancour A power plant near Trois-Rivieres, Quebec
Plant
Board TransCanada's Board of Directors
Bruce A Bruce Power A L.P.
Bruce B Bruce Power L.P.
Canadian A natural gas pipeline system running from the Alberta border east to delivery
Mainline points in eastern Canada and along the U.S. border
CSA Canadian Securities Administrators
EUB Alberta Energy and Utilities Board
External KPMG LLP
Auditor
FERC Federal Energy Regulatory Commission (USA)
Foothills Foothills Pipe Lines Ltd.
Foothills A natural gas pipeline system in southeastern B.C., southern Alberta and
System southwestern Saskatchewan
Grandview A power plant in Saint John, New Brunswick
Plant
Great Lakes A natural gas pipeline system in the north central U.S., roughly parallel to the
System Canada-U.S. Border
HS&E Health, Safety and Environment
Iroquois A natural gas pipeline system in New York
System
LNG Liquefied Natural Gas
Mackenzie Mackenzie Delta Producers Group
Producers
MD&A TCPL's Management's Discussion and Analysis dated February 27, 2006
MW Megawatts
NBPL Northern Border Pipeline
NEB National Energy Board
NEGT National Energy & Gas Transmission, Inc.
NGTL NOVA Gas Transmission Ltd.
Northern Northern Border Pipeline Company
Border
Pipeline
NYSE New York Stock Exchange
OPG Ontario Power Generation Inc.
Power LP TransCanada Power, L.P.
Proxy Circular TransCanada's Management Proxy Circular dated February 28, 2006
SEC U.S. Securities and Exchange Commission
Shell Shell US Gas & Power LLC
SOX U.S. Sarbanes-Oxley Act of 2002
Tcf Trillion cubic feet
TCPL TransCanada PipeLines Limited or the Company
TQM Trans Quebec & Maritimes Pipeline Inc.
TQM System A natural gas pipeline system in southeastern Quebec
TransCanada TransCanada Corporation
TransCanada Annual meeting of TransCanada common shareholders, to be held on April 28, 2006
Annual Meeting
TSX Toronto Stock Exchange
Tuscarora Tuscarora Gas Transmission Company
USGen US Gen New England, Inc.
Year End December 31, 2005
TRANSCANADA PIPELINES LIMITED 57
SCHEDULE "A"
Exchange Rate of the Canadian Dollar
All dollar amounts in the AIF are in Canadian dollars, except where otherwise
indicated. The following table shows the yearly high and low noon rates, the
yearly average noon rates and the year-end noon spot rates for the U.S. dollar
for the past five years, each expressed in Canadian dollars, as reported by the
Bank of Canada.
Year Ended
2005 2004 2003 2002 2001
Yearly High Noon Rate 1.2704 1.3968 1.5747 1.6021 1.5593
Yearly Low Noon Rate 1.1507 1.1774 1.2924 1.4936 1.4341
Yearly Average Noon Rate 1.2116 1.3016 1.4014 1.5484 1.4852
Year-End Noon Rate 1.1659 1.2036 1.2924 1.5926 1.5002
On February 27, 2006, the noon rate for the U.S. dollar as reported by the Bank
of Canada was US $1.00 = Cdn. $1.1420.
Metric Conversion Table
The conversion factors set out below are approximate factors. To convert from
Metric to Imperial multiply by the factor indicated. To convert from Imperial to
Metric divide by the factor indicated.
Metric Imperial Factor
Kilometres Miles 0.62
Millimetres Inches 0.04
Gigajoules Million British thermal units 0.95
Cubic metres* Cubic feet 35.3
Kilopascals Pounds per square inch 0.15
Degrees Celsius Degrees Fahrenheit to convert to Fahrenheit multiply by 1.8,
then add 32 degrees; to convert to Celsius
subtract 32 degrees, then divide by 1.8
*
The conversion is based on natural gas at a base pressure of 101.325
kilopascals and at a base temperature of 15 degrees Celsius.
TRANSCANADA PIPELINES LIMITED A-1
SCHEDULE "B"
DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES
Board of Directors
The Board has determined that, other than Messrs. Kvisle and Stewart, all of the
existing directors of TCPL (including Mr. Jackson, the Chair), and the nominees
for election to the Board at the TransCanada Annual Meeting, and concurrent
election to TCPL's board on the same date, have no direct or indirect material
relationship with TCPL and are therefore independent.
Mr. Kvisle, as the CEO of TCPL, is not independent. Mr. Stewart is not
independent as he provided consulting services to TCPL and received more than
$75,000 in compensation during the 2005 financial year. Mr. Stewart's consulting
contract terminated on December 31, 2005.
The Governance Committee reviews, at least annually, the existence of any
relationship between each director and TCPL to ensure that the majority of
directors are independent of TCPL.
The Board believes that, as a matter of policy, there should be a majority of
independent directors on TCPL's Board. The Board is charged with making this
determination. The determination is made annually in accordance with the
definition of "independence" in the Canadian Audit Committee Rules and the
Canadian Governance Guidelines. The independence criteria also conforms with the
applicable rules of the SEC, the NYSE and those set out in SOX. The NYSE's
extended definitions of independence that apply to directors of U.S. companies
are also considered.
Further, the Board considered whether directors serving on boards of non-profit
organizations which receive donations from TCPL pose any potential conflict. The
Board determined that such relationships, where they exist, do not interfere
with any such director's ability to act in the best interests of TCPL, as all
decisions on making donations to non-profit organizations are made by a
management committee on which no directors serve. The Board also considered
family relationships and possible associations with companies which have
relationships with TCPL, in its determination of independence.
Although some of the proposed nominees sit on boards or may be otherwise
associated with companies that ship natural gas on TCPL's pipeline systems, TCPL
as a common carrier in Canada cannot, under its tariff, deny transportation
service to a credit-worthy shipper. Further, due to the specialized nature of
the industry, TCPL believes that it is important for its Board to be composed of
qualified and knowledgeable directors, so some of them must come from oil and
gas producers and shippers; the Governance Committee closely monitors
relationships among directors to ensure that business associations do not affect
the Board's performance.
All reporting issuers of which the nominees are presently directors of are set
out in the table under the heading "Directors and Officers - Election of
Directors".
The independent directors of the Board meet separately before and after every
regularly scheduled meeting. There were eight such meetings during 2005.
The terms of reference for the Chair are set out below under the heading
"Position Descriptions".
TRANSCANADA PIPELINES LIMITED B-1
Directors' Attendance at Meetings
The following tables summarize the meetings of the Board and its committees held
for the 12-month period ending December 31, 2005, and the attendance of
individual directors. Directors are expected to attend all meetings and each
director generally attends all meetings, subject to occasional scheduling
conflicts.
Type of Meeting Held Number of Meetings
Board (8 regularly scheduled and 1 special)(1) 9
Audit (6 regularly scheduled and 1 special) ("AUD") 7
Health, Safety and Environment (all regularly scheduled) ("HSE") 4
Human Resources (all regularly scheduled) ("HRC") 4
Governance (2 regularly scheduled and 1 special) ("GOV") 3
Director Board Meetings Attended(1) Committee Meetings Attended
D.D. Baldwin 7 of 9 78% 3 of 4 HSE (Chair) 75%
6 of 7 AUD 86%
K.E. Benson(2) 5 of 6 83% 4 of 4 AUD 100%
D.H. Burney(3) 2 of 3 67% 1 of 1 GOV 100%
W.K. Dobson 9 of 9 100% 3 of 3 GOV (Chair) 100%
4 of 4 HRC 100%
E.L. Draper(4) 5 of 5 100% 2 of 2 HSE 100%
1 of 1 HRC 100%
P. Gauthier 8 of 9 89% 7 of 7 AUD 100%
4 of 4 HSE 100%
K.L. Hawkins 8 of 9 89% 4 of 4 HSE 100%
4 of 4 HRC (Chair) 100%
S.B. Jackson 9 of 9 100% 7 of 7 AUD 100%
2 of 2 GOV 100%
2 of 2 HSE 100%
4 of 4 HRC 100%
P.L. Joskow 8 of 9 89% 7 of 7 AUD 100%
2 of 3 GOV 67%
H.N. Kvisle(5) 9 of 9 100% N/A N/A
D.P. O'Brien 9 of 9 100% 3 of 3 GOV 100%
4 of 4 HRC 100%
H.G. Schaefer 9 of 9 100% 7 of 7 AUD (Chair) 100%
3 of 3 GOV 100%
(1)
In addition to the Board meetings, there were three strategic issues
sessions and one strategic planning session held in 2005. The average total
attendance rate for those meetings was 79% and 91% respectively.
(2)
Mr. Benson was elected April 29, 2005.
(3)
Mr. Burney was appointed September 8, 2005.
(4)
Dr. Draper was appointed June 15, 2005.
(5)
Mr. Kvisle, as an officer of TCPL and a non-independent Director, is not a
member of any board committees, but is invited to attend all committee
meetings.
B-2 TRANSCANADA PIPELINES LIMITED
Board Mandate
The Board operates under a written charter while retaining plenary power. Any
responsibility not delegated to management or a committee of the Board remains
with the Board. Charters have been adopted for each of the committees outlining
their principal responsibilities. Each committee reviews its charter annually to
ensure it is in line with the current developments in corporate governance. All
charters, which are applicable to TransCanada and TCPL, are available on
TransCanada's website at www.transcanada.com. The Board's charter is attached to
this AIF as Schedule "C".
Position Descriptions
The Board has developed written position descriptions for the Chair and for the
chair for each of the Board committees. The responsibilities of each committee
chair are set out in each respective committee's Charter which are available at
www.transcanada.com. The terms of reference for the Chair consist of duties and
responsibilities which include:
*
providing advice to the CEO on major policy issues;
*
ensuring the CEO is aware of concerns of the Board, shareholders, other
stakeholders and the public;
*
leading the Board in monitoring and evaluating the performance of the
CEO and ensuring the implementation of management succession plans;
*
liaising closely with the CEO to ensure management strategies, plans and
performance are appropriately represented to the Board; and
*
managing the Board.
The Board has approved terms of reference for the position of the CEO,
applicable to TransCanada and TCPL, which terms of reference define the CEO's
duties and responsibilities. These duties include:
*
the development and recommendation of strategic plans to the Board that
provide for TransCanada's profitable growth and overall success,
including involving the Board in the early stages of strategy
development;
*
the implementation of business and operational plans;
*
reporting regularly to the Board on the overall progress and results
against operating and financial objectives;
*
the authorization of the commitment of funds to capital projects not
included in a previously approved budget or otherwise approved by the
Board, to a maximum of $25 million; and
*
the commitment of corporate resources and entrance into agreements in
the ordinary course of business in order to pursue the approved
strategies of TransCanada, with the proviso that major commitments,
exposures and risks are reported to the Board on a regular and timely
basis.
The Human Resources Committee and the Board annually review and approve the
CEO's personal performance objectives and review with him his performance
against the previous year's objectives. The Human Resources Committee's report
on executive compensation can be found in this AIF under the heading "Executive
Compensation and Other Information - Report on Executive Compensation".
Orientation and Continuing Education
New directors are provided with an orientation and education program that
includes a directors' manual containing information about the duties and
obligations of directors, the business and operations of TCPL, copies of
governance charters, copies of past public filings and documents from recent
Board meetings. New directors are given additional historical and financial
information, a session on corporate strategy and are provided with opportunities
for meetings and discussions with the executive leadership team and other
directors. The directors' manual and the director induction and continuing
education process are reviewed annually by the Governance Committee. The details
of the orientation of each new director are tailored to each director's
individual needs and expressed areas of interest.
TRANSCANADA PIPELINES LIMITED B-3
Senior management as well as external experts make presentations to the Board
periodically on various business-related topics. Directors tour certain of
TCPL's facilities annually. TCPL encourages continuing education for its
directors, periodically suggests programs which may be relevant to the directors
and provides funding for director education. All directors are members of the
Canadian Institute of Corporate Directors which provides another source of
director education.
Ethical Business Conduct
The Board has adopted and published a set of Corporate Governance Guidelines
that address the structure and composition of the Board and its committees and
provide guidance to both the Board and management in clarifying their respective
responsibilities and ensuring effective communication between them. TCPL's
Corporate Governance Guidelines, which are equally applicable to TransCanada,
are published on TransCanada's website at www.transcanada.com.
In addition, the Board has committed itself to maintaining a high standard of
corporate governance and integrity; it has adopted a code of business ethics for
directors which incorporates as its basis principles of good conduct and high
ethical behaviour. TCPL has also adopted codes of business ethics for its
employees and one applicable to its CEO, Chief Financial Officer and Controller,
all of which must be certified on an annual basis. Compliance with the Company's
various codes is monitored by the Audit Committee and reported to the Board. The
codes apply to both TransCanada and TCPL and are published on TransCanada's
website at www.transcanada.com.
In a circumstance where a director declares an interest in any material
contract or material transaction being considered at a meeting, the director
absents himself or herself from the meeting during the consideration of the
matter, and does not vote on the matter.
Nomination of Directors
The Governance Committee, which is composed entirely of independent directors,
is responsible for proposing new nominees to the Board, which in turn is
responsible for identifying suitable candidates for election by the
shareholders. The Governance Committee annually reviews the general and specific
criteria applicable to candidates to be considered for nomination. The objective
of this review is to maintain the composition of the Board in a way that
provides the best mix of skills and experience to guide the long-term strategy
and ongoing business operations of TCPL. New nominees must have experience in
the industries in which TCPL participates or experience in general business
management of corporations that are a similar size and scope to TCPL, the
ability to devote the time required, and a willingness to serve. The Governance
Committee also advises the Board on the criteria for, and determination of, the
independence of each director. The Governance Committee has the authority to
retain advisors to assist it in the discharge of its responsibilities.
Compensation
The Governance Committee reviews the compensation of the directors on an annual
basis, taking into account such matters as time commitment, responsibility, and
compensation provided by comparable companies, and makes an annual
recommendation to the Board for consideration. Directors may receive their
compensation in the form of cash and deferred share units. Directors must hold a
minimum of five times their annual cash retainer fee in common shares or related
deferred share units of TCPL. Directors have a maximum of five years to reach
this level of share ownership. The Governance Committee's review of director
compensation is based on an annual report of an outside compensation expert on
directors' compensation paid by comparable companies.
The Human Resources Committee, which is composed entirely of independent
directors, conducts an annual review of the performance of TCPL and the CEO as
measured against objectives established in the prior year by the Board, the
Human Resources Committee and the CEO. The results of this annual review are
reported to the Board, which then makes an evaluation of the overall performance
of TCPL and the CEO. The Chair and the chair of the Human Resources
B-4 TRANSCANADA PIPELINES LIMITED
Committee communicate this performance evaluation to the CEO. The evaluation is
used by the Human Resources Committee in its deliberations concerning the CEO's
annual compensation. The evaluation of TCPL's performance against corporate
objectives also forms part of the determination of the compensation of all
employees. The Human Resources Committee's report on executive compensation can
be found in this AIF under the heading "Executive Compensation and Other
Information - Report on Executive Compensation".
Further information relating to the Human Resources Committee can be found in
this AIF under the heading "Corporate Governance - Description of Board
Committees and Their Charters - Human Resources Committee".
The Committee engaged Hewitt Associates (the "Consultant") to provide
independent executive compensation consulting services to the Committee during
2005. The mandate of the Consultant was to provide an independent assessment of
management's proposals relating to the compensation of the Executives. In 2005,
the Consultant provided services to the Committee in accordance with this
mandate.
If directed or approved by the chair of the Committee, the Consultant could
also provide advice to management on significant changes to compensation
philosophy or programs, or other compensation matters of the Company. These
additional services were not provided to TCPL in 2005.
Other Board Committees
The Board has the following Committees: Audit; Health, Safety and Environment;
Governance; and Human Resources. Details relating to these committees can be
found in Schedule "D" attached to this AIF.
Assessments
The Governance Committee is responsible for making an annual assessment of the
overall performance of the Board, its committees and its individual members, and
reporting its findings to the Board. An annual questionnaire is utilized as part
of this process.
The questionnaire examines the effectiveness of the Board as a whole, and of
each committee, and specifically reviews areas that the Board and/or management
believe could be improved or enhanced to ensure the continued effectiveness of
the Board and its committees in the execution of their responsibilities. Each
committee also conducts an annual self-assessment, based on specific questions
in the annual questionnaire.
TCPL believes that due to the specialized nature of the industry, it is
important for its Board to be composed of qualified and knowledgeable directors.
During the last year, all directors demonstrated a strong commitment to their
roles and responsibilities through an average 91% overall attendance rate at
Board meetings and an average 94% attendance rate at committee meetings. In
addition, all of the directors are available to meet with management as
required.
The annual questionnaire and the individual director's terms of reference are
then used in the evaluation of the contribution of individual directors. Formal
interviews with each director and each member of TCPL's executive leadership
team are carried out annually by the Chair with respect to this matter. The
Chair of the Governance Committee also interviews each director annually on his
or her assessment of the Chair's performance. All of these assessments are
reported annually to the full Board.
TRANSCANADA PIPELINES LIMITED B-5
SCHEDULE "C"
CHARTER OF
THE BOARD OF DIRECTORS
I. INTRODUCTION
A.
The Board's primary responsibility is to foster the long-term success of
the Company consistent with the Board's fiduciary responsibility to the
shareholders to maximize shareholder value.
B.
The Board of Directors has plenary power. Any responsibility not
delegated to management or a committee of the Board remains with the
Board. This Charter is prepared to assist the Board and management in
clarifying responsibilities and ensuring effective communication between
the Board and management.
II. COMPOSITION AND BOARD ORGANIZATION
A.
Nominees for directors are initially considered and recommended by the
Governance Committee of the Board, approved by the entire Board and
elected annually by the shareholders of the Company.
B.
The Board must be comprised of a majority of members who have been
determined by the Board to be independent. A member is independent if
the member has no direct or indirect relationship which could, in the
view of the Board, reasonably interfere with the exercise of a member's
independent judgment.
C.
Directors who are not members of management will meet on a periodic
basis to discuss matters of interest independent of any influence from
management.
D.
Certain of the responsibilities of the Board referred to herein may be
delegated to committees of the Board. The responsibilities of those
committees will be as set forth in their Charter, as amended from time
to time.
III. DUTIES AND RESPONSIBILITIES
A.
Managing the Affairs of the Board
The Board operates by delegating certain of its authorities, including
spending authorizations, to management and by reserving certain powers
to itself. Certain of the legal obligations of the Board are described
in detail in Section IV. Subject to these legal obligations and to the
Articles and By-laws of the Company, the Board retains the
responsibility for managing its own affairs, including:
i)
planning its composition and size;
ii)
selecting its Chair;
iii)
nominating candidates for election to the Board;
iv)
determining independence of Board members;
v)
approving committees of the Board and membership of directors
thereon;
vi)
determining director compensation; and
vii)
assessing the effectiveness of the Board, committees and directors
in fulfilling their responsibilities.
TRANSCANADA PIPELINES LIMITED C-1
B.
Management and Human Resources
The Board has the responsibility for:
i)
the appointment and succession of the Chief Executive Officer (CEO) and
monitoring CEO performance, approving CEO compensation and providing
advice and counsel to the CEO in the execution of the CEO's duties;
ii)
approving a position description for the CEO;
iii)
reviewing CEO performance at least annually, against agreed-upon written
objectives;
iv)
approving decisions relating to senior management, including the:
a)
appointment and discharge of officers of the Company and members of the
senior leadership team;
b)
compensation and benefits for members of the senior leadership team;
c)
acceptance of outside directorships on public companies by executive
officers (other than not-for-profit organizations);
d)
annual corporate and business unit performance objectives utilized in
determining incentive compensation or other awards to officers; and
e)
employment contracts, termination and other special arrangements with
executive officers, or other employee groups if such action is likely to
have a subsequent material(1) impact on the Company or its basic human
resource and compensation policies.
(1)
For purposes of this Charter, the term "material" includes a transaction or
a series of related transactions that would, using reasonable business
judgment and assumptions, have a meaningful impact on the Corporation. The
impact could be relative to the Corporation's financial performance and
liabilities as well as its reputation.
v)
taking all reasonable steps to ensure succession planning programs
are in place, including programs to train and develop management;
vi)
approving certain matters relating to all employees, including:
a)
the annual salary policy/program for employees;
b)
new benefit programs or changes to existing programs that would
create a change in cost to the Company in excess of $10,000,000
annually;
c)
pension fund investment guidelines and the appointment of pension
fund managers; and
d)
material benefits granted to retiring employees outside of benefits
received under approved pension and other benefit programs.
C.
Strategy and Plans
The Board has the responsibility to:
i)
participate in strategic planning sessions to ensure that management
develops, and ultimately approve, major corporate strategies and
objectives;
ii)
approve capital commitment and expenditure budgets and related
operating plans;
iii)
approve financial and operating objectives used in determining
compensation;
iv)
approve the entering into, or withdrawing from, lines of business
that are, or are likely to be, material to the Company;
v)
approve material divestitures and acquisitions; and
C-2 TRANSCANADA PIPELINES LIMITED
vi)
monitor management's achievements in implementing major corporate
strategies and objectives, in light of changing circumstances.
D.
Financial and Corporate Issues
The Board has the responsibility to:
i)
take reasonable steps to ensure the implementation and integrity of the
Company's internal control and management information systems;
ii)
monitor operational and financial results;
iii)
approve annual financial statements and related Management's Discussion
and Analysis, review quarterly financial results and approve the release
thereof by management;
iv)
approve the Management Proxy Circular, Annual Information Form and
documents incorporated by reference therein;
v)
declare dividends;
vi)
approve financings, changes in authorized capital, issue and repurchase
of shares, issue and redemption of debt securities, listing of shares
and other securities, issue of commercial paper, and related
prospectuses and trust indentures;
vii)
recommend appointment of external auditors and approve auditors' fees;
viii)
approve banking resolutions and significant changes in banking
relationships;
ix)
approve appointments, or material changes in relationships with
corporate trustees;
x)
approve contracts, leases and other arrangements or commitments that may
have a material impact on the Company;
xi)
approve spending authority guidelines; and
xii)
approve the commencement or settlement of litigation that may have a
material impact on the Company.
E.
Business and Risk Management
The Board has the responsibility to:
i)
take all reasonable steps to ensure that management has identified
the principal risks of the Company's business and implemented
appropriate strategies to manage these risks, understands the
principal risks and achieves a proper balance between risks and
benefits;
ii)
review reports on capital commitments and expenditures relative to
approved budgets;
iii)
review operating and financial performance relative to budgets or
objectives;
iv)
receive, on a regular basis, reports from management on matters
relating to, among others, ethical conduct, environmental
management, employee health and safety, human rights, and related
party transactions; and
v)
assess and monitor management control systems by evaluating and
assessing information provided by management and others (e.g.
internal and external auditors) about the effectiveness of
management control systems.
F.
Policies and Procedures
The Board has responsibility to:
i)
monitor compliance with all significant policies and procedures by
which the Company is operated;
TRANSCANADA PIPELINES LIMITED C-3
ii)
direct management to ensure the Company operates at all times within
applicable laws and regulations and to the highest ethical and moral
standards;
iii)
provide policy direction to management while respecting its
responsibility for day-to-day management of the Company's
businesses; and
iv)
review significant new corporate policies or material amendments to
existing policies (including, for example, policies regarding
business conduct, conflict of interest and the environment).
G.
Compliance Reporting and Corporate Communications
The Board has the responsibility to:
i)
take all reasonable steps to ensure the Company has in place effective
disclosure and communication processes with shareholders and other
stakeholders and financial, regulatory and other recipients;
ii)
approve interaction with shareholders on all items requiring shareholder
response or approval;
iii)
take all reasonable steps to ensure that the financial performance of
the Company is adequately reported to shareholders, other security
holders and regulators on a timely and regular basis;
iv)
take all reasonable steps to ensure that financial results are reported
fairly and in accordance with generally accepted accounting principles;
v)
take all reasonable steps to ensure the timely reporting of any other
developments that have significant and material impact on the Company;
and
vi)
report annually to shareholders on the Board's stewardship for the
preceding year (the Annual Report).
IV. GENERAL LEGAL OBLIGATIONS OF THE BOARD OF DIRECTORS
A.
The Board is responsible for:
i)
directing management to ensure legal requirements have been met and
documents and records have been properly prepared, approved and
maintained;
ii)
approving changes in the By-laws and Articles of Incorporation, matters
requiring shareholder approval, and agendas for shareholder meetings;
iii)
approving the Company's legal structure, name, logo, mission statement
and vision statement; and
iv)
performing such functions as it reserves to itself or which cannot, by
law, be delegated to Committees of the Board or to management.
C-4 TRANSCANADA PIPELINES LIMITED
SCHEDULE "D"
Description of Board Committees and Their Charters
The Board has four standing committees: the Audit Committee; the Governance
Committee; the Health, Safety and Environment Committee; and the Human Resources
Committee. The Board does not have an Executive Committee. The Audit, Human
Resources and Governance committees are required to be composed entirely of
independent directors. The Health, Safety and Environment Committee is required
to have a majority of independent directors.
Each of the committees has a charter; the Committee charters are published on
TransCanada's website at www.transcanada.com.
Audit Committee
Chair: H.G. Schaefer, F.C.A.
Members: D.D. Baldwin, K.E. Benson, P. Gauthier, P.L. Joskow
This committee is comprised of five independent directors and is mandated to
assist the Board in monitoring, among other things, the integrity of the
financial statements of TCPL, the compliance by TCPL with legal and regulatory
requirements, and the independence and performance of TCPL's internal and
external auditors. The committee is also mandated to review and recommend to the
Board approval of TCPL's audited annual and unaudited interim consolidated
financial statements and related management discussion and analysis, and other
corporate disclosure documents including information circulars, the annual
information form, all prospectuses, other offering memoranda, and any financial
statements required by regulatory authorities, before they are released to the
public or filed with the appropriate regulatory authorities. In addition, the
committee reviews and recommends to the Board the appointment and compensation
of the external auditor, oversees the accounting, financial reporting, control
and audit functions, and recommends funding of TCPL's pension plans.
Audit committee information as required under Canadian Audit Committee Rules is
contained in TCPL's Annual Information Form for the year ending December 31,
2005 in the section "Corporate Governance - Audit Committee". Audit committee
information includes the charter, committee composition, relevant education and
experience of each member, reliance on exemptions, financial literacy of each
member, committee oversight, if any, pre-approval policies and procedures, and
external auditor service fees by category. The Annual Information Form is
available on SEDAR at www.sedar.com under TCPL's profile and is published on
TransCanada's website at www.transcanada.com.
The committee oversees the operation of an anonymous and confidential toll free
telephone number for employees, contractors and the public to call with respect
to perceived accounting irregularities and ethical violations, and has set up a
procedure for the receipt, retention, treatment and regular review of any such
reported activities. This telephone number is published on TransCanada's website
at www.transcanada.com, on its intranet for employees and in TransCanada's
Annual Report to shareholders.
The committee reviews the audit plans of the internal and external auditors and
meets with them at the time of each committee meeting, in each case both with
and without the presence of management. The committee annually receives and
reviews the external auditor's formal written statement of independence
delineating all relationships between itself and TCPL and its report on
recommendations to management regarding internal controls and procedures, and
ensures the rotation of the lead audit partner having primary responsibility for
the audit as required by law. The committee pre-approves all audit services and
all permitted non-audit services. In addition, the committee discusses with
management TCPL's material financial risk exposures and the actions management
has taken to monitor and control such exposures, reviews the internal control
procedures to oversee their effectiveness, monitors compliance with TCPL's
policies and codes of business ethics, and reports on these matters to the
Board. The committee reviews and approves the investment objectives and choice
of investment managers for the Canadian pension plans and considers and approves
any changes to those plans relating to financial matters.
TRANSCANADA PIPELINES LIMITED D-1
The committee has authority to retain advisors to assist it in the discharge of
its responsibilities. The committee also reviews its charter at least annually
and, as required, recommends changes to the Governance Committee and to the
Board. The committee reviews its performance annually. There were seven meetings
of the committee in 2005.
Governance Committee
Chair: W.K. Dobson
Members: D.H. Burney, P.L. Joskow, D.P. O'Brien, H.G. Schaefer
This committee is comprised of five independent directors and is mandated to
enhance TCPL's governance through a continuing assessment of TCPL's approach to
corporate governance. The committee is also mandated to identify qualified
individuals to become Board members, to recommend to the Board nominees for
election as directors and to annually recommend to the Board placement of
directors on committees. The committee annually reviews the independence status
of each director in accordance with written criteria in order to provide the
Board with guidance for its annual determination of director independence and
for the placement of members on committees.
The committee reviews and reports to the Board on the performance of individual
directors, the Board as a whole and each of the committees, in conjunction with
the Chair of the Board. The committee also monitors the relationship between
management and the Board, and reviews TCPL's structures to ensure that the Board
is able to function independently of management. The committee chair annually
reviews the performance of the Chair of the Board. The committee is also
responsible for an annual review of director compensation and for the
administration of the Share Unit Plan for Non-Employee Directors (1998),
including the granting of units under the plan.
The committee has the authority to retain advisors to assist it in the
discharge of its responsibilities. The committee reviews its charter at least
annually and, as required, recommends changes to the Board. The committee
reviews its performance annually. There were three meetings of the committee in
2005.
Human Resources Committee
Chair: K.L. Hawkins
Members: W.K. Dobson, E.L. Draper, D.P. O'Brien
This committee is comprised of four independent directors and is mandated to
review the Company's human resources policies and plans, monitor succession
planning, and to assess the performance of the CEO and other senior officers of
TCPL against set objectives. The committee approves the salary and other
remuneration to be awarded to senior executive officers of TCPL. A report on
senior management development and succession is prepared annually for
presentation to the Board. The committee reports to the Board with
recommendations on the remuneration package for the CEO. The committee approves
executive compensation plans and approves any major changes to TCPL's
compensation and benefit plans. The committee considers and approves any changes
to TCPL's pension plans relating to benefits aspects of these plans. The
committee administers and monitors the Executive Share Unit Plan, the
Performance Share Unit Plan, the Stock Option Plan and the Performance Unit
Plan.
The committee has the authority to retain advisors to assist it in the
discharge of its responsibilities. The committee reviews its charter at least
annually and, as required, recommends changes to the Governance Committee and
the Board. The committee reviews its performance annually. There were four
meetings of the committee in 2005.
Health, Safety and Environment Committee
Chair: D.D. Baldwin
Members: E.L. Draper, P. Gauthier, K.L. Hawkins
This committee is comprised of four independent directors and is mandated to
monitor the health, safety and environmental practices and procedures of TCPL
and its subsidiaries for compliance with applicable legislation, conformity with
industry standards and prevention or mitigation of losses. The committee also
considers whether the implementation of TCPL's policies related to health,
safety and environmental matters are effective. The committee reviews reports
and, when appropriate, makes recommendations to the Board on TCPL's policies and
procedures related
D-2 TRANSCANADA PIPELINES LIMITED
to health, safety and the environment. This committee meets separately with
officers of TCPL and its business units who have responsibility for these
matters and reports to the Board on such meetings.
The committee has the authority to retain advisors to assist it in the
discharge of its responsibilities. The committee reviews its charter at least
annually and, as required, recommends changes to the Governance Committee and
the Board. The committee reviews its performance annually. There were four
meetings of the committee in 2005.
Chair's Participation in Committees
Mr. S.B. Jackson, the Chair of the Board, is an independent director. The Chair
is appointed by the Board and serves in a non-executive capacity. The Chair is a
non-voting member of all committees of the Board.
TRANSCANADA PIPELINES LIMITED D-3
SCHEDULE "E"
CHARTER OF
THE AUDIT COMMITTEE
1. Purpose
The Audit Committee shall assist the Board of Directors (the "Board") in
overseeing and monitoring, among other things, the:
*
Company's financial accounting and reporting process;
*
integrity of the financial statements;
*
Company's internal control over financial reporting;
*
external financial audit process;
*
compliance by the Company with legal and regulatory requirements; and
*
independence and performance of the Company's internal and external
auditors.
To fulfill its purpose, the Audit Committee has been delegated certain
authorities by the Board of Directors that it may exercise on behalf of the
Board.
2. Roles and Responsibilities
I.
Appointment of the Company's External Auditors
Subject to confirmation by the external auditors of their compliance
with Canadian and U.S. regulatory registration requirements, the Audit
Committee shall recommend to the Board the appointment of the external
auditors, such appointment to be confirmed by the Company's shareholders
at each annual meeting. The Audit Committee shall also recommend to the
Board the compensation to be paid to the external auditors for audit
services and shall pre-approve the retention of the external auditors
for any permitted non-audit service and the fees for such service. The
Audit Committee shall also be directly responsible for the oversight of
the work of the external auditor (including resolution of disagreements
between management and the external auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or
related work. The external auditor shall report directly to the Audit
Committee.
The Audit Committee shall also receive periodic reports from the
external auditors regarding the auditors' independence, discuss such
reports with the auditors, consider whether the provision of non-audit
services is compatible with maintaining the auditors' independence and
the Audit Committee shall take appropriate action to satisfy itself of
the independence of the external auditors.
II.
Oversight in Respect of Financial Disclosure
The Audit Committee, to the extent it deems it necessary or appropriate,
shall:
a)
review, discuss with management and the external auditors and
recommend to the Board for approval, the Company's audited annual
financial statements, annual information form including management
discussion and analysis, all financial statements in prospectuses
and other offering memoranda, financial statements required by
regulatory authorities, all prospectuses and all documents which may
be incorporated by reference into a prospectus, including without
limitation, the annual proxy circular, but excluding any pricing
supplements issued under a medium term note prospectus supplement of
the Company;
TRANSCANADA PIPELINES LIMITED E-1
b)
review, discuss with management and the external auditors and
recommend to the Board for approval the release to the public of the
Company's interim reports, including the financial statements,
management discussion and analysis and press releases on quarterly
financial results;
c)
review and discuss with management and external auditors the use of
"pro forma" or "adjusted" non-GAAP information and the applicable
reconciliation;
d)
review and discuss with management and external auditors financial
information and earnings guidance provided to analysts and rating
agencies; provided, however, that such discussion may be done
generally (consisting of discussing the types of information to be
disclosed and the types of presentations to be made). The Audit
Committee need not discuss in advance each instance in which the
Company may provide earnings guidance or presentations to rating
agencies;
e)
review annual and quarterly financial statements and annual
disclosure documents of NOVA Gas Transmission Ltd. ("NGTL");
f)
review with management and the external auditors major issues
regarding accounting and auditing principles and practices,
including any significant changes in the Company's selection or
application of accounting principles, as well as major issues as to
the adequacy of the Company's internal controls and any special
audit steps adopted in light of material control deficiencies that
could significantly affect the Company's financial statements;
g)
review and discuss quarterly reports from the external auditors on:
i)
all critical accounting policies and practices to be used;
ii)
all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the external auditor;
iii)
other material written communications between the external auditor
and management, such as any management letter or schedule of
unadjusted differences;
h)
review with management and the external auditors the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements;
i)
review with management, the external auditors and, if necessary, legal
counsel, any litigation, claim or contingency, including tax
assessments, that could have a material effect upon the financial
position of the Company, and the manner in which these matters have been
disclosed in the financial statements;
j)
review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the periodic reports filed
with securities regulators about any significant deficiencies in the
design or operation of internal controls or material weaknesses therein
and any fraud involving management or other employees who have a
significant role in the Company's internal controls;
k)
discuss with management the Company's material financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
policies;
III.
Oversight in Respect of Legal and Regulatory Matters
a)
review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators or
governmental agencies.
E-2 TRANSCANADA PIPELINES LIMITED
IV.
Oversight in Respect of Internal Audit
a)
review the audit plans of the internal auditors of the Company including
the degree of coordination between such plan and that of the external
auditors and the extent to which the planned audit scope can be relied
upon to detect weaknesses in internal control, fraud or other illegal
acts;
b)
review the significant findings prepared by the internal auditing
department and recommendations issued by the Company or by any external
party relating to internal audit issues, together with management's
response thereto;
c)
review compliance with the Company's policies and avoidance of conflicts
of interest;
d)
review the adequacy of the resources of the internal auditor to ensure
the objectivity and independence of the internal audit function,
including reports from the internal audit department on its audit
process with associates and affiliates;
e)
ensure the internal auditor has access to the Chair of the Audit
Committee and of the Board and to the Chief Executive Officer and meet
separately with the internal auditor to review with him any problems or
difficulties he may have encountered and specifically:
i)
any difficulties which were encountered in the course of the audit work,
including restrictions on the scope of activities or access to required
information, and any disagreements with management;
ii)
any changes required in the planned scope of the internal audit; and
iii)
the internal audit department responsibilities, budget and staffing;
and to report to the Board on such meetings;
f)
bi-annually review officers' expenses and aircraft usage reports;
V.
Oversight in Respect of the External Auditors
a)
review the annual post-audit or management letter from the external auditors
and management's response and follow-up in respect of any identified
weakness, inquire regularly of management and the external auditors of any
significant issues between them and how they have been resolved, and
intervene in the resolution if required;
b)
review the quarterly unaudited financial statements with the external
auditors and receive and review the review engagement reports of external
auditors on unaudited financial statements of the Company and NGTL;
c)
receive and review annually the external auditors' formal written statement
of independence delineating all relationships between itself and the
Company;
d)
meet separately with the external auditors to review with them any problems
or difficulties the external auditors may have encountered and specifically:
i)
any difficulties which were encountered in the course of the audit work,
including any restrictions on the scope of activities or access to required
information, and any disagreements with management; and
ii)
any changes required in the planned scope of the audit;
and to report to the Board on such meetings;
e)
review with the external auditors the adequacy and appropriateness of
the accounting policies used in preparation of the financial statements;
f)
meet with the external auditors prior to the audit to review the
planning and staffing of the audit;
TRANSCANADA PIPELINES LIMITED E-3
g)
receive and review annually the external auditors' written report on
their own internal quality control procedures; any material issues
raised by the most recent internal quality control review, or peer
review, of the external auditors, or by any inquiry or investigation
by governmental or professional authorities, within the preceding
five years, and any steps taken to deal with such issues;
h)
review and evaluate the external auditors, including the lead
partner of the external auditor team;
i)
ensure the rotation of the lead (or coordinating) audit partner
having primary responsibility for the audit and the audit partner
responsible for reviewing the audit as required by law;
VI.
Oversight in Respect of Audit and Non-Audit Services
a)
pre-approve all audit services (which may entail providing comfort letters
in connection with securities underwritings) and all permitted non-audit
services, other than non-audit services where:
i)
the aggregate amount of all such non-audit services provided to the Company
constitutes not more than 5% of the total fees paid by the Company and its
subsidiaries to the external auditor during the fiscal year in which the
non-audit services are provided;
ii)
such services were not recognized by the Company at the time of the
engagement to be non-audit services; and
iii)
such services are promptly brought to the attention of the Audit Committee
and approved prior to the completion of the audit by the Audit Committee or
by one or more members of the Audit Committee to whom authority to grant
such approvals has been delegated by the Audit Committee;
b)
approval by the Audit Committee of a non-audit service to be performed by
the external auditor shall be disclosed as required under securities laws
and regulations;
c)
the Audit Committee may delegate to one or more designated members of the
Audit Committee the authority to grant pre-approvals required by this
subsection. The decisions of any member to whom authority is delegated to
pre-approve an activity shall be presented to the Audit Committee at its
first scheduled meeting following such pre-approval;
d)
if the Audit Committee approves an audit service within the scope of the
engagement of the external auditor, such audit service shall be deemed to
have been pre-approved for purposes of this subsection;
VII.
Oversight in Respect of Certain Policies
a)
review and recommend to the Board for approval policy changes and program
initiatives deemed advisable by management or the Audit Committee with
respect to the Company's codes of business conduct and ethics;
b)
obtain reports from management, the Company's senior internal auditing
executive and the external auditors and report to the Board on the status
and adequacy of the Company's efforts to ensure its businesses are conducted
and its facilities are operated in an ethical, legally compliant and
socially responsible manner, in accordance with the Company's codes of
business conduct and ethics;
c)
establish a non-traceable, confidential and anonymous system by which
callers may ask for advice or report any ethical or financial concern,
ensure that procedures for the receipt, retention and treatment of
complaints in respect of accounting, internal controls and auditing matters
are in place, and receive reports on such matters as necessary;
d)
annually review and assess the adequacy of the Company's public disclosure
policy;
e)
review and approve the Company's hiring policies for employees or former
employees of the external auditors (recognizing the Sarbanes-Oxley Act of
2002 does not permit the CEO, controller, CFO or chief
E-4 TRANSCANADA PIPELINES LIMITED
accounting officer to have participated in the Company's audit as an
employee of the external auditors' during the preceding one-year
period) and monitor the Company's adherence to the policy;
VIII.
Oversight in Respect of Pension Matters
a)
consider and in accordance with regulatory requirements approve any
changes in the Company's pension plans having to do with financial
matters after consultation with the Human Resources Audit Committee in
respect of any effect such a change may have on pension benefits;
b)
review and consider financial and investment reports relating to the
Company's pension plans;
c)
appoint and terminate the engagement of investment managers with respect
to the Company's pension plans;
d)
receive, review and report to the Board on the actuarial valuation and
funding requirements for the Company's pension plans;
IX.
Oversight in Respect of Internal Administration
a)
review annually the reports of the Company's representatives on certain
audit committees of subsidiaries and affiliates of the Company and any
significant issues and auditor recommendations concerning such subsidiaries
and affiliates;
b)
review the succession plans in respect of the Chief Financial Officer, the
Vice President, Risk Management and the Director, Internal Audit;
c)
review and approve guidelines for the Company's hiring of employees or
former employees of the external auditors who were engaged on the Company's
account;
X.
Oversight Function
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company's financial statements
and disclosures are complete and accurate or are in accordance with
generally accepted accounting principles and applicable rules and
regulations. These are the responsibilities of management and the
external auditors. The Audit Committee, its Chair and any of its members
who have accounting or related financial management experience or
expertise, are members of the Board, appointed to the Audit Committee to
provide broad oversight of the financial disclosure, financial risk and
control related activities of the Company, and are specifically not
accountable nor responsible for the day to day operation of such
activities. Although designation of a member or members as an "audit
committee financial expert" is based on that individual's education and
experience, which that individual will bring to bear in carrying out his
or her duties on the Audit Committee, designation as an "audit committee
financial expert" does not impose on such person any duties, obligations
or liability that are greater than the duties, obligations and liability
imposed on such person as a member of the Audit Committee and Board in
the absence of such designation. Rather, the role of any audit committee
financial expert, like the role of all Audit Committee members, is to
oversee the process and not to certify or guarantee the internal or
external audit of the Company's financial information or public
disclosure.
3. Composition of Audit Committee
The Audit Committee shall consist of three or more Directors, a majority of
whom are resident Canadians (as defined in the Canada Business Corporations
Act), and all of whom are unrelated and/or independent for the purposes of
applicable Canadian and United States securities law and applicable rules of
any stock exchange on which the Company's shares are listed. Each member of
the Audit Committee shall be financially literate and at least one member
shall have accounting or related financial management expertise (as those
terms are defined from time to time under the requirements or guidelines for
audit committee service under securities laws and the
TRANSCANADA PIPELINES LIMITED E-5
applicable rules of any stock exchange on which the Company's securities are
listed for trading or, if it is not so defined as that term is interpreted
by the Board in its business judgment).
4. Appointment of Audit Committee Members
The members of the Audit Committee shall be appointed by the Board from time
to time, on the recommendation of the Governance Committee and shall hold
office until the next annual meeting of shareholders or until their
successors are earlier appointed or until they cease to be Directors of the
Company.
5. Vacancies
Where a vacancy occurs at any time in the membership of the Audit Committee,
it may be filled by the Board on the recommendation of the Governance
Committee.
6. Audit Committee Chair
The Board shall appoint a Chair of the Audit Committee who shall:
a)
review and approve the agenda for each meeting of the Audit Committee
and as appropriate, consult with members of management;
b)
preside over meetings of the Audit Committee;
c)
report to the Board on the activities of the Audit Committee relative to
its recommendations, resolutions, actions and concerns; and
d)
meet as necessary with the internal and external auditors.
7. Absence of Audit Committee Chair
If the Chair of the Audit Committee is not present at any meeting of the
Audit Committee, one of the other members of the Audit Committee present at
the meeting shall be chosen by the Audit Committee to preside at the
meeting.
8. Secretary of Audit Committee
The Corporate Secretary shall act as Secretary to the Audit Committee.
9. Meetings
The Chair, or any two members of the Audit Committee, or the internal
auditor, or the external auditors, may call a meeting of the Audit
Committee. The Audit Committee shall meet at least quarterly. The Audit
Committee shall meet periodically with management, the internal auditors and
the external auditors in separate executive sessions.
10. Quorum
A majority of the members of the Audit Committee, present in person or by
telephone or other telecommunication device that permit all persons
participating in the meeting to speak to each other, shall constitute a
quorum.
11. Notice of Meetings
Notice of the time and place of every meeting shall be given in writing or
facsimile communication to each member of the Audit Committee at least 24
hours prior to the time fixed for such meeting; provided, however, that a
member may in any manner waive a notice of a meeting. Attendance of a member
at a meeting is a waiver of notice of the meeting, except where a member
attends a meeting for the express purpose of objecting to the transaction of
any business on the grounds that the meeting is not lawfully called.
E-6 TRANSCANADA PIPELINES LIMITED
12. Attendance of Company Officers and Employees at Meeting
At the invitation of the Chair of the Audit Committee, one or more officers
or employees of the Company may attend any meeting of the Audit Committee.
13. Procedure, Records and Reporting
The Audit Committee shall fix its own procedure at meetings, keep records of
its proceedings and report to the Board when the Audit Committee may deem
appropriate but not later than the next meeting of the Board.
14. Review of Charter and Evaluation of Audit Committee
The Audit Committee shall review its Charter annually or otherwise, as it
deems appropriate, and if necessary propose changes to the Governance
Committee and the Board. The Audit Committee shall annually review the Audit
Committee's own performance.
15. Outside Experts and Advisors
The Audit Committee is authorized, when deemed necessary or desirable, to
retain independent counsel, outside experts and other advisors, at the
Company's expense, to advise the Audit Committee or its members
independently on any matter.
16. Reliance
Absent actual knowledge to the contrary (which shall be promptly reported to
the Board), each member of the Audit Committee shall be entitled to rely on
(i) the integrity of those persons or organizations within and outside the
Company from which it receives information, (ii) the accuracy of the
financial and other information provided to the Audit Committee by such
persons or organizations and (iii) representations made by Management and
the external auditors, as to any information technology, internal audit and
other non-audit services provided by the external auditors to the Company
and its subsidiaries.
TRANSCANADA PIPELINES LIMITED E-7
Financial Highlights
Year ended December 31 2005 2004 2003 2002 2001 2000
(millions of dollars)
Income Statement
Net income applicable to
common shares
Continuing operations 1,208 978 801 747 686 628
Discontinued operations - 52 50 - (67 ) 61
Net income applicable to 1,208 1,030 851 747 619 689
common shares
Cash Flow Statement
Funds generated from 1,950 1,701 1,822 1,843 1,625 1,484
operations
(Increase)/decrease in (48 ) 28 93 92 (487 ) 437
operating working capital
Net cash provided by 1,902 1,729 1,915 1,935 1,138 1,921
operations
Capital expenditures and 2,071 2,046 965 851 1,082 1,144
acquisitions
Balance Sheet
Total assets 24,113 22,421 20,884 20,555 20,531 25,245
Long-term debt 9,640 9,749 9,516 8,899 9,444 10,008
Common shareholders' equity 7,164 6,484 6,044 5,747 5,426 5,211
This information is provided by RNS
The company news service from the London Stock Exchange
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