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RNS Number:4667Z
TransCanada Pipelines Ld
07 March 2006
PART 5
NOTE 18 INCOME TAXES
Provision for Income Taxes
Year ended December 31 (millions of dollars) 2005 2004 2003
Current
Canada 499 373 243
Foreign 51 41 41
550 414 284
Future
Canada (46 ) 34 183
Foreign 106 43 47
60 77 230
610 491 514
Geographic Components of Income
Year ended December 31 (millions of dollars) 2005 2004 2003
Canada 1,315 1,205 1,058
Foreign 587 342 324
Income from continuing operations before income taxes and 1,902 1,547 1,382
non-controlling interests
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 95
Reconciliation of Income Tax Expense
Year ended December 31 (millions of dollars) 2005 2004 2003
Income from continuing operations before income taxes and 1,902 1,547 1,382
non-controlling interests
Federal and provincial statutory tax rate 33.6 % 33.9 % 36.7 %
Expected income tax expense 639 524 507
Income tax differential related to regulated operations 71 62 29
Higher/(lower) effective foreign tax rates 2 2 (2 )
Large corporations tax 15 21 28
Lower effective tax rate on equity in earnings of affiliates (29 ) (24 ) (27 )
Non-taxable portion of gains on sale of assets (68 ) (66 ) -
Change in valuation allowance - (7 ) (3 )
Other (20 ) (21 ) (18 )
Actual income tax expense 610 491 514
Future Income Tax Assets and Liabilities
December 31 (millions of dollars) 2005 2004
Deferred costs 119 71
Deferred revenue 11 18
Alternative minimum tax credits - 10
Net operating and capital loss carryforwards 1 7
Other 43 72
174 178
Less: Valuation allowance 14 17
Future income tax assets, net of valuation allowance 160 161
Difference in accounting and tax bases of plant, equipment and PPAs 637 456
Investments in subsidiaries and partnerships 131 114
Unrealized foreign exchange gains on long-term debt 68 45
Other 27 55
Future income tax liabilities 863 670
Net future income tax liabilities 703 509
Unremitted Earnings of Foreign Investments
Income taxes have not been provided on the unremitted earnings of foreign
investments which the Company does not intend to repatriate in the foreseeable
future. If provision for these taxes had been made, future income tax
liabilities would increase by approximately $61 million at December 31, 2005
(2004 - $57 million).
Income Tax Payments
Income tax payments of $530 million were made during the year ended December 31,
2005 (2004 - $419 million; 2003 - $220 million).
96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 NOTES PAYABLE
2005 2004
Weighted Weighted
Average Average
Interest Rate Interest Rate
Outstanding Per Annum at Outstanding Per Annum at
December 31(1) December 31 December 31(1) December 31
Canadian dollars 765 3.4% 546 2.6%
U.S. dollars (2005 - US$169) 197 4.5% - -
962 546
(1)
Amounts outstanding are stated in millions of Canadian dollars; amounts
denominated in currencies other than Canadian dollars are stated in
millions.
Notes payable consists of commercial paper and line of credit drawings. At
December 31, 2005, total credit facilities of $2.0 billion were available to
support the Company's commercial paper programs and for general corporate
purposes. Of this total, $1.5 billion was a committed five-year term syndicated
credit facility. This facility is extendible on an annual basis and is
revolving. In December 2005, the facility was extended to December 2010. The
remaining amounts are either demand or non-extendible facilities.
At December 31, 2005, the Company had used approximately $271 million of its
total lines of credit for letters of credit and to support its ongoing
commercial arrangements. If drawn, interest on the lines of credit is charged at
prime rates of Canadian chartered and U.S. banks and at other negotiated
financial bases. The cost to maintain the unused portion of the lines of credit
was $2 million for the year ended December 31, 2005 (2004 - $2 million).
NOTE 20 ASSET RETIREMENT OBLIGATIONS
At December 31, 2005, the estimated undiscounted cash flows required to settle
the asset retirement obligations with respect to Gas Transmission were $46
million (2004 - $48 million), calculated using an inflation rate ranging from
two to three per cent per annum. The estimated fair value of this liability was
$12 million (2004 - $12 million) after discounting the estimated cash flows at
rates ranging from 5.5 per cent to 6.6 per cent. At December 31, 2005, the
expected timing of payment for settlement of the obligations ranges from 12 to
24 years. No amount has been recorded for asset retirement obligations relating
to the regulated natural gas transmission operation assets as it is not possible
to make a reasonable estimate of the fair value of the liability due to the
inability to determine the scope and timing of the asset retirements. Management
believes it is reasonable to assume that all retirement costs associated with
the regulated pipelines will be recovered through tolls in future periods.
At December 31, 2005, the estimated undiscounted cash flows required to settle
the asset retirement obligations with respect to the Power business were $95
million (2004 - $128 million), calculated using an inflation rate ranging from
two to three per cent per annum. The estimated fair value of this liability was
$21 million (2004 - $24 million) after discounting the estimated cash flows at
rates ranging from 5.5 per cent to 6.6 per cent. At December 31, 2005, the
expected timing of payment for settlement of the obligations ranges from 13 to
28 years.
For the hydroelectric power plant assets, as it is not possible to make a
reasonable estimate of the fair value of the liability due to the inability to
determine the scope and timing of the asset retirements, no amount has been
recorded for asset retirement obligations. For the Bruce Power nuclear assets,
as the lessor is responsible for decommissioning liabilities under the lease
agreement, no amount has been recorded for asset retirement obligations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 97
Reconciliation of Asset Retirement Obligations
(millions of dollars) Gas Transmission Power Total
Balance at January 1, 2003 2 6 8
Revisions in estimated cash flows - 1 1
Balance at December 31, 2003 2 7 9
New obligations and revisions in estimated cash flows 9 21 30
Removal of Power LP redemption obligations - (5 ) (5 )
Accretion expense 1 1 2
Balance at December 31, 2004 12 24 36
Revisions in estimated cash flows and lives (1 ) 1 -
Sale of Power LP - (5 ) (5 )
Accretion expense 1 1 2
Balance at December 31, 2005 12 21 33
NOTE 21 EMPLOYEE FUTURE BENEFITS
The Company sponsors DB Plans that cover substantially all employees. Benefits
provided under the DB Plans are based on years of service and highest average
earnings over three consecutive years of employment, and increase annually by a
portion of the increase in the Consumer Products Index (CPI). Past service costs
are amortized over the expected average remaining service life of employees,
which is approximately 11 years.
The Company also provides its employees with post-employment benefits other
than pensions, including termination benefits and defined life insurance and
medical benefits beyond those provided by government-sponsored plans. Past
service costs are amortized over the expected average remaining life expectancy
of former employees, which at December 31, 2005 was approximately 12 years.
In 2005, the Company expensed $2 million (2004 - $1 million; 2003 - $1 million)
related to retirement savings plans for its U.S. employees.
Total cash payments for employee future benefits for 2005, consisting of cash
contributed by the Company to the DB Plans and other benefit plans was $74
million (2004 - $89 million).
98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company measures its accrued benefit obligations and the fair value of plan
assets for accounting purposes as at December 31 of each year. The most recent
actuarial valuation of the pension plans for funding purposes was as of January
1, 2006, and the next required valuation is as of January 1, 2007.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2005 2004 2005 2004
Change in Benefit Obligation
Benefit obligation - beginning of year 1,100 960 123 106
Current service cost 32 28 3 3
Interest cost 63 58 7 7
Employee contributions 3 2 - -
Benefits paid (60 ) (66 ) (6 ) (4 )
Actuarial loss/(gain) 149 46 21 (12 )
Foreign exchange rate changes (3 ) - - -
Curtailment (2 ) - - -
Acquisition - 72 - 23
Benefit obligation - end of year 1,282 1,100 148 123
Change in Plan Assets
Plan assets at fair value - beginning of year 970 799 26 -
Actual return on plan assets 119 97 2 1
Employer contributions 67 84 5 4
Employee contributions 3 2 - -
Benefits paid (60 ) (66 ) (6 ) (4 )
Foreign exchange rate changes (3 ) - - -
Acquisition - 54 - 25
Plan assets at fair value - end of year 1,096 970 27 26
Funded status - plan deficit (186 ) (130 ) (121 ) (97 )
Unamortized net actuarial loss 331 255 45 25
Unamortized past service costs 36 39 8 7
Accrued benefit asset/(liability), net of valuation 181 164 (68 ) (65 )
allowance
The accrued benefit (asset)/liability, net of valuation allowance of nil, is
included in the Company's balance sheet as follows.
Pension Benefit Plans Other Benefit Plans
2005 2004 2005 2004
Other assets 268 224 4 3
Accounts payable (70 ) (42 ) (7 ) (5 )
Deferred amounts (17 ) (18 ) (65 ) (63 )
Total 181 164 (68 ) (65 )
Included in the above accrued benefit obligation and fair value of plan assets
at year end are the following amounts in respect of plans that are not fully
funded.
Pension Benefit Plans Other Benefit Plans
2005 2004 2005 2004
Accrued benefit obligation (1,263 ) (1,084 ) (124 ) (100 )
Fair value of plan assets 1,075 952 - -
Funded status - plan deficit (188 ) (132 ) (124 ) (100 )
The Company's expected contributions for the year ended December 31, 2006 are
approximately $95 million for the pension benefit plans and approximately $7
million for the other benefit plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 99
The following are estimated future benefit payments, which reflect expected
future service.
(millions of dollars) Pension Benefits Other Benefits
2006 58 6
2007 59 7
2008 62 7
2009 64 8
2010 67 8
Years 2011 to 2015 378 44
The significant weighted average actuarial assumptions adopted in measuring the
Company's benefit obligations at December 31 are as follows.
Pension Benefit Plans Other Benefit Plans
2005 2004 2005 2004
Discount rate 5.00% 5.75% 5.15% 6.00%
Rate of compensation increase 3.50% 3.50%
The significant weighted average actuarial assumptions adopted in measuring the
Company's net benefit plan cost for years ended December 31 are as follows.
Pension Benefit Plans Other Benefit Plans
2005 2004 2003 2005 2004 2003
Discount rate 5.75% 6.00% 6.25% 6.00% 6.25% 6.50%
Expected long-term rate 6.90% 6.90% 7.25% 7.20%
of return on plan assets
Rate of compensation 3.50% 3.50% 3.75%
increase
The overall expected long-term rate of return on plan assets is based on
historical and projected rates of return for both the portfolio in aggregate and
for each asset class in the portfolio. Assumed projected rates of return are
selected after analyzing historical experience and future expectations of the
level and volatility of returns. Asset class benchmark returns, asset mix and
anticipated benefit payments from plan assets are also considered in the
determination of the overall expected rate of return. The discount rate is based
on market interest rates of high quality bonds that match the timing and
benefits expected to be paid under each plan.
For measurement purposes, a 9.0 per cent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2006. The rate was
assumed to decrease gradually to 5.0 per cent for 2015 and remain at that level
thereafter. A one percentage point increase or decrease in assumed health care
cost trend rates would have the following effects.
(millions of dollars) Increase Decrease
Effect on total of service and interest cost components 2 (1 )
Effect on post-employment benefit obligation 18 (16 )
100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's net benefit cost is as follows.
Pension Benefit Plans Other Benefit Plans
Year ended December 31 2005 2004 2003 2005 2004 2003
(millions of dollars)
Current service cost 32 28 25 3 3 2
Interest cost 63 58 52 7 7 6
Actual return on plan (119 ) (97 ) (89 ) (2 ) (1 ) -
assets
Actuarial loss/(gain) 149 46 66 21 (12 ) 7
Elements of net benefit 125 35 54 29 (3 ) 15
cost prior to adjustments
to recognize the
long-term nature of net
benefit cost
Difference between 54 39 38 - 1 -
expected and actual
return on plan assets
Difference between (131 ) (32 ) (58 ) (20 ) 13 (6 )
actuarial loss recognized
and actual actuarial loss
on accrued benefit
obligation
Difference between 3 3 3 1 - 1
amortization of past
service costs and actual
plan amendments
Amortization of - - - 2 2 2
transitional obligation
related to regulated
business
Net benefit cost 51 45 37 12 13 12
recognized
The Company's pension plans' weighted average asset allocations at December 31,
by asset category, and weighted average target allocation at December 31, by
asset category, is as follows.
Percentage of Plan Assets Target
Allocation
Asset Category 2005 2004 2005
Debt securities 43% 44% 35% to 60%
Equity securities 57% 56% 40% to 65%
100% 100%
Debt securities include the Company's long-term debt in the amount of $3
million (0.3 per cent of total plan assets) at December 31, 2005 and 2004.
Equity securities include the Company's common shares in the amounts of $5
million (0.5 per cent of total plan assets) and $3 million (0.3 per cent of
total plan assets) at December 31, 2005 and 2004, respectively.
The assets of the pension plans are managed on a going concern basis subject to
legislative restrictions. The plans' investment policies are to maximize returns
within an acceptable risk tolerance. Pension assets are invested in a
diversified manner with consideration given to the demographics of the plans'
participants.
Employee Future Benefits of Joint Ventures
Certain of the Company's joint ventures sponsor DB Plans, as well as
post-employment benefits other than pensions, including defined life insurance
and medical benefits beyond those provided by government-sponsored plans. The
obligations of these plans are non-recourse to TCPL. The amounts that follow
represent TCPL's proportionate share with respect to these plans.
Total cash payments for employee future benefits for 2005, consisting of cash
contributed by the Company's joint ventures to DB Plans and other benefit plans
was $4 million (2004 - $1 million).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 101
The Company's joint ventures measure the accrued benefit obligations and the
fair value of plan assets for accounting purposes as at December 31 of each
year. The most recent actuarial valuation of the pension plans for funding
purposes was as of January 1, 2006, and the next required valuation will be as
of January 1, 2007.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2005 2004 2005 2004
Change in Benefit Obligation
Benefit obligation - beginning of year 45 47 2 2
Current service cost 4 1 1 -
Interest cost 7 3 1 -
Employee contributions - - - -
Benefits paid (3 ) (3 ) - -
Actuarial loss 17 - 2 -
Foreign exchange rate changes (1 ) (3 ) -
Bruce B(1) 610 75
Benefit obligation - end of year 679 45 81 2
Change in Plan Assets
Plan assets at fair value - beginning of year 57 56 - -
Actual return on plan assets 18 7 - -
Employer contributions 4 1 - -
Employee contributions - - - -
Benefits paid (3 ) (3 ) - -
Foreign exchange rate changes (1 ) (4 ) - -
Bruce B(1) 510 - -
Plan assets at fair value - end of year 585 57 - -
Funded status - plan deficit (94 ) 12 (81 ) (2 )
Unamortized net actuarial loss/(gain) 125 14 (5 ) 1
Unamortized past service costs 1 - - -
Accrued benefit asset/(liability), net of valuation 32 26 (86 ) (1 )
allowance
(1)
The Company proportionately consolidated Bruce B, on a prospective basis at
31.6 per cent, effective October 31, 2005.
The accrued benefit (asset)/liability, net of valuation allowance of nil, is
included in the Company's balance sheet as follows.
Pension Benefit Plans Other Benefit Plans
2005 2004 2005 2004
Other assets 32 26 - -
Deferred amounts - - (86 ) (1 )
Total 32 26 (86 ) (1 )
Included in the above accrued benefit obligation and fair value of plan assets
at year end are the following amounts in respect of plans that are not fully
funded.
Pension Benefit Plans Other Benefit Plans
2005 2004 2005 2004
Accrued benefit obligation (645 ) (5 ) (81 ) (2 )
Fair value of plan assets 534 4 - -
Funded status - plan deficit (111 ) (1 ) (81 ) (2 )
The Company's joint ventures' expected contributions for the year ended
December 31, 2006 are approximately $27 million for the pension benefit plans
and approximately $2 million for the other benefit plans.
102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are estimated future benefit payments, which reflect expected
future service.
(millions of dollars) Pension Benefits Other Benefits
2006 11 2
2007 13 2
2008 16 2
2009 20 3
2010 24 3
Years 2011 to 2015 172 21
The significant weighted average actuarial assumptions adopted in measuring the
Company's joint ventures' benefit obligations at December 31 are as follows.
Pension Benefit Plans Other Benefit Plans
2005 2004 2005 2004
Discount rate 5.30% 5.75% 5.15% 5.75%
Rate of compensation increase 3.50% 4.00%
The significant weighted average actuarial assumptions adopted in measuring the
Company's joint ventures' net benefit plan cost for years ended December 31 are
as follows.
Pension Benefit Plans Other Benefit Plans
2005 2004 2003 2005 2004 2003
Discount rate 6.20% 6.00% 6.75% 6.25% 6.00% 6.75%
Expected long-term rate 7.40% 8.50% 8.80%
of return on plan assets
Rate of compensation 3.50% 4.00% 4.00%
increase
A one percentage point increase or decrease in assumed health care cost trend
rates would have the following effects.
(millions of dollars) Increase Decrease
Effect on total of service and interest cost components 1 (1 )
Effect on post-employment benefit obligation 7 (6 )
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 103
The Company's proportionate share of net benefit cost of joint ventures is as
follows.
Pension Benefit Plans Other Benefit Plans
Year ended December 31 2005 2004 2003 2005 2004 2003
(millions of dollars)
Current service cost 4 1 1 1 - -
Interest cost 7 3 3 1 - -
Actual return on plan (18 ) (7 ) (7 ) - - -
assets
Actuarial loss 17 - 4 2 - -
Elements of net benefit 10 (3 ) 1 4 - -
cost prior to adjustments
to recognize the
long-term nature of net
benefit cost
Difference between 9 2 2 - - -
expected and actual
return on plan assets
Difference between (16 ) 1 (4 ) (3 ) - -
actuarial loss recognized
and actual actuarial loss
on accrued benefit
obligation
Difference between - - - - - -
amortization of past
service costs and actual
plan amendments
Net benefit cost 3 - (1 ) 1 - -
recognized by joint
ventures
The Company's pension plans' weighted average asset allocations at December 31,
by asset category, and weighted average target allocation at December 31, by
asset category, is as follows.
Percentage of Plan Assets Target
Allocation
Asset Category 2005 2004 2005
Debt securities 30% 38% 30% to 40%
Equity securities 70% 62% 60% to 70%
100% 100%
Debt securities include the Company's long-term debt in the amount of $1
million (0.2 per cent of total plan assets) and nil at December 31, 2005 and
2004, respectively. Equity securities include the Company's common shares in the
amounts of $5 million (0.9 per cent of total plan assets) and nil at December
31, 2005 and 2004, respectively.
The assets of the pension plans are managed on a going concern basis subject to
legislative restrictions. The plans' investment policies are to maximize returns
within an acceptable risk tolerance. Pension assets are invested in a
diversified manner with consideration given to the demographics of the plans'
participants.
NOTE 22 CHANGES IN OPERATING WORKING CAPITAL
Year ended December 31 (millions of dollars) 2005 2004 2003
(Increase)/decrease in accounts receivable (100 ) 15 98
(Increase)/decrease in inventories (50 ) - 15
(Increase)/decrease in other current assets (1 ) 24 28
Increase/(decrease) in accounts payable 98 (4 ) (46 )
Increase/(decrease) in accrued interest 5 (7 ) (2 )
(48 ) 28 93
104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments
Operating leases
Future annual payments, net of sub-lease receipts, under the Company's operating
leases for various premises, services, equipment and a natural gas storage
facility are approximately as follows.
Minimum Amounts Recoverable Net
Year ended December 31 (millions of dollars) Lease Payments under Sub-Leases Payments
2006 46 (12 ) 34
2007 52 (12 ) 40
2008 54 (12 ) 42
2009 54 (11 ) 43
2010 53 (11 ) 42
The operating lease agreements for premises, services and equipment expire at
various dates through 2011, with an option to renew certain lease agreements for
five years. The operating lease agreement for the natural gas storage facility
expires in 2030 with lessee termination rights every fifth anniversary
commencing in 2010 and with the lessor having the right to terminate the
agreement every five years commencing in 2015. Net rental expense on operating
leases for the year ended December 31, 2005 was $17 million (2004 - $7 million;
2003 - $2 million).
Bruce Power
TCPL's share of Bruce A's signed commitments to third party suppliers for the
next five years for the restart and refurbishment of the currently idle Units 1
and 2, extending the operating life of Unit 3 by replacing its steam generators
and fuel channels when required and replacing the steam generators on Unit 4, is
as follows.
Year ended December 31 (millions of dollars)
2006 322
2007 311
2008 142
2009 69
2010 -
844
Aboriginal Pipeline Group
On June 18, 2003, the Mackenzie Delta gas producers, the APG and TCPL reached an
agreement which governs TCPL's role in the Mackenzie Gas Pipeline Project. The
project would result in a natural gas pipeline being constructed from Inuvik,
Northwest Territories, to the northern border of Alberta, where it would connect
with the Alberta System. Under the agreement, TCPL agreed to finance the APG for
its one-third share of project development costs. These costs were originally
estimated to be approximately $90 million, but given extended project delays,
the protracted regulatory process and the projected timing to reach a decision
to construct the pipeline, this share is currently forecasted to increase to
approximately $145 million. As at December 31, 2005, TCPL had funded $87 million
(2004 - $60 million) of this loan which is included in other assets. The ability
to recover this investment is dependent upon the outcome of the project.
Contingencies
The Canadian Alliance of Pipeline Landowners' Associations and two individual
landowners commenced an action in 2003 under Ontario's Class Proceedings Act,
1992, against TCPL and Enbridge Inc. for damages of $500 million alleged to
arise from the creation of a control zone within 30 metres of the pipeline
pursuant to Section 112 of the NEB Act. The Company believes the claim is
without merit and will vigorously defend the action. The Company has made no
provision for any potential liability. A liability, if any, would be dealt with
through the regulatory process.
The Company and its subsidiaries are subject to various other legal proceedings
and actions arising in the normal course of business. While the final outcome of
such legal proceedings and actions cannot be predicted with certainty, it is the
opinion of Management that the resolution of such proceedings and actions will
not have a material impact on the Company's consolidated financial position or
results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 105
Guarantees
The Company, together with Cameco Corporation and BPC Generation Infrastructure
Trust (BPC), has severally guaranteed one-third of certain contingent financial
obligations of Bruce B related to power sales agreements, operator licenses, the
lease agreement and contractor services. The terms of the guarantees range from
2007 to 2018.
As part of the reorganization of Bruce Power, including the formation of Bruce
A and the commitment to restart and refurbish the Bruce A units, the Company,
together with BPC, severally guaranteed one-half of certain contingent financial
obligations of Bruce A related to the refurbishment agreement with the Ontario
Power Authority and cost sharing and sublease agreements with Bruce B. The terms
of the guarantees currently range from 2018 to 2019.
TCPL's share of the exposure under these Bruce Power guarantees at December 31,
2005 was estimated to be approximately $652 million of a calculated maximum of
$758 million. The current carrying amount of the liability related to these
guarantees is nil and the fair value is approximately $17 million.
TCPL has guaranteed the equity undertaking of a subsidiary which supports the
payment, under certain conditions, of principal and interest on US$133 million
of public debt obligations of TransGas. The Company has a 46.5 per cent interest
in TransGas. Under the terms of the agreement, the Company severally with
another major multinational company may be required to fund more than their
proportionate share of debt obligations of TransGas in the event that the
minority shareholders fail to contribute. Any payments made by TCPL under this
agreement convert into share capital of TransGas. The potential exposure is
contingent on the impact of any change of law on TransGas' ability to service
the debt. From the issuance of the debt in 1995 to date, there has been no
change in applicable law and thus no exposure to TCPL. The debt matures in 2010.
The Company has made no provision related to this guarantee.
In connection with the acquisition of GTN, US$241 million of the purchase price
was deposited into an escrow account. As at December 31, 2005, there was US$54
million remaining in the escrow account. The outstanding funds in the escrow
account represent the full face amount of the potential liability under certain
GTN guarantees and are to be used to satisfy the liability of GTN under these
designated guarantees.
NOTE 24 DISCONTINUED OPERATIONS
The Board of Directors approved plans in previous years to dispose of the
Company's International, Canadian Midstream, Gas Marketing and certain other
businesses. Net income from discontinued operations for the year ended December
31, 2005 was nil (2004 - $52 million, net of $27 million of income taxes; 2003 -
$50 million, net of $29 million of income taxes). Included in accounts payable
at December 31, 2005 was the remaining $51 million provision for loss on
discontinued operations (2004 - $55 million).
106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION
SIX YEAR FINANCIAL HIGHLIGHTS
(millions of dollars except where 2005 2004 2003 2002 2001 2000
indicated)
Income Statement
Revenues 6,124 5,497 5,636 5,225 5,285 4,384
Net income from continuing 1,230 1,000 823 769 708 663
operations
Net income 1,230 1,052 873 769 641 724
Results by segment
Gas Transmission 684 586 622 653 585 623
Power 561 396 220 146 168 85
Corporate (37 ) (4 ) (41 ) (52 ) (67 ) (80 )
Continuing operations 1,208 978 801 747 686 628
Discontinued operations - 52 50 - (67 ) 61
Net income applicable to common 1,208 1,030 851 747 619 689
shares
Cash Flow Statement
Funds generated from operations 1,950 1,701 1,822 1,843 1,625 1,484
(Increase)/decrease in operating (48 ) 28 93 92 (487 ) 437
working capital
Net cash provided by operations 1,902 1,729 1,915 1,935 1,138 1,921
Capital expenditures and 2,071 2,046 965 851 1,082 1,144
acquisitions
Dividends on common and preferred 608 574 532 488 440 458
shares
Balance Sheet
Assets
Plant, property and equipment
Gas Transmission 16,774 17,385 16,122 16,158 16,562 16,937
Power 3,237 1,342 1,310 1,340 1,116 776
Corporate 27 37 50 64 66 111
Total assets 24,113 22,421 20,884 20,555 20,531 25,245
Capitalization
Long-term debt 9,640 9,749 9,516 8,899 9,444 10,008
Long-term debt of joint ventures 937 808 741 1,193 1,262 1,280
Preferred securities 536 554 598 944 950 1,208
Preferred shares 389 389 389 389 389 389
Common shareholders' equity 7,164 6,484 6,044 5,747 5,426 5,211
SUPPLEMENTARY INFORMATION 107
2005 2004 2003 2002 2001 2000
Per Common Share Data (dollars)
Net income - Basic
Continuing operations $2.50 $2.03 $1.66 $1.56 $1.44 $1.32
Discontinued operations - 0.11 0.11 - (0.14 ) 0.13
$2.50 $2.14 $1.77 $1.56 $1.30 $1.45
Net income - Diluted
Continuing operations $2.50 $2.03 $1.66 $1.55 $1.44 $1.32
Discontinued operations - 0.11 0.11 - (0.14 ) 0.13
$2.50 $2.14 $1.77 $1.55 $1.30 $1.45
Dividends declared $1.23 $1.17 $1.08 $1.00 $0.90 $0.80
Per Preferred Share Data
(dollars)
Series U Cumulative First $2.80 $2.80 $2.80 $2.80 $2.80 $2.80
Preferred Shares
Series Y Cumulative First $2.80 $2.80 $2.80 $2.80 $2.80 $2.80
Preferred Shares
Financial Ratios
Earnings to fixed charges(1) 2.9 2.5 2.3 2.3 2.1 1.9
(1)
The ratio of earnings to fixed charges is determined by dividing the income
from continuing operations before financial charges and income taxes,
excluding undistributed income from equity investees, by the financial
charges incurred by the company (including capitalized interest).
108 SUPPLEMENTARY INFORMATION
TRANSCANADA PIPELINES LIMITED
RECONCILIATION TO UNITED STATES GAAP
AUDITORS' REPORT ON RECONCILIATION TO UNITED STATES GAAP
To the Shareholders of TransCanada PipeLines Limited
On February 27, 2006, we reported on the consolidated balance sheets of
TransCanada PipeLines Limited as at December 31, 2005 and 2004 and the
consolidated statements of income, retained earnings and cash flows for each of
the years in the three-year period ended December 31, 2005, which are included
in the annual report on Form 40-F. In connection with our audits conducted in
accordance with Canadian generally accepted auditing standards of the
aforementioned consolidated financial statements, we also have audited the
related supplemental note entitled "Reconciliation to United States GAAP"
included in the Form 40-F. This supplemental note is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
supplemental note based on our audits.
In our opinion, such supplemental note, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 27, 2006
1
TRANSCANADA PIPELINES LIMITED
RECONCILIATION TO UNITED STATES GAAP
The 2005 audited consolidated financial statements of TransCanada
PipeLines Limited (TCPL or the Company) have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP), which in some
respects, differ from U.S. GAAP. The effects of these differences on the
Company's consolidated financial statements for the year ended December 31, 2005
are provided in the following U.S. GAAP condensed consolidated financial
statements which should be read in conjunction with TCPL's 2005 audited
consolidated financial statements prepared in accordance with Canadian GAAP.
Condensed Statement of Consolidated Income and Comprehensive Income in
Accordance with U.S. GAAP(1)
Year ended December 31 (millions of dollars) 2005 Restated Restated
(3) (3)
2004 2003
Revenues 5,333 5,014 5,121
Cost of sales 840 777 814
Other costs and expenses 1,794 1,618 1,645
Depreciation 924 857 819
3,558 3,252 3,278
Operating income 1,775 1,762 1,843
Other (income)/expenses
Equity income(1) (458 ) (402 ) (380 )
Other expenses(2)(3)(4) 401 852 895
Dilution gain(3) - (40 ) -
Income taxes 607 490 515
550 900 1,030
Income from continuing operations - U.S. GAAP 1,225 862 813
Net income from discontinued operations - U.S. GAAP - 52 50
Income before cumulative effect of the application of accounting changes in 1,225 914 863
accordance with U.S. GAAP
Cumulative effect of the application of accounting changes, net of tax - - (13 )
Net Income in Accordance with U.S. GAAP 1,225 914 850
Adjustments affecting comprehensive income under U.S. GAAP
Foreign currency translation adjustment, net of tax (18 ) (31 ) (54 )
Changes in minimum pension liability, net of tax(5) (51 ) 72 (2 )
Unrealized(loss)/gain on derivatives, net of tax(6) (54 ) 1 8
Comprehensive Income in Accordance with U.S. GAAP 1,102 956 802
2
Reconciliation of Income from Continuing Operations
Year ended December 31 (millions of dollars) 2005 Restated Restated
(3) (3)
2004 2003
Net Income from Continuing Operations in Accordance with Canadian GAAP 1,230 1,000 823
U.S. GAAP adjustments
Unrealized (loss)/gain on energy contracts(6) (14 ) 10 28
Tax impact of unrealized (loss)/gain on energy contracts 5 (3 ) (10 )
Equity gain/(loss)(7)(8) 5 (2 ) (18 )
Tax impact of equity gain/(loss) (1 ) - 6
Unrealized gain/(loss) on foreign exchange and interest rate derivatives 1 (12 ) (9 )
(6)
Tax impact of gain/(loss) on foreign exchange and interest rate (1 ) 4 3
derivatives
Amortization of deferred gains related to Power LP(3)(4) - (3 ) (10 )
Deferred gains related to Power LP(3)(4) - (132 ) -
Income from Continuing Operations in Accordance with U.S. GAAP 1,225 862 813
Condensed Statement of Consolidated Cash Flows in Accordance with U.S. GAAP(1)
Year ended December 31 (millions of dollars) 2005 2004 2003
Cash Generated from Operations(9)
Net cash provided by operating activities 1,627 1,617 1,759
Investing Activities
Net cash used in investing activities (1,169 ) (1,367 ) (946 )
Financing Activities
Net cash used in financing activities (514 ) (329 ) (627 )
Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments 13 (87 ) (54 )
(Decrease)/Increase in Cash and Short-Term Investments (43 ) (166 ) 132
Cash and Short-Term Investments
Beginning of year 126 292 160
Cash and Short-Term Investments
End of year 83 126 292
3
Condensed Balance Sheet in Accordance with U.S. GAAP(1)
December 31 (millions of dollars) 2005 2004
Current assets(10) 1,058 910
Long-term investments(7)(8) 2,168 2,163
Plant, property and equipment 17,348 17,083
Regulatory asset(11) 2,601 2,606
Other assets(7) 2,028 1,217
25,203 23,979
Current liabilities(12) 2,797 2,661
Deferred amounts(6)(8) 1,298 785
Long-term debt(6) 9,675 9,789
Deferred income taxes(11) 3,102 3,048
Preferred securities 536 554
Non-controlling interests 394 311
Shareholders' equity 7,401 6,831
25,203 23,979
Statement of Other Comprehensive Income in Accordance with U.S. GAAP
(millions of dollars) Cumulative Minimum Cash Flow Hedges Total
Translation Pension (SFAS No. 133)
Account Liability
(SFAS No.
87)
Balance at January 1, 2003 14 (96 ) (13 ) (95 )
Changes in minimum pension liability, net of tax of - (2 ) - (2 )
$1(5)
Unrealized gain on derivatives, net of tax of nil - - 8 8
(6)
Foreign currency translation adjustment, net of tax (54 ) - - (54 )
of $(64)
Balance at December 31, 2003 (40 ) (98 ) (5 ) (143 )
Changes in minimum pension liability, net of tax of - 72 - 72
$(39)(5)
Unrealized gain on derivatives, net of tax of $(3) - - 1 1
(6)
Foreign currency translation adjustment, net of tax (31 ) - - (31 )
of $(44)
Balance at December 31, 2004 (71 ) (26 ) (4 ) (101 )
Changes in minimum pension liability, net of tax of - (51 ) - (51 )
$27(5)
Unrealized loss on derivatives, net of tax of $28 - - (54 ) (54 )
(6)
Foreign currency translation adjustment, net of tax (18 ) - - (18 )
of $(21)
Balance at December 31, 2005 (89 ) (77 ) (58 ) (224 )
-------
(1)
In accordance with U.S. GAAP, the Condensed Statement of Consolidated
Income, Statement of Consolidated Cash Flows and Consolidated Balance Sheet
of TCPL are prepared using the equity method of accounting for joint
ventures.
(2)
Other expenses included an allowance for funds used during construction of
$3 million for the year ended December 31, 2005 (2004 - $3 million; 2003 -
$2 million).
(3)
The Company recorded its investment in TransCanada Power, L.P. (Power LP)
using the proportionate consolidation method for Canadian GAAP purposes and
as an equity investment for U.S. GAAP purposes. During the period from 1997
to April 2004, the Company was obligated to fund the redemption of Power LP
units in 2017. As a result, under Canadian GAAP, TCPL accounted for the
issuance of units by Power LP to third parties as a sale of a future net
revenue stream and the resulting gains were deferred and amortized to income
over the period to 2017. The redemption obligation was removed in April 2004
and the unamortized gains were
4
recognized as income. Under U.S. GAAP, any such gains in the period from
1997 to April 2004 are characterized as dilution gains and, because the
Company was committed to fund the redemption of the units, the gains are
recorded, on an after-tax basis, as equity transactions in shareholders'
equity.
The Company's accounting policy for dilution gains is to record them as
income for both Canadian and U.S. GAAP purposes, however, U.S. GAAP requires
such gains to be recorded directly in equity if there is a contemplation of
reacquisition of units. With the removal of the redemption obligation in
April 2004, subsequent issuances of units by Power LP are accounted for as
dilution gains in income for both Canadian and U.S. GAAP purposes.
(4)
Correction of Error:
In the period 1997 to 2001, the Company recorded certain transactions
involving Power LP as sales of a revenue stream for both Canadian and U.S.
GAAP purposes. For U.S. GAAP purposes, these transactions should have been
accounted for as dilution gains (see footnote 3 above). This was corrected
on a retroactive basis. The impact on previously reported amounts for U.S.
GAAP purposes is as follows:
(millions of dollars) 2005 2004 2003
Decrease in:
Income from continuing operations - 135 10
Net income - 135 10
For U.S. GAAP purposes, the correction had no impact on the accumulated
shareholders' equity at December 31, 2004 and the impact at December 31,
2003 was an increase of $135 million.
(5)
Under U.S. GAAP, a net loss recognized pursuant to Statement of Financial
Accounting Standards (SFAS) No. 87 "Employers' Accounting for Pensions" as
an additional pension liability not yet recognized as net period pension
cost, must be recorded as a component of comprehensive income. As a result
of recording an additional pension liability, the amounts recognized in the
Company's balance sheet at December 31 are as follows.
December 31 (millions of dollars) 2005 2004
Prepaid benefit cost 6 183
Regulatory asset 107 -
Other assets 37 1
Accounts payable (70 ) (42 )
Deferred amounts (17 ) (18 )
Accumulated other comprehensive income 118 40
Net amount recognized 181 164
The accumulated benefit obligation for the Company's defined benefit pension
plans was $1,123 million at December 31, 2005 (2004 - $943 million).
(6)
All foreign exchange and interest rate derivatives are recorded in the
Company's consolidated financial statements at fair value under Canadian
GAAP. Under the provisions of SFAS No. 133 "Accounting for Derivatives and
Hedging Activities", all derivatives are recognized as assets and
liabilities on the balance sheet and measured at fair value. For derivatives
designated as fair value hedges, changes in the fair value are recognized in
earnings together with an equal or lesser amount of changes in the fair
value of the hedged item attributable to the hedged risk. For derivatives
designated as cash flow hedges, changes in the fair value of the derivative
that are effective in offsetting the hedged risk are recognized in other
comprehensive income until the hedged item is recognized in earnings. Any
ineffective portion of the change in fair value is also recognized in
earnings each period. Substantially all of the amounts recorded in 2005,
2004 and 2003 as differences between U.S. and Canadian GAAP, for income from
continuing operations, relate to the differences in accounting treatment
with respect to the hedged item and, for comprehensive income, relate to
cash flow hedges.
Substantially all of the amounts recorded in the twelve months ended
December 31, 2005, 2004 and 2003 as differences between U.S. and Canadian
GAAP in respect of energy contracts relate to gains and losses on derivative
energy contracts for periods before they were documented as hedges for
purposes of U.S. GAAP and to differences in accounting with respect to
physical energy contracts.
During 2005, under the provisions of SFAS 133, net gains of $8 million (2004
- $10 million; 2003 - $47 million) from the hedges of changes in the fair
value of long-term debt, and net losses of $8 million (2004 - $18 million;
2003 - $53 million) in the fair value of the hedged item were included in
earnings for U.S. GAAP purposes as an adjustment to interest expense and
foreign exchange losses. No amounts of the derivatives' gains or losses were
excluded from the assessment of hedge effectiveness in fair value hedging
relationships.
No amounts were included in income in 2005, 2004, and 2003 with respect to
ineffectiveness of cash flow hedges. For amounts included in other
comprehensive income at December 31, 2005, $4 million (2004 - $(4) million;
2003 - $9 million) relates to the hedging of interest rate risk; $(1)
million (2004 - $3 million; 2003 - $5 million) relates to the hedging of
foreign exchange rate risk; and $(57) million (2004 - $2 million; 2003 - $
(6) million) relates to the hedging of energy price risk. Of these amounts,
$(44) million is expected to be recorded in earnings during 2006.
5
At December 31, 2005, assets of $175 million (2004 - $29 million) and
liabilities of $110 million (2004 - $27 million) were reduced for U.S. GAAP
purposes to reflect the fair value of derivatives and the corresponding
change in the fair value of hedged items.
(7)
Under Canadian GAAP, pre-operating costs incurred during the commissioning
phase of a new project are deferred until commercial production levels are
achieved. After such time, those costs are amortized over the estimated life
of the project. Under U.S. GAAP, such costs are expensed as incurred.
Certain start-up costs incurred by Bruce Power L.P. (Bruce B), an equity
investment, are required to be expensed under U.S. GAAP. Under both Canadian
GAAP and U.S. GAAP, interest is capitalized on expenditures relating to
construction of development projects actively being prepared for their
intended use. In Bruce B, under U.S. GAAP, the carrying value of development
projects against which interest is capitalized is lower due to the expensing
of pre-operating costs.
(8)
Financial Interpretation (FIN) 45 requires the recognition of a liability
for the fair value of certain guarantees that require payments contingent on
specified types of future events. The measurement standards of FIN 45 are
applicable to guarantees entered into after January 1, 2003. For U.S. GAAP
purposes, the fair value of guarantees recorded as a liability at December
31, 2005 was $17 million (2004 - $9 million) and relates to the Company's
equity interest in Bruce B and Bruce Power A L.P. The net income impact with
respect to the guarantees for the year ended December 31, 2005 was $1
million (2004 and 2003 - nil).
(9)
In accordance with U.S. GAAP, all current taxes are included in cash
generated from operations.
(10)
Current assets at December 31, 2005 include derivative contracts of $49
million (2004 - $23 million) and hedging deferrals of $93 million (2004 -
$10 million).
(11)
Under U.S. GAAP, the Company is required to record a deferred income tax
liability for its cost-of-service regulated businesses. As these deferred
income taxes are recoverable through future revenues, a corresponding
regulatory asset is recorded for U.S. GAAP purposes.
(12)
Current liabilities at December 31, 2005 include dividends payable of $154
million (2004 - $146 million) and current taxes payable of $251 million
(2004 - $260 million).
Income Taxes
The income tax effects of differences between the accounting value and
the tax value of assets and liabilities are as follows.
December 31 (millions of dollars) 2005 2004
Deferred Tax Liabilities
Difference in accounting and tax bases of plant, equipment and power purchase arrangements 1,724 1,741
Taxes on future revenue requirement 874 914
Investments in subsidiaries and partnerships 555 438
Other 147 140
3,300 3,233
Deferred Tax Assets
Net operating and capital loss carryforwards 1 7
Deferred amounts 148 89
Other 63 106
212 202
Less: Valuation allowance 14 17
198 185
Net deferred tax liabilities 3,102 3,048
Other
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (revised 2004) "Share-Based Payment" which requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. The pro forma
disclosures previously permitted under SFAS No. 123 no longer will be an
alternative to financial statement recognition. In 2002, TCPL adopted accounting
for its stock-based compensation plans using the fair value recognition
6
provisions under Canadian GAAP. Therefore, adopting the provisions under SFAS No
123 (revised 2004) has no impact on the U.S. GAAP financial statements of the
Company.
In March 2005, (FASB) issued a Staff Position (FSP) on a previously
issued Financial Interpretation (FIN). The provisions of FSP FIN 46 (R)-5
"Implicit Variable Interests under revised FIN 46(R), Consolidation of Variable
Interest Entities" require that a reporting enterprise consider consolidating
implicit variable interests when applying the provisions of FIN 46(R). Adopting
these provisions has had no impact on the U.S. GAAP financial statements of the
Company.
In March 2005, FASB issued FIN 47 "Accounting for Conditional Asset
Retirement Obligations - an interpretation of FASB No.143". FIN 47 clarifies
that the term "conditional asset retirement obligation" as used in SFAS No. 143,
refers to a legal obligation to perform an asset retirement activity in which
the timing and/or method of settlement are conditional on a future event that
may or may not be within the control of the entity. It also clarifies when an
entity would have sufficient information to reasonably estimate the fair value
of an asset retirement obligation. Adopting the clarification under this
interpretation has had no impact on the U.S. GAAP financial statements of the
Company.
In May 2005, FASB issued SFAS No 154 "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and SFAS No. 3" which is
effective for fiscal years beginning after December 15, 2005. SFAS No. 154
changes the requirements for the accounting for and reporting of a change in
accounting principle and error correction. It establishes, unless impracticable,
retrospective application as the required method for reporting a change in
accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle. Adopting the provisions under SFAS
No. 154, as of January 1, 2006, is not expected to have an impact on the U.S.
GAAP financial statements of the Company.
Summarized Financial Information of Long-Term Investments
The following summarized financial information of long-term investments
includes those investments that are accounted for by the equity method under
U.S. GAAP (including those that are accounted for by the proportionate
consolidation method under Canadian GAAP).
Year ended December 31 (millions of dollars) 2005 2004 2003
Income
Revenues 1,233 1,249 1,169
Other costs and expenses (508 ) (594 ) (552 )
Depreciation (173 ) (173 ) (160 )
Financial charges and other (94 ) (80 ) (77 )
Proportionate share of income before income taxes of long-term investments 458 402 380
December 31 (millions of dollars) 2005 2004
Balance Sheet
Current assets 456 358
Plant, property and equipment 3,365 3,470
Current liabilities (319 ) (254 )
Deferred amounts (net) (73 ) (199 )
Non-recourse debt (1,236 ) (1,195 )
Deferred income taxes (25 ) (17 )
Proportionate share of net assets of long-term investments 2,168 2,163
The distributed earnings from long-term investments for the year ended
December 31, 2005 were $371 million (2004 - $258 million; 2003 - $192 million).
7
Exhibit 99.1
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S.
REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when
there is a change in accounting principles that has a material effect on the
comparability of the Company's financial statements, such as the changes
described in Note 2 - Accounting Changes - to the Company's consolidated
financial statements as at December 31, 2005 and 2004, and for each of the years
in the three-year period ended December 31, 2005 which are incorporated by
reference herein. Our report to the shareholders dated February 27, 2006, which
is incorporated by reference herein, is expressed in accordance with Canadian
reporting standards which do not require a reference to such a change in
accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the financial statements.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 27, 2006
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CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION &
ANALYSIS
UNDERTAKING
DISCLOSURE CONTROLS AND PROCEDURES
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
OFF-BALANCE SHEET ARRANGEMENTS
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS (millions of Canadian dollars)
IDENTIFICATION OF THE AUDIT COMMITTEE
FORWARD-LOOKING INFORMATION
SIGNATURES
TRANSCANADA CORPORATION RENEWAL ANNUAL INFORMATION FORM MARCH 7, 2005
TABLE OF CONTENTS
TABLE OF CONTENTS
AUDITORS' REPORT ON RECONCILIATION TO UNITED STATES GAAP
TRANSCANADA PIPELINES LIMITED RECONCILIATION TO UNITED STATES GAAP
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
EX-23.1
Exhibit 23.1
a2167768zex-23_1.htm
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors
TransCanada PipeLines Limited
We consent to the use of our report dated February 27, 2006 on the
consolidated balance sheets of TransCanada PipeLines Limited (the "Company") as
at December 31, 2005 and 2004 and the consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 2005, our report dated February 27, 2006 on the
Reconciliation to United States GAAP, and our Comments for U.S. Readers on
Canada-U.S. Reporting Difference, dated February 27, 2006, each of which are
incorporated by reference in this Annual Report on Form 40-F of the Company for
the year ended December 31, 2005.
We also consent to incorporation by reference of our report, our report
on the Reconciliation to United States GAAP and Comments for U.S. Readers on
Canada-U.S. Reporting Difference in the Amendment No. 1 on Form F-9 dated
December 21, 2004 to the Registration Statement (No. 333-121265) on Form F-9
dated December 15, 2004 of the Company.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 27, 2006
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1
Exhibit 31.1
a2167768zex-31_1.htm
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Exhibit 31.1
Certifications
I, Harold N. Kvisle, certify that:
1.
I have reviewed this annual report on Form 40-F of TransCanada PipeLines
Limited;
2.
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4.
The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b)
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c)
disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated March 3, 2006
/s/ HAROLD N. KVISLE Harold N. Kvisle
President and Chief Executive Officer
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Certifications
EX-31.2
Exhibit 31.2
a2167768zex-31_2.htm
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Exhibit 31.2
Certifications
I, Russell K. Girling, certify that:
1.
I have reviewed this annual report on Form 40-F of TransCanada PipeLines
Limited;
2.
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4.
The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b)
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c)
disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated March 3, 2006
/s/ RUSSELL K. GIRLING Russell K. Girling
Executive Vice-President, Corporate Development
and Chief Financial Officer
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Certifications
EX-32.1
Exhibit 32.1
a2167768zex-32_1.htm
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Exhibit 32.1
TRANSCANADA PIPELINES LIMITED
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002
I, Harold N. Kvisle, the Chief Executive Officer of TransCanada PipeLines
Limited (the "Company"), in compliance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, in
connection with the Company's Annual Report as filed on Form 40-F for the fiscal
year ending December 31, 2005 with the Securities and Exchange Commission (the
"Report"), that:
1.
The Report fully complies with the requirements of Section 13(a) or 15
(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ HAROLD N. KVISLE Harold N. Kvisle
Chief Executive Officer
March 3, 2006
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 906 OF SARBANES-OXLEY ACT
OF 2002
EX-32.2
Exhibit 32.2
a2167768zex-32_2.htm
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Exhibit 32.2
TRANSCANADA PIPELINES LIMITED
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF SARBANES-OXLEY ACT 0F 2002
I, Russell K. Girling, the Chief Financial Officer of TransCanada PipeLines
Limited (the "Company"), in compliance with 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify, in
connection with the Company's Annual Report as filed on Form 40-F for the fiscal
year ending December 31, 2005 with the Securities and Exchange Commission (the
"Report"), that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ RUSSELL K. GIRLING Russell K. Girling
Chief Financial Officer
March 3, 2006
QuickLinks
CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 906 OF SARBANES-OXLEY ACT
0F 2002
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This information is provided by RNS
The company news service from the London Stock Exchange
END
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