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TransCanada Pipelines Ld
07 March 2006
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40-F
26 (6 Edgar Docs, 20 Graphic Docs)
0000099070
XXXXXXXX
NYSE
12/31/2005
EDGAR Advantage Service Team
(800) 688 - 1933
40-F
Form 40-F
a2167768z40-f.htm
QuickLinks -- Click here to rapidly navigate through this document
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form 40-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
OR
(X) ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005 Commission File Number 1-8887
TRANSCANADA PIPELINES LIMITED
(Exact Name of Registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
4922, 4923, 4924, 5172
(Primary Standard Industrial Classification Code Number (if applicable))
Not Applicable
(I.R.S. Employer Identification Number (if applicable))
TransCanada Tower, 450 - 1 Street S.W.
Calgary, Alberta, Canada, T2P 5H1
(403) 920-2000
(Address and telephone number of Registrant's principal executive offices)
CT Corporation, Suite 2610, 520 Pike Street
Seattle, Washington, 98101; (206) 622-4511; 1-800-456-4511
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
8.25% Preferred Securities due 2047 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
(X) Annual Information Form (X) Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
At December 31, 2005, 4,000,000 Cumulative Redeemable First Preferred Shares
Series U
and 4,000,000 Cumulative Redeemable First Preferred Shares Series Y
were issued and outstanding
All of the Registrant's common shares are owned by TransCanada Corporation.
Indicate by check mark whether the Registrant by filing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to
the Registrant in connection with such Rule.
Yes No (X)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes (X) No
The documents (or portions thereof) forming part of this Form 40-F are
incorporated by reference in Amendment No. 1 on Form F-9 to Registration
Statement (Reg. No. 333-121265) under the Securities Act of 1933, as amended.
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CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION & ANALYSIS
A. Audited Annual Financial Statements
The Registrant's consolidated audited annual financial statements,
including the report of independent chartered accountants with respect thereto
are included herein, see pages 68 through 106. See document 13.4, entitled "U.S.
GAAP reconciliations of the 2005 Consolidated Audited Financial Statements",
attached to this Form 40-F for a reconciliation of the important differences
between Canadian and United States generally accepted accounting principles.
B. Management's Discussion & Analysis
For management's discussion and analysis, see the Management's
Discussion & Analysis on pages 2 through 66 included herein.
UNDERTAKING
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an Annual Report on Form 40-F arises;
or transactions in said securities.
DISCLOSURE CONTROLS AND PROCEDURES
Pursuant to the Sarbanes-Oxley Act of 2002 as adopted by the U.S.
Securities and Exchange Commission, the Registrant's management evaluates the
effectiveness of the design and operation of the company's disclosure controls
and procedures (disclosure controls). This evaluation is done under the
supervision of, and with the participation of, the President and Chief Executive
Officer and the Chief Financial Officer.
As of the end of the period covered by this Annual Report, the
Registrant's management evaluated the effectiveness of its disclosure controls.
Based on that evaluation, the President and Chief Executive Officer and the
Chief Financial Officer have concluded that the Registrant's disclosure controls
are effective in ensuring that material information relating to the Registrant
is made known to management on a timely basis, and is included in this Form
40-F.
No change in the Registrant's internal control over financial reporting
occurred during the period covered by this annual report that has materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's board of directors has determined that it has at least
one audit committee financial expert serving on its audit committee. Mr. Harry
G. Schaefer has been determined to be such audit committee financial expert and
is independent, as that term is defined by the New York Stock Exchange's listing
standards applicable to the Registrant. The SEC has indicated that the
designation of Mr. Schaefer as an audit committee financial expert does not make
Mr. Schaefer an "expert" for any purpose, impose any duties, obligations or
liability on Mr. Schaefer that are greater than those imposed on members of the
audit committee and board of directors who do not carry this designation or
affect the duties, obligations or liability of any other member of the audit
committee.
CODE OF ETHICS
The Registrant has adopted codes of business ethics for its employees
and officers, its principal executive officer, principal financial officer and
controller and its directors. The Registrant's codes are available on its
website at www.transcanada.com. There has been no waiver of the codes granted
during the 2005 fiscal year.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees for professional services rendered by KPMG LLP for
TransCanada PipeLines Limited and its subsidiaries for the 2005 and 2004 fiscal
years are shown in the table below:
Fees in millions of Canadian dollars 2005 2004
Audit Fees $ 3.12 $ 2.47
Audit-Related Fees 0.11 0.06
Tax Fees 0.12 0.06
All Other Fees 0.14 0.05
Total $ 3.49 $ 2.64
The nature of each category of fees is described below.
Audit Fees
Audit fees were incurred for professional services rendered by the
auditors for the audit of the Registrant's and its subsidiaries' annual
financial statements or services provided in connection with statutory and
regulatory filings or engagements, the review of interim consolidated financial
statements and information contained in various prospectuses and other offering
documents.
Audit-Related Fees
Audit-related fees were incurred for the audit of the financial
statements of the Registrant's various pension plans.
Tax Fees
Tax fees were incurred for tax compliance and tax advice. These services
consisted of: tax compliance including the review of Canadian and US income tax
returns and tax items and tax services related to domestic and international
taxation including income tax, capital tax and Goods and Services Tax.
All Other Fees
Fees disclosed in the table above under the item "all other fees" were
incurred for services other than the audit fees, audit-related fees and tax fees
described above. These services consisted of advice with regard to compliance
with the Sarbanes-Oxley Act of 2002.
Pre-Approval Policies and Procedures
The Registrant's Audit Committee has adopted a pre-approval policy with
respect to permitted non-audit services. Under the policy, the Audit Committee
has granted pre-approval for specified non-audit services. For engagements of
$25,000 CDN or less which are not within the annual pre-approved limit approval
by the Audit Committee is not required, and for engagements between $25,000 CDN
and $100,000 CDN, approval of the Audit Committee chair is required, and in both
instances the Audit Committee is to be informed of the engagement at the next
scheduled Audit Committee meeting. For all engagements of $100,000 CDN or more,
pre-approval of the Audit Committee is required. In all cases, regardless of
dollar amount involved, where there is a potential for conflict of interest
involving the external auditor on an engagement, the Audit Committee chair must
pre-approve the assignment.
To date, the Registrant has not approved any non-audit services on the
basis of the de-minimis exemptions. All non-audit services have been
pre-approved by the Audit Committee in accordance with the pre-approval policy
described above.
OFF-BALANCE SHEET ARRANGEMENTS
The Registrant has no off-balance sheet arrangements, as defined in this
Form, other than the guarantees described in Note 23 of the Notes to the
Consolidated Financial Statements and document 13.4, entitled U.S. GAAP
Reconciliation of the 2005 Consolidated Audited Financial Statements", attached
to this Form 40-F. The disclosure relating to guarantees in Note 23 to the
Consolidated Financial Statements is incorporated herein by reference.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
(millions of Canadian dollars)
Contractual Obligations Total Less 1-3 3-5 More than
than 1 years years 5 years
year
Long-Term Debt Obligations 10,757 427 1,191 1,509 7,630
Capital (Finance) Lease Obligations 254 7 17 24 206
Interest Payments on Long-Term Debt 11,640 876 1,653 1,435 7,676
Operating Lease Obligations 834 34 82 85 633
Purchase Obligations(1) 11,421 2,197 2,905 1,359 4,960
Other Long-Term Liabilities Reflected on the Registrant's
Balance Sheet under the GAAP of the primary financial
statements
Total 34,906 3,541 5,848 4,412 21,105
-------
(1)
The amounts in this table exclude expected funding contributions of
approximately $95 million and $7 million, in 2006, to the Registrant's
pension plans and other benefit plans, respectively. The amounts in this
table also exclude the Registrant's proportionate share of expected funding
contributions to be made by joint ventures of approximately $27 million and
$2 million, in 2006, to the registered pension plans and other benefit
plans, respectively.
For further information on purchase obligations see "Management's
Discussion and Analysis - Contractual Obligations - Purchase Obligations", which
is incorporated herein by reference.
IDENTIFICATION OF THE AUDIT COMMITTEE
The Registrant has a separately-designated standing Audit Committee. The
members of the Audit Committee are:
Chair: H.G. Schaefer
Members: D.D. Baldwin
K.E. Benson
P. Gauthier
P.L. Joskow
FORWARD-LOOKING INFORMATION
This document, documents incorporated herein by reference, and other
reports and filings made with the securities regulatory authorities include
forward-looking statements. All forward looking statements are based on TCPL's
current beliefs as well as assumptions based on information available at the
time the assumption was made. Forward-looking statements relate to, among other
things, anticipated financial performance, business prospects, strategies,
regulatory developments, new services, market forces, commitments and
technological developments. By its nature, such forward-looking information is
subject to various risks and uncertainties, including those discussed herein in
TCPL's Annual Information Form filed as document 13.1 hereto and in TCPL's
Management's Discussion and Analysis filed as document 13.2 hereto, which could
cause TCPL's actual results and experience to differ materially from the
anticipated results or other expectations expressed. Readers are cautioned not
to place undue reliance on this forward-looking information, which is given as
of the date hereof or otherwise, and TCPL undertakes no obligation to update
publicly or revise any forward-looking information, whether as a result of new
information, future events or otherwise.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant
certifies that it meets all of the requirements for filing on Form 40-F and has
duly caused this Annual Report to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Calgary, Province of Alberta, Canada.
TRANSCANADA PIPELINES LIMITED
Date: March 3, 2006
Per: /s/ RUSSELL K. GIRLING Russell K. Girling
Executive Vice-President, Corporate Development
and Chief Financial Officer
DOCUMENTS FILED AS PART OF THIS REPORT
13.1 TransCanada PipeLines Limited Annual Information Form for the year ended December 31, 2005.
13.2 Management's Discussion and Analysis included herein on pages 2 through 66.
13.3 2004 Consolidated Audited Financial Statements included herein on pages 68 through 106.
13.4 Reconciliation to United States GAAP.
99.1 Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference.
EXHIBITS
23.1 Consent of KPMG LLP Chartered Accountants.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer regarding Periodic Report containing Financial Statements.
32.2 Certification of Chief Financial Officer regarding Periodic Report containing Financial Statements.
TRANSCANADA PIPELINES LIMITED
ANNUAL INFORMATION FORM
February 27, 2006
TABLE OF CONTENTS
Page
TABLE OF CONTENTS i
PRESENTATION OF INFORMATION iii
FORWARD-LOOKING INFORMATION iii
REFERENCE INFORMATION iii
TRANSCANADA PIPELINES LIMITED 1
Corporate Structure 1
Significant Subsidiaries 2
GENERAL DEVELOPMENT OF THE BUSINESS 2
Developments in Gas Transmission Business 2
Developments in Power Business 4
Recent Developments 5
BUSINESS OF TCPL 5
Gas Transmission Business 6
Regulation 7
Power 8
Other Interests 9
HEALTH, SAFETY AND ENVIRONMENT 9
LEGAL PROCEEDINGS 10
TRANSFER AGENT AND REGISTRAR 10
AUDITOR AND INTEREST OF EXPERTS 10
RISK FACTORS 11
Gas Transmission 11
Power 11
Other 11
DIVIDENDS 11
DESCRIPTION OF CAPITAL STRUCTURE 12
DEBT 13
CREDIT RATINGS 13
MARKET FOR SECURITIES 15
DIRECTORS AND OFFICERS 16
Directors 16
Officers 19
TRANSCANADA PIPELINES LIMITED i
CORPORATE GOVERNANCE 20
Audit Committee 20
Other Board Committees 23
Conflicts of Interest 23
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS 23
SECURITIES OWNED BY DIRECTORS 24
COMPENSATION OF DIRECTORS 25
EXECUTIVE COMPENSATION AND OTHER INFORMATION 29
Report on Executive Compensation 29
Performance Graph 40
Remuneration of Executive Officers of TCPL 41
Executive Compensation 41
Equity Compensation Plan Information 48
Pension and Retirement Benefits for Executives 49
Employment Agreements 53
Total Compensation Awards 54
ADDITIONAL INFORMATION 56
GLOSSARY 57
SCHEDULE "A" A-1
Exchange Rate of the Canadian Dollar A-1
Metric Conversion Table A-1
SCHEDULE "B" Disclosure of Corporate Governance Practices B-1
SCHEDULE "C" Charter of the Board of Directors C-1
SCHEDULE "D" Description of Board Committees and Their Charters D-1
SCHEDULE "E" Charter of the Audit Committee E-1
ii TRANSCANADA PIPELINES LIMITED
PRESENTATION OF INFORMATION
Unless otherwise noted, the information contained in this Annual Information
Form ("AIF") is given at or for the year ended, December 31, 2005 ("Year End").
Amounts are expressed in Canadian dollars unless otherwise indicated. Financial
information is presented in accordance with Canadian generally accepted
accounting principles.
This AIF provides material information about the business and operations of
TransCanada PipeLines Limited ("TCPL"). TCPL's Management's Discussion and
Analysis dated February 27, 2006 ("MD&A") and TCPL's Audited Consolidated
Financial Statements are incorporated by reference into this AIF and are
available under TCPL's profile on SEDAR at www.sedar.com.
Unless the context indicates otherwise, a reference in this AIF to "TCPL"
includes TCPL's parent, TransCanada Corporation ("TransCanada") and the
subsidiaries of TCPL through which its various business operations are
conducted. Where TCPL is referred to with respect to actions that occurred prior
to its 2003 plan of arrangement with TransCanada, which is described below under
the heading "TransCanada PipeLines Limited - Corporate Structure", these actions
were taken by TCPL or its subsidiaries. The term "subsidiary", when referred to
in this AIF, with reference to TCPL means direct and indirect wholly-owned
subsidiaries of, and entities controlled by, TransCanada or TCPL, as applicable.
Trends impacting TCPL's gas transmission and power businesses are discussed in
the MD&A under the headings "Gas Transmission" (under the subheadings
"Opportunities and Developments", "Regulatory Developments" and "Business
Risks") and "Power" (under the subheadings "Opportunities and Developments" and
"Business Risks").
FORWARD-LOOKING INFORMATION
This AIF, the documents incorporated by reference into this AIF, and other
reports and filings made with the securities regulatory authorities include
forward-looking statements. All forward-looking statements are based on TCPL's
beliefs and assumptions based on information available at the time the
assumption was made. Forward-looking statements relate to, among other things,
anticipated financial performance, business prospects, strategies, regulatory
developments, new services, market forces, commitments and technological
developments. Much of this information also appears in the MD&A. By its nature,
such forward-looking information is subject to various risks and uncertainties,
including those material risks discussed in this AIF under "Risk Factors" and in
the MD&A under "Gas Transmission - Business Risks" and "Power - Business Risks",
which could cause TCPL's actual results and experience to differ materially from
the anticipated results or other expectations expressed. The material
assumptions in making these forward-looking statements are disclosed in the MD&A
under the headings "Overview and Strategic Priorities", "Gas Transmission -
Opportunities and Developments", "Gas Transmission - Outlook", "Power -
Opportunities and Developments" and "Power - Outlook". Readers are cautioned not
to place undue reliance on this forward-looking information, which is given as
of the date it is expressed in this AIF or otherwise, and TCPL undertakes no
obligation to update publicly or revise any forward-looking information, whether
as a result of new information, future events or otherwise.
REFERENCE INFORMATION
For the reference information noted below, please refer to Schedule "A".
* Exchange Rate of the Canadian Dollar
* Metric Conversion Table
TRANSCANADA PIPELINES LIMITED iii
TRANSCANADA PIPELINES LIMITED
Corporate Structure
TCPL's head office and registered office are located at 450 - 1st Street S.W.,
Calgary, Alberta, T2P 5H1.
TCPL is a Canadian public company. Significant dates and events are set forth
below.
Date Event
March 21, 1951 Incorporated by Special Act of Parliament as Trans-Canada Pipe Lines Limited.
April 19, 1972 Continued under the Canada Corporations Act by Letters Patent, which included the
alteration of its capital and change of name to TransCanada PipeLines Limited.
June 1, 1979 Continued under the Canada Business Corporations Act.
July 2, 1998 Certificate of Arrangement issued in connection with the Plan of Arrangement with NOVA
Corporation ("NOVA") through which the companies merged and then split off the commodity
chemicals business carried on by NOVA into a separate public company.
January 1, 1999 Certificate of Amalgamation issued reflecting TCPL's vertical short form amalgamation
with a wholly-owned subsidiary, Alberta Natural Gas Company Ltd.
January 1, 2000 Certificate of Amalgamation issued reflecting TCPL's vertical short form amalgamation
with a wholly-owned subsidiary, NOVA Gas International Ltd.
May 4, 2001 Restated TransCanada PipeLines Limited Articles of Incorporation issued.
June 20, 2002 Restated TransCanada PipeLines Limited By-Laws.
May 15, 2003 Certificate of Arrangement issued in connection with the plan of arrangement with
TransCanada. TransCanada was incorporated pursuant to the provisions of the Canada
Business Corporation Act on February 25, 2003. The arrangement was approved by TCPL
common shareholders on April 25, 2003 and following court approval, Articles of
Arrangement were filed making the arrangement effective May 15, 2003. The common
shareholders of TCPL exchanged each of their TCPL common shares for one common share of
TransCanada. The debt securities and preferred shares of TCPL remained obligations and
securities of TCPL. TCPL continues to hold the assets it held prior to the arrangement
and continues to carry on business as the principal operating subsidiary of the
TransCanada group of entities.
The significant dates and events relating to TransCanada are set out in
TransCanada's Annual Information Form for the year ended December 31, 2005,
dated February 27, 2006.
At Year End, TCPL had approximately 2,350 employees, substantially all of whom
were employed in Canada and the United States.
TRANSCANADA PIPELINES LIMITED 1
Significant Subsidiaries
TCPL's significant subsidiaries(1) at Year End and the jurisdiction under which
each subsidiary was incorporated are noted below. TCPL owns, directly or
indirectly, 100 per cent of the voting shares of each of these subsidiaries.
(1)
Excludes certain of TCPL's subsidiaries where:
*
the total assets of each excluded subsidiary do not exceed ten per cent of
the consolidated assets of TCPL at Year End;
*
the sales and operating revenues of each excluded subsidiary do not exceed
ten per cent of the consolidated sales and operating revenues of TCPL for
the year ended, December 31, 2005;
*
the aggregate assets of all the excluded subsidiaries do not exceed 20 per
cent of the consolidated assets of TCPL at Year End; and
*
the aggregate sales and operating revenues of all the excluded subsidiaries
do not exceed 20 per cent of the consolidated sales and operating revenues
of TCPL for the year ended, December 31, 2005.
GENERAL DEVELOPMENT OF THE BUSINESS
The general development of TCPL's business during the last three financial
years, and the significant acquisitions, events or conditions which have had an
influence on that development, are described below.
Developments in Gas Transmission Business
TCPL's focus has been to sustain, grow and optimize its natural gas transmission
business. Summarized below are significant developments that have occurred in
TCPL's natural gas transmission business over the last three years.
2005
In 2005, some of the significant natural gas transmission developments that
occurred involved the sale of common units of TC PipeLines, LP, regulatory
matters including the National Energy Board's ("NEB") decision on the Canadian
Mainline 2004 Tolls and Tariff Application (Phase II) and a settlement relating
to the Alberta System, on-going construction of a natural gas storage facility
located near Edson, Alberta, continued funding of the Mackenzie Valley
Aboriginal Pipeline Limited Partnership (known as "Aboriginal Pipeline Group" or
"APG") for its participation in the Mackenzie Gas Pipeline Project, continued
discussions relating to the proposed Alaska Highway Pipeline Project, launching
of the Keystone crude oil pipeline project and the announcement in January 2006
that firm, long-term contracts were secured for the project, continued work
toward gaining regulatory approval for its two liquified natural gas ("LNG")
projects: Cacouna in Quebec and the Broadwater Energy project, offshore of New
York State in Long Island Sound, acquisition of an additional interest in the
Iroquois Gas Transmission System L.P. ("Iroquois System") and the commencement
of construction of the Tamazunchale Pipeline in east-central Mexico. Further
information about each of
2 TRANSCANADA PIPELINES LIMITED
these developments can be found in the MD&A under the heading "TCPL's Strategy -
Gas Transmission" and "Gas Transmission - Opportunities and Developments".
2004
In September 2004, TCPL and Petro-Canada signed a memorandum of understanding
for the development of the Cacouna Energy LNG facility in Cacouna, Quebec,
approximately 15 kilometres northeast of Riviere-du-Loup. The proposed facility
will be capable of receiving, storing and regasifying imported LNG with an
average annual send out capacity of approximately 500 million cubic feet per day
of natural gas. TCPL and Petro-Canada will share equally the construction costs
of the facility, which are estimated to be $660 million. TCPL will operate the
facility while Petro-Canada will contract for the facility's entire
regasification capacity and supply the LNG. The proposed facility requires
regulatory and other approvals from federal, provincial and municipal
governments and regulators and the regulatory approval process is anticipated to
take approximately two years to complete. In September 2005, the village of
Cacouna, Quebec voted 57.2 per cent in favour of an LNG terminal to be built in
the area. Quebec's Ministry of Environment commenced its 45 day public
consultation period on February 22, 2006 regarding its next phase for this
project. TCPL continues to work towards gaining regulatory approval and provided
the necessary approvals are obtained, the facility is anticipated to be in
service towards the end of this decade.
In November 2004, TCPL acquired the Gas Transmission Northwest System and the
North Baja System from National Energy & Gas Transmission, Inc. ("NEGT") for
US$1.7 billion, including approximately US$0.5 billion of assumed debt, subject
to typical closing adjustments. The 2,174 kilometre Gas Transmission Northwest
System, formerly known as Pacific Gas Transmission, extends from a connection
point on TCPL's BC System and Foothills System near Kingsgate, British Columbia
on the B.C./Idaho border to a point near Malin, Oregon on the Oregon/California
border. The natural gas transported on this system originates primarily in
Canada and is supplied to markets in the Pacific Northwest, California and
Nevada. The 129 kilometre North Baja System extends from a point near Ehrenberg,
Arizona to a point near Ogilby, California on the California/Mexico border. The
natural gas transported on the North Baja System comes primarily from supplies
in the southwestern U.S. for markets in northern Baja California, Mexico.
In November 2004, TCPL and Shell US Gas & Power LLC ("Shell") announced plans
to jointly develop an offshore LNG regasification terminal, Broadwater Energy,
in the New York State waters of Long Island Sound. The proposed floating storage
and regasification unit will be capable of receiving, storing and regasifying
imported LNG with an average send out capacity of approximately one billion
cubic feet ("Bcf") per day of natural gas. TCPL and Shell will build and install
a floating storage and regasification unit at a location approximately 15
kilometres off the Long Island coast and 18 kilometres off the Connecticut
coast. TCPL will own 50 per cent of Broadwater Energy LLC, which will own and
operate the facility, while Shell will contract for the facility's entire
regasification capacity and supply the LNG. The estimated cost of construction
is approximately US$700 million to US$1 billion. The proposed Broadwater Energy
LNG facility requires regulatory approval from federal and state governments
before construction can begin and the regulatory approval process is anticipated
to take up to three years to complete. Provided the necessary approvals are
granted and commercial commitments obtained, the facility could be in service in
late 2010 or early 2011. TCPL, on behalf of the Broadwater Energy project, filed
a formal application with the U.S. Federal Energy Regulatory Commission ("FERC")
in January 2006, for federal approval to construct and operate Broadwater.
2003
In August 2003, TCPL acquired the remaining interests in Foothills Pipe Lines
Ltd. ("Foothills") that it did not previously own. The Foothills System, which
is owned by Foothills, extends 1,040 kilometres and has two legs: one which
originates south of Caroline, Alberta and runs along the foothills of the Rocky
Mountains through the Crowsnest Pass to Kingsgate, B.C. where it connects to the
Gas Transmission Northwest System; and the other which originates south of
Caroline, Alberta and runs southeast across Alberta and Saskatchewan to the
Canada-U.S. border near Monchy, Saskatchewan where it interconnects with
Northern Border Pipeline Company ("Northern Border Pipeline"). The Foothills
System carries over 30 per cent of all Canadian natural gas exports to the U.S.
TRANSCANADA PIPELINES LIMITED 3
TCPL, through Foothills, holds certificates for both the Alaskan and Canadian
segments of the Alaska Highway Pipeline Project and also holds significant
right-of-way assets for the project in both Canada and Alaska.
In June 2003, TCPL, the Mackenzie Delta Producers Group ("Mackenzie Producers")
and the APG reached a funding and participation agreement. TCPL agreed to
finance the APG's share of project development costs in exchange for certain
rights in the Mackenzie Gas Pipeline Project, including a right to an ownership
interest in the pipeline at the decision to construct, preferential rights of
first refusal and preferential expansion rights and the right of connection of
the Mackenzie Delta natural gas flow into the Alberta System. For current
information about the Mackenzie Gas Pipeline Project, please refer to the MD&A
under the heading "Gas Transmission - Opportunities and Development - Mackenzie
Gas Pipeline Project".
Through acquisitions that took place in September and December 2003, TCPL
increased its ownership interest in Portland Natural Gas Transmission System
Partnership ("Portland") in the northeastern U.S. from 33.3 per cent to 61.7 per
cent.
Developments in Power Business
In the past three years, TCPL has grown its power business and, in particular,
has increased its generation capacity from facilities it owns, operates and/or
controls, including those under construction or in development, from 4,667
megawatts ("MW") in 2003 to 6,736 MW at Year End. Summarized below are
significant developments that have occurred in TCPL's power business over the
last three years.
2005
The significant power developments that occurred in 2005 included the
advancement of the 739.5 MW Cartier Wind Energy project ("Cartier Wind Energy"),
the sale of TCPL's approximate 11 per cent interest in P.T. Paiton Energy
Company ("Paiton Energy") to subsidiaries of The Tokyo Electric Power Company
resulting in gross proceeds of US$103 million ($122 million), the acquisition of
the 756 MW Sheerness Power Purchase Arrangement for $585 million, the
restructuring of Bruce Power L.P. ("Bruce B") and the execution of agreements by
Bruce Power A L.P. ("Bruce A") with the Ontario Power Authority to restart and
refurbish units at Bruce A, the acquisition of power generation assets from
USGen New England, Inc. ("USGen") for US$505 million, the sale of all of TCPL's
interests in TransCanada Power, L.P. ("Power LP") to EPCOR Utilities Inc. for
net proceeds of $523 million in August 2005 and OSP's successful restructuring
of its long-term natural gas fuel supply contracts with its supplier.
Further information about each of these power developments can be found in the
MD&A under the heading "TCPL's Strategy - Power". Further information can be
found in the MD&A about Bruce A and Bruce B under the heading "Power - Financial
Analysis - Bruce Power", about the sale of Paiton Energy under "Power -
Highlights - Net Earnings", "Power - Power Results-at-a-Glance", "Discontinued
Operations" and elsewhere, and about the Power LP under the heading "Power -
Financial Analysis - Power LP Investment".
2004
TCPL received approval from the Quebec government in April 2004, to develop the
550 MW natural gas-fired Becancour cogeneration plant which is located at an
industrial park near Trois-Rivieres, Quebec ("Becancour Plant") and which will
supply its entire power output to Hydro-Quebec Distribution under a 20 year
power purchase contract. The Becancour Plant will also supply steam to two other
companies located within the same industrial park. Construction of the 550 MW
Becancour Plant began in the third quarter of 2004. The cost of the Becancour
Plant is estimated to be $550 million, and the plant is expected to be in
service in late 2006.
In April 2004, TCPL sold its ManChief and Curtis Palmer power plants to Power
LP for approximately US$402.6 million, excluding closing adjustments. The
acquisition was partially financed by Power LP through a public offering of
subscription receipts which were subsequently converted into limited partnership
units. TCPL did not take up its full pro rata share of the units and as a
result, its interest in Power LP was reduced from 35.6 per cent to 30.6 per
cent.
4 TRANSCANADA PIPELINES LIMITED
Cartier Wind Energy, of which 62 per cent is owned by TCPL, was awarded six
wind energy projects by Hydro-Quebec Distribution in October 2004, representing
a total of 739.5 MW in the Gaspe region of Quebec. The six projects are
distributed throughout the Gaspesie-Iles-de-la-Madeleine region and the Regional
County Municipality of Matane and are expected to cost a total of more than $1.1
billion to develop and construct. Construction of the first two of six wind
farm projects will commence in early 2006 and the first of the two projects is
expected to be in service in late 2006. The entire output will be supplied to
Hydro-Quebec Distribution under a 20-year power purchase contract.
Construction of the 165 MW MacKay River power plant located in Alberta was
completed in 2003 and the plant was put into commercial service in 2004.
Construction of the 90 MW Grandview natural gas-fired cogeneration power plant
on the site of the Irving Oil refinery in Saint John, New Brunswick ("Grandview
Plant") was completed by the end of 2004 and was commissioned in January 2005.
Under a 20 year tolling arrangement, a subsidiary of Irving Oil Limited will
provide fuel to the Grandview Plant and has contracted for 100 per cent of the
Grandview Plant's heat and electricity output.
2003
In February 2003, TCPL, as part of a consortium, acquired a 31.6 per cent
interest in Bruce B and a 33.3 per cent interest in Bruce Power Inc., the
general partner of Bruce B. Bruce B leases its generation facilities from
Ontario Power Generation Inc. ("OPG"). The facilities consist of eight nuclear
reactors, five of which were operational at the end of 2003, with a capacity of
3,950 MW. An additional reactor with capacity of 750 MW commenced commercial
operations in March 2004.
The members of the purchasing consortium of Bruce B severally guaranteed, on a
pro-rata basis, certain contingent financial obligations of Bruce B related to
operator licenses, the OPG lease agreement, power sales agreements and
contractor services. Bruce B continues to be operated by experienced nuclear
power plant operators. Spent fuel and decommissioning liabilities remain with
OPG under the terms of the lease.
Recent Developments
On February 9, 2006, TCPL announced the filing by its subsidiary, North Baja
Pipeline LLC, of an application with the FERC for a certificate for a two-phase
expansion of its existing natural gas pipeline in southern California and the
construction of a new pipeline lateral in California's Imperial Valley.
TCPL announced on February 15, 2006, that it will sell its 17.5 per cent
general partner interest in Northern Border Partners, L.P. to a subsidiary of
ONEOK, Inc. for a net payment of US$30 million subject to certain closing
adjustments. In addition, TCPL will become the operator of Northern Border
Pipeline ("NBPL") in early 2007. The transaction is expected to close in the
second quarter of 2006 and is part of a series of transactions that will also
result in TC PipeLines, LP, an affiliate of TCPL, acquiring an additional 20 per
cent interest in NBPL from Northern Border Partners, L.P., bringing its total
general partnership interest in NBPL to 50 per cent.
BUSINESS OF TCPL
TCPL is a leading North American energy infrastructure company focused on
natural gas transmission and power generation. At Year End, the gas transmission
business accounted for approximately 68 per cent of revenues and 76 per cent of
TCPL's total assets and the power business accounted for approximately 32 per
cent of revenues and 20 per cent of TCPL's total assets. The following is a
description of each of TCPL's two main areas of operation.
The following table shows TCPL's revenues from operations by segment,
classified geographically, for the years ended December 31, 2005 and 2004.
TRANSCANADA PIPELINES LIMITED 5
Revenues From Operations
(millions of dollars) 2005 2004
Gas Transmission
Canada - Domestic Deliveries 2,451 2,441
Canada - Export Deliveries(1) 1,159 1,259
United States 553 229
4,163 3,929
Power(2)
Canada - Domestic Deliveries 1,048 773
Canada - Export Deliveries(1) 1 2
United States 912 793
1,961 1,568
Total Revenues(3) 6,124 5,497
(1)
Export deliveries include gas transmission revenues attributable to
deliveries to U.S. pipelines and power deliveries to U.S. markets.
(2)
Revenues include sales of natural gas.
(3)
Revenues are attributed to countries based on country of origin of product
or service.
Gas Transmission Business
TCPL, through subsidiaries, has substantial Canadian and U.S. natural gas
pipeline and related holdings, including:
Canada
*
a natural gas transmission system running from the Alberta border east
to delivery points in eastern Canada and at various U.S. border points
("Canadian Mainline");
*
a natural gas transmission system throughout the province of Alberta
("Alberta System");
*
a natural gas transmission system in southeastern B.C., southern Alberta
and southwestern Saskatchewan ("Foothills System");
*
a natural gas transmission system in southeastern B.C. ("BC System");
*
a 121 km natural gas transmission pipeline and related facilities which
supplies natural gas to the oil sands region of northern Alberta and a
27 km natural gas pipeline which supplies natural gas to a petrochemical
complex at Joffre, Alberta;
*
a 50 per cent interest in Trans Quebec & Maritimes Pipeline Inc. ("TQM")
which operates a natural gas transmission system in southeastern Quebec
("TQM System"); and
*
a 60 per cent interest in CrossAlta Gas Storage Services Ltd., a
long-term natural gas storage contract and the Edson gas storage
facility which is currently under construction.
United States
*
the Gas Transmission Northwest System, a natural gas transmission system
running from northwestern Idaho, through Washington and Oregon to the
California border;
*
the North Baja System, a natural gas transmission system which extends
from southwestern Arizona to a point near Ogilby, California on the
California/Mexico border;
6 TRANSCANADA PIPELINES LIMITED
*
a 50 per cent interest in the Great Lakes Gas Transmission system
("Great Lakes System") which is located in the north central U.S.,
roughly parallel to the Canada-U.S. Border;
*
a 44.5 per cent interest in the Iroquois System which runs southwards
down through the eastern part of the State of New York terminating at
points in Long Island and New York City;
*
a 61.7 per cent interest in the Portland system which runs through Maine
and New Hampshire into Massachusetts;
*
a 4 per cent effective ownership interest, held through TC PipeLines,
LP, in the NBPL system which is located in the upper midwestern portion
of the U.S.; and
*
a 7.6 per cent effective ownership interest in the Tuscarora Gas
Transmission Company ("Tuscarora") system which runs from Oregon
eastwards to the upper portion of Nevada. One per cent of this interest
is held directly through a subsidiary of TCPL and the remainder is held
through TCPL's interest in TC PipeLines, LP.
TCPL holds a 13.4 per cent interest in TC PipeLines, LP, a publicly held
limited partnership of which a subsidiary of TCPL acts as the general partner.
The remaining interest of TC PipeLines, LP is widely held by the public. At Year
End, TC PipeLines, LP held a 30 per cent interest in NBPL and a 49 per cent
interest in Tuscarora.
TCPL also has the following natural gas pipeline and related holdings in
Central and South America which are held through subsidiaries:
*
a 46.5 per cent interest in the TransGas system which runs from
Mariquita in central Colombia to Cali in southwest Colombia;
*
a 30 per cent interest in the Gas Pacifico pipeline which extends from
Loma de la Lata, Argentina to Concepcion, Chile;
*
a 30 per cent interest in INNERGY Holdings S.A. which is an industrial
natural gas marketing and distribution company based in Concepcion,
Chile; and
*
the Tamazunchale natural gas pipeline, which is under construction and
expected to be in service in December 2006, and extends from the Pemex
Gas facilities near Naranjos, Veracruz, Mexico to an electricity
generation station near Tamazunchale, San Luis Potosi, Mexico.
Further information about TCPL's pipeline holdings, developments and
opportunities relating to gas transmission and significant regulatory
developments which relate to gas transmission can be found in the MD&A under the
headings "Gas Transmission", "Gas Transmission - Opportunities and Developments"
and "Gas Transmission - Regulatory Developments".
In addition, information about the Mackenzie Gas Pipeline Project and the
Alaska Highway Pipeline Project can be found in the MD&A under the headings "Gas
Transmission - Opportunities and Developments - Mackenzie Gas Pipeline Project"
and "Gas Transmission - Opportunities and Developments - Alaska Highway Pipeline
Project", respectively and about TCPL's activities relating to LNG under the
heading "Gas Transmission - Opportunities and Developments - LNG".
Regulation
Canadian Mainline
Under the terms of the National Energy Board Act (Canada), the Canadian Mainline
is regulated by the NEB. The NEB sets tolls which provide TCPL the opportunity
to recover projected costs of transporting natural gas, including the return on
the Canadian Mainline's average investment base. In addition, new facilities are
approved by the NEB before construction begins and the NEB regulates the
operation of the Canadian Mainline. Net earnings of the Canadian Mainline are
affected by changes in investment base, the return on equity, the level of
deemed common equity and the potential for incentive earnings.
TRANSCANADA PIPELINES LIMITED 7
Alberta System
The Alberta System is regulated by the Alberta Energy and Utilities Board
("EUB") primarily under the provisions of the Gas Utilities Act (Alberta)
("GUA") and the Pipeline Act (Alberta). Under the GUA, its rates, tolls and
other charges, and terms and conditions of service are subject to approval by
the EUB. Under the provisions of the Pipeline Act, the EUB oversees various
matters including the economic, orderly and efficient development of the
pipeline, the operation and abandonment of the pipeline and certain related
pollution and environmental conservation issues. In addition to requirements
under the Pipeline Act, the construction and operation of natural gas pipelines
in Alberta are subject to certain provisions of other provincial legislation
such as the Environmental Protection and Enhancement Act (Alberta).
Power
The Power segment of TCPL's business includes the acquisition, development,
construction, ownership and operation of electrical power generation plants, the
purchase and marketing of electricity and the provision of electricity account
services to energy and industrial customers.
The electrical power generation plants and power supply that TCPL owns,
operates and/or controls, including those under development or in construction,
in the aggregate, represent approximately 6,700 MW of power generation capacity.
Power plants and power supply in Canada account for approximately 83 per cent of
this total, and power plants in the U.S. account for the balance, being
approximately 17 per cent.
TCPL owns and operates:
*
natural gas-fired cogeneration plants in Alberta at Carseland (80 MW),
Redwater (40 MW), Bear Creek (80 MW) and MacKay River (165 MW);
*
the Grandview natural gas-fired cogeneration plant (90 MW) near Saint
John, New Brunswick;
*
a waste-heat fuelled power plant at the Cancarb facility in Medicine
Hat, Alberta (27 MW);
*
a natural gas-fired, combined-cycle Ocean State Power plant in
Burrillville, Rhode Island (560 MW); and
*
hydroelectric generation assets in New Hampshire, Vermont and
Massachusetts (567 MW).
TCPL has long-term power purchase arrangements in place for:
*
100 per cent of the production of the Sundance A (560 MW) and a 50 per
cent interest, through a partnership, in the production of the Sundance
B (353 MW of 706 MW) power facilities near Wabamun, Alberta; and
*
756 MW of the production from the Sheerness facility near Hanna,
Alberta.
TCPL owns, but does not operate:
*
a 47.9 per cent partnership interest at Year End, in the Bruce A nuclear
power generation facility in Ontario (718.5 MW of a total of 1,500 MW
that is currently in operation. Another 1,500 MW of which 718.5 MW are
attributable to TCPL, will be generated from two other units currently
under refurbishment with restart expected beginning in 2009);
*
a 31.6 per cent partnership interest in the Bruce B nuclear power
generation facilities in Ontario (1,011 MW of a total of 3,200 MW that
is in operation); and
*
a 16.7 per cent interest in Huron Wind L.P. whose assets are located at
the Bruce site (2 MW of a total of 9 MW that is in operation).
TCPL owns the following facilities which are under construction or development:
*
the 550 MW Becancour natural gas-fired cogeneration plant near
Trois-Rivieres, Quebec, which is expected to be in commercial service in
late 2006; and
*
a 62 per cent interest in Cartier Wind Energy which will construct six
wind energy projects in the Gaspe region of Quebec over the period 2006
to 2012 (458 MW of a total of 739.5 MW).
8 TRANSCANADA PIPELINES LIMITED
Further information about TCPL's power holdings and significant developments
and opportunities relating to power can be found in the MD&A under the headings
"Power", "Power - Financial Analysis" and "Power - Opportunities and
Developments". In particular, information about TCPL's Eastern and Western power
operations and about TCPL's divestiture of Power LP to EPCOR, can be found under
the heading "Power" in the MD&A.
Other Interests
Cancarb Limited
TCPL owns Cancarb Limited, a world scale thermal carbon black manufacturing
facility located in Medicine Hat, Alberta.
TransCanada Turbines
TCPL owns a 50 per cent interest in TransCanada Turbines Ltd., a repair and
overhaul business for aero-derivative industrial gas turbines. This business
operates primarily out of facilities in Calgary, Alberta, with offices in
Bakersfield, California; East Windsor, Connecticut; and Liverpool, England.
TransCanada Calibrations
TCPL owns an 80 per cent interest in TransCanada Calibrations Ltd., a gas meter
calibration business certified by Measurement Canada, located at Ile des Chenes,
Manitoba.
HEALTH, SAFETY AND ENVIRONMENT
TCPL is committed to providing a safe and healthy environment for its employees
and the public, and to the protection of the environment. Health, safety and
environment ("HS&E") is a priority in all of TCPL's operations. The HS&E
Committee of TCPL's Board of Directors ("Board") monitors compliance with the
TCPL HS&E corporate policy through regular reporting by TCPL's department of
Community, Safety & Environment. TCPL's senior executives are also committed to
ensuring TCPL is in compliance with its policies and is an industry leader.
Senior executives are regularly advised of all important operational issues and
initiatives relating to HS&E by way of a formal reporting process. In addition,
TCPL's management system and performance in the HS&E area are assessed by an
independent outside firm every three years or more often if the HS&E Committee
requests it. The most recent assessment was completed by PricewaterhouseCoopers
in January 2004. These assessments involve senior executive interviews, review
of policies and objectives, performance measurement and reporting.
TCPL has an HS&E management system modeled after elements of the International
Organization for Standardization's standard for environmental management systems
which is known as ISO 14001, to facilitate the focus of resources on the areas
of greatest risk to the organization's business activities relating to HS&E. The
system highlights opportunities for improvement, enables TCPL to work towards
defined HS&E expectations and objectives, and provides a competitive business
advantage. HS&E outside, independent assessments, management system assessments
and planned inspections are used to assess both the effectiveness of
implementation of HS&E programs, processes and procedures, and TCPL's compliance
with regulatory requirements.
TCPL employs full-time staff dedicated to HS&E matters, and incorporates HS&E
policies and principles into the planning, development, construction and
operation of all its projects. Environmental protection requirements have not
had a material impact on the capital expenditures of TCPL to date; however,
there can be no assurance that such requirements will not have a material impact
on TCPL's financial or operating results in future years. Such requirements can
be dependent on a variety of factors including the regulatory environment in
which TCPL operates.
Environment
Climate change is a strategic issue for TCPL. In Canada, TCPL's fossil fuelled
power plants, pipeline assets and carbon black facilities are expected to be
covered under legislation for large final emitters. While the broad elements of
the proposed regulations to reduce greenhouse gas emissions intensities from
large industrial emitters have been
TRANSCANADA PIPELINES LIMITED 9
established, key policy elements remain outstanding including details of
compliance options that entities may use to fulfill compliance obligations. At
this time, it is difficult to determine the level of impact to TCPL's Canadian
assets until these and other key policy elements have been defined.
In 2006, TCPL will continue with its strategy for managing the climate change
issue. This strategy includes activities such as:
*
energy conservation through improvements to overall system efficiency;
*
conducting research and development work designed to reduce greenhouse
gas emissions;
*
gaining experience with flexible market mechanisms;
*
participation in government-led policy forums; and
*
taking part in public awareness initiatives and education programs
focused on climate change and air quality issues.
In addition to these activities, TCPL also ensures that the potential business
risks and opportunities posed by increasing environmental priorities are
considered when making decisions regarding TCPL's businesses.
LEGAL PROCEEDINGS
The Canadian Alliance of Pipeline Landowners' Association and two individual
landowners have commenced an action 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 National Energy Board Act. TCPL believes the claim is without
merit and will vigorously defend the action. TCPL has made no provision for any
potential liability. Any liability would be dealt with through the regulatory
process.
TCPL and its subsidiaries are subject to various other legal proceedings and
actions arising in the normal course of business. While the final outcome of
such legal proceedings and actions cannot be predicted with certainty, it is the
opinion of TCPL's management that the resolution of such proceedings and actions
will not have a material impact on TCPL's consolidated financial position or
results of operations.
TRANSFER AGENT AND REGISTRAR
TCPL's transfer agent and registrar is Computershare Trust Company of Canada
with transfer facilities in the Canadian cities of Vancouver, Calgary, Winnipeg,
Toronto, Montreal and Halifax.
AUDITOR AND INTEREST OF EXPERTS
TCPL's auditor is KPMG LLP ("External Auditor") and as of February 27, 2006, the
partners of the External Auditor have advised that they do not beneficially own,
directly or indirectly, any securities of TCPL. TCPL collects this information
from the External Auditor but otherwise has no direct knowledge of individual
holdings of its securities.
10 TRANSCANADA PIPELINES LIMITED
RISK FACTORS
A number of factors, including but not limited to those discussed in this
section, could cause actual results or events to differ materially from current
expectations.
Gas Transmission
TCPL faces competition in its gas transmission business at both the supply and
market ends of its systems. The competition is a result of other pipelines
accessing an increasingly mature western Canadian sedimentary basin and serving
some of the same markets as TCPL. In addition, the continued expiration of firm
transportation contracts has resulted in significant reductions in firm
contracted capacity on both the Canadian Mainline and Alberta System. As well,
regulatory decisions continue to have significant impact on the financial
returns for and future investments in TCPL's Canadian wholly-owned pipelines.
Further information about risks in TCPL's natural gas transmission business can
be found under the headings "Gas Transmission - Opportunities and Developments"
and "Gas Transmission - Business Risks" in the MD&A.
Power
TCPL's power business can be affected by a variety of factors including
competition from other market participants, fluctuating market demand, weather,
reliance on the supply of feed stocks such as natural gas, water, coal and
uranium, fluctuating feed stock prices, fluctuating electricity prices,
unexpected outages, third party power plant operator performance, power
transmission disruptions and regulatory changes and influences.
Further information about competition risks in TCPL's power business can be
found under the headings "Power - Opportunities and Developments" and "Power -
Business Risks" in the MD&A.
In addition, Bruce A and Bruce B, in which TCPL holds material interests, are
subject to risks related to the operation and maintenance of nuclear power
generating facilities, including risks relating to the use, handling,
containment and storage of radioactive materials; limitation on the amounts and
types of insurance that are commercially available to cover any related
liabilities that may arise from these operations; changes in and varying
interpretations of the extensive federal regulations that apply to Bruce A's and
Bruce B's nuclear operations; modifications needed to meet increasing security
requirements; and repairs, modifications, replacements and outages that may be
necessitated as a result of testing and inspection programs which, themselves,
may need to be enhanced in coming years to improve operations or satisfy
increasing regulatory or other requirements.
Other
Further information about TCPL's risk management activities can be found under
the heading "Risk Management" in the MD&A.
DIVIDENDS
All of TCPL's common shares are held by TransCanada and as a result, any
dividends declared by TCPL on its common shares are paid to TransCanada. TCPL's
Board of Directors has not adopted a formal dividend policy. The Board reviews
the financial performance of TCPL quarterly and makes a determination of the
appropriate level of dividends to be declared on its common shares in the
following quarter. Provisions of various trust indentures and credit
arrangements to which TCPL is a party, restrict TCPL's ability to declare and
pay dividends to TransCanada and preferred shareholders under certain
circumstances and, if such restrictions apply, they may, in turn, have an impact
on TransCanada's ability to declare and pay dividends on its common and
preferred shares. In the opinion of TCPL management, such provisions do not
restrict or alter TCPL's ability to declare or pay dividends.
TRANSCANADA PIPELINES LIMITED 11
The dividends declared per common share during the past three completed
financial years are set forth in the following table:
2005 2004 2003
Dividends declared on common shares(1) $1.23 $1.17 $1.08
Dividends declared on preferred shares, Series U $2.80 $2.80 $2.80
Dividends declared on preferred shares, Series Y $2.80 $2.80 $2.80
(1)
Effective May 15, 2003, TCPL dividends have been declared in an amount equal
to the aggregate dividend paid by TransCanada. The amounts presented reflect
the aggregate amount divided by the total outstanding common shares of TCPL.
DESCRIPTION OF CAPITAL STRUCTURE
Share Capital
TCPL's authorized share capital consists of an unlimited number of common
shares, of which approximately 483,344,109 were issued and outstanding at Year
End, and an unlimited number of first preferred shares and second preferred
shares issuable in series. There were 4,000,000 Series U and 4,000,000 Series Y
first preferred shares issued and outstanding at Year End. The following is a
description of the material characteristics of each of these classes of shares.
Common Shares
As the holder of all of TCPL's issued common shares, TransCanada holds all the
voting rights in those common shares.
First Preferred Shares, Series U
Subject to certain limitations, the Board may, from time to time, issue first
preferred shares in one or more series and determine for any such series, its
designation, number of shares and respective rights, privileges, restrictions
and conditions. The first preferred shares as a class, have, among others,
provisions to the following effect.
The holders of the first preferred shares, Series U are entitled to receive, as
and when declared by the Board, fixed cumulative preferential cash dividends at
an annual rate of $2.80 per share, payable quarterly.
The first preferred shares of each series shall rank on a parity with the first
preferred shares of every other series, and shall be entitled to preference over
the common shares and any other shares ranking junior to the first preferred
shares with respect to the payment of dividends, the repayment of capital and
the distribution of assets to TCPL in the event of a liquidation, dissolution or
winding up of TCPL.
TCPL is entitled to purchase for cancellation, some or all of the first
preferred shares, Series U outstanding at the lowest price which such shares are
obtainable, in the opinion of the Board, but not exceeding $50.00 per share plus
costs of purchase. Furthermore, TCPL may redeem, on or after October 15, 2013,
some or all of the first preferred shares, Series U upon payment for each share
at $50.00 per share.
Except as provided by the Canada Business Corporations Act or as referred to
below, the holders of the first preferred shares will not have any voting rights
nor will they be entitled to receive notice of or to attend shareholders'
meetings unless and until TCPL fails to pay, in the aggregate, six quarterly
dividends on the first preferred shares, Series U.
The provisions attaching to the first preferred shares as a class may be
modified, amended or varied only with the sanction of the holders of the first
preferred shares as a class. Any such sanction to be given by the holders of the
first preferred shares may be given by the affirmative vote of the holders of
not less than 662/3 per cent of the first preferred shares represented and voted
at a meeting or adjourned meeting of such holders.
12 TRANSCANADA PIPELINES LIMITED
First Preferred Shares, Series Y
The rights, privileges, restrictions and conditions attaching to the first
preferred shares, Series Y are substantially identical to those attaching to the
first preferred shares, Series U, except that the first preferred shares, Series
Y are redeemable by TCPL after March 5, 2014.
DEBT
The following tables sets out the issuances of senior unsecured notes with terms
to maturity in excess of one year, of TCPL during the 12 months ended, December
31, 2005:
Date Issued Issue Price per $1,000 Aggregate Issue
Principal Price
Amount of Notes
January 11, 2005 $998.94 $299,547,000
There are no provisions associated with this debt that entitle debt holders to
voting rights. From time to time, TCPL issues commercial paper for terms not
exceeding nine months.
CREDIT RATINGS
The following table sets out the credit ratings assigned to outstanding classes
of securities of TCPL:
Overall DBRS Moody's S&P
Senior Secured Debt
First Mortgage Bonds A A2 A
Senior Unsecured Debt
Debentures A A2 A-
Medium-term Notes A A2 A-
Subordinated Debt A (low ) A3 BBB+
Junior Subordinated Debt Pfd-2 A3 BBB
Preferred Shares Pfd-2 (low ) Baa1 BBB
Commercial Paper R-1 (low ) P-1 -
Trend/Rating Outlook Stable Stable Negative
Credit ratings are intended to provide investors with an independent measure of
credit quality of an issue of securities. Credit ratings are not recommendations
to purchase, hold or sell securities and do not address the market price or
suitability of a specific security for a particular investor. There is no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be revised or withdrawn entirely by a rating agency in
the future if, in its judgment, circumstances so warrant. A description of the
rating agencies' credit ratings listed in the table above is set out below.
TRANSCANADA PIPELINES LIMITED 13
Dominion Bond Rating Service (DBRS)
DBRS has different rating scales for short and long-term debt and preferred
shares. "High" or "low" grades are used to indicate the relative standing within
a rating category. The absence of either a "high" or "low" designation indicates
the rating is in the "middle" of the category. The R-1 (low) rating assigned to
TCPL's short-term debt is the third highest of ten rating categories and
indicates satisfactory credit quality. The overall strength and outlook for key
liquidity, debt and profitability ratios is not normally as favourable as with
higher rating categories, but these considerations are still respectable. Any
qualifying negative factors that exist are considered manageable, and the entity
is normally of sufficient size to have some influence in its industry. The A
ratings assigned to TCPL's senior secured and senior unsecured debt and the A
(low) rating assigned to its subordinated debt are the third highest of ten
categories for long-term debt. Long-term debt rated A is of satisfactory credit
quality. Protection of interest and principal is still substantial, but the
degree of strength is less than that of AA rated entities. While a respectable
rating, entities in the A category are considered to be more susceptible to
adverse economic conditions and have greater cyclical tendencies than higher
rated entities. The Pfd-2 and Pfd-2 (low) ratings assigned to TCPL's junior
subordinated debt and preferred shares are the second highest of six rating
categories for preferred shares. Preferred shares rated Pfd-2 are of
satisfactory credit quality. Protection of dividends and principal is still
substantial; however, earnings, the balance sheet and coverage ratios are not as
strong as Pfd-1 rated companies.
Moody's Investor Services (Moody's)
Moody's has different rating scales for short and long-term obligations.
Numerical modifiers 1, 2 and 3 are applied to each rating classification, with 1
being the highest and 3 being the lowest. The P-1 rating assigned to TCPL's
short-term debt is the highest of four rating categories and indicates a
superior ability to repay short-term debt obligations. The A2 ratings assigned
to TCPL's senior secured and senior unsecured debt and the A3 ratings assigned
to its subordinated debt and junior subordinated debt are the third highest of
nine rating categories for long-term obligations. Obligations rated A are
considered upper-medium grade and are subject to low credit risk. The Baa1
rating assigned to TCPL's preferred shares is the fourth highest of nine rating
categories for long-term obligations. Obligations rated Baa are subject to
moderate credit risk, are considered medium-grade, and as such, may possess
certain speculative characteristics.
Standard & Poor's (S&P)
S&P has different rating scales for short and long-term obligations. Ratings may
be modified by the addition of a plus (+) or minus (-) sign to show the relative
standing within a particular rating category. The A and A- ratings assigned to
TCPL's senior secured and senior unsecured debt, respectively, are the third
highest of ten rating categories for long-term obligations. An A rating
indicates the obligor's capacity to meet its financial commitment is strong;
however, the obligation is somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. The BBB+ rating assigned to TCPL's subordinated debt and the
BBB ratings assigned to its junior subordinated debt and preferred shares are
the fourth highest of ten rating categories for long-term obligations. An
obligation rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
14 TRANSCANADA PIPELINES LIMITED
MARKET FOR SECURITIES
TransCanada holds all the common shares of TCPL and these are not listed on a
public market. TransCanada's common shares are listed on the Toronto Stock
Exchange ("TSX") and the New York Stock Exchange ("NYSE"). The following table
sets forth the reported monthly high and low closing prices and monthly trading
volumes of the common shares of TransCanada on the TSX for the period indicated:
Common Shares (TRP)
Month High Low Volume Traded
($) ($)
December, 2005 37.56 36.25 16,433,655
November, 2005 37.40 34.95 21,148,781
October, 2005 36.00 34.60 20,786,022
September, 2005 36.94 32.92 26,394,804
August, 2005 33.69 31.49 18,358,190
July, 2005 34.08 32.06 16,695,178
June, 2005 32.59 30.32 20,470,296
May, 2005 31.10 29.80 16,560,238
April, 2005 30.00 29.55 17,071,520
March, 2005 30.61 29.20 23,363,461
February, 2005 30.69 29.70 19,187,511
January, 2005 30.48 29.75 21,563,721
In addition, the following securities of TCPL are listed:
TCPL's Cumulative Redeemable First Preferred Shares,
Series U (TCA.PR.X) and Series Y (TCA.PR.Y), which are listed on the TSX
Month High Low Volume High Low Volume
($) ($) Traded ($) ($) Traded
Series U Series Y
December, 2005 54.00 53.32 53,400 54.50 53.40 25,997
November, 2005 53.69 52.30 55,222 54.45 52.35 40,467
October, 2005 52.73 52.11 28,635 52.75 52.25 40,488
September, 2005 53.15 52.25 27,041 53.35 52.31 31,749
August, 2005 53.00 52.05 22,858 53.00 52.25 42,029
July, 2005 52.55 52.06 34,698 52.85 52.20 30,752
June, 2005 53.35 51.75 44,466 53.25 51.82 42,306
May, 2005 51.85 50.75 27,540 51.75 51.00 40,542
April, 2005 51.70 51.10 244,913 51.85 51.10 30,621
March, 2005 53.30 51.30 239,796 53.24 50.84 419,221
February, 2005 53.85 52.80 42,053 53.65 53.00 61,931
January, 2005 53.33 52.80 26,896 53.35 52.95 31,689
TRANSCANADA PIPELINES LIMITED 15
TCPL's 8.25% preferred securities due 2047, which are listed on the NYSE (TCAPr)
Month High Low Volume Traded
($) ($)
December, 2005 26.29 25.55 111,600
November, 2005 25.99 25.65 97,600
October, 2005 26.15 25.60 133,900
September, 2005 26.10 25.75 93,400
August, 2005 26.12 25.86 113,600
July, 2005 26.20 25.83 82,100
June, 2005 26.00 25.72 116,000
May, 2005 25.89 25.60 71,900
April, 2005 25.78 25.51 111,700
March, 2005 25.95 25.51 113,300
February, 2005 26.03 25.65 126,000
January, 2005 25.93 25.52 153,600
In addition, TCPL's 16.50 per cent First Mortgage Pipe Line Bonds due 2007, are
listed on the London Stock Exchange; however, this issue is thinly traded and
accounts for approximately $50 million or less than one per cent of TCPL's
consolidated capital structure.
DIRECTORS AND OFFICERS
As of February 27, 2006, the directors and officers of TransCanada as a group
beneficially owned, directly or indirectly, have exercisable options to own, or
exercised control or direction over, 2,334,652 common shares of TransCanada
which constitutes less than one per cent of TransCanada's common shares and less
than one per cent of the voting securities of any of its subsidiaries or
affiliates. TransCanada collects this information from its directors and
officers but otherwise has no direct knowledge of individual holdings of its
securities. Further information as to securities beneficially owned, or over
which control or direction is exercised, is provided in TransCanada's Management
Proxy Circular dated February 28, 2006 ("Proxy Circular") under the heading
"Business to be Transacted at the Meeting - Election of Directors". See also
"Additional Information" in this AIF.
Directors
Set forth below are the names of the twelve directors who served on TCPL's Board
at Year End as well as Mr. D.M.G. Stewart who will become a TCPL director on
April 28, 2006 subject to his election to the TransCanada board on that date by
the common shareholders of TransCanada. In addition, information about each of
their jurisdictions of residence, all positions and offices held by them with
TransCanada and its significant affiliates, their principal occupations or
employment during the past five years and the year from which each director has
continually served as a
16 TRANSCANADA PIPELINES LIMITED
director of TransCanada and, prior to the arrangement, with TCPL. Positions and
offices held with TransCanada are also held by such person at TCPL.
Name and
Place of Residence Principal Occupation During the Five Preceding Years Director Since
Douglas D. Baldwin Chairman, Talisman Energy Inc., (oil and gas) since May 2003. 1999
Calgary, Alberta President and Chief Executive Officer, TCPL, from August 1999 to
Canada April 2001. Director, Citadel Group of Funds. Member, Board of
Governors, University of Calgary.
Kevin E. Benson(1) President and Chief Executive Officer, Laidlaw International, Inc. 2005
Wheaton, Illinois (transportation services) since June 2003, and Laidlaw, Inc. from
United States September 2002 to June 2003. President and Chief Executive Officer,
The Insurance Corporation of British Columbia from December 2001
until September 2002. President, The Pattison Group from April 2000
to February 2001. Director, Laidlaw International, Inc.
Derek H. Burney, O.C. Corporate Director. President and Chief Executive Officer, CAE Inc. 2005
Ottawa, Ontario (technology) from October 1999 to August 2004. Lead director at
Canada Quebecor World Inc. (communications and media) from April 2003 to
November 2005. Director, CanWest Global Communications Corp.,
Chair, New Brunswick Power Corporation and Lead Director, Shell
Canada Limited.
Wendy K. Dobson Professor, Rotman School of Management and Director, Institute for 1992
Uxbridge, Ontario International Business, University of Toronto (education).
Canada Director, Toronto-Dominion Bank. Vice Chair, Canadian Public
Accountability Board.
E. Linn Draper, Jr. Corporate Director. Chairman, President and Chief Executive Officer 2005
Lampasas, Texas of Columbus, Ohio-based American Electric Power Co., Inc. from
United States April 1993 to April 2004. Director, Alliance Data Systems
Corporation, Alpha Natural Resources, Inc. and Temple-Inland Inc.
Chair of NorthWestern Corporation.
The Hon. Paule Gauthier, Senior Partner, Desjardins Ducharme L.L.P. (law firm). President, 2002
P.C., O.C., O.Q., Q.C. Institut Quebecois des Hautes Etudes Internationales, Laval
Quebec, Quebec University. Director, Royal Bank of Canada, Rothmans Inc., Metro
Canada Inc. and RBC Dexia Investor Services Trust.
Kerry L. Hawkins Corporate Director. President, Cargill Limited (agricultural) from 1996
Winnipeg, Manitoba September 1982 to December 2005. Director, NOVA Chemicals
Canada Corporation and Shell Canada Limited.
S. Barry Jackson Corporate Director. Chairman, Resolute Energy Inc. (oil and gas) 2002
Calgary, Alberta from January 2002 to April 2005 and Chairman, Deer Creek Energy
Canada Limited (oil and gas) from April 2001 to September 2005. Director,
Nexen Inc., Cordero Energy Inc. and privately held Larincina Energy
Ltd.
Paul L. Joskow Professor, Department of Economics, Massachusetts Institute of 2004
Brookline, Massachusetts Technology (MIT) (education). Director of the MIT Center for Energy
United States and Environmental Policy Research. Director, National Grid PLC and
trustee, Putnam Mutual Funds.
TRANSCANADA PIPELINES LIMITED 17
Harold N. Kvisle President and Chief Executive Officer, TransCanada since May 2003 2001
Calgary, Alberta and TCPL since May 2001. Executive Vice-President, Trading and
Canada Business Development, TCPL, from June 2000 to April 2001. Director,
PrimeWest Energy Inc. and Bank of Montreal. Chair, Mount Royal
College.
David P. O'Brien(2) Chairman and Chief Executive Officer, PanCanadian Energy 2001
Calgary, Alberta Corporation (oil and gas) from October 2001 to April 2002.
Canada Chairman, President and Chief Executive Officer, Canadian Pacific
Limited (transportation, energy and hotels) from May 1996 to
October 2001. Chair, EnCana Corporation (oil and gas) since April
2002 and Chair, Royal Bank of Canada (banking) since February 2004.
Director, Fairmont Hotels & Resorts Inc., Inco Limited, Molson
Coors Brewing Company, and the not for profit C.D. Howe Institute.
Chancellor, Concordia University.
Harry G. Schaefer, President, Schaefer & Associates (business advisory services). 1987
F.C.A. Vice-Chairman of the Board, TransCanada since May 2003 and TCPL
Calgary, Alberta since June 1998. Director, Agrium Inc. and Fording Canadian Coal
Canada Trust.
D. Michael G. Stewart Principal of the privately held Ballinacurra Group of Investment n/a
Calgary, Alberta Companies since March 2002. Executive Vice-President, Business
Canada Development, Westcoast-Energy Inc. (utilities) prior to March 2002.
Director, Canadian Energy Services Inc. and Chair, Esprit Energy
Trust.
(1)
Mr. Benson was President and Chief Executive Officer of Canadian Airlines
International Ltd. from July 1996 to February 2000. Canadian Airlines
International Ltd. filed for protection under the Companies' Creditors
Arrangement Act (Canada) and applicable bankruptcy protection statutes in
the United States on March 24, 2000.
(2)
Mr. O'Brien was a director of Air Canada on April 1, 2003 when Air Canada
filed for protection under the Companies' Creditors Arrangement Act
(Canada). Mr. O'Brien resigned as a director from Air Canada in November
2003.
TransCanada will hold its annual meeting of common shareholders on Friday,
April 28, 2006 (the "TransCanada Annual Meeting") and subject to the election of
the twelve nominees proposed for election to TransCanada's board, these
directors will be elected by the sole shareholder of TCPL as directors of TCPL
on that date. Each director holds office until TransCanada's next annual meeting
and concurrent appointment to TCPL's Board, or until his or her successor is
earlier elected or appointed.
Mr. Jackson was designated as the Chair of the Board on April 29, 2005, Mr.
Draper was appointed to the Board on June 15, 2005 and Mr. Burney was appointed
to the Board on September 8, 2005. Mr. W. Thomas Stephens, a TransCanada
director since April 1999, resigned from the Board on August 12, 2005 and Mr.
Baldwin will retire effective April 28, 2006.
The Governance Committee of the Board annually reviews the qualifications of
directors and submits its recommendations to the Board for consideration. The
Governance Committee maintains a matrix of skills and requirements and
periodically assesses the skill set of the current Board members to identify
necessary skills and backgrounds for Board candidates. The Governance Committee
also maintains an "evergreen" list of potential candidates for its future
consideration and periodically retains independent search firms to identify new
candidates.
18 TRANSCANADA PIPELINES LIMITED
TCPL's directors are, in the opinion of the Board, well qualified to act as
directors. With the exception of Messrs. Kvisle and Stewart, each director,
including the Chair, Mr. Jackson, has been determined by the Board to be
independent within the meaning of Canadian and applicable U.S. securities law,
regulation and policy and NYSE requirements, and has established his or her
eligibility and willingness to serve as a director. The proposed nominees will
also be the directors of TransCanada.
Officers
All of the executive officers and corporate officers of TransCanada reside in
Calgary, Alberta, Canada. References to positions and offices with TransCanada
prior to May 15, 2003 are references to the positions and offices held with
TCPL. Current positions and offices held with TransCanada are also held by such
person at TCPL. As of the date hereof, the officers of TransCanada, their
present positions within TransCanada and their principal occupations during the
five preceding years are as follows:
Executive Officers
Principal Occupation During
Name Present Position Held the Five Preceding Years
Harold N. Kvisle President and Chief Executive Prior to April 2001, Executive Vice-President,
Officer Trading and Business Development.
Albrecht W.A. Bellstedt, Q.C. Executive Vice-President, Law and Prior to September 2005, Executive Vice
(1) General Counsel and Chief President, Law and General Counsel.
Compliance Officer
Russell K. Girling Executive Vice-President, Prior to March 2003, Executive Vice-President
Corporate Development and Chief and Chief Financial Officer.
Financial Officer
Dennis J. McConaghy Executive Vice-President, Gas Prior to May 2001, Senior Vice-President,
Development Business Development.
Alexander J. Pourbaix Executive Vice-President, Executive Vice-President, Power Development,
Power May 2001 to March 2003. Prior to May 2001,
Senior Vice-President, Power Ventures.
Sarah E. Raiss Executive Vice-President, Prior to January 2002, Executive
Corporate Services Vice-President, Human Resources and Public
Sector Relations.
Ronald J. Turner Executive Vice-President, Gas Prior to March 2003, Executive Vice-President,
Transmission Operations and Engineering.
Donald M. Wishart Executive Vice-President, Prior to March 2003, Senior Vice-President,
Operations and Engineering Field Operations.
(1)
Mr. Bellstedt, who served as a trustee of Atlas Cold Storage Income Trust,
was subject to an Ontario Securities Commission cease trade order issued in
respect of all insiders of Atlas Cold Storage Income Trust on December 2,
2003 which arose because of late filed financial statements required to
reflect certain re-statements. The cease trade order was rescinded in
January 2004.
TRANSCANADA PIPELINES LIMITED 19
Corporate Officers
Principal Occupation During
Name Present Position Held the Five Preceding Years
Ronald L. Cook Vice-President, Taxation Prior to April 2002, Director, Taxation.
Rhondda E.S. Grant Vice-President, Communications and Prior to February 2005, Vice-President and
Corporate Secretary Corporate Secretary.
Lee G. Hobbs Vice-President and Controller Prior to July 2001, Director, Accounting.
Garry E. Lamb Vice-President, Risk Management Prior to October 2001, Vice-President, Audit
and Risk Management.
Donald R. Marchand Vice-President, Finance and Vice-President, Finance and Treasurer
Treasurer
CORPORATE GOVERNANCE
The Board and the members of TCPL's management are committed to the highest
standards of corporate governance. TCPL's corporate governance practices comply
with the governance rules of the Canadian Securities Administrators ("CSA"),
those of the NYSE applicable to foreign issuers and of the U.S. Securities and
Exchange Commission ("SEC"), and those mandated by the United States
Sarbanes-Oxley Act of 2002 ("SOX"). As a non-U.S. company, TCPL is not required
to comply with most of the NYSE corporate governance listing standards; however,
except as summarized on its website at www.transcanada.com, the governance
practices followed are in compliance with the NYSE standards for U.S. companies
in all significant respects. TCPL is in compliance with the CSA's Multilateral
Instrument 52-110 pertaining to audit committees. TCPL is also in compliance
with National Policy 58-201, Corporate Governance Guidelines, and National
Instrument 58-101, Disclosure of Corporate Governance Practices (collectively,
the "Canadian Governance Guidelines"). In 2005, the Canadian Governance
Guidelines came into effect and for purposes of the TSX replaced the TSX
Corporate Governance Guidelines.
Compliance with Canadian Governance Guidelines
The "Disclosure of Corporate Governance Practices" addressing disclosure in
accordance with the Canadian Governance Guidelines is attached to this AIF at
Schedule "B". It has been approved by the Governance Committee and the Board.
Audit Committee
TCPL has an Audit Committee which is responsible for assisting the Board in
overseeing the integrity of TCPL's financial statements and compliance with
legal and regulatory requirements and in ensuring the independence and
performance of TCPL's internal and external auditors. The members of the Audit
Committee at Year End were Harry G. Schaefer (Chair), Douglas D. Baldwin, Kevin
E. Benson, Paule Gauthier and Paul L. Joskow. Mr. Jackson is a non-voting member
of the Audit Committee.
The Board believes that the composition of the Audit Committee reflects a high
level of financial literacy and expertise. Each member of the Audit Committee
has been determined by the Board to be "independent" and "financially literate"
within the meaning of the definitions under Canadian and U.S. securities laws
and the NYSE rules. In addition, the Board has determined that Mr. Schaefer is
an "Audit Committee Financial Expert" as that term is defined under U.S.
securities laws. The Board has made these determinations based on the education
and breadth and depth of experience of each member of the Audit Committee. The
following is a description of the education and experience,
20 TRANSCANADA PIPELINES LIMITED
apart from their respective roles as directors of TCPL, of each member of the
Audit Committee that is relevant to the performance of his or her
responsibilities as a member of the Audit Committee:
Mr. Schaefer earned a Bachelor of Commerce from the University of Alberta, is a
Chartered Accountant and is a Fellow of the Canadian Institute of Chartered
Accountants. He serves on and has served on the boards of several public
companies and other organizations, including as Chairman of the Alberta Chapter
of the Institute of Corporate Directors, and on the audit committees of certain
of those boards. Mr. Schaefer has also held several executive positions with
public companies. He is currently Chair of the Audit Committee and of the audit
committees of two other public companies.
Mr. Baldwin earned a Bachelor of Science in Chemical Engineering from the
University of Saskatchewan. He has served on the boards of several public
companies and other organizations and on the audit committees of certain of
those boards. Mr. Baldwin has also held the position of President and Chief
Executive Officer of TCPL and other senior executive positions with Imperial Oil
Limited and Esso Resources Canada Limited. Mr. Baldwin will retire from the
Board at the TransCanada Annual Meeting and concurrently from the TCPL board on
April 28, 2006.
Mr. Benson earned a Bachelor of Accounting from the University of Witwatersrand
(South Africa) and was a member of the South African Society of Chartered
Accountants. Mr. Benson is the President and Chief Executive Officer of Laidlaw
International, Inc. In prior years, he has held several executive positions
including one as President and Chief Executive Officer of Canadian Airlines
International Ltd. and has served on other public company boards.
Mme. Gauthier earned a Bachelor of Arts from the College Jesus-Marie de
Sillery, a Bachelor of Laws from Laval University and a Master of Laws in
Business Law (Intellectual Property) from Laval-University. She has served on
the boards of several public companies and other organizations and on the audit
committees of certain of those boards.
Mr. Joskow earned a Bachelor of Arts with Distinction in Economics from Cornell
University, a Masters of Philosophy in Economics from Yale University, and Ph.D.
in Economics from Yale University. He has served on the boards of several public
companies and other organizations and on the audit committees of certain of
those.
The Charter of the Audit Committee can be found in Schedule "E" of this AIF and
on TransCanada's website under the Corporate Governance - Board Committees page,
at the link specified above under the heading "Corporate Governance".
Pre-Approval Policies and Procedures
TCPL's Audit Committee has adopted a pre-approval policy with respect to
permitted non-audit services. Under the policy, the Audit Committee has granted
pre-approval for specified non-audit services. For engagements of $25,000 or
less which are not within the annual pre-approved limit approval by the Audit
Committee is not required, and for engagements between $25,000 and $100,000,
approval of the Audit Committee chair is required, and in both instances the
Audit Committee is to be informed of the engagement at the next scheduled Audit
Committee meeting. For all engagements of $100,000 or more, pre-approval of the
Audit Committee is required. In all cases, regardless of the dollar amount
involved, where there is a potential for conflict of interest involving the
external auditor on an engagement, the Audit Committee chair must pre-approve
the assignment.
To date, TCPL has not approved any non-audit services on the basis of the
de-minimis exemptions. All non-audit services have been pre-approved by the
Audit Committee in accordance with the pre-approval policy described above.
TRANSCANADA PIPELINES LIMITED 21
External Auditor Service Fees
The aggregate fees for external auditor services rendered by the External
Auditor for TCPL and its subsidiaries in each of 2005 and 2004 fiscal years, are
shown in the table below:
Fee Category 2005 2004 Description of Fee Category
(millions of dollars)
Audit Fees 3.12 2.47 Aggregate fees for audit services rendered by TCPL's External
Auditor for the audit of TCPL's and its subsidiaries' annual
financial statements or services provided in connection with
statutory and regulatory filings or engagements, the review of
interim consolidated financial statements and information
contained in various prospectuses and other offering documents.
Audit Related Fees 0.11 0.06 Aggregate fees for assurance and related services rendered by
TCPL's External Auditor that are reasonably related to
performance of the audit or review of TCPL's financial statements
and are not reported as Audit Fees. The nature of services
comprising these fees related to the audit of the financial
statements of TCPL's various pension plans.
Tax Fees 0.12 0.06 Aggregate fees rendered by TCPL's External Auditor for tax
compliance and tax advice. The nature of these services consisted
of: tax compliance including the review of Canadian and U.S.
income tax returns; and tax items and tax services related to
domestic and international taxation including income tax, capital
tax and Goods and Services Tax.
All Other Fees 0.14 0.05 Aggregate fees for products and services other than those
reported in this table above rendered by TCPL's External Auditor.
The nature of these services consisted of advice with respect to
TCPL's compliance with SOX.
Total 3.49 2.64
22 TRANSCANADA PIPELINES LIMITED
Other Board Committees
In addition to the Audit Committee, TCPL has three other Board committees: the
Governance Committee, the Health, Safety and Environment Committee and the Human
Resources Committee. Mr. Jackson, the Chair of the Board, sits on each of
Board's committees as a non-voting member. The voting members of each of these
committees, as of Year End, are identified below:
Governance Committee Health, Safety & Environment Committee Human Resources Committee
Chair: W.K. Dobson Chair: D.D. Baldwin Chair: K.L. Hawkins
Members: D.H. Burney Members: E.L. Draper Members: W.K. Dobson
P.L. Joskow P. Gauthier E.L. Draper
D.P. O'Brien K.L. Hawkins D.P. O'Brien
H.G. Schaefer
The charters of the Governance Committee, the Health, Safety & Environment
Committee and the Human Resources Committee can be found on TransCanada's
website under the Corporate Governance - Board Committees page at the link
specified below.
Further information about TCPL's Board committees and corporate governance can
be found in Schedule "D" attached to this AIF or on TransCanada's website
located at: http://www.transcanada.com/company/board_committees.html.
Conflicts of Interest
The Board and members of TCPL's management are not aware of any existing or
potential material conflicts of interest between TCPL or a subsidiary and any
director or officer of TCPL or its subsidiary. Directors and officers of TCPL
and its subsidiaries are required to disclose the existence of existing or
potential conflicts in accordance with TCPL policies governing directors and
officers and in accordance with the Canada Business Corporations Act. If a
director or officer has such a conflict, TCPL requires that the director or
officer absent himself or herself from any discussion or voting relating to the
matter giving rise to the material existing or potential conflict.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
As at the date hereof and since the beginning of the most recently completed
financial year, no executive officer, director, employee or former executive
officer, director or employee of TCPL or its subsidiaries, no proposed nominee
as a director of TCPL, or any associate of any such director, executive officer
or proposed nominee has been indebted to TCPL of any of its subsidiaries. There
is no indebtedness of any such person to another entity that is the subject of a
guarantee, support agreement, letter of credit or other similar arrangement or
understanding provided by TCPL or any of its subsidiaries.
TRANSCANADA PIPELINES LIMITED 23
SECURITIES OWNED BY DIRECTORS
The following table sets out the number of each class of securities of
TransCanada or any of its affiliates beneficially owned, directly or indirectly,
or over which control or direction is exercised and the number of deferred share
units credited to each director, as of February 28, 2006.
Director Securities Owned, Deferred Share Units(2)
Controlled or
Directed(1)
D. Baldwin 212,813 (3) 15,797
K. Benson 3,000 3,710
D. Burney 1,000 3,299
W. Dobson 3,000 25,617
E.L. Draper 0 3,508
P. Gauthier 1,000 16,807
K. Hawkins 3,865 (4) 27,959
S.B. Jackson 39,000 (5) 9,274
P. Joskow 5,000 7,135
H. Kvisle 705,030 (6) 0
D. O'Brien 16,279 16,807
H. Schaefer 23,214 (7) 16,574
(1)
The information as to shares beneficially owned or over which control or
direction is exercised, not being within the knowledge of TransCanada, has
been furnished by each of the nominees. Except as indicated in these notes,
the nominees have sole voting and dispositive power with respect to the
securities listed above. As to each class of shares of TransCanada, its
subsidiaries and affiliates, the percentage of outstanding shares
beneficially owned by any one director or nominee or by all directors and
officers of TransCanada as a group does not exceed 1% of the class
outstanding.
(2)
The value of a deferred share unit is tied to the value of TransCanada's
common shares. A deferred share unit is a bookkeeping entry, equivalent to
the value of a TransCanada common share, and does not entitle the holder to
voting or other shareholder rights, other than the accrual of additional
deferred share units for the value of dividends. A director cannot redeem
deferred share units until the director ceases to be a member of the Board.
Canadian directors can then redeem their units for cash or shares while U.S.
directors can only redeem their units for cash. Mr. Kvisle is an employee
of TransCanada and participates in the ESU program; he does not participate
in the DSU program.
(3)
Securities owned, controlled or directed include common shares that Mr.
Baldwin has a right to acquire through the exercise of stock options that
are vested under the Stock Option Plan, which plan is described elsewhere in
this AIF. Directors as such do not participate in the Stock Option Plan. Mr.
Baldwin, as a former employee of TransCanada, has the right to acquire
150,000 common shares under vested stock options, which amount is included
in this column.
(4)
The shares listed include 2,500 shares held by Mr. Hawkins' wife.
(5)
The shares listed include 8,000 common shares held by Mr. Jackson's wife.
(6)
Securities owned, controlled or directed include common shares that Mr.
Kvisle has a right to acquire through the exercise of stock options that are
vested under the Stock Option Plan, which plan is described elsewhere in
this AIF. Directors as such do not participate in the Stock Option Plan. Mr.
Kvisle, as an employee of TransCanada, has the right to acquire 655,833
common shares under vested stock options, which amount is included in this
column.
24 TRANSCANADA PIPELINES LIMITED
(7)
The shares listed do not include 700 common shares held by Mr. Schaefer's
wife and 5,500 common shares held by a company controlled by Mr. Schaefer's
wife. Mr. Schaefer disclaims beneficial ownership of, or control or
direction over, such shares.
COMPENSATION OF DIRECTORS
TransCanada's directors also serve as directors of TCPL. An aggregate fee is
paid for serving on the Boards of TransCanada and TCPL. Since TransCanada does
not hold any assets directly, other than the common shares of TCPL, all
directors' costs are assumed by TCPL according to a management services
agreement between the two companies. The meetings of the Boards and committees
of TransCanada and TCPL run concurrently.
Minimum Share Ownership Guidelines
The Board believes that directors can more effectively represent the interests
of shareholders if they have a significant investment in the common shares of
TransCanada, or their economic equivalent. As a result, TransCanada requires
each director to acquire and hold a minimum number of common shares, or their
economic equivalent, equal in value to five times the director's annual cash
retainer fee. Directors have a maximum of five years to reach this level of
ownership. The level of ownership can be achieved by direct purchase of common
shares, by participation in the TransCanada Dividend Reinvestment Plan or by
means of directing cash retainer fees into, or otherwise acquiring units under,
the Share Unit Plan for Non-Employee Directors (1998) (the "DSU Plan"),
described under the heading "Share Unit Plan for Non-Employee Directors" below.
All of the current directors, other than Mr. Draper who became a member of the
Board on June 15, 2005, have achieved the minimum share ownership.
The following table sets out the common share and DSU ownership interest in
TransCanada of each of the individuals who have been proposed for election as
directors at the TransCanada Annual Meeting as at the date hereof and as at
TRANSCANADA PIPELINES LIMITED 25
March 1, 2005. Subject to their election at the TransCanada Annual Meeting,
these individuals will concurrently be elected as directors of TCPL.
Director Year Number of Common Number of DSUs Total Value of Common
Shares(1) (#) Shares and DSUs(2)
(#) ($)
K.E. Benson 2006 3,000 3,710 236,393
2005 N/A N/A N/A
Change +3,000 N/A
Derek H. Burney 2006 1,000 3,299 151,454
2005 N/A N/A N/A
Change N/A N/A
Wendy K. Dobson 2006 3,000 25,617 1,008,177
2005 3,000 21,765 739,235
Change 0 +3,852
E. Linn Draper 2006 0 3,508 123,587
2005 N/A N/A N/A
Change N/A N/A
P. Gauthier 2006 1,000 16,807 627,341
2005 1,000 12,401 400,020
Change 0 +4,406
K.L. Hawkins 2006 3,865 27,959 1,121,120
2005 3,832 23,144 805,234
Change +33 +4,815
S.B. Jackson 2006 39,000 9,274 1,700,693
2005 24,000 6,192 1,199,731
Change +15,000 +3,082
P.L. Joskow 2006 5,000 7,135 427,516
2005 5,000 3,959 267,426
Change 0 +3,176
H.N. Kvisle 2006 49,197 (3) N/A (4) 1,733,210
2005 40,214 N/A 1,200,388
Change +8,983 N/A
D.P. O'Brien 2006 16,279 16,807 1,165,620
2005 10,000 12,401 668,670
Change +6,279 +4,406
H.G. Schaefer 2006 23,214 16,574 1,401,731
2005 22,716 13,052 1,067,675
Change +498 +3,522
D.M.G. Stewart 2006 5,000 N/A 176,150
2005 N/A N/A N/A
Change N/A N/A
(1)
The information as to shares beneficially owned or over which control is
exercised, not being within the knowledge of TransCanada, has been furnished
by each of the nominees.
26 TRANSCANADA PIPELINES LIMITED
(2)
Based on a share price of $29.85 on March 1, 2005 and $35.23 on February 27,
2006.
(3)
Mr. Kvisle, as an employee of TCPL, has the right to acquire 655,833
(675,833 in 2005) common shares under vested stock options, which amount is
not included in this column. For the total number of securities owned,
controlled or directed by Mr. Kvisle, see the information relating to Mr.
Kvisle under the heading "Business to be Transacted at the Meeting -
Election of Directors". For the value of Mr. Kvisle's options, see the
information in the table under the heading "Executive Compensation and Other
Information - Equity Compensation Plan Tables - Aggregate Option Exercises
during 2005 and 2005 Year-End Option Values".
(4)
Mr. Kvisle, as an officer of TCPL, participates in the Company's Executive
Compensation Program and as such, is not eligible to participate in the DSU
plan.
Board and Committee Remuneration
TCPL's director compensation practices are designed to reflect the size and
complexity of TCPL and to reinforce the emphasis TCPL places on shareholder
value by linking a portion of directors' compensation to the value of common
shares. The market competitiveness of director compensation is assessed against
the Comparator Group (as defined under the heading "Executive Compensation and
Other Information - Report on Executive Compensation") and a general industry
sample of Canadian companies of similar size and scope to TCPL.
For the financial year ended December 31, 2005, each director who was not an
employee of TCPL, other than the Chair, was paid in quarterly installments in
arrears as follows:
Retainer fee $30,000 per annum
Committee retainer fee $3,000 per annum
Committee Chair retainer fee $4,000 per annum
Board and Committee attendance fee $1,500 per meeting
Committee Chair attendance fee $1,500 per meeting
The Chair, who was paid none of the directors' fees outlined above, was paid a
retainer fee of $300,000 per annum in respect of his duties as Chair, $3,000 per
chaired Board meeting, and was reimbursed for certain office and other expenses.
In 2005, Mr. R.F. Haskayne served as Chair from January 1 to April 29 and Mr.
S.B. Jackson served as Chair from April 30 to December 31. Half of Mr. Jackson's
retainer fee for acting as Chair was paid in DSUs. The Vice-Chair was paid a
retainer fee of $12,000 per annum in respect of his duties as Vice-Chair, in
addition to his other director's fees as outlined above. Each committee chair is
entitled to claim a per diem for time spent on committee activities outside of
the committee meetings. Additionally, directors other than the Chair and the CEO
receive, in respect of their service as directors, an annual grant of units
under the DSU Plan. See "Share Unit Plan for Non-Employee Directors". Fees are
paid quarterly and are pro-rated from the date of the director's appointment to
the Board and the relevant committees.
TCPL pays a travel fee of $1,500 per meeting for which round trip travel time
exceeds three hours, and reimburses the directors for out-of-pocket expenses
incurred in attending such meetings. Directors who are U.S. residents are paid
the same amounts as outlined above in U.S. dollars.
Fees Paid to Directors in 2005(1)
The following table sets out the total fees paid in cash and the value of the
DSUs awarded or credited for each non-employee director in 2005 as at the date
of grant, unless otherwise stated. Mr. Kvisle, as an employee of TCPL, receives
no cash fees or DSUs as a director.
Directors generally direct their retainer fee to be paid in DSUs until the
minimum share ownership guideline is reached, and are always entitled to direct
their retainer fee to be paid in DSUs. In 2005, D.D. Baldwin, K.E. Benson, D.H.
Burney, E.L. Draper, P. Gauthier, K.L. Hawkins and D.P. O'Brien received their
retainer fees in DSUs. In a year that a director,
TRANSCANADA PIPELINES LIMITED 27
other than the Chair, chooses to receive the retainer fee in DSUs, 100% of the
retainer fee must be credited as DSUs from the date the election is received.
Half of Mr. Jackson's retainer fee for acting as Chair was paid in DSUs.
Name Retainer Committee Committee Board Committee Travel Strategic Total Total
Fee Retainer Chair Attendance Attendance Fee Issues Fees Value of
Fee Retainer Fee Fee and Paid in DSUs
Fee Strategic Cash Credited
Planning (2)
Sessions
D.D. Baldwin $30,000 $6,000 $4,000 $10,500 $18,000 $1,500 $1,500 $41,500 $139,290
(3)
K.E. Benson 22,500 2,250 N/A 7,500 6,000 7,500 4,500 30,058 129,482
(4)(5)
D.H. Burney 10,000 1,000 N/A 3,000 1,500 1,500 1,500 8,500 119,290
(6)
W.K. Dobson 30,000 6,000 4,000 13,500 15,000 10,500 6,000 85,000 109,290
(3)
E.L. Draper 22,500 4,500 N/A 7,500 4,500 6,000 3,000 33,000 124,290
(7)
P. Gauthier 30,000 6,000 N/A 12,000 18,000 10,500 6,000 52,500 139,290
R.F. Haskayne 109,840 N/A N/A N/A N/A 0 3,000 112,840 0
(8)(9)
K.L. Hawkins 30,000 6,000 4,000 12,000 18,000 12,000 6,000 58,000 139,290
(3)
S.B. Jackson 228,000 2,000 N/A 4,500 7,500 1,500 7,500 151,000 100,000
(8)(9)
P.L. Joskow 30,000 6,000 N/A 12,000 13,500 9,000 4,500 75,000 109,290
(11)
D.P. O'Brien 30,000 6,000 N/A 13,500 10,500 1,500 4,500 36,000 139,290
J.R. Paul(9) 15,000 3,000 N/A 4,500 4,500 4,500 1,500 33,000 0
(11)
H.G. Schaefer 42,000 6,000 25,265 13,500 25,500 1,500 6,000 119,765 109,290
(3)(11)
W.T. Stephens 22,500 4,500 N/A 4,500 4,500 1,500 0 37,500 0
(10)(12)
(1)
Fees are aggregate amounts respecting duties performed on both TransCanada
and TCPL boards.
(2)
Total DSUs credited includes the amount of the retainer fee elected to be
received in DSUs and the grant of 3,000 DSUs made in September 2005 which
had an initial cash value of approximately $36.43 per DSU.
(3)
The Committee Chair Retainer Fee amount includes per diem fees paid in
addition to the Committee Retainer Fee in respect of duties performed and
meetings held in preparation for committee meetings.
(4)
Mr. Benson was elected on April 29, 2005.
(5)
U.S. directors are paid or credited these amounts, including DSU
equivalents, based on U.S. dollars.
(6)
Mr. Burney was appointed on September 8, 2005.
(7)
Mr. Draper was appointed on June 15, 2005.
(8)
The Retainer Fee amount includes the fee of $3,000 in respect of each Board
meeting chaired.
(9)
Messrs. Haskayne and Paul retired from the Board on April 29, 2005.
(10)
Mr. Jackson served as Chair from April 30 to December 31, 2005. Half of Mr.
Jackson's retainer fee for acting as Chair was paid in DSUs.
(11)
The Retainer Fee amount includes the fee of $12,000 in respect of duties
performed as Vice-Chair.
(12)
Mr. Stephens resigned from the Board on August 12, 2005.
28 TRANSCANADA PIPELINES LIMITED
Share Unit Plan for Non-Employee Directors
The Share Unit Plan for Non-Employee Directors (1998) was established in 1998
and was last amended and restated in January 2005. The DSU Plan allows eligible
Board members, on a quarterly basis, to direct their annual directors' retainer
fee or, at the discretion of the Governance Committee, other board-related fees,
to acquire units representing the right to acquire common shares or their cash
equivalent. The DSU Plan also allows the Governance Committee to grant units as
additional directors' compensation. In September 2005, a grant of 3,000 DSUs was
made to each director other than the Chair and the CEO.
Initially the value of a DSU is equal to the market value of a common share at
the time the directors are credited with the units. Thus each grant of 3,000
DSUs in September 2005 had an initial cash value of approximately $109,290. The
value of a DSU, when redeemed, is equivalent to the market value of a common
share at the time the redemption takes place. In addition, at the time dividends
are declared and paid on the common shares each DSU accrues an amount equal to
such dividends, which amount is then reinvested in additional DSUs at a price
equal to the then market value of a common share. DSUs cannot be redeemed until
the director ceases to be a member of the Board. Canadian directors may redeem
for cash or common shares at their option. U.S. directors may only redeem for
cash.
This information is provided by RNS
The company news service from the London Stock Exchange
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