Home Annual Report 2001


Operating more than 38,000 kilometres (24,000 miles) of pipelines transporting trillions of cubic feet of natural gas each year, we are the largest natural gas pipeline company in Canada and one of the largest in North America. We've been transporting natural gas since 1958. Our pipeline system links the rich natural gas resources of the Western Canada Sedimentary Basin (WCSB) - one of North America's largest, most cost-competitive sources of natural gas - to markets across Canada and the United States. We own, operate and have interests in natural gas pipelines in both Canada and the U.S. We are also the general partner of TC PipeLines, LP, a limited partnership that owns interests in U.S. pipelines. We're well positioned to play a key role in bringing northern gas to the growing North American marketplace.

CORE STRENGTHS
Unparalleled Market Access: We are the leaders in connecting western Canadian natural gas supply with the premier markets of California, Eastern Canada and the northern tier of the U.S. Our extensive infrastructure gives us a strategic position in the continental market, offering producers the connectivity, penetration and flexibility they need to capitalize on growing demand.


Experience and Expertise: After more than 50 years in business, TransCanada continues to be at the forefront of pipeline technology. We are experienced in building and operating natural gas pipelines in extreme climates and all terrains. We are the leading global operator of large gas turbine compressor stations, and the operator of one of the largest, most sophisticated computer-controlled pipeline networks in the world.


Customer Focus: From effectively managing capacity - quickly connecting new supply and responding to market needs - continually driving costs down by utilizing and applying innovation and best practices, we're focused on making customer needs a top priority. Customer satisfaction surveys reinforce our industry leadership in areas critical to our customers including preferred market access and user-friendly transactional systems. Our emphasis is on making it easier to do business with TransCanada by delivering efficient, hassle-free service.

GROWTH STRATEGY AND OPPORTUNITIES
Attract Incremental Western Canadian Supply: TransCanada is well positioned to take advantage of new and incremental sources of natural gas from all parts of Alberta, northeast British Columbia and the rest of the WCSB. Maintaining unrestricted access, moving quickly to connect new sources, expanding our delivery capacity and investing in strategic extensions to our systems in Western Canada will enable us to increase our throughput and reduce unit costs for all customers.


Capitalize on Increased Demand for Natural Gas: North American demand for natural gas is projected to increase 20 billion cubic feet per day (or 29 per cent) by 2010, with electricity generation driving nearly half of this growth in gas demand. TransCanada already plays a key role connecting western supply with growing demand in major North American markets - we know the markets well. Through expansion of our existing systems, new extensions and strategic growth in our partly owned U.S. pipelines, we intend to capitalize on increased demand, adding value to our bottom line.


Bring Northern Natural Gas to Market: We've placed a strategic priority on the development of two pipelines to connect natural gas from the Northwest Territories and Alaska to our system in Alberta. Our existing infrastructure is uniquely positioned to take Arctic gas and redeliver it to key northern tier markets, at a significantly lower cost and with greater flexibility than a single "bullet" pipeline. TransCanada owns 50 per cent of Foothills Pipe Lines Ltd., which has the existing "southern pre-build" infrastructure in place for the Alaska Highway pipeline project. TransCanada and Foothills are working with eight other pipeline companies to develop a proposal for Alaska producers that will help move Alaska North Slope natural gas to markets in Canada and the lower 48 states.

TransCanada is also prepared to play a leadership role in the Mackenzie Valley pipeline initiative. We have developed a plan to accommodate Mackenzie Delta gas in our Alberta system and we are prepared to extend that system northward if the Delta producers wish us to do so. Our credentials and track record in big-inch construction, large compressor stations, cold climates, and remote facility control are unequalled in North America. We look forward to applying our expertise to the development and operation of northern gas pipelines.


2001 ACCOMPLISHMENTS

IMPROVING OPERATIONAL EFFICIENCY

In 2001, TransCanada was successful in negotiating a fuel gas incentive program as part of the overall tolls settlement that was ultimately approved by the National Energy Board (NEB) in November. The purpose of this program is to provide TransCanada with an additional incentive to minimize total delivered costs (toll for transportation plus fuel), while achieving an acceptable balance between cost savings and level of service.

The agreement reflects alignment of interests between TransCanada and our customers, and sets the stage for all parties to win - TransCanada can improve our earnings while customers benefit from lower cost. Improved operational efficiency also produces environmental benefits, to the extent that combustion-related emissions to the atmosphere are minimized, supporting TransCanada's efforts to reduce our environmental footprint.
LOWEST CAPITAL COST PERFORMANCE

The results from a 2001 benchmark study confirm that TransCanada has been, and continues to be, the lowest cost provider of safe and reliable natural gas pipeline facilities. Out of more than 1,000 of the top quartile (lowest cost) projects in NEB and U.S. Federal Energy Regulatory Commission databases, TransCanada's total installed capital costs were lower than any of the other competitors.

In addition to installing these facilities at the absolute lowest cost, TransCanada has been consistently on budget and on schedule. During the 1990s, TransCanada's capital program approached $14 billion and was delivered within 0.6 per cent of the budgeted amount. Over 95 per cent of the projects were delivered within two months of the originally scheduled in-service date. Our success can be attributed to our extensive project management experience, our ability to develop effective relationships with key stakeholders and our implementation of leading-edge pipeline technologies such as high-strength steels and mechanized welding.
INDUSTRY LEADING E-COMMERCE INITIATIVES

In 2001, TransCanada introduced new electronic services including e-billing, e-contracting and wireless access to reporting, enabling our customers to streamline their business processes while lowering our costs. TransCanada Freedom is TransCanada's well-received wireless service that allows customers to access important account status reports using a personal digital assistant (PDA). While this information is already available electronically, TransCanada Freedom frees customers from their office computers by offering access at any time and from virtually anywhere. Launched in spring 2001, TransCanada Freedom is the first wireless application of its kind in the pipeline industry in North America.

While we move forward with our proposal for a new competitive business and regulatory framework that will allow us to meet customer needs more effectively over the long term, we continue to execute continuous improvement initiatives in our customer service and sales processes. TransCanada is an industry leader in utilizing e-commerce to improve customer service and, at the same time, to lower costs.