Home Annual Report 2002


TransCanada generates the energy that powers hundreds of thousands of businesses, institutions and households throughout Canada and the United States. A rapidly emerging player in the North American power market, we build, own, manage and operate some of the most efficient power plants on the continent. We utilize a diversified range of fuel sources: natural gas, waste heat, waste wood, or hydropower. We own one of the largest natural gas-fired power plants in the northeast U.S. We are the largest unitholder in TransCanada Power, L.P., a publicly-held limited partnership that owns power plants in both countries. We also market electricity across Canada and the northern tier of the U.S. and manage and supply electricity requirements for a wide range of industrial clients.

CORE STRENGTHS
Broad Understanding of Continental Markets: We have extensive knowledge of North American energy markets, underscored by an in-depth understanding of our core markets in the northeastern U.S., Ontario and the Pacific Northwest, and excellent relationships with industrial customers. As an active participant in the deregulation of the Alberta power sector, we are now one of the largest power suppliers and marketers of power to industrial customers in the province. Our significant experience with deregulation there and in New England will serve us well in seizing opportunities in newly opening markets.


Ability to Structure Deals and Manage Risk: In today's power markets, the ability to structure deals and manage risk is critical to mitigating volatility and uncertainty for our industrial customers as well as our shareholders. Our deal structuring and risk management skills have been a key element of our success, complemented by marketing and trading operations that enable us to take advantage of market volatility while creating stable and predictable cash flow.


Commitment to Excellence: TransCanada's power business is characterized by a commitment to industry-leading performance, as evidenced by our highly efficient generating fleet of turbines that operates at average availability exceeding 96 per cent. We have a strong management team with a proven track record in maximizing value from existing assets and in identifying new opportunities that leverage our skills and competitive strengths.

GROWTH STRATEGY AND OPPORTUNITIES
Grow in Markets We Know: The northern tier is one of the fastest growing areas of North America, with a projected increase in total power generation of approximately ten per cent by 2005. Utilizing our expertise in cogeneration and our experience with diversified fuel sources, TransCanada will continue to build, acquire and invest in competitive facilities and relationships, growing our balanced portfolio of both gas-fired and non gas-fired power plants in regions where we have existing competitive advantages.


Optimize Reward Versus Risk: Our objective is to grow our power business in a manner that contributes to continued earnings growth. That means applying business models that benefit from, and support, our strong balance sheet. It means pursuing projects that fit our desired risk profile - a focus on low-cost supply, low volatility, stable returns and longer-term contracts. Our financial strength allows us to move quickly to act on quality opportunities as they arise.


Maximize Returns Through a Broad Suite of Power Products: Growth of our power business will be fueled by a combination of our physical assets and our trading and marketing capability. By offering our customers value-added power products and services, we maximize their returns while reducing business risk. By proactively managing our own power portfolio, we gain valuable market knowledge, enabling us to optimize the value of our assets and contribute to continued growth and shareholder value.

2001 ACCOMPLISHMENTS

ADDING VALUE THROUGH TIMELY AND STRATEGIC ACQUISITIONS

In December 2001, TransCanada partnered with AltaGas Services Inc. to purchase the remaining rights and obligations of the 706 megawatt (MW) Sundance B power purchase arrangement (PPA) from Enron Canada Power Corp. The purchase represents a significant and extremely competitive source of power in Alberta. Previously, TransCanada acquired 100 per cent of the generating capacity of the 560 MW Sundance A power plant under similar arrangements.

Because we're continually evaluating acquisitions in Canada and the U.S., we know what we want and we know what makes sense for TransCanada. The Sundance B PPA purchase demonstrated our ability to act quickly and decisively on the opportunity to acquire new capacity at the low end of the supply cost curve. We were able to put in place immediately the infrastructure to manage our investment and market the facility's output.
BUILDING GEOGRAPHIC AND FUNCTIONAL DIVERSIFICATION

TransCanada's diversified portfolio of managed and owned power assets ranges from its Williams Lake plant, the largest biomass fueled plant in North America, to enhanced combined-cycle plants in Ontario that efficiently utilize waste heat from the company's Canadian Mainline compressor stations to generate power. In the first half of 2001, TransCanada added hydroelectric power through the acquisition of the Curtis Palmer Hydroelectric Company and its two plants in New York.

The Curtis Palmer acquisition provides us with additional clean, low marginal cost power in the U.S. northeast, adding to our existing facilities in New York and Rhode Island. The entire output of the plants, approximately 60 MW, is sold under a fixed-price, long-term agreement with a remaining term of more than 25 years. As a stable source of income in one of the fastest-growing power markets on the continent, Curtis Palmer fits our objective of growing our power business through strategic, disciplined and profitable investments.
BUILDING OUR STRENGTHS IN COGENERATION

Cogeneration is a fuel-efficient, low-cost method of power generation that uses excess heat captured from natural gas-fired electricity production to generate a second energy source. In 2001, TransCanada completed construction of two cogeneration plants near Redwater and Carseland, Alberta, on time and on budget, adding to the company's expanding portfolio of cogeneration plants. TransCanada's experience and reputation in tailoring cogeneration facilities to the specific needs of its commercial customers and partners were instrumental in securing two new major cogeneration projects in Alberta in 2001.

The 165 MW MacKay River cogeneration plant, located at Petro-Canada's MacKay River in-situ oil sands project, will be the first large-scale cogeneration plant in the Alberta Oil Sands, and will establish the model for future cogeneration plants in the area. The plant will reduce total greenhouse gas emissions by about 50 per cent compared to the equivalent supply of steam and electricity without cogeneration.
The Bear Creek cogeneration plant will provide electricity and steam to Weyerhaeuser Company's Grande Prairie Pulp Mill and will use natural gas as well as biomass-derived steam from the adjacent mill to provide power to all eight manufacturing facilities in Weyerhaeuser's Alberta operations. The project will enable Weyerhaeuser to reduce significantly the amount of wood waste sent to landfill.