Notes to Consolidated Financial Statements

1. Description of TransCanada's Business
2. Accounting Policies
3. Accounting Changes
4. Segmented Information
5. Plant, Property and Equipment
6. Goodwill
7. Rate-Regulated Businesses
8. Joint Venture Investments
9. Intangibles and Other Assets
10. Notes Payable
11. Deferred Amounts
12. Income Taxes
13. Long-Term Debt
14. Long-Term Debt of Joint Ventures
15. Junior Subordinated Notes
16. Non-Controlling Interests
17. Common Shares
18. Preferred Shares
19. Asset Retirement Obligations
20. Employee Future Benefits
21. Risk Management and Financial Instruments
22. Changes in Operating Working Capital
23. Acquisitions and Dispositions
24. Commitments, Contingencies and Guarantees
25. United States Accounting Principles and Reporting

Note 19: Asset Retirement Obligations

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The scope and timing of asset retirements related to regulated oil and natural gas pipelines in the U.S. and hydroelectric power plants is indeterminable. As a result, the Company has not recorded an amount for ARO related to these assets, with the exception of certain abandoned facilities. The Company has not recorded an amount for ARO related to the nuclear assets, as Bruce Power leases the assets and the lessor is responsible for decommissioning liabilities under the lease agreement.

Through its Land Matters Consultation Initiative, the NEB is addressing several significant issues relating to future pipeline abandonment costs for Canadian regulated pipelines. In its May 2009 decision, the NEB established several filing deadlines relating to the financial issues, including deadlines for preparing and filing an estimate of the abandonment costs to be used to begin collecting funds. TransCanada filed its estimates of abandonment costs for its Canadian natural gas and oil pipelines on November 30, 2011, as required by the NEB decision. These estimates are expected to clarify the scope of ARO, however, the timing of retirements for these assets remains indeterminable. As a result, the Company has not recorded an amount for ARO related to these assets.

ARO recognized in the Natural Gas Pipelines segment relates to non-regulated natural gas pipelines and regulated natural gas storage operations. The estimated undiscounted cash flows required to settle the ARO with respect to these operations were $63 million at December 31, 2011 (2010 – $62 million), calculated using an annual inflation rate ranging from 1.2 per cent to 4.0 per cent. The estimated fair value of this liability was $26 million at December 31, 2011 (2010 – $24 million) after discounting the estimated cash flows at rates ranging from 4.3 per cent to 11.0 per cent. At December 31, 2011, the expected timing of payment for settlement of the obligations ranged from 2012 to 2029.

ARO recognized in the Energy segment relates to certain power generation facilities and non-regulated natural gas storage facilities. The estimated undiscounted cash flows required to settle the ARO with respect to the Energy segment were $641 million at December 31, 2011 (2010 – $719 million), calculated using an annual inflation rate ranging from 2.0 per cent to 2.5 per cent. The estimated fair value of this liability was $43 million at December 31, 2011 (2010 – $42 million), after discounting the estimated cash flows at average rates ranging from 5.2 per cent to 6.8 per cent. During 2010, the economic life of certain Energy assets was extended after reviewing market trends and asset conditions. At December 31, 2011, the expected timing of payment for settlement of the obligations ranged from 2018 to 2061.

Reconciliation of Asset Retirement Obligations(1)

(millions of dollars) Natural Gas 
Pipelines 		 Energy  Total 
Balance at January 1, 2010 24  87  111 
New obligations and revisions in estimated cash flows (1) (47) (48)
Accretion expense 1  2  3 
Balance at December 31, 2010 24  42  66 
New obligations and revisions in estimated cash flows –  (1) (1)
Accretion expense 2  2  4 
Balance at December 31, 2011 26  43  69 
(1) At December 31, 2011, ARO totalling $68 million (2010 – $65 million) and $1 million (2010 – $1 million) were included in Deferred Amounts and Accounts Payable, respectively.