Business

Our Performance

Managing Risk

There are many elements to managing risk in a company with the extensive energy infrastructure and vast geographical reach of TransCanada.

Awareness of the risks we face daily and implementation of appropriate mitigative measures are of paramount importance in helping to maintain a safe, reliable and cost-effective supply of continental energy, keeping our employees, contractors, the public and the environment safe from harm, and sustaining the financial capacity of our company. Risks such as operational risk, financial risk and regulatory risk are dealt with by those who are best equipped to understand and manage them.

The Principles That Guide Us

We follow these principles in assessing and managing financial risk:

Board Oversight

• Risk strategies, policies and limits are subject to review and approval by TransCanada’s Board of Directors.

Independent Review

• Risk-taking activities are subject to independent review, separate from the business lines that initiate the activity.

Assessment

• Processes are in place to ensure that risks are properly assessed at the transaction and counterparty levels. Appropriate limits are established whereby TransCanada assumes certain risks, or mitigating strategies are adopted whereby TransCanada transfers the risks.

Review and Reporting

• Market risk positions and exposures, and the creditworthiness of counterparties are subject to ongoing review and reporting to senior management within pre-established limits.

Accountability

• Business lines are accountable for identifying, quantifying, reporting and managing all risks and the related returns for their particular businesses.

Audit Review

• Risk management processes are subject to internal audit review, with independent reporting to the Audit Committee of TransCanada’s Board of Directors.

Risk management strategies, policies and limits are designed to ensure TransCanada’s risk-taking is consistent with the company’s business objectives and risk tolerance. Risks are managed within limits ultimately established by the company’s Board of Directors and implemented by senior management, monitored by risk management personnel and audited by internal audit personnel.

Types of Financial Risks at TransCanada

Market Risk Management

• In order to manage market risk exposures created by fixed and variable pricing arrangements at different pricing indexes and delivery points, the company enters into offsetting physical positions and derivative financial instruments. Market risks are quantified using mark-to-market and value-at-risk methodologies and are reviewed weekly by senior management.

Foreign Exchange and Interest Rate Risk Management

• TransCanada monitors the financial market risk exposures relating to the company’s investments in foreign currency denominated net assets, regulated and non-regulated long-term debt portfolios and foreign currency exposure on transactions. The market risk exposures created by these business activities are managed by establishing offsetting positions or through the use of derivative financial instruments.

Counterparty Risk Management

• Counterparty risk is the financial loss that the company would experience if the counterparty failed to meet its obligations in accordance with the terms and conditions of its contracts with the company. Counterparty risk is mitigated by conducting financial and other assessments to establish a counterparty’s creditworthiness, setting exposure limits and monitoring exposures against these limits, and, where warranted, obtaining financial assurances.

TransCanada manages market, foreign exchange and interest rate fluctuations, and counterparty risks and related exposures in accordance with the company’s market risk, interest rate and foreign exchange risk, and counterparty risk policies. The company’s primary financial risks result from volatility in commodity positions and prices, foreign currency exchange and interest rates, and any deterioration of counterparties’ creditworthiness.

Senior management regularly reviews these exposures and reports to the Audit Committee of TransCanada’s Board of Directors.

Ensuring Continuity in Leadership

To succeed over the long term, responsible corporations like TransCanada must ensure that their values are understood at all levels of the company and endure despite changes in management. We see leadership development as one crucial aspect of this.

A leadership development approach that connects resource policy, strategic skill development, recruitment processes, and individual development plans is critical to managing the business competently, recruiting and retaining good employees, maintaining stability through times of change, building key relationships, and fostering investor confidence.

At TransCanada, we have designed and implemented talent and succession management processes. These include:

• succession plans for the CEO and President, divisional presidents, executive vice presidents, and other key management positions;
• in-depth competency assessment of executive succession candidates;
• identification and development of leaders and emerging leaders with high potential;
• targeted leadership development programs and practices; and
• education and support programs related to building a diverse employee base.

We believe that diversity of background, knowledge, experience and skills of our leaders gives us competitive strength. New leaders from our acquired organizations give us further ability to leverage assets such as local market and operating knowledge, customer relationships, and regulatory expertise.