TRANSCANADA PIPELINES LIMITED

ANNUAL INFORMATION FORM

February 22, 2010

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TABLE OF CONTENTS

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PRESENTATION OF INFORMATION

Unless the context indicates otherwise, a reference in this Annual Information Form (“AIF”) to “TCPL” or the “Company” includes TCPL’s parent, TransCanada Corporation (“TransCanada”) and the subsidiaries of TCPL through which its various business operations are conducted and a reference to “TransCanada” includes TransCanada Corporation and the subsidiaries of TransCanada Corporation, including TCPL.  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.

Unless otherwise noted, the information contained in this AIF is given at or for the year ended December 31, 2009 (“Year End”). Amounts are expressed in Canadian dollars unless otherwise indicated.  Financial information is presented in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).

Certain portions of TCPL’s Management’s Discussion and Analysis dated February 22, 2010 (“MD&A”) are incorporated by reference into this AIF as stated below.  The MD&A can be found on SEDAR at www.sedar.com under TCPL’s profile.

The Accounting Standards Board (“AcSB”) of the Canadian Institute of Chartered Accountants has announced that Canadian publicly accountable enterprises are required to adopt International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, effective January 1, 2011.  Effective January 1, 2011, TCPL will begin reporting under IFRS.  TCPL’s conversion plan includes obtaining skilled people, providing education and training, analyzing the impact on TCPL of key differences between Canadian GAAP and IFRS, and developing and executing a phased approach to conversion and implementation.  For more information on TCPL’s conversion project, see TCPL’s MD&A under “Accounting Changes – International Financial Reporting Standards”.

Information relating to metric conversion can be found at Schedule “A” to this AIF.  Terms defined throughout this AIF are listed in the Glossary found at the end of this AIF.

FORWARD LOOKING INFORMATION

This AIF, the documents incorporated by reference into this AIF, and other reports and filings made with the securities regulatory authorities may contain certain information that is forward looking and is subject to important risks and uncertainties. The words “anticipate”, “expect”, “believe”, “may”, “should”, “estimate”, “project”, “outlook”, “forecast” or other similar words are used to identify such forward looking information.  Forward-looking statements in this document are intended to provide securityholders and potential investors with information regarding TCPL and its subsidiaries, including management’s assessment of TCPL’s and its subsidiaries’ future financial and operational plans and outlook.  Forward-looking statements in this document may include, among others, statements regarding the anticipated business prospects and financial performance of TCPL and its subsidiaries, expectations or projections about the future, strategies and goals for growth and expansion, expected and future cash flows, costs, schedules, operating and financial results and expected impact of future commitments and contingent liabilities.  All forward looking statements reflect TCPL’s beliefs and assumptions based on information available at the time the statements were made.  Actual results or events may differ from those predicted in these forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among others, the ability of TCPL to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of the Company’s pipeline and energy assets, the availability and price of energy commodities, capacity payments, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the pipeline and energy sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and economic conditions in North America.  By its nature, forward looking information is subject to various risks and uncertainties, including those material risks discussed in this AIF under “Risk Factors”, which could cause TCPL’s actual results and experience to differ materially from the anticipated results or expectations expressed.  Additional information on these and other factors is available in the reports filed by TCPL with Canadian securities regulators and with the U.S. Securities and Exchange Commission (“SEC”).  Readers are cautioned to not place undue reliance on this forward looking information, which is given as of the date it is expressed in this AIF or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose.  TCPL undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

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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.

Intercorporate Relationships

The following diagram presents the name and jurisdiction of incorporation, continuance or formation of TCPL’s principal subsidiaries as at December 31, 2009.  Each of these subsidiaries has total assets that exceeded 10% of the total consolidated assets of TransCanada or revenues that exceeded 10% of the total consolidated revenues of TransCanada as at and for the year ended December 31, 2009.  TCPL owns, directly or indirectly, 100 per cent of the voting shares of each of these subsidiaries.

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The above diagram does not include all of the subsidiaries of TCPL.  The assets and revenues of excluded subsidiaries in the aggregate did not exceed 20% of the total consolidated assets or total consolidated revenues of TCPL as at and for the year ended December 31, 2009.

GENERAL DEVELOPMENT OF THE BUSINESS

The general development of TCPL’s business during the last three financial years, and the significant acquisitions, dispositions, events or conditions which have had an influence on that development, are described below.

TCPL’s reportable business segments are Pipelines and Energy. Pipelines are principally comprised of the Company’s pipelines in Canada, the U.S. and Mexico and its regulated natural gas storage operations in the U.S. Energy includes the Company’s power operations and the non-regulated natural gas storage business.

Developments in the Pipelines Business

TCPL’s strategy in Pipelines is focused on both growing its North American natural gas and crude oil transmission network and maximizing the long-term value of its existing pipeline assets.  Summarized below are significant developments that have occurred in TCPL’s Pipelines business over the last three years.

2010

2009

Pipeline Developments

·             February 26, 2009.  TCPL announced the successful completion of a binding open season, securing support for firm transportation contracts of 378 million cubic feet per day (“MMcf/d”) for the Horn River Project.  Total contractual commitments for the Horn River Project increased to 503 MMcf/d by 2014 as a result of newly contracted volumes from a recently announced natural gas processing facility that will be located in the Horn River area.

·             May 7, 2009.  TCPL announced that it was the successful bidder on a contract to build, own and operate a US$320 million pipeline in Mexico, which is supported by a twenty-five year contract for its entire capacity with Comisión Federal de Electridad, Mexico’s state-owned electric power company.  The proposed pipeline, known as the Guadalajara Pipeline, is an approximately 305 km (190 mile) pipeline capable of transporting 500 MMcf/d of natural gas, and is proposed to extend from a liquefied natural gas terminal under construction near Manzanillo on Mexico’s Pacific Coast to Guadalajara, the second largest city in Mexico.  Regulatory approvals were received in December 2009 and construction is under way with an expected in-service date of first quarter 2011.

·             June 11, 2009.  TCPL reached an agreement with ExxonMobil Corporation to jointly advance the Alaska Pipeline Project.  A joint project team is developing the engineering, environmental, aboriginal relations and commercial work.

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·             July 1, 2009.  TCPL completed the sale of North Baja Pipeline, LLC (“North Baja”) to its affiliate TC PipeLines, LP.  As part of the transaction, TCPL agreed to amend its incentive distribution rights with TC PipeLines, LP. Under the amendment, TCPL received additional common units in exchange for a resetting of its incentive distribution rights at a lower percentage which escalates with increases in TC PipeLines, LP distributions.  The aggregate consideration received from the partnership included a combination of cash and common units totaling approximately US$395 million.  With the close of the transaction, TCPL’s ownership of the partnership increased to 42.6 per cent.  TCPL continued to operate North Baja following the transfer of ownership.  The system is a 129 km (80 mile) natural gas pipeline that extends from southwest Arizona to a point on the California/Mexico border and connects with a natural gas pipeline system in Mexico.  TCPL’s ownership in TC PipeLines, LP was subsequently reduced to 38.2 per cent in November 2009 after TC PipeLines, LP completed a public issuance of common units.

·             August 14, 2009.  TCPL became the sole owner of the 3,456 km (2,147 mile) Keystone Oil Pipeline project that will transport crude oil from Alberta to markets in the United States (the “Keystone Oil Pipeline”) through the purchase of ConocoPhillips’ remaining approximately 20 per cent interest for US$553 million and the assumption of US$197 million of short-term debt.  TCPL also assumed the responsibility for ConocoPhillips’ share of the capital investment required to complete the project resulting in an incremental commitment of approximately US$1.7 billion through the end of 2012.

·             September 28, 2009.  TCPL began work on the final phase of the North Central Corridor natural gas pipeline, a 300 km (186 mile) extension of the northern section of the Alberta System.  This 160 km Red Earth section is expected to be complete by April 2010.  The 140 km North Star section has been completed and two 13 Megawatt (“MW”) compressor units at the Meikle River compressor station were operational on May 15, 2009 and August 21, 2009, respectively.

·             December 2009.  A Joint Review Panel of the Canadian government released a report on environmental and socio-economic factors relating to the Mackenzie Gas Pipeline Project, a proposed 1,200 km (746 mile) natural gas pipeline to extend from a point near Inuvik, Northwest Territories to the northern border of Alberta, where it will connect to the Alberta System.  The report has been submitted to the NEB as part of the review process for approval of the project.  A decision is currently expected by fourth quarter 2010.  TransCanada continues funding of the Mackenzie Valley Aboriginal Pipeline Limited Partnership for its participation in the Mackenzie Gas Pipeline Project.

Regulatory Matters

·             February 26, 2009.  The NEB approved TCPL’s application for federal regulation of its Alberta System, which regulation became effective April 29, 2009. The Alberta System was previously regulated by the Alberta Utilities Commission (“AUC”).  Under federal regulation, TCPL is able to apply to the NEB for approval to extend the Alberta System across provincial borders, allowing the Company to provide service to producers outside of Alberta.

·             March 20, 2009.  TransCanada Québec & Maritimes Pipeline Inc. (“TQM”) received the NEB’s decision on its cost of capital application for 2007 and 2008, which requested an 11 per cent return on 40 per cent deemed common equity.  The NEB set a 6.4 per cent after-tax weighted average cost of capital for each of the two years, which equates to a 9.85 per cent return on 40 per cent deemed common equity in 2007 and a 9.75 per cent return on 40 per cent deemed common equity in 2008.  Prior to the decision, TQM was subject to the NEB return on equity formula of 8.46 per cent and 8.71 per cent for 2007 and 2008, respectively, on deemed common equity of 30 per cent.  In June 2009, the NEB approved TQM’s final tolls for 2007 and 2008, which reflected the 6.4 per cent after-tax weighted average cost of capital.

·             May 2009.  Portland Natural Gas Transmission System (“Portland System”) reached a settlement with its customers on certain short-term issues contained in its general rate case filed with the FERC in April 2008, which proposed a rate increase of approximately six per cent as well as other changes to its tariff.  The partial settlement was filed with the FERC for approval and a decision is expected in 2010.  The remaining issues were litigated and the initial decision from the administrative law judge was issued in December 2009.  Participants in the rate case have an opportunity to respond to the initial decision.  The FERC is expected to issue its final decision on the litigated portion of the rate case in fourth quarter 2010.

·             September 2009.  The NEB held a hearing to review TCPL’s application regarding the Canadian portion of the planned expansion and extension of the Keystone Oil Pipeline, which expansion is expected to provide additional capacity in 2013 of 500,000 barrels per day (“Bbl/d”) from Western Canada to the United States Gulf Coast, near existing terminals in Port Arthur, Texas.  The expansion, when completed, is expected to increase the capacity of the Keystone Oil Pipeline system from 591,000 Bbl/d to approximately 1.1 million Bbl/d.  The NEB is expected to issue a decision in first quarter 2010.  Permits for the U.S. portion of the expansion are expected by fourth quarter 2010.

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Construction of the expansion facilities is expected to commence in first quarter 2011 subject to the receipt of the necessary regulatory approvals.

·             October 8, 2009.  The NEB determined that its RH-2-94 decision would no longer be in effect.  The RH-2-94 decision pursuant to the National Energy Board Act (Canada) established a return on equity formula tied to the Government of Canada bond yields that had formed the basis for determining tolls for certain pipelines under NEB jurisdiction since January 1, 1995.  The NEB decided that the cost of capital would be determined by negotiations between pipeline companies and their shippers or by the NEB if a pipeline company filed a cost of capital application.  The decision affects the calculation of future tolls for TCPL’s NEB-regulated natural gas pipelines.  In November 2009, the Canadian Association of Petroleum Producers and the Industrial Gas Users Association sought leave to appeal the October 2009 NEB decision to the Federal Court of Appeal and named the NEB as the sole respondent.  In January 2010, TCPL was granted respondent status in the matter and in February 2010 filed its submission opposing the leave application.

·             November 2009.  The NEB concluded a public hearing process on TCPL’s application for approval to construct and operate the Groundbirch pipeline, which is comprised of a 77 km (48 mile) natural gas pipeline and related above ground facilities.  TCPL has entered into firm transportation agreements with Groundbirch customers that are expected to increase to 1.1 Bcf/d by 2014.  The Groundbirch pipeline, if approved, would be an extension of the Alberta System and would connect natural gas supply primarily from the Montney shale gas formation in northeast British Columbia to existing infrastructure in northwest Alberta.  Construction of the Groundbirch pipeline is expected to commence in July 2010 with completion anticipated in November 2010.  The NEB is expected to issue a decision in first quarter 2010.

·             November 2009.  The FERC initiated an investigation to determine whether rates on the Great Lakes system, a natural gas pipeline system running from northwestern Idaho, through Washington and Oregon to the California border (the “Great Lakes System”) are just and reasonable.  In response, Great Lakes filed a cost and revenue study with the FERC on February 4, 2010.  A hearing is scheduled to commence on August 2, 2010, and an initial decision is required in November 2010.  The impact of the investigation on the Great Lakes System’s rates and revenues is unknown at this time.

·             November 27, 2009.  TCPL filed a combined application with the NEB for approvals of both a new Alberta System Rate Design Settlement, and the integration of Canadian Utilities Limited (“ATCO Pipelines”).  The rate design was negotiated with all key stakeholders and addresses the evolving nature of the Alberta System and the integration of ATCO Pipelines. It also incorporates a single delivery service for all delivery points resulting from the amalgamation of current intra-Alberta and export delivery services.  TCPL reached a proposed agreement with ATCO Pipelines to provide integrated natural gas transmission service to customers on September 8, 2008.  If approved by the regulatory authorities, the two companies will combine physical assets under a single rates and services structure with a single commercial interface with customers but with each company separately managing assets within distinct operating territories in the province.  TCPL and ATCO Pipelines continue to work towards obtaining the necessary regulatory approvals to provide integrated service to shippers on the Alberta System and the ATCO Pipelines system. The integration of the Alberta System and ATCO Pipelines system will create the effect of a single integrated natural gas transmission system in Alberta resulting in a more efficient delivery of service to customers.

·             December 2009.  The NEB approved TCPL’s application for 2010 final tolls for its Canadian gas pipeline system (the “Canadian Mainline”) transportation service, effective January 1, 2010.  The 2010 calculated ROE for the Canadian Mainline will be 8.52 per cent, a decrease from 8.57 per cent in 2009.  The Canadian Mainline will continue to base its return on the NEB’s return on equity formula for 2010 and 2011 in accordance with the terms of the current Canadian Mainline tolls settlement.  Reduced throughput and greater use of shorter distance transportation contracts has resulted in an increase in Canadian Mainline tolls for 2010 compared to 2009.  This situation, coupled with the ongoing development and growth of competitive alternative natural gas supply and infrastructure from the United States shale gas regions, is increasing competitive pressures on the Canadian Mainline.  As a result, TCPL indicated that it will develop solutions, involving possible changes to business model, rate design, and services that would be designed to increase throughput and revenue in order to reduce tolls.  TCPL is also pursuing the connection of new sources of U.S. gas supply to the existing Canadian Mainline infrastructure to maintain its existing markets and competitive position.

·             December 2009.  The FERC issued a Final Environmental Impact Statement (“FEIS”) for the Bison Pipeline Project (“Bison”), a proposed 487 km (303 mile) pipeline from the Powder River Basin in Wyoming to the Northern Border Pipeline system in Morton County, North Dakota.

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2008

Pipeline Developments

·             February 2008. In 2005, certain subsidiaries of Calpine Corporation (“Calpine”) filed for bankruptcy protection in both Canada and the U.S.  The Portland System and Gas Transmission Northwest Corporation (“GTNC”) reached agreement with Calpine for allowed unsecured claims in the Calpine bankruptcy of US$125 million and US$192.5 million, respectively. Creditors were to receive shares in the re-organized Calpine and these shares would be subject to market price fluctuations as the new Calpine shares began to trade.  In February 2008, the Portland System and GTNC received partial distributions of 6.1 million shares and 9.4 million shares, respectively. Subsequently, these shareholdings were sold into the market.  Claims of NOVA Gas Transmission Limited (“NGTL”) and Foothills Pipe Lines (South B.C.) Ltd., both wholly-owned subsidiaries of TransCanada, for $31.6 million and $44.4 million, respectively, were received in cash in January 2008 and were passed on to shippers on these systems.

·             March 14, 2008.  TransCanada Keystone Pipeline, LP (“Keystone U.S.”) received a Presidential Permit authorizing the construction, maintenance and operation of facilities at the United States and Canada border for the transportation of crude oil between the two countries.  The Presidential Permit was a significant regulatory approval required to begin construction of the Keystone Oil Pipeline.  The Presidential Permit was issued following the issuance by the U.S. Department of State of the FEIS on January 11, 2008 for the construction of the Keystone U.S. pipeline and its Cushing extension.  The FEIS stated the pipeline would result in limited adverse environmental impacts.  Construction of the Keystone Oil Pipeline began in May 2008 in both Canada and the United States.  Commissioning of the segment to Wood River and Patoka commenced in late 2009 with commercial operations expected to follow in mid-2010.  Commissioning of the segment providing service to Cushing is expected to commence in late 2010.

·             April 2008.  An expansion to TCPL’s Alberta System in the Fort McMurray area, comprising a total of approximately 150 km (93 miles), was placed in service on its projected on-stream date.

·             July 16, 2008.  TCPL announced plans to expand and extend the Keystone Oil Pipeline system and provide additional capacity in 2013 of 500,000 Bbl/d from Western Canada to the United States Gulf Coast, near existing terminals in Port Arthur, Texas.

·             September 3, 2008.  TCPL acquired Bison Pipeline LLC from Northern Border Pipeline Company (“NBPL”) for US$20 million.  The assets of Bison Pipeline LLC included executed precedent agreements as well as regulatory, environmental and engineering work on Bison.

·             October 29, 2008.  TCPL announced that the Keystone Oil Pipeline system successfully conducted an open season for expansion and extension to the United States Gulf Coast by securing additional firm, long-term contracts on the system.

·             December 5, 2008.  The Alaska Commissioner of Revenue and Natural Resources issued the Alaska Gasline Inducement Act (“AGIA”) license to TCPL to advance the Alaska Pipeline Project, following the approval by the Alaska Senate on August 1, 2008 of TCPL’s application for the license.  TCPL has committed under the AGIA to advance the Alaska Pipeline Project through an open season and subsequent FERC certification.  TCPL has commenced the engineering, environmental, field and commercial work.  Under AGIA, the State of Alaska has agreed to reimburse a share of the eligible pre-construction costs to TCPL to a maximum of US$500 million.

·             TCPL agreed to increase its equity ownership in Keystone U.S. and TransCanada Keystone Pipeline Limited Partnership (“Keystone Canada”) up to 79.99 per cent from 50 per cent with ConocoPhillips’ equity ownership being reduced concurrently to 20.01 per cent through sole funding of cash calls.

Regulatory Matters

·             January 2008.  GTNC, a wholly-owned subsidiary of TransCanada, filed a Stipulation and Agreement with the FERC on October 31, 2007 comprised of an uncontested settlement of all aspects of its 2006 General Rate Case.  On January 7, 2008, the FERC issued an order approving the settlement. The settlement rates were effective retroactive to January 1, 2007.

·             March 18, 2008.  TCPL filed an application with the NEB to increase the interim tolls on the Canadian Mainline previously approved in December 2007.  This toll increase was a result of a significant decrease in forecasted flows on the Canadian Mainline and was intended to allow TCPL to meet its 2008 revenue requirement.  On March 28, 2008, the NEB approved the amended interim tolls for transportation service effective April 1, 2008.

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·             June 17, 2008.  TCPL filed an application with the NEB to establish federal regulation for TCPL’s Alberta System.  An oral hearing to discuss this matter began on November 18, 2008, concluded on November 28, 2008 and a decision was issued on February 26, 2009.

·             June, 2008.  The NEB approved TCPL’s application for additional pumping facilities required to expand the Canadian portion of the Keystone Oil Pipeline project from a nominal capacity of approximately 435,000 Bbl/d to 591,000 Bbl/d to accommodate volumes to be delivered to the Cushing markets, after holding an oral hearing on April 8, 2008.  The hearing and decision followed on an application filed by Keystone Canada with the NEB in November 2007.

·             October 10, 2008.  The AUC approved TCPL’s application for a permit to construct the North Central Corridor expansion, at a cost of approximately $925 million.  Construction on the project began in October 2008.  The decision followed on a non-routine application filed with the Alberta Energy and Utilities Board (“EUB”) on November 20, 2007.

·             December 17, 2008.  The AUC approved NGTL’s 2008-2009 Revenue Requirement Settlement Application as filed, in its entirety.  As part of the settlement, fixed costs were established for operation, maintenance and administration costs, return on equity and income taxes.  Any variances between actual costs and those agreed to in the settlement accrue to TCPL, subject to a return on equity and income tax adjustment mechanism, which accounts for variances between actual and settlement rate base and income tax assumptions.  The other cost elements of the settlement are treated on a flow-through basis.  The AUC also approved the 2008 interim rates of NGTL on a final basis for the period January 1, 2008 to December 31, 2008.

·             December 2008.  Palomar Gas Transmission LLC applied to the FERC for a certificate to build the 349 km (217 mile) Palomar pipeline which would extend from the GTN System (as defined below) in central Oregon to the Columbia River northwest of Portland.  The proposed Palomar pipeline is a 50/50 joint venture of GTNC and Northwest Natural Gas Co.  Palomar is currently in discussions with potential shippers to secure additional shipping commitments for the project.

2007

Pipeline Developments

·             February 9, 2007.  TCPL received approval from the NEB to transfer a section of its Canadian Mainline transmission facilities to the Keystone Oil Pipeline project to transport crude oil from Alberta to refining centres in the U.S. Midwest and to construct and operate new oil pipeline facilities in Canada.  TCPL announced in January 2007 the start of a binding open season for an expansion and extension of the proposed Keystone Oil Pipeline.  The purpose of the open season was to obtain binding commitments to support the expansion of the proposed Keystone Oil Pipeline from approximately 435,000 Bbl/d to 591,000 Bbl/d and the construction of a 468 kilometre extension of the U.S. portion of the pipeline.

·             February 22, 2007. TCPL closed its acquisitions of American Natural Resources Company and ANR Storage Company (collectively, “ANR”) and acquired an additional 3.6 per cent interest in Great Lakes Gas Transmission Limited Partnership (“Great Lakes”) from El Paso Corporation for a total of US$3.4 billion, subject to certain post-closing adjustments, including approximately US$491 million of assumed long-term debt.  Additionally, TCPL increased its ownership in TC PipeLines, LP to 32.1 per cent in conjunction with the TC PipeLines, LP acquisition of a 46.4 per cent interest in Great Lakes.  The acquisition was financed partly through an offering of 39,470,000 subscription receipts at $38.00 per subscription receipt, which resulted in gross proceeds to TCPL of approximately $1.725 billion including the exercise of an over-allotment option granted to the underwriters.  Upon closing of the acquisition of ANR, the subscription receipts were automatically exchanged, without the payment of any additional consideration by the subscribers, on a one-to-one basis for common shares of TransCanada (“Common Shares”).

·             December 2007. ConocoPhillips contributed $207 million to acquire a 50 per cent ownership interest in the Keystone Oil Pipeline.

Regulatory Matters

·             February 2007. TCPL received approval from the NEB to integrate its natural gas pipeline system in southern British Columbia with its natural gas pipeline systems in southern Alberta and southwestern Saskatchewan (collectively, the “Foothills System”) effective April 1, 2007.

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·             May 2007. TCPL’s five-year settlement with interested stakeholders for the years 2007 to 2011 on its Canadian Mainline was approved by the NEB.  The settlement reflects, among other things, a deemed common equity ratio of 40 per cent.

Further information about developments in the Pipelines business can be found in the MD&A under the headings “TCPL’s Strategy”, “Pipelines – Highlights”, and “Pipelines – Opportunities and Developments”.

Developments in the Energy Business

TCPL has built a substantial energy business over the past decade and has achieved a major presence in power generation in selected regions of Canada and U.S. More recently, TCPL has also developed a substantial non-regulated natural gas storage business in Alberta.  Summarized below are significant developments that have occurred in TCPL’s energy business over the last three years.

2009

Energy Developments

·             February 19, 2009.  The FERC approved two separate applications filed by TCPL on December 19, 2008 requesting approval to charge negotiated rates and to proceed with an open season in the spring of 2009 for each of the Zephyr (“Zephyr”) and Chinook (“Chinook”) transmission line projects.  Both projects are proposed 500 kilovolt high voltage direct current transmission projects.  Zephyr is a proposed 1,760 km (1,100 mile) transmission line that would originate in Wyoming, and Chinook is a proposed 1,600 km (1,000 mile) project that would originate in Montana.  Both projects would terminate in Nevada, and it is anticipated that each would deliver primarily wind generated electricity to markets in the southwestern United States.  The open seasons commenced on October 13, 2009 and closed in December 2009.  A comprehensive review of the bids submitted for each project will be undertaken.

·             April 2009.  Portlands Energy Centre, a natural gas fired combined-cycle power plant near downtown Toronto, Ontario (“Portlands Energy Centre”) was fully commissioned, ahead of time and under budget.  Portlands Energy Centre, which is 50 per cent owned by TCPL, is able to provide 550 MW of electricity under a 20 year Accelerated Clean Air Supply contract with the Ontario Power Authority.

·             June 9, 2009.  Hydro-Québec Distribution notified the Régie the L’énergie that it would exercise its option to extend the suspension of all electricity generation from TCPL’s 550 MW Bécancour cogeneration power plant near Trois-Rivières, Québec (“Bécancour”) through 2010.  This followed on TCPL’s agreement with Hydro-Québec Distribution to temporarily suspend all electricity generation from Bécancour during 2009. TCPL will continue to receive payments under the agreement similar to those that would have been received under the normal course of operation.

·             July 2009.  Bruce Power and the Ontario Power Authority amended certain terms and conditions included in the Bruce Power Refurbishment Implementation Agreement.  The amendments are consistent with the intent of the agreement, originally signed in 2005, and recognize the significant changes in Ontario’s electricity market.  Under the original agreement, Bruce Power A L.P. (“Bruce A”) committed to refurbish and restart the currently idle Units 1 and 2, extend the operating life of Unit 3 and replace the steam generators on Unit 4.  An amendment in 2007 provided for a full refurbishment of Unit 4, which will extend the expected operating life of the unit.  This most recent amendment included amendments to the Bruce Power L.P. (“Bruce B”) floor price mechanism, the removal of a support payment cap for Bruce A, an amendment to the capital cost-sharing mechanism, and provision for deemed generation payments to Bruce Power at the contract prices under circumstances where generation from Bruce A and Bruce B is reduced due to system curtailments on the Independent Electricity System Operator controlled grid in Ontario.  The Bruce A Unit 1 and 2 refurbishment and restart project continues.  Unit 2 is expected to be restarted in mid-2011 with the Unit 1 restart to follow approximately four months later.  TCPL expects its share of the capital costs to complete the project to be approximately $2 billion.  Bruce Power continues to advance an initiative to further extend the operating lives of Units 3 and 4.  Unit 4 is now expected to continue to operate beyond 2018 and plans are in place to implement an extensive maintenance program that, if successful and approved by the Canadian Nuclear Safety Commission, would result in the life of Unit 3 being extended for a similar period of time.

·             August 2009.  TCPL began construction of the US$500 million Coolidge Generating Station (“Coolidge”), a 575 MW simple-cycle natural gas-fired peaking power generation station to be located 72 km (45 miles) southeast of Phoenix in Coolidge, Arizona.  The facility is expected to be placed in service in second quarter 2011.

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·             September 30, 2009.  The Ontario Power Authority advised TCPL that it was awarded a 20-year clean energy supply contract to build, own and operate the 900 MW Oakville Generating Station in Oakville, Ontario.  TCPL expects to invest approximately $1.2 billion in the natural gas fired combined cycle plant which is scheduled to be in service in first quarter 2014.  Commencement of construction of the project is dependent on receipt of permits and approvals from the municipal authority and on approval from the Ministry of Environment on impacts such as air quality and noise.

·             October 9, 2009.  Operations began at the Kibby Wind Power Project in northern Franklin County, Maine, with half of the project’s 44 wind turbines operational by October 30, 2009.  The second phase is under construction and is expected to be in service in third quarter 2010.  The Kibby Wind Power Project is expected to have the capacity to produce 132 MW.  Capital cost is expected to be approximately US$320 million.

·             Third quarter 2009.  Construction activity began on the 212 MW Gros-Morne and 58 MW Montagne-Sèche wind farms.  These are the fourth and fifth Québec–based wind farms of a wind energy project contracted by Hydro- Québec Distribution in the Gaspé Region of Québec (the “Cartier Wind Energy Project”), which is 62 per cent owned by TCPL.  The Montagne-Sèche project and phase one of the Gros-Morne project (101 MW) are expected to be operational by 2011.  Phase two of the Gros-Morne project (111 MW) is expected to be operational by 2012.

Regulatory Matters

·             April 13, 2009.  The United States Secretary of Commerce issued its decision denying the appeal filed by Broadwater Energy, LLC on the ruling by the New York State Department of State (“NYSDOS”) regarding the Broadwater liquefied natural gas (“LNG”) project (“Broadwater”).  A joint venture with Shell U.S. Gas & Power LLC, Broadwater is a proposed offshore LNG facility in Long Island Sound, New York, which received approval by FERC in March 2008. In April 2008, NYSDOS determined that construction and operation of the project would not be consistent with the state’s coastal zone policies.  Broadwater Energy, LLC filed the appeal on the decision of the NYSDOS on June 6, 2008, asking the Secretary of Commerce to override the NYSDOS decision on the basis that the project meets the criteria for approval under the Coastal Zone Management Act and applicable regulations.

2008

Energy Developments

·             January 2008. A milestone in the Bruce A Units 1 and 2 refurbishment and restart project was completed when the sixteenth and final new steam generator was installed.  This process was expected to result in a further increase in the total project cost to complete the Unit 1 and 2 restart. Project cost increases are subject to the capital cost-sharing mechanism under the agreement with the Ontario Power Authority, as amended in July 2009.  Bruce A Units 1 and 2 are expected to produce 1,500 MW when completed.

·             February 2008. The potential anchor LNG supplier for the Cacouna LNG project (“Cacouna”) terminal in Québec announced it would no longer be pursuing the development of its LNG supply as originally planned. Although Cacouna received its primary regulatory approvals, project development has been suspended until alternate LNG supply is acquired and the North American market for LNG grows.

·             April 2008.  A comprehensive review of costs to complete the Bruce A Units 1 and 2 refurbishment and restart project was completed.  Based on this assessment, the capital cost for the restart and refurbishment of Bruce A Units 1 and 2 was expected to be approximately $3.4 billion, up from an original 2005 cost estimate of $2.75 billion.  TCPL’s share was expected to be approximately $1.7 billion compared to an original estimate of $1.4 billion.

·             May 12, 2008.  TCPL announced that the Phoenix, Arizona based utility, Salt River Project Agricultural Improvement and Power District, signed a 20 year power purchase agreement to secure 100 per cent of the output from Coolidge.  In December 2008, the Arizona Corporation Commission granted a Certificate of Environmental Compatibility approving Coolidge.

·             July 9, 2008.  TCPL announced that the Kibby Wind Power Project received unanimous final development plan approval from Maine’s Land Use Regulation Commission.  Construction on the project began in July 2008.  Commissioning of the first phase occurred in October 2009.

·             August 26, 2008.  TCPL completed its acquisition of the 2,480 MW Ravenswood Generating Station (“Ravenswood”) located at Queen’s, New York for US$2.9 billion, subject to certain post-closing adjustments.  The acquisition was completed pursuant to a purchase agreement with KeySpan Corporation and certain subsidiaries.  The acquisition was financed through a combination of equity and term debt offerings, funds drawn on a newly established bridge loan facility and cash on hand (see “Financing Activities” below).

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·             November 22, 2008.  The Carleton wind farm, the third of five phases of the Cartier Wind Energy Project, went into service and is capable of generating 109 MW of power.

·             In fourth quarter 2008, Bruce Power completed a review of the end of life estimates for Units 3 and 4.  As a result of the review, Unit 3 was expected to be in commercial service until 2011, providing an additional two years of generation before refurbishment.  After the refurbishment, the end of life estimate for Unit 3 was to be extended to 2038.  The review also showed that Unit 4 was expected to remain in commercial service until 2016, providing seven years of generation before refurbishment after which the end of life estimate for Unit 4 was expected to be extended to 2042.

Regulatory Matters

·             January 11, 2008.  The FERC issued its FEIS for Broadwater.  The FEIS confirmed project need, supported the location of the project with acknowledgement of its target market and delivery goals, and found safety and security risks to be limited and acceptable.  The FEIS concluded that with adherence to federal and state permit requirements and regulations, Broadwater’s proposed mitigation measures and the FERC’s recommendations, the project would not result in a significant impact on the environment.

·             March 24, 2008.  FERC authorized the construction and operation of Broadwater, subject to the conditions reflected in the authorization.  On April 10, 2008, the NYSDOS determined that construction and operation of the project would not be consistent with the state’s coastal zone policies.  As a result of this unfavourable decision, TCPL wrote down $27 million after tax of costs for Broadwater that had been capitalized to March 31, 2008.  On June 6, 2008, Broadwater Energy, LLC filed an appeal with the United States Secretary of Commerce.

2007

Energy Developments

·             June 2007.  Following public hearings in 2006, the Québec government granted a provincial decree approving Cacouna.  Cacouna also received federal approvals pursuant to the Canadian Environmental Assessment Act.

·             September 2007.  Cacouna announced that it was delaying the planned in-service date for the regasification terminal from 2010 to 2012. This delay resulted from a need to assess impacts of permit conditions, to review the facility design in light of escalating costs and to align the schedule with potential LNG supply facilities.

·             November 2007.  The second phase of the Cartier Wind Energy Project, the 101 MW Anse-à-Valleau wind farm, was placed into service.  In addition, the Cartier Wind Energy Project began construction of a third project, the 109 MW Carleton wind farm.

Further information about developments in the Energy business can be found in the MD&A under the headings “TransCanada’s Strategy”, “Energy – Highlights” and “Energy – Opportunities and Developments”.

Financing Activities

2009

·             January 6, 2009.  TCPL entered into an underwriting agreement with a syndicate of underwriters led by Citigroup Global Markets Inc. and HSBC Securities (USA) Inc. under which the underwriters agreed to purchase from TCPL and sell to the public US$750 million and US$1.25 billion of Senior Unsecured Notes maturing on January 15, 2019 and January 15, 2039, respectively, and bearing interest at 7.125 per cent and 7.625 per cent, respectively.  The offering was completed on January 9, 2009.  The proceeds from this offering were used to partially fund TCPL’s capital projects, retire maturing debt obligations and for general corporate purposes.  These notes were issued by way of prospectus supplement under a US$3.0 billion debt base shelf prospectus filed on January 2, 2009.

·             February 17, 2009.  TCPL completed the issuance of $300 million and $400 million of Medium-Term Notes maturing on February 14, 2014 and February 17, 2039, respectively, and bearing interest at 5.05 per cent and 8.05 per cent, respectively.  The proceeds from these notes were used to fund the Alberta System and Canadian Mainline rate bases.  These notes were issued by way of pricing supplements under a $1.5 billion debt base shelf prospectus filed in March, 2007.

·             June 16, 2009.  TransCanada entered into an underwriting agreement with a syndicate of underwriters led by RBC Capital Markets, BMO Capital Markets and TD Securities Inc. under which the underwriters agreed to purchase from

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TransCanada 50,800,000 common shares of TransCanada (referred to in this section as “Common Shares”) and sell the Common Shares to the public at a purchase price of $31.50 per Common Share.  The underwriters were also granted an over-allotment option to purchase an additional 7,620,000 Common Shares at the same price.  The offering was completed on June 24, 2009 and, together with the full exercise of the over-allotment option by the underwriters, 58,420,000 Common Shares were issued resulting in gross proceeds to TransCanada of approximately $1.84 billion which were used to partially fund capital projects, including the acquisition of the remaining interests in the Keystone Oil Pipeline system, for general corporate purposes and to repay short-term indebtedness.  These shares were issued by way of prospectus supplement to a $3.0 billion base shelf prospectus dated July 2, 2008.

·             September 22, 2009.  TransCanada entered into an underwriting agreement with a syndicate of underwriters led by Scotia Capital Inc. and RBC Capital Markets, under which the underwriters agreed to purchase from TransCanada 22,000,000 cumulative redeemable first preferred shares, series 1 (“Series 1 Preferred Shares”) and sell the Series 1 Preferred Shares to the public at a purchase price of $25.00 per share.  The offering was completed on September 30, 2009 resulting in gross proceeds to TransCanada of $550 million which were used by TransCanada to partially fund capital projects, for general corporate purposes and to repay short-term indebtedness.  These shares were issued by way of prospectus supplement to a $3.0 billion base shelf prospectus dated September 21, 2009.

·             December 2009.  TransCanada PipeLine USA Ltd. established a US$1.0 billion committed, syndicated revolving credit facility maturing December 2012, with a one year term extension at the option of the borrower.  This facility is guaranteed by TCPL and was fully available at December 31, 2009.

2008

·             May 5, 2008.  TransCanada entered into an underwriting agreement with a syndicate of underwriters led by BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., and TD Securities Inc. under which the underwriters agreed to purchase from TransCanada 30,200,000 Common Shares and sell the Common Shares to the public at a purchase price of $36.50 per Common Share.  The underwriters were also granted an over-allotment option to purchase an additional 4,530,000 Common Shares at the same price.  The offering was completed on May 13, 2008 and together with the full exercise of the over-allotment option by the underwriters, 34,730,000 Common Shares were issued resulting in gross proceeds to TCPL of approximately $1.27 billion to be used to partially fund acquisitions and capital projects of TCPL including, amongst others, the acquisition of Ravenswood, the construction of the Keystone Oil Pipeline, and for general corporate purposes.  These Common Shares were issued by way of prospectus supplement under a $3.0 billion base shelf prospectus filed in January, 2007.

·             June 27, 2008.  TCPL executed an agreement with a syndicate of banks for a US$1.5 billion, committed, unsecured, one-year bridge loan facility which was extendible by the Company for an additional six month term.  On August 25, 2008, TCPL used US$255 million from this facility to fund a portion of the Ravenswood acquisition and cancelled the remainder of the commitment.  In February 2009, the US$255 million was repaid and the facility was cancelled.

·             August 6, 2008.  TCPL entered into an underwriting agreement with a syndicate of underwriters led by Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. under which the underwriters agreed to purchase from TCPL and sell to the public US$850 million and US$650 million of Senior Unsecured Notes maturing on August 15, 2018 and August 15, 2038, respectively, and bearing interest at 6.50 per cent and 7.25 per cent, respectively.  The offering was completed on August 11, 2008.  The proceeds from these notes were used to partially fund the Ravenswood acquisition and for general corporate purposes.  These notes were issued by way of prospectus supplement under a US$2.5 billion debt base shelf prospectus filed in September, 2007.

·             August 20, 2008.  TCPL completed the issuance of $500 million of Medium-Term Notes maturing in August 2013 and bearing interest at 5.05 per cent.  The proceeds from these notes were used to partially fund the Alberta System’s capital program and for general corporate purposes.  These notes were issued by way of a pricing supplement under a $1.5 billion debt base shelf prospectus filed in March, 2007.

·             November 17, 2008.  TransCanada entered into an underwriting agreement with a syndicate of underwriters led by RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., and TD Securities Inc. under which the underwriters agreed to purchase from TransCanada 30,500,000 Common Shares and sell the Common Shares to the public at a purchase price of $33.00 per Common Share.  The underwriters were also granted an over-allotment option to purchase an additional 4,575,000 Common Shares at the same price.  The offering was completed on November 25, 2008 and resulted in gross proceeds to TCPL of approximately $1 billion to be used by TCPL to partially fund its capital projects, including the Keystone Oil Pipeline, for general corporate purposes and to repay short-term indebtedness.  The syndicate of underwriters fully exercised the over-allotment option on December 5, 2008 for additional gross

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proceeds to TCPL of $151 million.  The Common Shares were issued by way of prospectus supplement under a $3.0 billion base shelf prospectus filed in July 2008.

·             November 2008.  Keystone U.S. established a US$1.0 billion committed, syndicated revolving credit facility, guaranteed by TCPL, maturing November 2010 but extendible to November 2011 at the option of the borrower.  The facility was fully available at December 31, 2009 and supports a commercial paper program dedicated to funding a portion of expenditures for Keystone U.S. and for Keystone U.S. general partnership purposes.

Further information about financing activities can be found in the MD&A under the headings “Short-Term Debt Financing Activities”, “2009 Long-Term Debt Financing Activities”, “2008 Long-Term Debt Financing Activities”, “2007 Long-Term Debt Financing Activities”, “2009 Equity Financing Activities”, “2008 Equity Financing Activities” and “2007 Equity Financing Activities”.

BUSINESS OF TCPL

TCPL is a leading North American energy infrastructure company focused on pipelines and energy.  At Year End, Pipelines accounted for approximately 53 per cent of revenues and 67 per cent of TCPL’s total assets and Energy accounted for approximately 47 per cent of revenues and 28 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, 2009 and 2008.

(1)          Exports include pipeline 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.

Pipelines Business

TCPL is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas pipelines, regulated gas storage facilities and projects related to oil pipelines.  TCPL’s network of wholly owned pipelines extends more than 60,000 km (37,282 miles), tapping into virtually all major gas supply basins in North America.

TCPL has substantial Canadian and U.S. natural gas pipeline and related holdings, and one oil pipeline project, including those listed below.  The following pipelines are owned 100 per cent by TCPL unless otherwise stated.

Canada

·             TCPL’s Canadian Mainline is a 14,101 km (8,762 mile) natural gas transmission system in Canada that extends from the Alberta/Saskatchewan border east to the Québec/Vermont border and connects with other natural gas pipelines in Canada and the U.S.

·             TCPL’s Alberta System is a natural gas transmission system in Alberta which gathers natural gas for use within the province and delivers it to provincial boundary points for connection with the Canadian Mainline and the Foothills System and with third party natural gas pipelines.  The 23,905 km (14,854 mile) system is one of the largest carriers of natural gas in North America.

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·             Keystone Oil Pipeline is a 3,456 km (2,147 mile) crude oil pipeline project that will initially transport crude oil from Hardisty, Alberta to U.S. Midwest markets at Wood River and Patoka, Illinois, and to Cushing, Oklahoma.  Commissioning of the segment to Wood River and Patoka began in late 2009 and commercial operation is expected to commence in mid-2010.  Commissioning of the segment to Cushing is expected to begin in late 2010 and operations expected to commence in first quarter 2011.  Pending regulatory approval, an expansion to the United States Gulf Coast is expected to be completed and in service in first quarter 2013, adding approximately 2,720 km (1,690 miles) of pipe to the system.  In August of 2009, TCPL became the sole owner of the Keystone Oil Pipeline system.

·             TCPL’s Foothills System is a 1,241 km (771 mile) natural gas transmission system in Western Canada which carries natural gas for export from central Alberta to the U.S. border to serve markets in the U.S. Midwest, Pacific Northwest, California and Nevada. Effective April 1, 2007, the B.C. System was integrated into the Foothills System.

·             TransCanada Pipeline Ventures LP owns a 161 km (100 mile) pipeline and related facilities that supply natural gas to the oilsands region of northern Alberta as well as a 27 km (17 mile) pipeline that supplies natural gas to a petrochemical complex at Joffre, Alberta.

·             TQM is 50 per cent owned by TCPL. TQM is a 572 km (355 mile) pipeline system that connects with the Canadian Mainline and transports natural gas from Montréal to Québec City in Québec, and connects with the Portland System. TQM is operated by TCPL.

United States

·             TCPL’s ANR System (“ANR System”) is a 17,000 km (10,563 mile) natural gas transmission system which transports natural gas from producing fields located primarily in Texas and Oklahoma on its southwest leg and in the Gulf of Mexico and Louisiana on its southeast leg.  The system extends to markets located mainly in Wisconsin, Michigan, Illinois, Ohio and Indiana. ANR’s natural gas pipeline also connects with other natural gas pipelines providing access to diverse sources of North American supply, including Western Canada, and the mid-continent and Rocky Mountain supply regions, and a variety of markets in the Midwestern and northeastern U.S.

·             Underground gas storage facilities owned and operated by ANR provide regulated gas storage services to customers on the ANR System and the Great Lakes System in upper Michigan.  In 2008, ANR completed its storage enhancement project and added 14 billion cubic feet (“Bcf”) of storage.  In total, the ANR business unit operates sixteen underground natural gas storage facilities throughout the State of Michigan with total natural gas storage capacity of 250 Bcf.

·             The GTN System (“GTN System”) is TCPL’s natural gas transmission system which extends 2,174 km (1,351 miles) and links the Foothills System and Rocky Mountain sourced natural gas with third party natural gas pipelines in Washington, Oregon and California, and with the Tuscarora Gas Transmission Company (“Tuscarora”) pipeline.

·             Bison pipeline is a proposed 487 km (303 mile) natural gas pipeline from the Powder River Basin in Wyoming connecting to the Northern Border Pipeline System in North Dakota.  The FERC issued a FEIS for Bison in December 2009 and the project is in the final stages of the regulatory approval process.  TCPL expects to begin construction in May 2010.  The Bison pipeline has shipping commitments for approximately 407 MMcf/d and is expected to be placed in-service in fourth quarter 2010.

·             The Great Lakes System is owned 53.6 per cent by TCPL and 46.4 per cent by TC PipeLines, LP. The 3,404 km (2,115 mile) Great Lakes System serves markets primarily in Central Canada and the Midwestern U.S.  TCPL operates the Great Lakes System and effectively owns 71.3 per cent of the system through its 53.6 per cent ownership interest and its indirect ownership, which it has through its 38.2 per cent interest in TC PipeLines, LP.

·             The Northern Border Pipeline System (“NBPL System”) is 50 per cent owned by TC PipeLines, LP and is a 2,250 km (1,398 mile) natural gas transmission system, which serves the U.S. Midwest. TCPL operates and effectively owns 19.1 per cent of the NBPL System through its 38.2 per cent interest in TC PipeLines, LP.

·             Tuscarora is 100 per cent owned by TC PipeLines, LP and has a 491 km (305 mile) pipeline system transporting natural gas from the GTN System at Malin, Oregon to Wadsworth, Nevada (the “Tuscarora System”) with delivery points in northeastern California and northwestern Nevada.  TCPL operates the Tuscarora System and effectively owns 38.2 per cent of the system through its 38.2 per cent interest in TC PipeLines, LP.

·             North Baja is 100 per cent owned by TC PipeLines, LP and is a natural gas transmission system which extends 129 km (80 miles) from Ehrenberg in southwestern Arizona to a point near Ogilby, California on the California/Mexico

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border and connects with a third party natural gas pipeline system in Mexico.  TCPL operates the North Baja system and effectively owns 38.2 per cent of the system through its 38.2 per cent interest in TC PipeLines, LP.

·             The Iroquois Gas Transmission System (“Iroquois System”) connects with the Canadian Mainline near Waddington, New York and delivers natural gas to customers in the northeastern U.S. TCPL has a 44.5 per cent ownership interest in this 666 km (414 mile) pipeline system.

·             The Portland System is a 474 km (295 mile) pipeline that connects with TQM near East Hereford, Québec and delivers natural gas to customers in the northeastern U.S. TCPL has a 61.7 per cent ownership interest in the Portland System and operates this pipeline.

·             TCPL holds a 38.2 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.  TC PipeLines, LP owns a 50 per cent interest in the NBPL System, 46.4 per cent in the Great Lakes System, 100 per cent of Tuscarora and 100 per cent of North Baja.

International

TCPL also has the following natural gas pipeline and related holdings in Mexico and South America:

·             TransGas is a 344 km (214 mile) natural gas pipeline system which runs from Mariquita in the central region of Colombia to Cali in the southwest of Colombia. TCPL holds a 46.5 per cent ownership interest in this pipeline.

·             Gas Pacifico is a 540 km (336 mile) natural gas pipeline extending from Loma de la Lata, Argentina to Concepción, Chile. INNERGY is an industrial natural gas marketing company based in Concepción that markets natural gas transported on Gas Pacifico.  TCPL holds a 30 per cent ownership interest both in Gas Pacifico and INNERGY.

·             Tamazunchale is a 130 km (81 mile) natural gas pipeline in east-central Mexico which extends from the facilities of Pemex Gas near Naranjos, Veracruz to an electricity generating station near Tamazunchale, San Luis Potosi.

·             The proposed Guadalajara Pipeline is under construction and when completed will extend approximately 305 km (190 miles) from Manzanillo on Mexico’s Pacific coast to Guadalajara.

Further information about TCPL’s pipeline holdings, developments and opportunities and significant regulatory developments which relate to pipelines can be found in the MD&A under the headings “Pipelines”, “Pipelines – Opportunities and Developments” and “Pipelines – Financial Analysis”.

Regulation of the Pipeline Business

Canada

CANADIAN MAINLINE, TQM, FOOTHILLS AND ALBERTA SYSTEMS

Under the terms of the National Energy Board Act (Canada), the Canadian Mainline, TQM, Foothills, and Alberta Systems (collectively, the “Systems”) are regulated by the NEB (the Alberta System became subject to federal jurisdiction on April 29, 2009 following NEB approval of an application by TransCanada).  The NEB sets tolls which provide TCPL the opportunity to recover projected costs of transporting natural gas, including the return on the average investment base for each of the Systems.  In addition, new facilities are approved by the NEB before construction begins and the NEB regulates the operations of each of the Systems.  Net earnings of the Systems may be affected by changes in investment base, the allowed return on equity, the level of deemed common equity and any incentive earnings.

KEYSTONE OIL PIPELINE

The NEB regulates the terms and conditions of service, including rates, and the physical operation of the Canadian portion of the Keystone Oil Pipeline.  NEB approval is also required for facility additions, such as the Canadian portion of the proposed Gulf Coast expansion project, which was sought through an application in 2009.  The NEB is expected to issue a decision in first quarter 2010.

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United States

TCPL’s wholly owned and partially owned U.S. pipelines, including the ANR System, the GTN System, the Great Lakes System, the Iroquois System, the Portland System, the NBPL System, North Baja and the Tuscarora System, are “natural gas companies” operating under the provisions of the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978, and are subject to the jurisdiction of the FERC.  The Natural Gas Act of 1938 grants the FERC authority over the construction and operation of pipelines and related facilities.  The FERC also has authority to regulate rates for natural gas transportation and interstate commerce.

The FERC also regulates the terms and conditions of service, including rates, on the U.S. portion of the Keystone Oil Pipeline. However, primary approvals for any facility additions to the Keystone Oil Pipeline are obtained from state agencies.

Energy Business

The Energy segment of TCPL’s business includes the acquisition, development, construction, ownership and operation of electrical power generation plants, the purchase and marketing of electricity, the provision of electricity account services to energy and industrial customers, the development, construction and ownership and operation of non-regulated natural gas storage in Alberta.

The electrical power generation plants and power supply that TCPL has an interest in, including those under development, in the aggregate, represent more than 11,700 MW of power generation capacity.  Power plants and power supply in Canada account for approximately 63 per cent of this total, and power plants in the U.S. account for the balance, being approximately 37 per cent.

TCPL owns and operates the following facilities:

·             Ravenswood, located in Queen’s, New York, is a 2,480 MW power plant that consists of multiple units employing steam turbine, combined cycle and combustion turbine technology.  Ravenswood has the capacity to serve approximately 21 per cent of New York City’s peak load.

·             TC Hydro, TCPL’s hydroelectric facilities located in New Hampshire, Vermont and Massachusetts on the Connecticut and Deerfield Rivers consists of 13 stations and associated dams and reservoirs with a total generating capacity of 583 MW.

·             Ocean State Power, a 560 MW natural gas-fired, combined-cycle facility in Burrillville, Rhode Island.

·             Bécancour, a 550 MW natural gas-fired cogeneration power plant located near Trois-Rivières, Québec. The entire power output is supplied to Hydro-Québec Distribution under a 20-year power purchase contract expiring in 2026.  Steam is also sold to an industrial customer for use in commercial processes.  Since 2008, electricity generation at the Bécancour power plant has been temporarily suspended due to an agreement entered into with Hydro-Québec.  Under this agreement, TCPL continues to receive payments similar to those that would have been received under the normal course of operation.

·             Natural gas-fired cogeneration plants in Alberta at Carseland (80 MW), Redwater (40 MW), Bear Creek (80 MW) and MacKay River (165 MW).

·             Grandview, a 90 MW natural gas-fired cogeneration power plant located on the site of the Irving Oil Limited oil refinery in Saint John, New Brunswick.  Irving Oil Limited is under a 20 year tolling arrangement that expires in 2025, to supply fuel for the plant and to contract 100 per cent of the plant’s heat and electricity output.

·             Cancarb, a 27 MW facility located in Medicine Hat, Alberta fuelled by waste heat from TCPL’s adjacent thermal carbon black facility.

·             Edson, an underground natural gas storage facility connected to the Alberta System near Edson, Alberta.  The facility’s central processing system is capable of maximum injection and withdrawal rates of 725 MMcf/d of natural gas. Edson has a working natural gas storage capacity of approximately 50 Bcf.

TCPL has the following long-term power purchase arrangements in place:

·             TCPL has the rights to 100 per cent of the generating capacity of the 560 MW Sundance A coal-fired power generation facility under a Power Purchase Agreement (“PPA”) that expires in 2017.  TCPL also has the rights to 50 per cent of the generating capacity of the 706 MW Sundance B facility under a PPA, which expires in 2020 (“Sundance”).  The Sundance facilities are located in south-central Alberta.

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·             The Sheerness facility, which consists of two 390 MW coal-fired thermal power generating units, is located in southeastern Alberta.  TCPL has the rights to 756 MW of generating capacity from the Sheerness PPA that expires in 2020 (“Sheerness”).

TCPL has interests in the following:

·             Two nuclear power generating stations, Bruce A, which is owned 48.8 per cent by TCPL and has four 750 MW reactors, of which two are currently operating and two are being refurbished, and Bruce B, which is owned 31.6 per cent by TCPL and has four operating reactors with a combined capacity of approximately 3,200 MW.  Bruce Power is two partnerships with generating facilities and offices located on 2,300 acres northwest of Toronto, Ontario on which are housed Bruce A and Bruce B.

·             A 60 per cent ownership in CrossAlta, which is a 68 Bcf underground natural gas storage facility connected to the Alberta System near Crossfield, Alberta.  The facility’s central processing system is capable of maximum injection and withdrawal rates of 550 MMcf/d of natural gas.

·             A 62 per cent interest in the Carleton (109 MW), Anse-à-Valleau (101 MW), and Baie-des-Sables (110 MW) wind farms, the first three phases of the Cartier Wind Energy Project, which commenced commercial operation in November 2008, November 2007 and November 2006, respectively.

·             The Portlands Energy Centre, a 550 MW, combined-cycle natural gas generation power plant located in Toronto, Ontario is 50 per cent owned by TCPL. The plant went into service in simple-cycle mode, capable of delivering 340 MW of electricity in the summer of 2008 and was fully commissioned in April of 2009.  This facility provides power under a 20 year Accelerated Clean Energy Supply contract with the Ontario Power Authority.

TCPL owns the following facilities which are under construction or development:

·             Oakville Generating Station, a proposed 900 MW natural gas fired combined cycle plant in Oakville, Ontario.  TCPL was awarded a 20-year clean energy supply contract to build, own and operate the Oakville Generating Station in September 2009.  TCPL expects to invest approximately $1.2 billion in the project which is scheduled to be in service in first quarter 2014.

·             The Cartier Wind Energy Project consists of five wind projects in the Gaspé region of Québec contracted by Hydro-Québec Distribution representing a total of 590 MW when all five wind projects are complete.  Three of the wind farms are constructed and in service as noted above, and two are currently under construction.  The two remaining projects are expected to be placed in service at the end of 2011 and 2012, respectively and have a generating capacity of 270 MW, subject to the necessary approvals.  Cartier Wind is 62 per cent owned by TCPL.  All of the power produced by Cartier Wind Energy Project is sold to Hydro-Québec Distribution under a 20-year power purchase agreement.  In fourth quarter 2009, the proposed 150 MW Les Méchins wind farm project was cancelled due to unavailability of cost-effective wind turbines and difficulty reaching acceptable agreements with private landowners.  This decision has no impact on the other Cartier Wind Energy projects.

·             A 683 MW natural gas-fired power plant near the town of Halton Hills, Ontario is under construction and is expected to be placed in service in the third quarter of 2010.  All of the power produced by the facility is contracted to be sold to the Ontario Power Authority under a 20-year clean energy supply contract.

·             The Coolidge generating station is a simple-cycle, natural gas-fired peaking power generation station under development in Coolidge, Arizona.  Based on optimal operating conditions, TCPL expects an electrical output of approximately 575 MW from this facility, designed to provide a quick response to peak power demands.  The project has received its required permits, construction commenced in August 2009 and the project is expected to be placed in service in second quarter 2011.  The power output will be supplied to the Phoenix, Arizona based Salt River Project Agricultural Improvement and Power District under a 20-year power purchase contract.

·             The 132 MW Kibby wind power project is under construction and is planned to include 44 turbines located in Kibby and Skinner townships in Maine.  Construction began in July 2008 and commissioning of the first phase occurred in October 2009 with half the turbines operational and a generating capacity of 66 MW, and the second phase which consists of the remaining 22 turbines is expected to go into service in 2010 with a generating capacity of 66 MW.

Further information about TCPL’s energy holdings and significant developments and opportunities relating to energy can be found in the MD&A under the headings “Energy”, “Energy – Highlights”, “Energy –Financial Analysis”, and “Energy – Opportunities and Developments”.

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GENERAL

Employees

At Year End, TCPL had approximately 4,165 full time active employees, substantially all of whom were employed in Canada and the U.S., as set forth in the following table.

Social and Environmental Policies

Health, safety and environment (“HS&E”) are top priorities in all of TCPL’s operations and activities in these areas are guided by the Company’s HS&E Commitment Statement (the “Commitment Statement”).  The Commitment Statement outlines guiding principles for a safe and healthy environment for TCPL’s employees, contractors and the public, and for TCPL’s commitment to protect the environment.  All employees are held responsible and accountable for HS&E performance.  TCPL is committed to being an industry leader in conducting its business so that it meets or exceeds all applicable laws and regulations, and minimizes risk to people and the environment.  TCPL is committed to tracking and improving its HS&E performance, and to promoting safety on and off the job, in the belief that all occupational injuries and illnesses are preventable.  TCPL endeavors to do business with companies and contractors that share its perspective on HS&E performance, and to influence them to improve their collective performance.  TCPL is committed to respecting the diverse environments and cultures in which it operates, and to supporting open communication with the public, policy makers, scientists and public interest groups.

TCPL is committed to ensuring compliance with its internal policies and legislated requirements.  The HS&E Committee of TCPL’s board of directors (the “Board”) monitors compliance with the Company’s HS&E corporate policy through regular reporting.  TCPL’s HS&E management system is modeled on the International Organization for Standardization’s (“ISO”) standard for environmental management systems, ISO 14001, and focuses resources on the areas of significant risk to the organization’s HS&E business activities. Management is informed regularly of all important HS&E operational issues and initiatives through formal reporting processes.  TCPL’s HS&E management system and performance are assessed by an independent outside firm every three years.  The most recent assessment occurred in December 2009 and did not identify any material issues.  The HS&E management system also is subject to ongoing internal review to ensure that it remains effective as circumstances change.

In 2009, employee and contractor health and safety performance continued to be a top priority.  TCPL’s objective is a health and safety performance consistent with top quartile companies in its sectors.  Overall, the safety frequency rates in 2009 continued to be better than most industry benchmarks.

The safety and integrity of TCPL’s existing and newly developed energy infrastructure also continued to be top priorities.  All new assets are designed, constructed and commissioned with full consideration given to safety and integrity, and are not brought into service until all necessary requirements are satisfied.  The Company expects to spend approximately $181 million in 2010 for pipeline integrity on its wholly owned pipelines, which is $10 million higher than in 2009 primarily due to increased levels of in-line pipeline inspection on all systems.  Under the approved regulatory models in Canada, pipeline integrity expenditures on NEB regulated pipelines are treated on a flow-through basis and, as a result, have no impact on TCPL’s earnings.  Under the Keystone Oil Pipeline contracts, pipeline integrity expenditures are recovered through the tolling mechanism and, as a result, have no impact on TCPL’s earnings.  Expenditures for the GTN System may also be recovered through a cost recovery mechanism in its rates.  TCPL’s pipeline safety record in 2009 continued to be above industry benchmarks.  TCPL experienced three pipeline breaks in 2009.  The first occurred in a remote part of northern Alberta.  The other two occurred in rural parts of northern Ontario.  The breaks resulted in minimal impact with no injuries and only minor property damage in one of the incidents.  All three incidents were subject to a Level 3 investigation by the Transportation Safety Board of Canada.  Spending associated with public safety on the Energy assets is focused primarily on TCPL’s hydro dams and associated equipment, and is consistent with previous years.

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Environmental Protection

TCPL’s facilities are subject to various federal, provincial, state and local statutes and regulations regarding environmental quality and pollution control.  TCPL has ongoing inspection programs designed to keep all of its facilities in compliance with environmental requirements and TCPL is confident that its systems are in material compliance with the applicable requirements.

In 2009, TCPL conducted environmental risk assessments and remediation work, as well as various retirement, reclamation and restoration activities on its Canadian and U.S. facilities.  At December 31, 2009, TCPL had recorded liabilities of approximately $91 million (2008 - $86 million) for remediation obligations and compliance costs associated with greenhouse gas (“GHG”) legislation, including contingencies.  The Company believes it has considered all necessary contingencies and established appropriate reserves for environmental liabilities, however, there is the risk that unforeseen matters may arise requiring the Company to set aside additional amounts.

TCPL is not aware of any material outstanding orders, claims or lawsuits against the Company in relation to the release or discharge of any material into the environment or in connection with environmental protection.

North American climate change policy continues to evolve at regional and national levels. In 2009, TCPL owned assets in three Canadian provinces where regulations exist to address industrial GHG emissions.  TCPL has put in place procedures to address these regulations.

In Alberta, under the Specified Gas Emitters Regulation, industrial facilities are required to reduce GHG emissions intensities by 12 per cent effective July 2007.  TCPL’s Alberta-based facilities are subject to this regulation, as are the Sundance and Sheerness coal-fired power facilities with which TCPL has power purchase agreements.  As an alternative to reducing emissions intensities, compliance can be achieved through the retirement of offsets or payments to a technology fund at a cost of $15 per tonne of carbon dioxide (“CO2”) emissions in excess of the mandated reduction.  A program is in place to manage the compliance costs incurred by these assets as a result of regulation. Compliance costs on the Alberta System are recovered through tolls paid by customers.  Recovery of compliance costs at TCPL’s power generation facilities in Alberta is dependent ultimately on market prices for electricity.  TCPL has estimated and recorded costs of $17 million for 2009.  These costs will be finalized when compliance reports are submitted in March 2010.

The hydrocarbon royalty in Québec is collected by the natural gas distributor on behalf of the Québec government through a green fund contribution charge on gas consumed. In 2009, the cost pertaining to the Bécancour facility arising from the hydrocarbon royalty was less than $1 million as a result of an agreement between TransCanada and Hydro-Québec to temporarily suspend the facility’s power generation. The cost is expected to increase substantially when the plant returns to service.

British Columbia’s carbon tax, which came into effect in mid-2008, applies to CO2 emissions arising from fossil fuel combustion. Compliance costs for fuel combustion at the Company’s compressor and meter stations in British Columbia are recovered through tolls paid by customers. Costs related to the carbon tax in 2009 were $3 million.  The cost per tonne of CO2 was $15 in 2009 and will increase to $20 per tonne and $25 per tonne in 2010 and 2011, respectively.

Northeastern U.S. states that are members of the Regional Greenhouse Gas Initiative (“RGGI”) implemented a CO2 cap and trade program for electricity generators effective January 1, 2009.  Under the RGGI, both the Ravenswood and Ocean State Power generation facilities will be required to submit allowances by December 31, 2011.  TCPL participated in the quarterly auctions of allowances for the Ravenswood and Ocean State power generation facilities and incurred related costs of $8 million in 2009.  These costs were generally recovered through the power market and the net impact on TCPL was not significant.

RISK FACTORS

Environmental Risk Factors

Environmental risks from TCPL’s operating facilities typically include: air emissions, such as nitrogen oxides, particulate matter and greenhouse gases; potential impacts on land, including land reclamation or restoration following construction; the use, storage or release of chemicals or hydrocarbons; the generation, handling and disposal of wastes and hazardous wastes; and water impacts such as uncontrolled water discharge.  Environmental controls including physical design, programs, procedures and processes are in place to effectively manage these risks and TCPL believes it has considered all necessary contingencies and established appropriate reserves for environmental liabilities.  However, there is the risk that unforeseen matters may arise requiring TCPL to set aside additional monies.

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As mentioned above, TCPL’s operations are subject to various environmental laws and regulations that establish compliance and remediation obligations.  Compliance obligations can result in significant costs associated with installing and maintaining pollution controls, fines and penalties resulting from any failure to comply, and potential limitations on operations.  Remediation obligations can result in significant costs associated with the investigation and remediation of contaminated properties, some of which have been designated as Superfund sites by the United States Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, and with damage claims arising out of the contamination of properties.  It is not possible for TCPL to estimate the amount and timing of all future expenditures related to environmental matters due to:

·             uncertainties in estimating pollution control and clean up costs, including at sites where only preliminary site investigation or agreements have been completed;

·             the potential discovery of new sites or additional information at existing sites;

·             the uncertainty in quantifying liability under environmental laws that impose joint and several liability on all potentially responsible parties;

·             the evolving nature of  environmental laws and regulations, including the interpretation and enforcement thereof; and

·             the potential for litigation on existing or discontinued assets.

In addition to those climate change policies already in force and which are described above under the heading “Environmental Protection”, there are also several federal (Canada and U.S.), regional and provincial initiatives currently in development.  While recent political and economic events may significantly affect the scope and timing of new measures that are put in place, TCPL anticipates that most of the Company’s facilities in Canada and the United States are or will be captured under federal and/or regional climate change regulations to manage industrial GHG emissions.  Certain initiatives are outlined below.

The Canadian government has continued to express interest in pursuing a harmonized continental climate change strategy.  In January 2010, Environment Canada listed a revised target to the United Nations Framework Convention on Climate Change as part of its submission for the Copenhagen Accord.  The submitted target represents a 17 per cent GHG emissions reduction by 2020 relative to 2005 levels. The submission states that Canada will align with the final economy-wide emissions targets of the United States in enacted legislation.  TCPL expects that pipeline and power generation facility emissions will be subject to the reduction targets for industrial emitters.

Climate change is a strategic issue for the United States government and federal policy to manage domestic GHG emissions continues to be a priority.  The Environmental Protection Agency has released an endangerment finding regarding GHG emissions under the Clean Air Act.  This finding was to determine whether the six types of GHGs in the atmosphere threaten the health and welfare of current and future generations.  The United States House passed a climate bill in June and the Senate is deliberating on a series of climate bills.

At a regional level, TCPL has assets located in provinces where members of the Western Climate Initiative (WCI) have drafted regulations that apply to industrial GHG emitters.  The Canadian WCI members include B.C., Manitoba, Ontario and Québec. The draft climate change strategies are expected to come into effect in 2012 and are expected to affect TCPL’s pipeline and power facilities.  The details of how these provincial programs will align with the Canadian government’s climate change policies remain uncertain.

Seven western U.S. states, along with the four Canadian provinces discussed above, are focused on the implementation of a cap and trade program under the WCI.  Members of the WCI have set a GHG emission target of 15 per cent below 2005 levels by 2020. California, a WCI founding member, has released draft cap and trade regulations that, if enacted, are anticipated to have an impact on the Company’s pipeline assets in the state.  The financial implications are not expected to be material. Under the current form of draft regulations in Washington and Oregon it is expected that there will not be a significant cost of compliance in these states.  TCPL will continue to monitor these developments.

Participants in the Midwestern Greenhouse Gas Reduction Accord, which involves six U.S. states and the province of Manitoba, are developing a regional strategy for reducing members’ GHG emissions that will include a multi-sector cap and trade mechanism.  Draft recommendations have been released but as yet not formally endorsed by participant states and Manitoba.

TCPL monitors climate change policy developments and, when warranted, participates in policy discussions in jurisdictions where the Company has operations.  The Company is also continuing its programs to manage GHG emissions from its facilities and to evaluate new processes and technologies that result in improved efficiencies and lower GHG emission rates.

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Other Risk Factors

A discussion of the Company’s risk factors can be found in the MD&A under the headings “Pipelines - Opportunities and Developments”, “Pipelines - Business Risks”, “Pipelines – Outlook”, “Energy - Opportunities and Developments”, “Energy - Business Risks”, “Energy – Outlook” and “Risk Management and Financial Instruments”.

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 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 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 currently restrict or alter TCPL’s ability to declare or pay dividends.

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 dividends declared per share during the past three completed financial years are set forth in the following table.

(1)          TCPL dividends on its common shares are declared in an amount equal to the aggregate cash dividend paid by TransCanada to its public shareholders. 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 649,552,723 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 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 dividends as set out above under “Dividends”.

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 of 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.

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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 approval of the holders of the first preferred shares as a class.  Any such approval 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 66 2/3 per cent of the first preferred shares represented and voted at a meeting or adjourned meeting of such holders.

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 table sets out the issuances by TCPL of senior unsecured notes, medium term unsecured note debentures and junior subordinated notes with terms to maturity in excess of one year, during the 12 months ended December 31, 2009.

(1)          These notes were issued under the same prospectus supplement.  Notes maturing in 2019 were issued at 99.977% and notes maturing in 2039 were issued at 99.148%.

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 those outstanding classes of securities of TCPL which have been rated by DBRS Limited (“DBRS”), Moody’s Investors Service, Inc. (“Moody’s”) and Standard and Poor’s (“S&P”):

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.

DBRS Limited (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 in the third highest of ten rating categories and indicates satisfactory credit quality.  The overall strength and outlook for key liquidity, debt and profitability ratios 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 rating assigned to TCPL’s senior unsecured debt is in 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,

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but the degree of strength is less than that of AA rated securities.  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 BBB (high) rating assigned to junior subordinated notes is in the fourth highest of the ten categories for long-term debt.  Long-term debt rated BBB is of adequate credit quality.  Protection of interest and principal is considered acceptable but there may be other adverse conditions present which reduce the strength of the entity and its rated securities.  The Pfd-2 (low) rating assigned to TCPL’s and TransCanada’s preferred shares is in 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 Investors Service, Inc. (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 A3 rating assigned to TCPL’s senior unsecured debt is 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 Baa 1 and Baa2 ratings assigned to TCPL’s junior subordinated debt and preferred shares, respectively, are in the fourth highest of nine rating categories for long-term obligations, with the junior subordinated debt ranking slightly higher within the Baa rating category with a modifier of 1 as opposed to the modifier of 2 on the preferred shares.  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- rating assigned to TCPL’s senior unsecured debt is in 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 slightly more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories.  The BBB and P-2 ratings assigned to TCPL’s junior subordinated notes and TCPL’s and TransCanada’s preferred shares 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.

MARKET FOR SECURITIES

TransCanada holds all of the common shares of TCPL and these are not listed on a public market. During 2009, 51,536,066 common shares of TCPL were issued to TransCanada as set out in the following table:

TransCanada’s common shares are listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”). TransCanada’s Series 1 Preferred Shares have been listed for trading on the TSX since September 30, 2009.  The following tables set forth the reported monthly high, low, and month-end closing trading prices and monthly trading volumes of the common shares of TransCanada on the TSX and the NYSE and the Series 1 Preferred Shares on the TSX for the period indicated:

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Common Shares

Series 1 Preferred Shares

In addition, TCPL’s Cumulative Redeemable First Preferred Shares, Series U (the “Series U Preferred Shares”) and Series Y (the “Series Y Preferred Shares”) are listed on the TSX.  The following table sets forth the reported monthly high and low trading prices and monthly trading volumes of the Series U Preferred Shares and the Series Y Preferred Shares.

Series U Preferred Shares and Series Y Preferred Shares

DIRECTORS AND OFFICERS

As of February 22, 2010, the directors and officers of TransCanada as a group beneficially owned, or exercised control or direction, directly or indirectly, over an aggregate of 504,537 Common Shares of TransCanada.  This constitutes less than one per cent of TransCanada’s Common Shares.  TransCanada collects this information from its directors and officers but otherwise has no direct knowledge of individual holdings of its securities.

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Directors

Set forth below are the names of the thirteen directors who served on the Board at Year End, together with their jurisdictions of residence, all positions and offices held by them with TCPL 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 director of TCPL. Positions and offices held with TransCanada are also held by such person at TCPL.  Each director holds office until the next annual meeting or until his or her successor is earlier elected or appointed.

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(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 U.S. on March 24, 2000.

(2)   Canwest Global Communications Corp. (“Canwest”) voluntarily entered into, and successfully obtained an Order from the Ontario Superior Court of Justice (Commercial Division) commencing proceedings under the Companies’ Creditors Arrangement Act on October 6, 2009.  Following the filing, Canwest shares were de-listed from trading on the TSX and now trade on the TSX Venture Exchange.

(3)   Nortel Networks Limited is the principal operating subsidiary of Nortel Networks Corporation (collectively referred to as “Nortel”).  Mr. MacNaughton became a director of Nortel on June 29, 2005.  Nortel was subject to a management cease trade order on April 10, 2006 issued by the Ontario Securities Commission (“OSC”) and other provincial securities regulators.  The cease trade order related to a delay in filing certain of Nortel’s 2005 financial statements.  The order was revoked by the OSC on June 8, 2006 and by the other provincial securities regulators very shortly thereafter.  On January 14, 2009, Nortel, and certain of Nortel’s other Canadian subsidiaries filed for creditor protection under the Companies’ Creditors Arrangement Act (Canada).

(4)   Mr. O’Brien was a director of Air Canada in April 2003 when Air Canada filed for protection under the Companies’ Creditors Arrangement Act (Canada) and applicable bankruptcy protection statutes in the U.S.  Mr. O’Brien resigned as a director of Air Canada on November 26, 2003.

(5)   Mr. Stephens previously served on the Board from 2000 to 2005.

Board Committees

TCPL has four committees of the Board: the Audit Committee, the Governance Committee, the Health, Safety and Environment Committee and the Human Resources Committee.  The voting members of each of these committees, as of Year End, are identified below:

The charters of the Audit Committee, 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 located at www.transcanada.com.  Information about the audit committee can be found in this AIF under the heading “Audit Committee”.

Further information about the Board committees and corporate governance can also be found on TransCanada’s website.

Officers

All of the executive officers and corporate officers of TCPL reside in Calgary, Alberta, Canada.  Current positions and offices held with TCPL are also held by such person at TransCanada.  As of the date hereof, the officers of TCPL, their present positions within TCPL and their principal occupations during the five preceding years are as follows:

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Executive Officers

Corporate Officers

Conflicts of Interest

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. Although some of the directors sit on boards or may be otherwise associated with companies that ship natural gas on TCPL’s pipeline systems, TCPL, as a common carrier in Canada, cannot, under its tariff, deny transportation service to a credit worthy shipper.  Further, due to the specialized nature of the industry, TCPL believes that it is important for its Board to be composed of qualified and knowledgeable directors, so some of them must come from the oil and gas producer and shipper community; the Governance Committee monitors relationships among directors to ensure that business associations do not affect the Board’s performance.  In a circumstance where a director declares an interest in any material contract or material transaction being considered at a meeting, the director generally absents himself or herself from the meeting during the consideration of the matter, and does not vote on the matter.

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 and of the SEC applicable to foreign issuers, and those mandated by the U.S. Sarbanes Oxley Act of 2002.  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 our 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 National Instrument 52-110 pertaining to audit committees; National Policy 58-201, Corporate Governance Guidelines; and National Instrument 58-101, Disclosure of Corporate Governance Practices.  Further information about TCPL’s corporate governance can be found on TransCanada’s website at www.transcanada.com under the heading “Corporate Governance” or at Schedule “B” to this AIF.

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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 Charter of the Audit Committee can be found in Schedule “C” of this AIF and on TransCanada’s website under the Corporate Governance - Board Committees page, at www.transcanada.com.

Relevant Education and Experience of Members

The members of the Audit Committee at Year End were Kevin E. Benson (Chair), Derek H. Burney, E. Linn Draper, Paul L. Joskow, John A. MacNaughton and D. Michael G. Stewart.

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. Benson 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, 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:

Kevin E. Benson

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 was the President and Chief Executive Officer of Laidlaw International, Inc. until October, 2007.  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 and on the audit committees of certain of those boards.

Derek H. Burney

Mr. Burney earned a Bachelor of Arts (Honours) and Master of Arts from Queen’s University.  He is currently a senior strategic advisor at Ogilvy Renault LLP.  Mr. Burney previously served as President and Chief Executive Officer of CAE Inc. and as Chairman and Chief Executive Officer of Bell Canada International Inc. Mr. Burney was the lead director at Shell Canada Limited until May 2007 and is the Chairman of Canwest Global Communications Corp.  He has served on one other organization’s audit committee.

E. Linn Draper

Dr. Draper holds a Bachelor of Science in Chemical Engineering from Rice University and a Ph.D. in Nuclear Science and Engineering from Cornell University.  Dr. Draper was Chairman, President and Chief Executive Officer of American Electric Power Co., Inc. until 2004.  He previously served as Chairman, President and Chief Executive Officer of Gulf States Utilities Company.  Dr. Draper has served and continues to serve on several other public company boards.

Paul L. Joskow

Mr. Joskow earned a Bachelor of Arts with Distinction in Economics from Cornell University, a Masters of Philosophy in Economics from Yale University, and a Ph.D. in Economics from Yale University.  He is currently the President of the Alfred P. Sloan Foundation and on leave from his position as a Professor of Economics and Management, MIT.  He has served on the boards of several public companies and other organizations and on the audit committees of certain of those boards.

John A. MacNaughton

Mr. MacNaughton earned a Bachelor of Arts in Economics from the University of Western Ontario. Mr. MacNaughton is currently the Chairman of the Business Development Bank of Canada and of CNSX Markets Inc. (formerly Canadian Trading and Quotation System Inc.) In prior years, he has held several executive positions including founding President and Chief Executive Officer of the Canadian Pension Plan Investment Board and President of Nesbitt Burns Inc. He has served on the audit committee of other public companies.

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D. Michael G. Stewart

Mr. Stewart earned a Bachelor of Science (Honours) in Geological Science from Queen’s University.  Mr. Stewart has served and continues to serve on the boards of several public companies and other organizations and on the audit committees of certain of those boards.  He has been active in the Canadian energy industry for over 36 years.

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 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 to arise 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-minimus exemptions.  All non-audit services have been pre-approved by the Audit Committee in accordance with the pre-approval policy described above.

External Auditor Service Fees

The following table provides information about the fees paid by the Company to KPMG LLP, the external auditor of the TransCanada group of companies, for professional services rendered for the 2009 and 2008 fiscal years.

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, or former executive officer or director of TCPL or its subsidiaries, no proposed nominee for election as a director of TCPL, or any associate of any such director, executive officer or proposed nominee has been indebted to TCPL or 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.

SECURITIES OWNED BY DIRECTORS

The following table sets out the number of each class of securities of TCPL 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 22, 2010.

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(1)          The information as to shares beneficially owned or over which control or direction is exercised, not being within the knowledge of TCPL, 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 TCPL, its subsidiaries and affiliates, the percentage of outstanding shares beneficially owned by any one director or nominee or by all directors and officers of TCPL 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.

(3)          The shares listed include 3,500 shares held by Mr. Hawkins’ wife.

(4)          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 is described elsewhere in this AIF. Directors as such do not participate in the Stock Option Plan. Mr. Kvisle, as an employee of TCPL, has the right to acquire 1,025,847 Common Shares under vested stock options, which amount is included in this column.

(5)          Mr. Kvisle is an employee of TCPL and participates is the ESU program; he does not participate in the DSU program.

(6)          The shares listed include 518 shares held by Mr. Stewart’s wife.

COMPENSATION OF DIRECTORS

Unless as otherwise defined in the following sections, all capitalized terms used from herein shall have the same meaning ascribed to them in TransCanada’s Management Proxy Circular (the “Proxy Circular”), dated February 22, 2010.

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 and receivables from certain of TransCanada’s subsidiaries, 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.

TCPL’s director compensation practices are designed to reflect the size and complexity of TCPL and to reinforce the emphasis we place on shareholder value by linking a significant portion of directors’ compensation to the value of common shares.  As a result, directors’ compensation consists of annual retainers and meeting fees paid in cash and in equity-based compensation known as deferred share units (“DSUs”).

The Governance Committee assesses the market competitiveness of our director compensation on an annual basis against publicly traded autonomous Canadian companies in the Comparator Group (as defined under the heading “Compensation Discussion and Analysis”) and a general industry sample of Canadian companies, using an analysis provided by an outside consultant.  Its goal is to provide total compensation to directors that is generally targeted at the median of our peers in both level and form in order to attract and retain qualified individuals.  This goal is reflected in the current compensation paid to directors.  The compensation philosophy for directors’ compensation is different than that for the executive officers discussed under the heading “Compensation Discussion and Analysis” in that it is not directly based on the performance of the Company.

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DIRECTOR COMPENSATION TABLE

The following table sets forth the total compensation paid by TCPL to directors in 2009.

(1)          Includes all annual Board and committee retainers and meeting fees paid in cash.

(2)          These amounts reflect the portion of the Board retainer ($72,000) and the Board Chair retainer ($180,000) that is required to be paid in DSUs.  Each director may choose to receive all or some of the balance of their fees in DSUs and in such event, these amounts have been included in this column, “Fees Earned”.  Directors may also be granted share-based awards in the form of DSUs as additional directors’ compensation under the DSU Plan.  There were no DSUs awarded to directors in separate grants in 2009.

(3)          The Chair was reimbursed for certain office and other expenses of approximately $29,007 in 2009.

RETAINERS AND FEES PAID TO DIRECTORS

Annual board and committee retainers are paid to each director who is not an employee of TCPL in quarterly installments, in arrears, and are pro-rated from the date of the director’s appointment to the Board and the relevant committees.  Each committee chair is entitled to claim a per diem for time spent on committee activities outside of the committee meetings.  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.  The retainers and fees paid to non-employee directors in 2009 are set forth in the following table. Directors who are U.S. residents are paid the same amounts as outlined below in U.S. dollars.  There were no changes to directors’ fees in 2009.

(1)          The Chair is paid only the Board Chair retainer fee, the Board Chair meeting fee and the travel fee.  The Chair does not receive any other retainers or meeting fees.

(2)          The $180,000 portion of the Board Chair retainer paid in DSUs and the $72,000 portion of the Board retainer paid in DSUs are equal to an aggregate of 5,537 DSUs and 2,214 DSUs, respectively, which were granted quarterly, in arrears, based on the closing price of the common shares of TransCanada at the end of each quarter in 2009 of $29.83, $31.32, $33.37 and $36.19, respectively.

Directors are entitled to direct all or a portion of their cash retainers, meeting fees and travel fees to be paid in DSUs.  In 2009, Mr. Benson, Mr. Burney, Dr. Draper and Mr. Hawkins directed all of their retainers, meeting fees and travel fees to be paid in DSUs. Ms. Gauthier directed her Committee retainers, Committee meeting fees and travel fees to be paid in DSUs.  Mr. MacNaughton directed his Board and Committee retainers, Board meeting fees and travel fees to be paid in DSUs.  Mr. O’Brien directed his Board retainers to be paid in DSUs.  In addition, Mr. Jackson directed the cash portion of his Chair retainer as well as his Board

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Chair meeting fee and travel fees to be paid in DSUs. For further information on the plan for DSUs, see the description under the heading “Share Unit Plan for Non-Employee Directors” below.

2009 Retainers and Fees

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 2009 as at the date of the grant, unless otherwise stated. Mr. Kvisle, as an employee of TCPL, receives no cash fees or DSUs as a director.