RNS Number:0979S
TransCanada Pipelines Ld
01 March 2007
PART 5
96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Investment in Foreign Operations
At December 31, 2006 and 2005, the Company had net investments in
self-sustaining foreign operations with a U.S. dollar functional currency which
created an exposure to changes in exchange rates. The Company uses U.S. dollar
denominated debt and derivatives to hedge this exposure on an after-tax basis.
The fair value for derivatives used to manage the exposure is shown in the table
below.
2006 2005
Asset/(Liability) Accounting Fair Value Notional Fair Value Notional
December 31 (millions of dollars) Treatment or or
Principal Principal
Amount Amount
U.S. dollar cross-currency swaps Hedge 58 U.S. 400 119 U.S. 450
(maturing 2007 to 2013)
U.S. dollar forward foreign exchange Hedge (7 ) U.S. 390 5 U.S. 525
contracts
(maturing 2007)
U.S. dollar options Hedge (6 ) U.S. 500 - U.S. 60
(maturing 2007)
Reconciliation of Foreign Exchange Adjustment
December 31 (millions of dollars) 2006 2005
Balance at January 1 (loss) (90 ) (71 )
Translation gains/(losses) on foreign currency denominated net 8 (21 )
assets(1)
(Losses)/gains on derivatives (9 ) 23
Income taxes 1 (21 )
Balance at December 31 (loss) (90 ) (90 )
(1)
The amount for 2006 includes gains of $6 million (2005 - $80 million)
related to foreign currency denominated debt designated as a hedge.
Foreign Exchange and Interest Rate Management Activity
The Company manages the foreign exchange and interest rate risks related to its
U.S. dollar denominated debt and transactions and interest rate exposures of the
Canadian Mainline, the Alberta System and the BC System through the use of
foreign currency and interest rate derivatives. Certain of the realized gains
and losses on these derivatives are shared with shippers on predetermined terms.
The details of the foreign exchange and interest rate derivatives are shown in
the table below.
2006 2005
Asset/(Liability) Accounting Fair Notional Fair Notional
December 31 (millions of dollars) Treatment Value or Value or
Principal Principal
Amount Amount
Foreign Exchange
Cross-currency and interest-rate Hedge (32 ) 136/U.S. 100 - -
swaps
(maturing 2013)
(maturing 2010 to 2012) Non-hedge (52 ) 227/U.S. 157 (86 ) 363/U.S. 257
(84 ) (86 )
Interest Rate
Interest rate swaps
Canadian dollars
(maturing 2007 to 2008) Hedge 2 100 4 100
(maturing 2007 to 2009) Non-hedge 5 300 7 374
7 11
U.S. dollars
(maturing 2007 to 2009) Non-hedge 4 U.S. 100 5 U.S. 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 97
The Company manages the foreign exchange and interest rate exposures of its
other businesses through the use of foreign currency and interest rate
derivatives. The details of these foreign currency and interest rate derivatives
are shown in the table below.
2006 2005
Asset/(Liability) Accounting Fair Notional Fair Notional
December 31 (millions of dollars) Treatment Value or Value or
Principal Principal
Amount Amount
Foreign Exchange
Options (maturing 2007) Non-hedge - U.S. 95 1 U.S. 195
Forward foreign exchange contracts
Hedge - - 2 U.S. 29
(maturing 2007) Non-hedge (3 ) U.S. 250 1 U.S. 208
(3 ) 4
Interest Rate
Options (maturing 2007) Non-hedge - U.S. 50 - -
Interest rate swaps
Canadian dollar
(maturing 2007 to 2011) Hedge - 150 1 100
(maturing 2009 to 2011) Non-hedge - 164 1 423
- 2
U.S. dollars
(maturing 2011 to 2017) Hedge (2 ) U.S. 350 - U.S. 50
(maturing 2007 to 2016) Non-hedge 9 U.S. 450 18 U.S. 550
7 18
Foreign exchange gains included in Other Expenses/(Income) for the year ended
December 31, 2006 are $4 million (2005 - $19 million; 2004 - $6 million).
Certain of the Company's joint ventures use interest rate derivatives to manage
interest rate exposures. The Company's proportionate share of the fair value of
these outstanding derivatives at December 31, 2006 and 2005 was nil.
Energy Price Risk Management
The Company executes power, natural gas and heat rate derivatives for overall
management of its asset portfolio. Heat rate contracts are contracts for the
sale or purchase of power that are priced based on a natural gas index. The fair
value and notional volumes of contracts for differences and the swap, option,
future and heat rate contracts are shown in the tables below.
Energy
Asset/(Liability)
2006 2005
December 31 (millions of dollars) Accounting Fair Value Fair Value
Treatment
Power - swaps and contracts for
differences
(maturing 2007 to 2011) Hedge (179 ) (130 )
(maturing 2007 to 2010) Non-hedge (7 ) 13
Gas - swaps, futures and options
(maturing 2007 to 2016) Hedge (66 ) 17
(maturing 2007 to 2008) Non-hedge 30 (11 )
Heat rate contracts Non-hedge - -
98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notional Volumes
Power (GWh)(1) Gas (Bcf)(1)
December 31, 2006 Accounting Purchases Sales Purchases Sales
Treatment
Power - swaps and contracts for
differences
(maturing 2007 to 2011) Hedge 6,654 12,349 - -
(maturing 2007 to 2010) Non-hedge 1,402 964 - -
Gas - swaps, futures and options
(maturing 2007 to 2016) Hedge - - 77 59
(maturing 2007 to 2008) Non-hedge - - 11 15
Heat rate contracts Non-hedge - 9 - -
December 31, 2005
Power - swaps and contracts for Hedge 2,566 7,780 - -
differences
Non-hedge 1,332 456 - -
Gas - swaps, futures and options Hedge - - 91 69
Non-hedge - - 15 18
Heat rate contracts Non-hedge - 35 - -
(1)
Gigawatt hours (GWh); billion cubic feet (Bcf).
Certain of the Company's joint ventures use power derivatives to manage energy
price risk exposures. The Company's proportionate share of the fair value of
these outstanding power sales derivatives at December 31, 2006 was $55 million
(2005 - $(38) million) and related to contracts which cover the period 2007 to
2010. The Company's proportionate share of the notional sales volumes of power
associated with this exposure at December 31, 2006 was 4,500 GWh (2005 - 2,058
GWh).
Fair Value of Financial Instruments
The fair value of cash and short-term investments and notes payable approximates
their carrying amounts due to the short period to maturity. The fair value of
long-term debt, long-term debt of joint ventures and preferred securities is
determined using market prices for the same or similar issues.
2006 2005
December 31 (millions of dollars) Carrying Fair Value Carrying Fair Value
Amount Amount
Long-Term Debt
TransCanada PipeLines Limited 8,549 9,738 7,545 9,071
NOVA Gas Transmission Ltd. 1,648 2,111 1,725 2,267
Gas Transmission Northwest Corporation 466 450 466 470
Portland Natural Gas Transmission System 263 265 281 292
TC PipeLines, LP 463 463 16 16
Tuscarora Gas Transmission Company 86 94
Other 28 28
Long-Term Debt of Joint Ventures 1,278 1,295 978 1,101
Preferred Securities 536 532 536 554
The fair value is provided solely for information purposes and is not recorded
in the consolidated balance sheet.
Credit Risk
Credit risk results from the possibility that a counterparty to a derivative in
which the Company has an unrealized gain fails to perform according to the terms
of the contract. Credit exposure is minimized through the use of established
credit management techniques, including formal assessment processes, contractual
and collateral requirements, master netting arrangements and credit exposure
limits. At December 31, 2006, for foreign currency and interest rate
derivatives, total credit risk and the largest credit exposure to a single
counterparty were $38 million and $11 million, respectively. At December 31,
2006, for power, natural gas and heat rate derivatives, total credit risk and
the largest credit exposure to a single counterparty were $21 million and $11
million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 99
NOTE 17 INCOME TAXES
Provision for Income Taxes
Year ended December 31 (millions of dollars) 2006 2005 2004
Current
Canada 263 499 373
Foreign 37 51 41
300 550 414
Future
Canada 104 (46 ) 34
Foreign 71 106 43
175 60 77
475 610 491
Geographic Components of Income
Year ended December 31 (millions of dollars) 2006 2005 2004
Canada 1,158 1,315 1,205
Foreign 444 587 342
Income from continuing operations before income taxes and 1,602 1,902 1,547
non-controlling interests
Reconciliation of Income Tax Expense
Year ended December 31 (millions of dollars) 2006 2005 2004
Income from continuing operations before income taxes and 1,602 1,902 1,547
non-controlling interests
Federal and provincial statutory tax rate 32.5 % 33.6 % 33.9 %
Expected income tax expense 521 639 524
Income tax differential related to regulated operations 72 71 62
Higher effective foreign tax rates - 2 2
Tax rate reductions(1) (33 ) - -
Large corporations tax - 15 21
Income from equity investments and non-controlling interests (27 ) (29 ) (24 )
Non-taxable portion of gains on sale of assets - (68 ) (66 )
Change in valuation allowance - - (7 )
Other(2) (58 ) (20 ) (21 )
Actual income tax expense 475 610 491
(1)
In second quarter 2006, TCPL recorded a $33 million future income tax
benefit as a result of reductions in future Canadian federal and provincial
corporate income tax rates enacted in that quarter.
(2)
Includes income tax benefits of $51 million recorded in 2006 on the
resolution of certain income tax matters with taxation authorities and
changes in estimates.
100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future Income Tax Assets and Liabilities
December 31 (millions of dollars) 2006 2005
Deferred costs 65 129
Other post-employment benefits 45 39
Deferred revenue 6 11
Other 47 50
163 229
Less: Valuation allowance 14 14
Future income tax assets, net of valuation allowance 149 215
Difference in accounting and tax bases of plant, equipment and PPAs 768 637
Investments in subsidiaries and partnerships 113 131
Pension benefits 59 58
Unrealized foreign exchange gains on long-term debt 39 68
Other 46 24
Future income tax liabilities 1,025 918
Net future income tax liabilities 876 703
Unremitted Earnings of Foreign Investments
Income taxes have not been provided on the unremitted earnings of foreign
investments which the Company does not intend to repatriate in the foreseeable
future. If provision for these taxes had been made, future income tax
liabilities would increase by approximately $72 million at December 31, 2006
(2005 - $61 million).
Income Tax Payments
Income tax payments of $494 million were made during the year ended December 31,
2006 (2005 - $530 million; 2004 - $419 million).
NOTE 18 NOTES PAYABLE
2006 2005
Outstanding Weighted Outstanding Weighted
December 31 Average December 31 Average
Interest Rate Interest Rate
Per Annum at Per Annum at
December 31 December 31
(millions of (millions of
dollars) dollars)
Canadian dollars 467 4.3% 765 3.4%
U.S. dollars (2006 - nil; 2005 - - 197 4.5%
US$169)
467 962
Notes payable consists of commercial paper and line of credit drawings. At
December 31, 2006, total credit facilities of $2.1 billion were available to
support the Company's commercial paper programs and for general corporate
purposes. Of this total, $1.5 billion was a committed five-year term syndicated
credit facility. This facility is extendible on an annual basis and is
revolving. In December 2006, the facility was extended to December 2011. The
remaining amounts are either demand or non-extendible facilities.
At December 31, 2006, the Company had used approximately $190 million of its
total lines of credit for letters of credit and to support its ongoing
commercial arrangements. If drawn, interest on the lines of credit is charged at
prime rates of Canadian chartered and U.S. banks and at other negotiated
financial bases. The cost to maintain the unused portion of the lines of credit
was $2 million for the year ended December 31, 2006 (2005 - $2 million).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 101
NOTE 19 ASSET RETIREMENT OBLIGATIONS
At December 31, 2006, the estimated undiscounted cash flows required to settle
the asset retirement obligations with respect to the non-regulated operations in
Pipelines were $39 million (2005 - $39 million), calculated using an inflation
rate ranging from two to three per cent per annum. The estimated fair value of
this liability was $9 million (2005 - $4 million) after discounting the
estimated cash flows at rates ranging from 5.4 per cent to 6.6 per cent. At
December 31, 2006, the expected timing of payment for settlement of the
obligations is 23 years.
At December 31, 2006, the estimated undiscounted cash flows required to settle
the asset retirement obligations with respect to the Energy business were $162
million (2005 - $114 million), calculated using an inflation rate ranging from
two to three per cent per annum. The estimated fair value of this liability was
$36 million (2005 - $29 million) after discounting the estimated cash flows at
rates ranging from 5.4 per cent to 6.6 per cent. At December 31, 2006, the
expected timing of payment for settlement of the obligations ranges from 11 to
33 years.
Reconciliation of Asset Retirement Obligations
(millions of dollars) Pipelines Energy Total
Balance at January 1, 2004 1 8 9
New obligations and revisions in estimated cash flows 4 26 30
Removal of Power LP redemption obligations - (5) (5)
Accretion expense - 2 2
Balance at December 31, 2004 5 31 36
New obligations and revisions in estimated cash flows (1) 1 -
Sale of Power LP - (5) (5)
Accretion expense - 2 2
Balance at December 31, 2005 4 29 33
New obligations and revisions in estimated cash flows 4 6 10
Accretion expense 1 1 2
Balance at December 31, 2006 9 36 45
NOTE 20 EMPLOYEE FUTURE BENEFITS
The Company sponsors DB Plans that cover substantially all employees. Benefits
provided under the DB Plans are based on years of service and highest average
earnings over three consecutive years of employment, and increase annually by a
portion of the increase in the Consumer Products Index (CPI). Past service costs
are amortized over the expected average remaining service life of employees,
which is approximately 11 years.
The Company also provides its employees with post-employment benefits other than
pensions, including termination benefits and defined life insurance and medical
benefits beyond those provided by government-sponsored plans. Past service costs
are amortized over the expected average remaining life expectancy of former
employees, which at December 31, 2006 was approximately 13 years.
In 2006, the Company expensed $2 million (2005 - $2 million; 2004 - $1 million)
related to retirement savings plans for its U.S. employees.
Total cash payments for employee future benefits for 2006, consisting of cash
contributed by the Company to the DB Plans and other benefit plans was $104
million (2005 - $74 million).
102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company measures its accrued benefit obligations and the fair value of plan
assets for accounting purposes as at December 31 of each year. The most recent
actuarial valuation of the pension plans for funding purposes was as of January
1, 2007, and the next required valuation is as of January 1, 2008.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2006 2005 2006 2005
Change in Benefit Obligation
Benefit obligation - beginning of year 1,282 1,100 148 123
Current service cost 39 32 3 3
Interest cost 65 63 8 7
Employee contributions 3 3 - -
Benefits paid (64 ) (60 ) (7 ) (6 )
Actuarial loss/(gain) 53 149 (2 ) 21
Foreign exchange rate changes - (3 ) - -
Plan amendment - - (18 ) -
Curtailment - (2 ) - -
Benefit obligation - end of year 1,378 1,282 132 148
Change in Plan Assets
Plan assets at fair value - beginning of year 1,096 970 27 26
Actual return on plan assets 134 119 6 2
Employer contributions 95 67 7 5
Employee contributions 3 3 - -
Benefits paid (64 ) (60 ) (7 ) (6 )
Foreign exchange rate changes - (3 ) - -
Plan assets at fair value - end of year 1,264 1,096 33 27
Funded status - plan deficit (114 ) (186 ) (99 ) (121 )
Unamortized net actuarial loss 291 331 39 45
Unamortized past service costs 32 36 (12 ) 8
Accrued benefit asset/(liability), net of valuation 209 181 (72 ) (68 )
allowance of nil
The accrued benefit asset/(liability) is included in the Company's balance sheet
as follows.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2006 2005 2006 2005
Other assets 230 268 5 4
Accounts payable - (70 ) - (7 )
Deferred amounts (21 ) (17 ) (77 ) (65 )
Total 209 181 (72 ) (68 )
Included in the above benefit obligation and fair value of plan assets at
December 31 are the following amounts in respect of plans that are not fully
funded.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2006 2005 2006 2005
Benefit obligation (1,359 ) (1,263 ) (102 ) (124 )
Plan assets at fair value 1,243 1,075 - -
Funded status - plan deficit (116 ) (188 ) (102 ) (124 )
The Company's expected contributions for the year ended December 31, 2007 are
approximately $44 million for the pension benefit plans and approximately $5
million for the other benefit plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 103
The following are estimated future benefit payments, which reflect expected
future service.
(millions of dollars) Pension Other
Benefits Benefits
2007 59 7
2008 62 7
2009 65 8
2010 68 8
2011 71 8
Years 2012 to 2016 406 42
The significant weighted average actuarial assumptions adopted in measuring the
Company's benefit obligations at December 31 are as follows.
Pension Benefit Plans Other Benefit Plans
2006 2005 2006 2005
Discount rate 5.00% 5.00% 5.20% 5.15%
Rate of compensation increase 3.50% 3.50%
The significant weighted average actuarial assumptions adopted in measuring the
Company's net benefit plan cost for years ended December 31 are as follows.
Pension Benefit Plans Other Benefit Plans
2006 2005 2004 2006 2005 2004
Discount rate 5.00% 5.75% 6.00% 5.15% 6.00% 6.25%
Expected long-term rate of return on 6.90% 6.90% 6.90% 7.75% 7.20%
plan assets
Rate of compensation increase 3.50% 3.50% 3.50%
The overall expected long-term rate of return on plan assets is based on
historical and projected rates of return for both the portfolio in aggregate and
for each asset class in the portfolio. Assumed projected rates of return are
selected after analyzing historical experience and future expectations of the
level and volatility of returns. Asset class benchmark returns, asset mix and
anticipated benefit payments from plan assets are also considered in the
determination of the overall expected rate of return. The discount rate is based
on market interest rates of high quality bonds that match the timing and
benefits expected to be paid under each plan.
For measurement purposes, a nine per cent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2007. The rate was
assumed to decrease gradually to five per cent for 2015 and remain at that level
thereafter. A one percentage point increase or decrease in assumed health care
cost trend rates would have the following effects.
(millions of dollars) Increase Decrease
Effect on total of service and interest cost components 4 (3 )
Effect on post-employment benefit obligation 8 (7 )
104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's net benefit cost is as follows.
Pension Benefit Plans Other Benefit Plans
Year ended December 31 (millions of 2006 2005 2004 2006 2005 2004
dollars)
Current service cost 39 32 28 3 3 3
Interest cost 65 63 58 8 7 7
Actual return on plan assets (134 ) (119 ) (97 ) (6 ) (2 ) (1 )
Actuarial loss/(gain) 53 149 46 (2 ) 21 (12 )
Plan amendment - - - (18 ) - -
Elements of net benefit cost prior 23 125 35 (15 ) 29 (3 )
to adjustments to recognize the
long-term nature of net benefit
cost
Difference between expected and 63 54 39 4 - 1
actual return on plan assets
Difference between actuarial loss (27 ) (131 ) (32 ) 4 (20 ) 13
recognized and actual actuarial
loss on accrued benefit obligation
Difference between amortization of 4 3 3 19 1 -
past service costs and actual plan
amendments
Amortization of transitional - - - 2 2 2
obligation related to regulated
business
Net benefit cost recognized 63 51 45 14 12 13
The Company's pension plans' weighted average asset allocations at December 31,
by asset category, and weighted average target allocation at December 31, by
asset category, is as follows.
Percentage of Plan Assets Target
Allocation
Asset Category 2006 2005 2006
Debt securities 40% 43% 35% to 60%
Equity securities 60% 57% 40% to 65%
100% 100%
Debt securities include the Company's debt in the amount of $4 million (0.3 per
cent of total plan assets) and $3 million (0.3 per cent of total plan assets) at
December 31, 2006 and 2005, respectively. Equity securities include the
Company's common shares in the amounts of $6 million (0.5 per cent of total plan
assets) and $5 million (0.5 per cent of total plan assets) at December 31, 2006
and 2005, respectively.
The assets of the pension plans are managed on a going concern basis subject to
legislative restrictions. The plans' investment policies are to maximize returns
within an acceptable risk tolerance. Pension assets are invested in a
diversified manner with consideration given to the demographics of the plans'
participants.
Employee Future Benefits of Joint Ventures
In addition to these plans, certain of the Company's joint ventures sponsor DB
Plans, as well as post-employment benefits other than pensions, including
defined life insurance and medical benefits beyond those provided by
government-sponsored plans. The obligations of these plans are non-recourse to
TCPL. The amounts that follow represent TCPL's proportionate share with respect
to these plans.
Total cash payments for employee future benefits for 2006, consisting of cash
contributed by the Company's joint ventures to DB Plans and other benefit plans
was $25 million (2005 - $4 million).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 105
The Company's joint ventures measure the benefit obligations and the fair value
of plan assets for accounting purposes as at December 31 of each year. The most
recent actuarial valuations of the pension plans for funding purposes were as of
January 1, 2007, and the next required valuations will be as of January 1, 2008.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2006 2005 2006 2005
Change in Benefit Obligation
Benefit obligation - beginning of year 679 45 81 2
Current service cost 24 4 7 1
Interest cost 37 7 5 1
Employee contributions 5 - - -
Benefits paid (15 ) (3 ) (2 ) -
Actuarial loss 77 17 72 2
Foreign exchange rate changes - (1 ) - -
Bruce B(1) - 610 - 75
Plan amendment - - 6 -
Benefit obligation - end of year 807 679 169 81
Change in Plan Assets
Plan assets at fair value - beginning of year 585 57 - -
Actual return on plan assets 68 18 - -
Employer contributions 23 4 2 -
Employee contributions 5 - - -
Benefits paid (15 ) (3 ) (2 ) -
Foreign exchange rate changes - (1 ) - -
Bruce B(1) - 510 - -
Plan assets at fair value - end of year 666 585 - -
Funded status - plan deficit (141 ) (94 ) (169 ) (81 )
Unamortized net actuarial loss/(gain) 174 125 66 (5 )
Unamortized past service costs - 1 6 -
Accrued benefit asset/(liability), net of valuation 33 32 (97 ) (86 )
allowance of nil
(1)
The Company proportionately consolidated Bruce B, on a prospective basis at
31.6 per cent, effective October 31, 2005.
The accrued benefit asset/(liability), net of valuation allowance of nil, is
included in the Company's balance sheet as follows.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2006 2005 2006 2005
Other assets 33 32 - -
Deferred amounts - - (97 ) (86 )
Total 33 32 (97 ) (86 )
Included in the above benefit obligation and fair value of plan assets at
December 31 are the following amounts in respect of plans that are not fully
funded.
Pension Benefit Plans Other Benefit Plans
(millions of dollars) 2006 2005 2006 2005
Benefit obligation (773 ) (645 ) (169 ) (81 )
Plan assets at fair value 609 534 - -
Funded status - plan deficit (164 ) (111 ) (169 ) (81 )
106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's joint ventures' expected contributions for the year ended December
31, 2007 are approximately $33 million for the pension benefit plans and
approximately $3 million for the other benefit plans.
The following are estimated future benefit payments, which reflect expected
future service.
(millions of dollars) Pension Other
Benefits Benefits
2007 13 3
2008 15 4
2009 19 4
2010 23 5
2011 27 6
Years 2012 to 2016 194 40
The significant weighted average actuarial assumptions adopted in measuring the
Company's joint ventures' benefit obligations at December 31 are as follows.
Pension Benefit Plans Other Benefit Plans
2006 2005 2006 2005
Discount rate 5.05% 5.30% 4.95% 5.15%
Rate of compensation increase 3.50% 3.50%
The significant weighted average actuarial assumptions adopted in measuring the
Company's joint ventures' net benefit plan cost for years ended December 31 are
as follows.
Pension Benefit Plans Other Benefit Plans
2006 2005 2004 2006 2005 2004
Discount rate 5.25% 6.20% 6.00% 5.15% 6.25% 6.00%
Expected long-term rate of return on 7.30% 7.40% 8.50%
plan assets
Rate of compensation increase 3.50% 3.50% 4.00%
A one percentage point increase or decrease in assumed health care cost trend
rates would have the following effects.
(millions of dollars) Increase Decrease
Effect on total of service and interest cost components 2 (1 )
Effect on post-employment benefit obligation 24 (20 )
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 107
The Company's proportionate share of net benefit cost of joint ventures is as
follows.
Pension Benefit Plans Other Benefit Plans
Year ended December 31 (millions 2006 2005 2004 2006 2005 2004
of dollars)
Current service cost 24 4 1 7 1 -
Interest cost 37 7 3 5 1 -
Actual return on plan assets (68 ) (18 ) (7 ) - - -
Actuarial loss 77 17 - 72 2 -
Plan amendment - - - 6 - -
Elements of net benefit cost prior 70 10 (3 ) 90 4 -
to adjustments to recognize the
long-term nature of net benefit
cost
Difference between expected and 26 9 2 - - -
actual return on plan assets
Difference between actuarial loss (70 ) (16 ) 1 (72 ) (3 ) -
recognized and actual actuarial
loss on accrued benefit obligation
Difference between amortization of - - - (6 ) - -
past service costs and actual plan
amendments
Net benefit cost recognized 26 3 - 12 1 -
related to joint ventures
The Company's joint ventures' pension plans' weighted average asset allocations
and weighted average target allocation at December 31, by asset category, are as
follows.
Percentage of Plan Assets Target
Allocation
Asset Category 2006 2005 2006
Debt securities 29% 30% 30%
Equity securities 71% 70% 70%
100% 100%
Debt securities include the Company's debt in the amount of $1 million (0.2 per
cent of total plan assets) and $1 million (0.2 per cent of total plan assets) at
December 31, 2006 and 2005, respectively. Equity securities include the
Company's common shares in the amounts of $6 million (1 per cent of total plan
assets) and $5 million (0.9 per cent of total plan assets) at December 31, 2006
and 2005, respectively.
The assets of the pension plans are managed on a going concern basis subject to
legislative restrictions. The plans' investment policies are to maximize returns
within an acceptable risk tolerance. Pension assets are invested in a
diversified manner with consideration given to the demographics of the plans'
participants.
NOTE 21 CHANGES IN OPERATING WORKING CAPITAL
Year ended December 31 (millions of dollars) 2006 2005 2004
(Increase)/decrease in accounts receivable (186 ) (100 ) 15
Increase in inventories (108 ) (50 ) -
(Increase)/decrease in other current assets (6 ) (1 ) 24
(Decrease)/increase in accounts payable (41 ) 98 (4 )
Increase/(decrease) in accrued interest 41 5 (7 )
(300 ) (48 ) 28
108 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments
Operating leases
Future annual payments, net of sub-lease receipts, under the Company's operating
leases for various premises, services, equipment and a natural gas storage
facility are approximately as follows.
Year ended December 31 (millions of dollars) Minimum Amounts Recoverable Net
Lease under Sub-Leases Payments
Payments
2007 52 (13 ) 39
2008 54 (13 ) 41
2009 54 (12 ) 42
2010 53 (12 ) 41
2011 55 (12 ) 43
2012 and thereafter 731 (18 ) 713
Total 999 (80 ) 919
The operating lease agreements for premises, services and equipment expire at
various dates through 2016, with an option to renew certain lease agreements for
three to five years. The operating lease agreement for the natural gas storage
facility expires in 2030 with lessee termination rights every fifth anniversary
commencing in 2010 and with the lessor having the right to terminate the
agreement every five years commencing in 2015. Net rental expense on operating
leases for the year ended December 31, 2006 was $25 million (2005 - $17 million;
2004 - $7 million).
Bruce Power
TCPL's share of Bruce A's signed commitments to third party suppliers for the
next four years for the restart and refurbishment of the currently idle Units 1
and 2, extending the operating life of Unit 3 by replacing its steam generators
and fuel channels when required, and replacing the steam generators on Unit 4,
is as follows.
Year ended December 31 (millions of dollars)
2007 450
2008 164
2009 71
2010 1
2011 -
686
In addition to these capital commitments, the Company is committed to capital
expenditures of approximately $1.2 billion for the construction of its Halton
Hills, Portlands Energy and remaining Cartier Wind projects.
TCPL has guaranteed the performance of all obligations of PipeLines LP with
respect to its acquisition of a 46.45 per cent interest in Great Lakes pursuant
to the purchase agreement.
Aboriginal Pipeline Group
On June 18, 2003, the Mackenzie Delta gas producers, the APG and TCPL reached an
agreement which governs TCPL's role in the MGP Project. The project would result
in a natural gas pipeline being constructed from Inuvik, Northwest Territories,
to the northern border of Alberta, where it would connect with the Alberta
System. Under the agreement, TCPL agreed to finance the APG for its one-third
share of project development costs. These costs are currently forecasted to be
approximately $145 million by the end of 2007.
Contingencies
The Canadian Alliance of Pipeline Landowners' Associations (CAPLA) and two
individual landowners commenced an action in 2003 under Ontario's Class
Proceedings Act, 1992, against TCPL and Enbridge Inc. for damages of $500
million alleged to arise from the creation of a control zone within 30 metres of
the pipeline pursuant to Section 112 of the NEB Act. In November 2006, TCPL and
Enbridge Inc. were granted a dismissal of the case but CAPLA has appealed that
decision. The Company continues to believe the claim is without merit and will
vigorously defend the action. The Company has made no provision for any
potential liability. A liability, if any, would be dealt with through the
regulatory process.
The Company and its subsidiaries are subject to various other legal proceedings
and actions arising in the normal course of business. While the final outcome of
such legal proceedings and actions cannot be predicted with certainty, it is the
opinion of Management that the resolution of such proceedings and actions will
not have a material impact on the Company's consolidated financial position or
results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 109
Guarantees
The Company, together with Cameco Corporation and BPC Generation Infrastructure
Trust (BPC), has severally guaranteed one-third of certain contingent financial
obligations of Bruce B related to power sales agreements, operator licenses, the
lease agreement and contractor services. The terms of the guarantees range from
2007 to 2018.
As part of the reorganization of Bruce Power in 2005, including the formation of
Bruce A and the commitment to restart and refurbish the Bruce A units, the
Company, together with BPC, severally guaranteed one-half of certain contingent
financial obligations of Bruce A related to the refurbishment agreement with the
Ontario Power Authority and cost sharing and sublease agreements with Bruce B.
The terms of the guarantees range from 2019 to 2036.
TCPL's share of the exposure under these Bruce Power guarantees at December 31,
2006 was estimated to be approximately $586 million to a calculated maximum of
$658 million. The current carrying amount of the liability related to these
guarantees is nil and the fair value is approximately $17 million.
TCPL has guaranteed the equity undertaking of a subsidiary which supports the
payment, under certain conditions, of principal and interest on US$105 million
of public debt obligations of TransGas. The Company has a 46.5 per cent interest
in TransGas. Under the terms of the agreement, the Company severally with
another major multinational company may be required to fund more than their
proportionate share of debt obligations of TransGas in the event that the
minority shareholders fail to contribute. Any payments made by TCPL under this
agreement convert into share capital of TransGas. The potential exposure is
contingent on the impact of any change of law on TransGas' ability to service
the debt. From the issuance of the debt in 1995 to date, there has been no
change in applicable law and thus no exposure to TCPL. The debt matures in 2010.
The Company has made no provision related to this guarantee.
In connection with the acquisition of GTN, US$241 million of the purchase price
was deposited into an escrow account. At December 31, 2006, there was US$24
million remaining in the escrow account which represented the full face amount
of the potential liability under certain GTN guarantees. In February 2007, the
funds were released and a portion of the monies were used to satisfy the
liability of GTN under these designated guarantees.
NOTE 23 DISCONTINUED OPERATIONS
TCPL's net income for the year ended December 31, 2006 includes $28 million or
$0.06 per share of net income from discontinued operations reflecting
settlements received from bankruptcy claims related to TCPL's Gas Marketing
business divested in 2001 (2005 - nil; 2004 - $52 million net of $27 million of
income taxes)
NOTE 24 SUBSEQUENT EVENTS
On February 22, 2007, TCPL closed the acquisition of the American Natural
Resources Company and the ANR Storage Company (together ANR), and an additional
3.55 per cent interest in Great Lakes from El Paso Corporation for approximately
US$3.4 billion, subject to certain post-closing adjustments, including
approximately US$488 million of assumed long-term debt. The acquisition was
financed with a combination of proceeds from the Company's issuance of $1.3
billion of common shares, cash on hand and funds drawn on existing and newly
established loan facilities, discussed below.
In February 2007, TCPL issued $1.3 billion of common shares to TransCanada to
partially finance the acquisition of ANR.
In February 2007, the Company through a wholly owned subsidiary, executed an
agreement with a syndicate of banks to establish a new US$1.0 billion credit
facility, consisting of a US$700 million five-year term loan and a US$300
million five-year extendible revolving facility. This facility is committed and
unsecured. The Company utilized US$1.0 billion from this facility and an
additional US$100 million from an existing demand line to partially finance the
ANR acquisitions as well addtional investments in PipeLines LP; described below.
Great Lakes Acquisition
On February 22, 2007, PipeLines LP closed its acquisition of a 46.45 per cent
interest in Great Lakes from El Paso Corporation for approximately US$962
million, which included approximately US$212 million of assumed long-term debt,
subject to certain post-closing adjustments. At December 31, 2006, TCPL had a
13.4 per cent interest in PipeLines LP.
In February 2007, PipeLines LP increased the size of its syndicated revolving
credit and term loan agreement from US$410 million to US$950 million.
Incremental draws of approximately US$126 million received under this agreement
were used to partially finance PipeLines LP's Great Lakes acquisition.
On February 22, 2007, PipeLines LP completed a private placement offering of
17,356,086 common units at a price of US$34.57 per unit, of which 50 per cent of
the units were acquired by TCPL, for US$300 million. TCPL also invested an
additional approximately US$12 million to maintain its general partnership
interest in PipeLines LP. As a result of TCPL's additional investments in
PipeLines LP, its ownership in PipeLines LP increased to 32.1 per cent. The
total private placement resulted in gross proceeds to PipeLines LP of
approximately US$612 million, which were used to partially finance its Great
Lakes acquisition. As a result of TCPL's increased ownership in PipeLines LP,
TCPL's effective ownership in Tuscarora, Northern Border and Great Lakes
increased to 32.5 per cent (including one per cent held directly), 16.1 per cent
and 68.5 per cent, respectively.
110 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEVEN YEAR FINANCIAL HIGHLIGHTS
(millions of dollars except where 2006 2005 2004 2003 2002 2001 2000
indicated)
Income Statement
Revenues 7,520 6,124 5,497 5,636 5,225 5,285 4,384
Net income from continuing 1,071 1,230 1,000 823 769 708 663
operations
Net income 1,099 1,230 1,052 873 769 641 724
Net income/(loss) by segment
Pipelines 560 679 584 625 639 572 613
Energy 452 566 398 217 160 181 95
Corporate 37 (37 ) (4 ) (41 ) (52 ) (67 ) (80 )
Continuing operations 1,049 1,208 978 801 747 686 628
Discontinued operations 28 - 52 50 - (67 ) 61
Net income applicable to common 1,077 1,208 1,030 851 747 619 689
shares
Cash Flow Statement
Funds generated from operations 2,374 1,950 1,701 1,822 1,843 1,625 1,484
(Increase)/decrease in operating (300 ) (48 ) 28 93 92 (487 ) 437
working capital
Net cash provided by continuing 2,074 1,902 1,729 1,915 1,935 1,138 1,921
operations
Capital expenditures and (2,042 ) (2,071 ) (2,046 ) (965 ) (851 ) (1,082 ) (1,144 )
acquisitions
Disposition of assests, net of 23 671 410 - - 1,170 2,233
current tax
Dividends on common and preferred (639 ) (608 ) (574 ) (532 ) (488 ) (440 ) (458 )
shares
Balance Sheet
Assets
Plant, property and equipment
Pipelines 17,141 16,528 17,306 16,064 16,158 16,562 16,937
Energy 4,302 3,483 1,421 1,368 1,340 1,116 776
Corporate 44 27 37 50 64 66 111
Total assets
Continuing operations 25,908 24,113 22,414 20,873 20,416 20,255 20,238
Discontinued operations - - 7 11 139 276 5,007
25,908 24,113 22,421 20,884 20,555 20,531 25,245
Capitalization
Long-term debt 10,887 9,640 9,749 9,516 8,899 9,444 10,008
Long-term debt of joint ventures 1,136 937 808 741 1,193 1,262 1,280
Preferred securities 536 536 554 598 944 950 1,208
Non-controlling interests 366 394 311 324 288 286 257
Preferred shares 389 389 389 389 389 389 389
Common shareholders' equity 7,618 7,164 6,484 6,044 5,747 5,426 5,211
SUPPLEMENTARY INFORMATION 111
Per Common Share Data (dollars)
Net income - Basic
Continuing operations $2.17 $2.50 $2.03 $1.66 $1.56 $1.44 $1.32
Discontinued operations 0.06 - 0.11 0.11 - (0.14 ) 0.13
$2.23 $2.50 $2.14 $1.77 $1.56 $1.30 $1.45
Net income - Diluted
Continuing operations $2.17 $2.50 $2.03 $1.66 $1.55 $1.44 $1.32
Discontinued operations 0.06 - 0.11 0.11 - (0.14 ) 0.13
$2.23 $2.50 $2.14 $1.77 $1.55 $1.30 $1.45
Dividends declared $1.28 $1.23 $1.17 $1.08 $1.00 $0.90 $0.80
Per Preferred Share Data
(dollars)
Series U Cumulative First $2.80 $2.80 $2.80 $2.80 $2.80 $2.80 $2.80
Preferred Shares
Series Y Cumulative First $2.80 $2.80 $2.80 $2.80 $2.80 $2.80 $2.80
Preferred Shares
Financial Ratios
Earnings to fixed charges(1) 2.6 2.9 2.5 2.3 2.3 2.1 1.9
(1)
The ratio of earnings to fixed charges is determined by dividing the
financial charges incurred by the company (including capitalized interest)
into its income from continuing operations before financial charges and
income taxes, excluding undistributed income from equity investees.
112 SUPPLEMENTARY INFORMATION
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TRANSCANADA PIPELINES LIMITED
RECONCILIATION TO UNITED STATES GAAP
December 31, 2006
AUDIT REPORT ON RECONCILIATION TO UNITED STATES GAAP
To the Board of Directors of TransCanada PipeLines Limited
On February 22, 2007, we reported on the consolidated balance sheets of
TransCanada PipeLines Limited as at December 31, 2006 and 2005 and the
consolidated statements of income, retained earnings and cash flows for each of
the years in the three-year period ended December 31, 2006 which are included in
the Annual Report on Form 40-F.
In connection with our audits conducted in accordance with Canadian
generally accepted auditing standards and also in accordance with the Standards
of the Public Company Accounting Oversight Board (United States) of the
afore-mentioned consolidated financial statements, we also have audited the
related supplemental note entitled "Reconciliation to United States GAAP"
included in the Form 40-F. This supplemental note is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
supplemental note based on our audits.
In our opinion, such supplemental note, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 22, 2007
TRANSCANADA PIPELINES LIMITED
RECONCILIATION TO UNITED STATES GAAP
The 2006 audited consolidated financial statements of TransCanada
Pipelines Limited (TCPL or the Company) have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP), which in some
respects, differ from U.S. GAAP. The effects of these differences on the
Company's consolidated financial statements for the year ended December 31, 2006
are provided in the following U.S. GAAP condensed consolidated financial
statements which should be read in conjunction with TCPL's 2006 audited
consolidated financial statements prepared in accordance with Canadian GAAP.
Condensed Statement of Consolidated Income and Comprehensive Income in
Accordance with U.S. GAAP(1)
Year ended December 31 (millions of dollars) 2006 2005 2004
Revenues 5,997 5,333 5,014
Plant operating costs and other 1,922 1,730 1,618
Commodity purchases resold 1,369 904 777
Depreciation 897 924 857
4,188 3,558 3,252
1,809 1,775 1,762
Other (income)/expenses
Income from equity investments(1) (478 ) (458 ) (402 )
Other expenses(2)(3) 745 401 852
Dilution gain(3) - - (40 )
Income taxes 472 607 490
739 550 900
Income from continuing operations - U.S. GAAP 1,070 1,225 862
Net income from discontinued operations - U.S. GAAP 28 - 52
Net Income in Accordance with U.S. GAAP 1,098 1,225 914
Adjustments affecting comprehensive income under U.S. GAAP
Foreign currency translation adjustment, net of tax (1 ) (18 ) (31 )
Changes in minimum pension liability, net of tax(4) 63 (51 ) 72
Change in funding of postretirement plan liability, net of tax(4) (78 ) - -
Changes in equity investment postretirement plan liability, net of tax(4) (154 ) - -
Unrealized (loss)/gain on derivatives, net of tax(5) (24 ) (54 ) 1
Comprehensive Income in Accordance with U.S. GAAP 904 1,102 956
Reconciliation of Income from Continuing Operations
Year ended December 31 (millions of dollars) 2006 2005 2004
Net Income from Continuing Operations in Accordance with Canadian GAAP 1,071 1,230 1,000
U.S. GAAP adjustments
Unrealized gain/(loss) on energy contracts(5) (6 ) (14 ) 10
Tax impact of unrealized gain/(loss) on energy contracts 3 5 (3 )
Equity investment gain/(loss)(6)(7) 1 5 (2 )
Tax impact of equity investment gain/(loss) - (1 ) -
Unrealized gain/(loss) on foreign exchange and interest rate derivatives(5) 1 1 (12 )
Tax impact of gain/(loss) on foreign exchange and interest rate derivatives - (1 ) 4
Amortization of deferred gains related to Power LP(3) - - (3 )
Deferred gains related to Power LP(3) - - (132 )
Income from Continuing Operations in Accordance with U.S. GAAP 1,070 1,225 862
Condensed Statement of Consolidated Cash Flows in Accordance with U.S. GAAP(1)
Year ended December 31 (millions of dollars) 2006 2005 2004
Cash Generated from Operations(8)
Net cash provided by operating activities 1,885 1,627 1,617
Investing Activities
Net cash used in investing activities (1,920 ) (1,169 ) (1,356 )
Financing Activities
Net cash provided by/(used in) financing activities 234 (514 ) (340 )
Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments 7 13 (87 )
Increase/(Decrease) in Cash and Short-Term Investments 206 (43 ) (166 )
Cash and Short-Term Investments
Beginning of year 83 126 292
Cash and Short-Term Investments
End of year 289 83 126
Condensed Balance Sheet in Accordance with U.S. GAAP(1)
December 31 (millions of dollars) 2006 2005
Current assets(9) 1,550 1,058
Long-term investments(4)(6)(7) 2,922 2,168
Plant, property and equipment 17,430 17,348
Regulatory asset(4)(10) 2,199 2,601
Other assets(4)(6) 1,720 2,028
25,821 25,203
Current liabilities(4)(11) 2,623 2,797
Deferred amounts(4)(5)(7) 986 1,298
Long-term debt(5) 10,913 9,675
Deferred income taxes(4)(10) 2,734 3,102
Preferred securities 536 536
Non-controlling interests 366 394
Shareholders' equity(4) 7,663 7,401
25,821 25,203
Statement of Other Comprehensive Income in Accordance with U.S. GAAP
(millions of dollars) Under-funded Cumulative Minimum Cash Flow Total
Postretirement Translation Pension Hedges
Plan Liability Account Liability (SFAS No.
(SFAS No. 158) (SFAS No. 133)
87)
Balance at January 1, 2004 - (40 ) (98 ) (5 ) (143 )
Changes in minimum pension liability, net of tax - - 72 - 72
of $(39)(4)
Unrealized gain on derivatives, net of tax of $ - - - 1 1
(3)(5)
Foreign currency translation adjustment, net of - (31 ) - - (31 )
tax of $(44)
Balance at December 31, 2004 - (71 ) (26 ) (4 ) (101 )
Changes in minimum pension liability, net of tax - - (51 ) - (51 )
of $27(4)
Unrealized loss on derivatives, net of tax of - - - (54 ) (54 )
$28(5)
Foreign currency translation adjustment, net of - (18 ) - - (18 )
tax of $(21)
Balance at December 31, 2005 - (89 ) (77 ) (58 ) (224 )
Change in minimum pension liability, net of tax - - 63 - 63
of $(35)(4)
Reversal of minimum pension liability, due to (14 ) - 14 - -
adoption of SFAS No 158
Change in funding of postretirement plan (78 ) - - - (78 )
liability, net of tax of $35(4)
Change in equity investment postretirement plan (154 ) - - - (154 )
liability, net of tax of $70(4)
Unrealized gain on derivatives, net of tax of - - - (24 ) (24 )
$11(5)
Foreign currency translation adjustment, net of - (1 ) - - (1 )
tax of $1
Balance at December 31, 2006 (246 ) (90 ) - (82 ) (418 )
-------
(1)
In accordance with U.S. GAAP, the Condensed Statement of Consolidated
Income, Statement of Consolidated Cash Flows, Consolidated Balance Sheet and
Statement of Other Comprehensive Income of TCPL are prepared using the
equity method of accounting for joint ventures.
(2)
Other expenses include an allowance for funds used during construction of $9
million for the year ended December 31, 2006 (2005 - $3 million; 2004 - $3
million).
(3)
The Company recorded its investment in TransCanada Power, L.P. (Power LP)
using the proportionate consolidation method for Canadian GAAP purposes and
as an equity investment for U.S. GAAP purposes. During the period from 1997
to April 2004, the Company was obligated to fund the redemption of Power LP
units in 2017. As a result, under Canadian GAAP, TCPL accounted for the
issuance of units by Power LP to third parties as a sale of a future net
revenue stream and the resulting gains were deferred and amortized to income
over the period to 2017. The redemption obligation was removed in April 2004
and the unamortized gains were recognized as income. Under U.S. GAAP, any
such gains in the period from 1997 to April 2004 are characterized as
dilution gains and, because the Company was committed to fund the redemption
of the units, the gains are recorded, on an after-tax basis, as equity
transactions in shareholders' equity.
The Company's accounting policy for dilution gains is to record them as
income for both Canadian and U.S. GAAP purposes, however, U.S. GAAP requires
such gains to be recorded directly in equity if there is a contemplation of
reacquisition of units. With the removal of the redemption obligation in
April 2004, subsequent issuances of units by Power LP are accounted for as
dilution gains in income for both Canadian and U.S. GAAP purposes.
(4)
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 158 "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans" which
amended FASB Statements No. 87, 88, 106 and 132(R). For the Company's U.S.
GAAP financial statements, SFAS No. 158 became effective for as at December
31, 2006. Retrospective application of SFAS No. 158 is not permitted.
SFAS No. 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or liability in
its statement of financial position and to recognize changes in that funded
status, through comprehensive income, in the year in which the changes
occur. The amounts recognized in the Company's balance sheet as at December
31, 2006 are as follows.
December 31 (millions of dollars) 2006
Non-current assets 10
Current liabilities 5
Non-current liabilities 220
215
Pre-tax amounts recognized in accumulated other comprehensive income are as
follows.
December 31 (millions of dollars) Pension Other
Benefits Benefits
2006 2006
Net loss 92 14
Prior service cost (credit) 11 (4 )
103 10
The funded status based on the accumulated benefit obligation for all
defined benefit pension plans as at December 31, 2006 is as follows.
December 31 (millions of dollars) 2006 2005
Accumulated benefit obligation 1,167 1,123
Fair value of plan assets 1,264 1,096
Funded Status - surplus/(deficit) 97 (27 )
Included in the above accumulated benefit obligation and fair value of plan
assets as at December 31, 2006 are the following amounts in respect of plans
that are not fully funded.
December 31 (millions of dollars) 2006 2005
Accumulated benefit obligation 67 1,105
Fair value of plan assets 65 1,075
Funded Status - (deficit) (2 ) (30 )
The estimated net loss and prior service cost for the defined benefit
pension plans that will be amortized from accumulated other comprehensive
income into net periodic benefit cost over the next fiscal year are $9
million and $1 million, respectively. The estimated prior service credit for
the other defined benefit postretirement plans that will be amortized from
accumulated other comprehensive income into net periodic benefit cost over
the next fiscal year is $1 million.
Incremental Effect of Applying SFAS No. 158 on Individual Line Items in the
Balance Sheet
December 31, 2006 (millions of dollars) Before Adjustments After
Application Application
of SFAS 158 of SFAS 158
Long-term investments 3,076 (154 ) 2,922
Regulatory asset 1,961 238 2,199
Other assets 1,945 (225 ) 1,720
Current liabilities 2,618 5 2,623
Deferred amounts 865 121 986
Deferred income taxes 2,769 (35 ) 2,734
Accumulated other comprehensive income (186 ) (232 ) (418 )
Total shareholders' equity 7,895 (232 ) 7,663
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 87
"Employers' Accounting for Pensions", a net loss recognized as an additional
pension liability and not yet recognized as net period pension cost must be
recorded as a component of comprehensive income. As a result of recording an
additional pension liability, the amounts recognized in the Company's
balance sheet as at December 31, 2005 are as follows. The loss for 2006 is
included in the amounts in the table above.
December 31 (millions of dollars) 2005
Prepaid benefit cost 6
Regulatory asset 107
Other assets 37
Accounts payable (70 )
Deferred amounts (17 )
Accumulated other comprehensive income 118
Net amount recognized 181
The accumulated benefit obligation for the Company's defined benefit pension
plans was $1,167 million at December 31, 2006 (2005 - $1,123 million).
The rate used to discount pension and other post-retirement benefit plan
obligations was based on a yield curve from Moody's corporate AA bond yields
at December 31, 2006 developed by our third party actuary. This yield curve
is used to develop spot rates that vary based on the duration of the
obligations. The estimated future cash flows for the pension and other post
retirement obligations were matched to the corresponding rates on the yield
curve to derive a weighted average discount rate.
(5)
All foreign exchange and interest rate derivatives are recorded in the
Company's consolidated financial statements at fair value under Canadian
GAAP. Under the provisions of SFAS No. 133 "Accounting for Derivatives and
Hedging Activities", all derivatives are recognized as assets and
liabilities on the balance sheet and measured at fair value. For derivatives
designated as fair value hedges, changes in the fair value are recognized in
earnings together with an equal or lesser amount of changes in the fair
value of the hedged item attributable to the hedged risk. For derivatives
designated as cash flow hedges, changes in the fair value of the derivative
that are effective in offsetting the hedged risk are recognized in other
comprehensive income until the hedged item is recognized in earnings. Any
ineffective portion of the change in fair value is also recognized in
earnings each period. Substantially all of the amounts recorded in 2006,
2005 and 2004 as differences between U.S. and Canadian GAAP, for income from
continuing operations, relate to the differences in accounting treatment
with respect to the hedged item and, for comprehensive income, relate to
cash flow hedges.
During 2006, under the provisions of SFAS 133, net gains of $6 million (2005
- $8 million; 2004 - $10 million) from the hedges of changes in the fair
value of long-term debt, and net losses of $5 million (2005 - $8 million;
2004 - $18 million) in the fair value of the hedged item were included in
earnings for U.S. GAAP purposes as an adjustment to interest expense and
foreign exchange losses. No amounts of the derivatives' gains or losses were
excluded from the assessment of hedge effectiveness in fair value hedging
relationships.
No significant amounts were included in income in 2006, 2005 and 2004 with
respect to ineffectiveness of cash flow hedges. For amounts included in
other comprehensive income at December 31, 2006, nil (2005 - $4 million;
2004 - $(4) million) relates to the hedging of interest rate risk; $(1)
million (2005 - $(1) million; 2004 - $3 million) relates to the hedging of
foreign exchange rate risk; and $(23) million (2005 - $(57) million; 2004 -
$2 million) relates to the hedging of energy price risk. In 2007, $(66)
million is expected to be recorded in earnings.
At December 31, 2006, assets of $160 million (2005 - $175 million) and
liabilities of $69 million (2005 - $110 million) were reduced for U.S. GAAP
purposes to reflect the fair value of derivatives and the corresponding
change in the fair value of hedged items.
(6)
Under Canadian GAAP, pre-operating costs incurred during the commissioning
phase of a new project are deferred until commercial production levels are
achieved. After such time, those costs are amortized over the estimated life
of the project. Under U.S. GAAP, such costs are expensed as incurred.
Certain start-up costs incurred by Bruce Power L.P. (Bruce B), an equity
investment, were expensed under U.S. GAAP. Under both Canadian GAAP and U.S.
GAAP, interest is capitalized on expenditures relating to construction of
development projects actively being prepared for their intended use. In
Bruce B, under U.S. GAAP, the carrying value of development projects against
which interest is capitalized is lower due to the expensing of certain
pre-operating costs.
(7)
Financial Interpretation (FIN) 45 requires the recognition of a liability
for the fair value of certain guarantees that require payments contingent on
specified types of future events. The measurement standards of FIN 45 are
applicable to guarantees entered into after January 1, 2003. For U.S. GAAP
purposes, the fair value of guarantees recorded as a liability at December
31, 2006 was $17 million (2005 - $17 million) and relates to the Company's
equity interest in Bruce B and Bruce Power A L.P. The net income impact with
respect to the guarantees for the year ended December 31, 2006 was $1
million (2005 - $1 million; 2004 - nil).
(8)
In accordance with U.S. GAAP, all current taxes are included in cash
generated from operations.
(9)
Current assets at December 31, 2006 include derivative contracts of $18
million (2005 - $49 million) and hedging deferrals of $131 million (2005 -
$93 million).
(10)
Under U.S. GAAP, the Company is required to record a deferred income tax
liability for its cost-of-service regulated businesses. As these deferred
income taxes are recoverable through future revenues, a corresponding
regulatory asset is recorded for U.S. GAAP purposes.
(11)
Current liabilities at December 31, 2006 include dividends payable of $162
million (2005 - $154 million), current taxes payable of $71 million (2005 -
$251 million), derivative contracts of $133 million (2005 - $95 million) and
hedging deferrals of $15 million (2005 - $44 million).
Income Taxes
The income tax effects of differences between the accounting value and
the tax value of assets and liabilities are as follows.
December 31 (millions of dollars) 2006 2005
Deferred Tax Liabilities
Difference in accounting and tax bases of plant, equipment and power purchase arrangements 1,478 1,718
Taxes on future revenue requirement 606 874
Investments in subsidiaries and partnerships 683 561
Pension Benefit 25 15
Other 127 143
2,919 3,311
Deferred Tax Assets
Deferred amounts 71 140
Other Post-employment benefits 16 13
Other 112 70
199 223
Less: Valuation allowance 14 14
185 209
Net deferred tax liabilities 2,734 3,102
Other
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (revised 2004) "Share-Based Payment" which requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. The pro forma
disclosures previously permitted under SFAS No. 123 will no longer be an
alternative to financial statement recognition. In 2002, TCPL adopted accounting
for its stock-based compensation plans using the fair value recognition
provisions under Canadian GAAP. Therefore, adopting the provisions under SFAS No
123 (revised 2004) had no impact on the U.S. GAAP financial statements of the
Company.
In March 2005, FASB issued a Staff Position (FSP) on a previously issued
FIN. The provisions of FSP FIN 46 (R)-5 "Implicit Variable Interests under
revised FIN 46(R), Consolidation of Variable Interest Entities" require that a
reporting enterprise consider consolidating implicit variable interests when
applying the provisions of FIN 46(R). Adopting these provisions had no impact on
the U.S. GAAP financial statements of the Company.
In March 2005, FASB issued FIN 47 "Accounting for Conditional Asset
Retirement Obligations - an interpretation of FASB No.143". FIN 47 clarifies
that the term "conditional asset retirement obligation" as used in SFAS No. 143,
refers to a legal obligation to perform an asset retirement activity in which
the timing and/or method of settlement are conditional on a future event that
may or may not be within the control of the entity. It also clarifies when an
entity would have sufficient information to reasonably estimate the fair value
of an asset retirement obligation. Adopting the clarification under this
interpretation had no impact on the U.S. GAAP financial statements of the
Company.
In May 2005, FASB issued SFAS No. 154 "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and SFAS No. 3" which was
effective for fiscal years beginning after December 15, 2005. SFAS No. 154
changes the requirements for the accounting for and reporting of a change in
accounting principle and error correction. It establishes, unless impracticable,
retrospective application as the required method for reporting a change in
accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle. Adopting the provisions under SFAS
No. 154 as of January 1, 2006 had no impact on the U.S. GAAP financial
statements of the Company.
In February 2006, FASB issued SFAS No. 155 "Accounting for Certain
Hybrid Financial Instruments - an amendment of SFAS No. 133 and 140" which is
effective for fiscal years beginning after September 15, 2006. SFAS No. 155
permits fair value remeasurement of any hybrid instrument that contains an
embedded derivative that otherwise would require bifurcation. TCPL is in the
process of assessing the impact of the application of SFAS 155 on its U.S. GAAP
financial statements.
In March 2006, FASB issued SFAS No. 156 "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140" which is effective
for fiscal years beginning after September 15, 2006. SFAS No. 156 requires
recognition of a servicing asset or liability when an entity enters into
arrangements to service financial instruments in certain situations. Such
servicing assets or servicing liabilities are required to be initially measured
at fair value, if practicable. SFAS No. 156 also allows an entity to
subsequently measure its servicing assets or servicing liabilities using either
an amortization method or a fair value method. Adopting the provisions under
SFAS No. 156 as of January 1, 2007 is not expected to have an impact on the U.S.
GAAP financial statements of the Company.
In July 2006, FASB issued FIN 48 "Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109" which is effective for
fiscal years beginning after December 15, 2006. This Interpretation provides
guidance for the financial statement recognition, measurement, presentation and
disclosure of uncertain tax positions taken or expected to be taken in income
tax returns. Adopting the provisions under FIN 48, as of January 1, 2007 is not
expected to have a material impact on the U.S. GAAP financial statements of the
Company.
In September 2006, FASB issued SFAS No. 157 "Fair Value Measurements"
which is effective for fiscal years beginning after November 15, 2007. This
statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. TCPL is in the process of
assessing the impact of the application of SFAS No. 157 on its U.S. GAAP
financial statements.
In September 2006, FASB issued SFAS No. 158 "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106 and 132(R)", which is effective for fiscal years
ending after December 15, 2006. This statement requires an employer to recognize
the overfunded or underfunded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability on its balance sheet
and to recognize changes in the funded status in the year in which the changes
occur through comprehensive income. The plan assets and benefit obligations will
be measured as of the balance sheet date. The impact of adopting SFAS No. 158 is
shown in the footnotes to the Statement of Other Comprehensive Income in
Accordance with U.S. GAAP.
In September 2006, the SEC staff issued SAB Topic 1N, "Financial
Statements - Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements" (SAB No. 108),
which addresses how to quantify the effect of an error on the financial
statements. SAB No. 108 is effective for fiscal years ending December 31, 2006.
Adopting these provisions did not have an impact on the U.S. GAAP financial
statements of the company.
Summarized Financial Information of Long-Term Investments
The following summarized financial information of long-term investments
includes those investments that are accounted for by the equity method under
U.S. GAAP (including those that are accounted for by the proportionate
consolidation method under Canadian GAAP).
Year ended December 31 (millions of dollars) 2006 2005 2004
Income
Revenues 1,450 1,233 1,249
Plant operating costs and other (697 ) (508 ) (594 )
Depreciation (175 ) (173 ) (173 )
Financial charges and other (100 ) (94 ) (80 )
Proportionate share of income before income taxes of long-term investments 478 458 402
December 31 (millions of dollars) 2006 2005
Balance Sheet
Current assets 446 456
Plant, property and equipment 4,177 3,365
Other assets (net) 198 -
Current liabilities (445 ) (319 )
Deferred amounts (net) (235 ) (73 )
Non-recourse debt (1,266 ) (1,236 )
Deferred income taxes 47 (25 )
Proportionate share of net assets of long-term investments 2,922 2,168
The distributed earnings from long-term investments for the year ended
December 31, 2006 were $494 million (2005 - $371 million; 2004 - $258 million).
The undistributed earnings from long-term investments for the year ended
December 31, 2006 were $836 million (2005 - $820 million; 2004 - $767 million).
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of TransCanada PipeLines Limited ("TCPL") is responsible
for establishing and maintaining adequate internal control over financial
reporting, and have designed such internal control over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with Canadian generally accepted accounting principles (GAAP), including a
reconciliation to United States GAAP.
Management has used the Internal Control - Integrated Framework to
evaluate the effectiveness of internal control over financial reporting, which
is a recognized and suitable framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management has evaluated the design and operation of TCPL's internal
control over financial reporting as of December 31, 2006, and has concluded that
such internal control over financial reporting is effective. There are no
material weaknesses that have been identified by management in this regard.
KPMG LLP, the independent auditors appointed by the shareholders of
TCPL, who have audited the consolidated financial statements of TCPL, have also
audited management's assessment of internal controls over financial reporting
and have issued the report entitled "Audit Report of Independent Registered
Public Accounting Firm".
February 22, 2007
/s/ HAROLD N. KVISLE Harold N. Kvisle /s/ GREGORY A. LOHNES Gregory A. Lohnes
President and Executive Vice-President and
Chief Executive Officer and Chief Financial Officer
AUDIT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of TransCanada PipeLines Limited
We have audited management's assessment, included in the accompanying
management's report of internal control over financial reporting, that
TransCanada PipeLines Limited maintained effective internal control over
financial reporting as of December 31, 2006, based on the criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and the receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of Treadway Commission (COSO). Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of Treadway Commission (COSO).
We also have conducted our audits on the consolidated financial
statements in accordance with Canadian generally accepted auditing standards.
With respect to the years ended December 31, 2006 and 2005, we also have
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our report dated February 22, 2007
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 22, 2007
COMMENTS BY AUDITORS FOR UNITED STATES READERS ON CANADA-UNITED STATES REPORTING
DIFFERENCES
To the Board of Directors of TransCanada PipeLines Limited
In the United States, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) that
refers to the audit report on the effectiveness of the Company's internal
control over financial reporting. Our report to the shareholders dated February
22, 2007 is expressed in accordance with Canadian reporting standards, which do
not require a reference to the audit report on the effectiveness of the
Company's internal control over financial reporting in the financial statement
auditors' report.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 22, 2007
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TRANSCANADA PIPELINES LIMITED ANNUAL INFORMATION FORM FEBRUARY 22, 2007
TABLE OF CONTENTS
TABLE OF CONTENTS
/TEXT
/DOCUMENT
DOCUMENT
TYPE EX-23.1
DESCRIPTION EXHIBIT 23.1
FILENAME a2176383zex-23_1.htm
TEXT
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To:
The Board of Directors
TransCanada PipeLines Limited
We consent to the inclusion in this Annual Report on Form 40-F of:
*
our audit report dated February 22, 2007 on the consolidated balance
sheets of TransCanada PipeLines Limited ("the Company") as at December
31, 2006 and 2005, and the consolidated statements of earnings, retained
earnings and cash flows for each of the years in the three-year period
ended December 31, 2006,
*
our audit report on the Reconciliation to United States GAAP dated
February 22, 2007,
*
our Comments by Auditors for United States Readers on Canada - United
States Reporting Differences, dated February 22, 2007,
*
our Report of Independent Registered Public Accounting Firm dated
February 22, 2007 on management's assessment of the effectiveness of
internal control over financial reporting as of December 31, 2006 and
the effectiveness of internal control over financial reporting as of
December 31, 2006,
each of which is contained (incorporated by reference) in this Annual Report on
Form 40-F of the Company for the fiscal year ended December 31, 2006.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
February 27, 2007
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
/TEXT
/DOCUMENT
DOCUMENT
TYPE EX-31.1
DESCRIPTION EXHIBIT 31.1
FILENAME a2176383zex-31_1.htm
TEXT
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Exhibit 31.1
Certifications
I, Harold N. Kvisle, certify that:
1.
I have reviewed this annual report on Form 40-F of TransCanada PipeLines
Limited;
2.
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4.
The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b)
designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation;
(d)
disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated February 28, 2007
/s/ HAROLD N. KVISLE Harold N. Kvisle
President and Chief Executive Officer
QuickLinks
Exhibit 31.1
/TEXT
/DOCUMENT
DOCUMENT
TYPE EX-31.2
DESCRIPTION EXHIBIT 31.2
FILENAME a2176383zex-31_2.htm
TEXT
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Exhibit 31.2
Certifications
I, Gregory A. Lohnes, certify that:
1.
I have reviewed this annual report on Form 40-F of TransCanada PipeLines
Limited;
2.
Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4.
The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b)
designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Dated February 28, 2007
/s/ GREGORY A. LOHNES Gregory A. Lohnes
Executive Vice-President and Chief Financial Officer
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Exhibit 31.2
/TEXT
/DOCUMENT
DOCUMENT
TYPE EX-32.1
DESCRIPTION EXHIBIT 32.1
FILENAME a2176383zex-32_1.htm
TEXT
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Exhibit 32.1
TRANSCANADA PIPELINES LIMITED
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002
I, Harold N. Kvisle, the Chief Executive Officer of TransCanada
PipeLines Limited (the "Company"), in compliance with 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certify, in connection with the Company's Annual Report as filed on Form 40-F
for the fiscal year ending December 31, 2006 with the Securities and Exchange
Commission (the "Report"), that:
1.
The Report fully complies with the requirements of Section 13(a) or 15
(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ HAROLD N. KVISLE Harold N. Kvisle
Chief Executive Officer
February 28, 2007
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Exhibit 32.1
/TEXT
/DOCUMENT
DOCUMENT
TYPE EX-32.2
DESCRIPTION EXHIBIT 32.2
FILENAME a2176383zex-32_2.htm
TEXT
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Exhibit 32.2
TRANSCANADA PIPELINES LIMITED
450 - 1st Street S.W.
Calgary, Alberta, Canada
T2P 5H1
CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF SARBANES-OXLEY ACT 0F 2002
I, Gregory A. Lohnes, the Chief Financial Officer of TransCanada
PipeLines Limited (the "Company"), in compliance with 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certify, in connection with the Company's Annual Report as filed on Form 40-F
for the fiscal year ending December 31, 2006 with the Securities and Exchange
Commission (the "Report"), that:
1.
The Report fully complies with the requirements of Section 13(a) or 15
(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ GREGORY A. LOHNES Gregory A. Lohnes
Chief Financial Officer
February 27, 2007
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Exhibit 32.2
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This information is provided by RNS
The company news service from the London Stock Exchange
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