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U.S. Securities and Exchange Commission
Washington, D.C. 20549

Form 40-F/A
Amendment No. 1

o   REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended     December 31, 2011    

  Commission File Number                 1-8887                

TRANSCANADA PIPELINES LIMITED
(Exact Name of Registrant as specified in its charter)

Canada
(Jurisdiction of incorporation or organization)

4922, 4923, 4924, 5172
(Primary Standard Industrial Classification Code Number (if applicable))

Not Applicable
(I.R.S. Employer Identification Number (if applicable))

TransCanada Tower, 450 - 1 Street S.W.
Calgary, Alberta, Canada, T2P 5H1
(403) 920-2000
(Address and telephone number of Registrant's principal executive offices)

TransCanada PipeLine USA Ltd., 717 Texas Street
Houston, Texas, 77002-2761; (832) 320-5201
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)

Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Debt Securities

For annual reports, indicate by check mark the information filed with this Form:

ý        Annual Information Form

  o        Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

At December 31, 2011, 4,000,000 Cumulative Redeemable First Preferred Shares Series U
and 4,000,000 Cumulative Redeemable First Preferred Shares Series Y
were issued and outstanding.
731,998,733 common shares which are all owned by TransCanada Corporation

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes        ý

  No        o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes        o

  No        o

The documents (or portions thereof) forming part of this Form 40-F are incorporated by reference into the following registration statements under the Securities Act of 1933, as amended:

Form
 
Registration No.

F-9

  333-163641

F-9

  333-177789



EXPLANATORY NOTE

TransCanada PipeLines Limited ("TCPL" or "TransCanada") is filing this Form 40-F/A Amendment No. 1 to its Annual Report on Form 40-F for the year ended December 31, 2011 which was filed with the Securities and Exchange Commission on February 17, 2012, to include TCPL's Annual Information Form for the year ended December 31, 2011.

Other than as expressly set forth above, this Form 40-F/A does not, and does not purport to, amend, update, or restate the information in any Item of the Form 40-F or reflect any events that have occurred after the Form 40-F was filed.


UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an Annual Report on Form 40-F arises; or transactions in said securities.


FORWARD-LOOKING INFORMATION

This document contains 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", "intend", "target", "plan" or other similar words are used to identify such forward-looking information. Forward-looking statements in this document are intended to provide TransCanada security holders and potential investors with information regarding TransCanada and its subsidiaries, including management's assessment of TransCanada's and its subsidiaries' future plans and financial outlook. Forward-looking statements in this document may include, but are not limited to, statements regarding:

These forward-looking statements reflect TransCanada's beliefs and assumptions based on information available at the time the statements were made and as such are not guarantees of future performance. By their nature, forward-looking statements are subject to various assumptions, risks and uncertainties which could cause TransCanada's actual results and achievements to differ materially from the anticipated results or expectations expressed or implied in such statements.

Key assumptions on which TransCanada's forward-looking statements are based include, but are not limited to, assumptions about:


The risks and uncertainties that could cause actual results or events to differ materially from current expectations include, but are not limited to:

Additional information on these and other factors is available in the reports filed by TransCanada with Canadian securities regulators and with the U.S. Securities and Exchange Commission (SEC).

Readers are cautioned against placing undue reliance on forward-looking information, which is given as of the date it is expressed in this document or otherwise, and not to use future-oriented information or financial outlooks for anything other than their intended purpose. TransCanada undertakes no obligation to publicly update or revise any forward-looking information in this document or otherwise, whether as a result of new information, future events or otherwise, except as required by law.



SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F/A and has duly caused this amendment to the Annual Report to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Calgary, Province of Alberta, Canada.


    TRANSCANADA PIPELINES LIMITED



 

 

Per:

 

/s/ DONALD R. MARCHAND

Donald R. Marchand
Executive Vice-President and Chief Financial Officer

Date: February 27, 2012

DOCUMENTS FILED AS PART OF THIS REPORT

*13.1

 

Management's Discussion and Analysis (included on pages 2 through 90 of the TCPL 2011 Management's Discussion and Analysis and Audited Consolidated Financial Statements).

*13.2

 

2011 Audited Consolidated Financial Statements (included on pages 91 through 149 of the TCPL 2011 Management's Discussion and Analysis and Audited Consolidated Financial Statements), including the auditors' report thereon.

*13.3

 

Independent Auditors' Report of Registered Public Accounting Firm on the 2011 Audited Consolidated Financial Statements.

*13.4

 

Report of Independent Registered Public Accounting Firm on the effectiveness of TCPL's Internal Control Over Financial Reporting, as of December 31, 2011.

13.5

 

TCPL's Annual Information Form for the year ended December 31, 2011.


*
previously filed.

EXHIBITS

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


LOGO

TransCanada PipeLines Limited

2011 Annual information form
February 17, 2012



Table of Contents

Table of Contents

    1  

Presentation of information

    3  

Forward looking information

    3  

TransCanada PipeLines Limited

    4  
 

Corporate structure

    4  
 

Intercorporate relationships

    5  

General development of the business

    6  
 

Developments in the Natural Gas Pipelines business

    7  
 

Developments in the Oil Pipelines business

    9  
 

Developments in the Energy business

    10  

Business of TCPL

    11  
 

Natural Gas Pipelines business

    11  
 

Oil Pipelines business

    14  
 

Regulation of the Natural Gas and Oil Pipelines businesses

    14  
 

Energy business

    15  

General

    17  
 

Employees

    17  
 

Social and environmental policies

    17  
 

Environmental protection

    18  

Risk factors

    19  
 

Environmental risk factors

    19  
 

Other risk factors

    21  

Dividends

    21  

Description of capital structure

    22  
 

Share capital

    22  
 

Debt

    23  

Credit ratings

    23  
 

DBRS Limited (DBRS)

    24  
 

Moody's Investors Service, Inc. (Moody's)

    24  
 

Standard & Poor's (S&P)

    24  

Market for securities

    25  
 

Common shares

    25  
 

Series 1 preferred shares

    25  
 

Series 3 preferred shares

    26  
 

Series 5 preferred shares

    26  
 

Series U Preferred Shares and Series Y Preferred Shares

    26  

Directors and officers

    27  
 

Directors

    27  
 

Board committees

    29  
 

Officers

    29  
 

Conflicts of interest

    31  

Corporate governance

    32  

Audit committee

    32  
 

Relevant education and experience of members

    32  
 

Pre-approval policies and procedures

    33  
 

External auditor service fees

    34  

Loans to directors and executive officers

    34  

Securities owned by directors

    34  

Compensation of directors

    34  

Executive compensation discussion and analysis

    34  

Legal proceedings and regulatory actions

    35  

Transfer agent and registrar

    35  

Interest of experts

    35  

Additional information

    35  

       

2011 Annual information form    1


Glossary

    36  

Schedule A

    39  
 

Metric conversion table

    39  

Schedule B

    40  
 

Corporate governance

    40  

Schedule C

    55  
 

Charter of the Audit Committee

    55  

Schedule D

    62  
 

Loans to directors and executive officers

    62  
 

Securities owned by directors

    62  
 

Compensation of directors

    63  

Schedule E

    67  
 

Compensation governance

    67  

Schedule F

    73  
 

Executive compensation, discussion and analysis (CD&A)

    73  

Schedule G

    120  
 

Charter of the Board of Directors

    120  

2    TransCanada PipeLines Limited


Presentation of information

Unless the context indicates otherwise, a reference in this Annual Information Form ("AIF") to "TCPL" or the "Company", "we", "us" and "our" 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 legal 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, 2011 ("Year End"). Amounts are expressed in Canadian dollars unless otherwise indicated. Information in relation 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.

Financial information is presented in accordance with Canadian generally accepted accounting principles.

Certain portions of TCPL's Management's Discussion and Analysis dated February 13, 2012 ("MD&A") are incorporated by reference into this AIF as stated below. The MD&A can be found on SEDAR (www.sedar.com) under TCPL's profile.

Effective January 1, 2012, TCPL adopted U.S. generally accepted accounting principles ("U.S. GAAP") for reporting purposes. For more information regarding TCPL adoption of U.S. GAAP, refer to the MD&A under the headings Accounting Changes – Future Accounting Changes.

Forward looking information

This AIF, including the MD&A disclosure incorporated by reference herein, contains 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", "intend", "target", "plan" or other similar words are used to identify such forward-looking information. Forward-looking statements in this document are intended to provide TCPL holders and potential investors with information regarding TCPL and its subsidiaries, including management's assessment of TCPL's and its subsidiaries' future plans and financial outlook. Forward-looking statements in this document may include, but are not limited to, statements regarding:

These forward-looking statements reflect TCPL's beliefs and assumptions based on information available at the time the statements were made and as such are not guarantees of future performance. By their nature, forward-looking statements are subject to various assumptions, risks and uncertainties which could cause TCPL's actual results and achievements to differ materially from the anticipated results or expectations expressed or implied in such statements.

2011 Annual information form    3


Key assumptions on which TCPL's forward-looking statements are based include, but are not limited to, assumptions about:

The risks and uncertainties that could cause actual results or events to differ materially from current expectations include, but are not limited to:

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 against placing undue reliance on forward-looking information, which is given as of the date it is expressed in this AIF, or the MD&A disclosure incorporated by reference herein, and not to use future-oriented information or financial outlooks for anything other than their intended purpose. TCPL undertakes no obligation to publicly update or revise any forward-looking information in this AIF or the MD&A disclosure incorporated by reference herein whether as a result of new information, future events or otherwise, except as required by law.

TransCanada PipeLines Limited

Corporate structure

TCPL's head office and registered office are located at 450 - 1st Street S.W., Calgary, Alberta, T2P 5H1.

4    TransCanada PipeLines Limited


TCPL is a Canadian public company. Significant dates and events are set forth below.

 
Date
  Event
 

March 21, 1951

  Incorporated by Special Act of Parliament as Trans-Canada Pipe Lines Limited.
 

April 19, 1972

  Continued under the Canada Corporations Act by Letters Patent, which included the alteration of its capital and change of name to TransCanada PipeLines Limited.
 

June 1, 1979

  Continued under the Canada Business Corporations Act ("CBCA").
 

July 2, 1998

  Certificate of Arrangement issued in connection with the Plan of Arrangement with NOVA Corporation under which the companies merged and then split off the commodity chemicals business carried on by NOVA Corporation into a separate public company.
 

January 1, 1999

  Certificate of Amalgamation issued reflecting TCPL's vertical short form amalgamation with a wholly owned subsidiary, Alberta Natural Gas Company Ltd.
 

January 1, 2000

  Certificate of Amalgamation issued reflecting TCPL's vertical short form amalgamation with a wholly owned subsidiary, NOVA Gas International Ltd.
 

May 4, 2001

  Restated TransCanada PipeLines Limited Articles of Incorporation filed.
 

June 20, 2002

  Restated TransCanada PipeLines Limited By-Laws filed.
 

May 15, 2003

  Certificate of Arrangement issued in connection with the plan of arrangement with TransCanada. TransCanada was incorporated pursuant to the provisions of the CBCA on February 25, 2003. The arrangement was approved by TCPL common shareholders on April 25, 2003 and following court approval, Articles of Arrangement were filed making the arrangement effective May 15, 2003. The common shareholders of TCPL exchanged each of their common shares of TCPL for one common share of TransCanada. The debt securities and preferred shares of TCPL remained obligations and securities of TCPL. TCPL continues to carry on business as the principal operating subsidiary of the TransCanada group of entities.
 

Intercorporate relationships

The following diagram presents the name and jurisdiction of incorporation, continuance or formation of TCPL's principal subsidiaries as at Year End. Each of the subsidiaries shown has total assets that exceeded 10 per cent of the total consolidated assets of TransCanada or revenues that exceeded 10 per cent of the total consolidated revenues of TransCanada as at Year End. TransCanada beneficially owns, controls or directs, directly or indirectly, 100 per cent of the voting shares in each of these subsidiaries, with the exception of TransCanada Keystone Pipeline, LP in which TransCanada indirectly holds 100 per cent of the partnership interests.

2011 Annual information form    5


GRAPHIC

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 per cent of the total consolidated assets or total consolidated revenues of TransCanada as at Year End.

General development of the business

Our reportable business segments are "Natural Gas Pipelines", "Oil Pipelines" and "Energy". Natural Gas Pipelines and Oil Pipelines are principally comprised of the Company's respective natural gas and oil pipelines in Canada, the U.S. and Mexico and our regulated natural gas storage operations in the U.S. Energy includes the Company's power operations and the non-regulated natural gas storage business in Canada. Further information regarding our Natural Gas Pipelines, Oil Pipelines and Energy businesses is available in this AIF under the heading Business of TCPL.

Summarized below are significant developments that have occurred in TCPL's Natural Gas Pipelines, Oil Pipelines and Energy businesses, respectively, and the significant acquisitions, dispositions, events or conditions which have had an influence on that development, during the last three financial years.

6    TransCanada PipeLines Limited


Developments in the Natural Gas Pipelines business

 
Date
  Description of development
 

Canadian Mainline

 

December 2009

  The National Energy Board ("NEB") approved TCPL's application for 2010 final tolls for the Canadian Mainline, effective January 1, 2010. The 2010 calculated return on equity was 8.52 per cent. Reduced throughput and greater use of shorter distance transportation contracts resulted in an increase in tolls for 2010 compared to 2009.
 

December 2010

  TCPL filed an application with the NEB for approval of the interim 2011 tolls for the Canadian Mainline which contained certain changes to the tolling mechanism to reduce long haul tolls. The NEB decided not to approve the tolls as requested in the interim tolls application and set the then current 2010 tolls as interim commencing January 1, 2011.
 

January - February 2011

  TCPL received approval for revised interim tolls, effective March 1, 2011 which increased interim tolls to more closely align with tolls calculated in accordance with the 2007-2011 settlement with stakeholders and will more closely reflect the Canadian Mainline's costs and throughput for 2011.
 

September - October 2011

  TCPL filed with the NEB a 2012 Tolls Application and Restructuring Proposal (the "Restructuring Proposal") designed to enhance the long-term economic viability of the Canadian Mainline. The application also seeks approval of tolls for 2012-2013, including an after tax weighted average cost of capital return of 7.0 percent assuming the Restructuring Proposal is approved. The Restructuring Proposal includes toll design and service and pricing modifications, a depreciation proposal, and geographic extension of the Alberta System service by NOVA Gas Transmission Ltd. ("NGTL") acquiring capacity on the Canadian Mainline and Foothills systems. The application has been set down for hearing (proceeding RH-003-2011) in the second to fourth quarters of 2012, and a decision is expected in late 2012 or early 2013.
 

November 2011

  TCPL refiled a supplemental application with the NEB to construct $130 million of new pipeline infrastructure on the Canadian Mainline, to receive Marcellus shale natural gas from the U.S. at the Niagara Falls receipt point for further transportation to Eastern markets. Subject to regulatory approval, deliveries from Niagara Falls are expected to begin at a rate of 230 million cubic feet per day ("MMcf/d") in November 2012 and then increase to 350 MMcf/d by November 2013.
 

November - December 2011

  TCPL filed for and received approval to implement interim 2012 tolls on the Canadian Mainline effective January 1, 2012, at the same level as the currently approved 2011 final tolls. The NEB approved TCPL's application for 2011 final tolls for the Canadian Mainline at the level of the tolls that were being charged on an interim basis. Final 2011 tolls were calculated in accordance with previously approved toll methodologies and were based on the principles contained in the 2007-2011 settlement with stakeholders, with adjustments to reduce toll impacts. Certain aspects of the 2011 revenue requirement were rolled into the RH-003-2011 proceeding referred to above.
 

Alberta System

   
 

February 2009

  The NEB approved TCPL's June 2008 application for federal regulation of the Alberta System effective April 29, 2009.
 

February 2009

  TCPL announced the successful completion of a binding open season, securing support for firm transportation contracts of 378 MMcf/d for the Horn River pipeline.
 

February 2010

  TCPL filed an application with the NEB for approval to construct and operate the Horn River pipeline.
 

March 2010

  The North Central Corridor expansion of the Alberta System was completed.
 

March 2010

  The NEB approved TCPL's application after a public hearing to construct and operate the Groundbirch pipeline project.
 

June 2010

  TCPL reached a three year settlement agreement with the Alberta System shippers and other interested parties and filed a 2010-2012 Revenue Requirement Settlement Application with the NEB.
 

August 2010

  The NEB approved TCPL 's November 2009 application for the Alberta System's Rate Design Settlement and the commercial integration of the ATCO Pipelines system with the Alberta System.
 

September 2010

  The NEB approved the Alberta System's 2010-2012 Revenue Requirement Settlement Application.
 

October 2010

  The NEB approved final 2010 rates for the Alberta System, which reflect the Alberta System 2010-2012 Revenue Requirement Settlement and Rate Design Settlement.
 

December 2010

  The NEB approved the interim 2011 tolls for the Alberta System reflecting the 2010-2012 Revenue Requirement Settlement and continuing to transition to the toll methodology approved in the Rate Design Settlement.
 

December 2010

  Groundbirch pipeline was completed and began transporting natural gas from the Montney shale gas formation into the Alberta System.
 

January 2011

  TCPL received approval from the NEB to construct the Horn River pipeline.
 

2011 Annual information form    7


 
Date
  Description of development
 

March 2011

  TCPL commenced construction of the $275 million Horn River project, with a targeted completion date of second quarter 2012. In addition, the Company executed an agreement to extend the Horn River pipeline by approximately 100 kilometer ("km") (62 miles) at an estimated cost of $230 million. An application requesting approval to construct and operate this extension was filed with the NEB in October 2011. The total contracted volumes for Horn River, including the extension, are expected to be approximately 900 MMcf/d by 2020.
 

August 2011

  The NEB approved construction of a 24 km (15 miles) extension of the Groundbirch pipeline and construction commenced in August, with an expected in service date of April 2012.
 

October 2011

  Commercial integration of the NGTL and ATCO Pipelines systems commenced. Under an agreement, the facilities of NGTL and ATCO Pipelines are commercially operated as a single transmission system and transportation service is provided to customers by NGTL pursuant to NGTL's tariff and suite of rates and services. The agreement further identifies distinct geographic areas within Alberta for the construction of new facilities by each of NGTL and ATCO Pipelines.
 

October 2011

  The NEB approved the construction of natural gas pipeline projects for the Alberta System with a capital cost of approximately $910 million. Further pipeline projects with a total capital cost of approximately $810 million are awaiting NEB decision.
 

November - December 2011

  The regulatory decisions by which commercial integration of the NGTL and ATCO Pipelines systems were authorized are the subject of appeals to the Federal Court of Appeal. The timing of the hearing of the appeals is uncertain, but TCPL expects it to be before the end of 2012.
 

December 2011

  TCPL filed for interim 2012 tolls on the Alberta System to be effective January 1, 2012. These tolls have been approved on an interim basis pending the outcome of the NEB's decision on the application filed for the Restructuring Proposal.
 

Mackenzie Gas Project

   
 

December 2009

  A Joint Review Panel of the Canadian government released a report on environmental and socio-economic factors in relation to the Mackenzie Gas Project. The report was submitted to the NEB as part of the review process for approval of the project.
 

December 2010

  The NEB approved the proponents' application to construct the Mackenzie Gas Project subject to numerous conditions.
 

March 2011

  The NEB issued a Certificate of Public Convenience and Necessity for the Mackenzie Gas Project.
 

Alaska Pipeline Project

   
 

June 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.
 

April 2010

  The Alaska Pipeline open season commenced.
 

Third Quarter 2010

  Interested shippers on the proposed Alaska Pipeline Project submitted conditional commercial bids in the open season that closed in July 2010. The Alaska Pipeline Project team continued to work with shippers to resolve conditional bids received as part of the project's open season in working toward a U.S. Federal Energy Regulatory Commission ("FERC") application deadline of October 2012 for the Alberta option that would extend from Prudhoe Bay to points near Fairbanks and Delta Junction, and then to the Alaska/Canada border where the pipeline would connect with a new pipeline in Canada.
 

January 2012

  TCPL commenced initial discussions with Alaska North Slope producers regarding an alternative pipeline route, the liquefied natural gas option, that would extend from Prudhoe Bay to liquefied natural gas facilities, to be built by third parties, located in south-central Alaska.
 

Bison

   
 

December 2010

  Construction of Bison pipeline, a 487 km (303 miles) pipeline, was completed.
 

January 2011

  Bison pipeline was placed into commercial service.
 

May 2011

  TCPL closed the sale of a 25 per cent interest in each of Gas Transmission Northwest LLC and Bison Pipeline LLC to TC PipeLines, LP for a total transaction value of $605 million, which included U.S. $81 million or 25 percent of Gas Transmission Northwest LLC's debt outstanding.
 

GTN

   
 

May 2011

  TCPL closed the sale of a 25 per cent interest in each of Gas Transmission Northwest LLC and Bison Pipeline LLC to TC PipeLines, LP for a total transaction value of $605 million, which included U.S. $81 million or 25 percent of Gas Transmission Northwest LLC's debt outstanding.
 

November 2011

  The FERC approved a settlement agreement between GTN and its shippers for new transportation rates to be effective January 2012 through December 2015. This settlement also requires GTN to file for new rates that are to be effective January 2016.
 

Great Lakes

   
 

November 2009

  The FERC initiated an investigation to determine whether rates on Great Lakes were just and reasonable. In response, Great Lakes Gas Transmission Limited Partnership filed a cost and revenue study with the FERC in February 2010.
 

July 2010

  The FERC approved, without modification, the settlement stipulation agreement reached among Great Lakes Gas Transmission Limited Partnership, active participants and the FERC trial staff. As approved, the stipulation and agreement applies to all current and future shippers on Great Lakes.
 

8    TransCanada PipeLines Limited


 
Date
  Description of development
 

North Baja

   

July 2009

  TCPL completed the sale of North Baja Pipeline, LLC to TC PipeLines, LP.
 

Guadalajara

   
 

May 2009

  TCPL announced that it was the successful bidder on a contract to build, own and operate the Guadalajara pipeline.
 

June 2011

  The Guadalajara pipeline was completed. TCPL and the Comisión Federal de Electricidad, Mexico's federal government owned electrical company have agreed to add a US$60 million compressor station to the pipeline that is expected to be operational early in 2013.
 

Further information about developments in the Natural Gas Pipelines business can be found in the MD&A under the headings TransCanada's Strategy, Natural Gas Pipelines – Highlights, Natural Gas Pipelines – Financial Analysis and Natural Gas Pipelines – Opportunities and Developments.

Developments in the Oil Pipelines business

 
Date
  Description of development
 

Keystone

   
 

August 2009

  TCPL became sole owner of the Keystone project through the purchase of ConocoPhillips' remaining interest for US$553 million and the assumption of US$197 million of short-term debt.
 

March 2010

  The NEB approved TCPL's application to construct and operate the Canadian portion of the Keystone U.S. Gulf Coast expansion ("Keystone XL").
 

April 2010

  The U.S. Department of State issued a Draft Environmental Impact Statement for Keystone XL.
 

June 2010

  Keystone commenced operating at a reduced maximum operating pressure as the first section of Keystone began delivering oil from Hardisty, Alberta to Wood River and Patoka in Illinois ("Wood River/Patoka").
 

November 2010

  The open seasons for the Bakken Marketlink and Cushing Marketlink projects, which commenced in September 2010, closed successfully.
 

December 2010

  The reduced maximum operating pressure restriction on the Canadian conversion section of the Wood River/Patoka section of Keystone was removed by the NEB following the completion of in-line inspections.
 

Fourth Quarter 2010

  Construction of the second section of Keystone extending the pipeline from Steele City, Nebraska to Cushing, Oklahoma (the "Cushing Extension") was completed, and line fill commenced in late 2010.
 

January 2011

  Required operational modifications were completed on the Canadian conversion section of Keystone. As a result, the system was capable of operating at the approved design pressure.
 

February 2011

  The commercial in service of the Cushing Extension commenced, and the Company also commenced recording earnings for the Wood River/Patoka section.
 

May 2011

  Revised tolls came into effect for the Wood River/Patoka section.
 

Second Quarter 2011

  The U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration issued a corrective action order on Keystone as a result of two above-ground incidents at pump stations in North Dakota and Kansas. TCPL filed a re-start plan with the U.S. Pipeline and Hazardous Material Safety Administration which was approved in June 2011.
 

August 2011

  TCPL received a Final Environmental Impact Statement regarding the Keystone XL U.S. Presidential Permit application.
 

November 2011

  The U.S Department of State announced that further analysis of route options for Keystone XL would need to be investigated, with a specific focus on the Sandhills area of Nebraska. The review could be completed as early as the first quarter of 2013.
 

December 2011

  TCPL announced that it received additional binding commitments in support of Keystone XL following the conclusion of the Keystone Houston Lateral open season, which commenced in August 2011.
 

January 2012

  The U.S. Department of State denied TCPL's application requesting a Presidential Permit to construct Keystone XL. The Company plans to submit a revised Presidential Permit application for Keystone XL.
 

Further information about developments in the Oil Pipelines business can be found in the MD&A under the headings TCPL's Strategy, Oil Pipelines – Highlights, Oil Pipelines – Financial Analysis and Oil Pipelines – Opportunities and Developments.

2011 Annual information form    9


Developments in the Energy business

 
Date
  Description of development
 

Ravenswood

   
 

May 2009

  Ravenswood's 981 MW Unit 30 returned to service. Subsequent to closing the acquisition of Ravenswood in August 2008, TCPL experienced a forced outage event related to the unit. TCPL has filed claims against the insurers to enforce its rights under the insurance policies and litigation proceedings are ongoing.
 

Third and Fourth Quarters 2011

  Since July 2011, spot prices for capacity sales in the New York Zone J market have been negatively impacted by the manner in which the New York Independent System Operator ("NYISO") has applied pricing rules for a new power plant that recently began service in this market. TCPL believes that this application of pricing rules by the NYISO is in direct contravention of a series of the FERC orders which direct how new entrant capacity is to be treated for the purpose of determining capacity prices. TCPL and other parties have filed formal complaints with the FERC that are currently pending. The outcome of the complaints and longer-term impact that this development may have on Ravenswood is unknown. During third quarter 2011, the demand curve reset process was completed following the FERC's acceptance of the NYISO's September 22, 2011 compliance filing. This resulted in increased demand curve rates that apply going forward to 2014. Until the above noted NYISO actions relative to new unit pricing are resolved, capacity prices are expected to remain volatile
 

Bécancour

   
 

June 2011

  Hydro-Québec Distribution ("Hydro-Québec") notified TCPL it would exercise its option to extend the agreement to suspend all electricity generation from Bécancour throughout 2012. Under the original agreement, Hydro-Québec has the option, to extend the suspension on an annual basis until such time as regional electricity demand levels recover. TCPL continues to receive capacity payments under the agreement similar to those that would have been received under the normal course of operation.
 

Bruce Power

   
 

November 2011

  Bruce Power commenced the approximately six month West Shift Plus outage as part of the life extension strategy for Unit 3. Subject to regulatory approval, Unit 3 is expected to return to service in second quarter 2012.
 

February 2011

  The Bruce Power Refurbishment Implementation Agreement (the "BPRIA") was amended to extend the suspension date for Bruce A contingent support payments from December 31, 2011 to June 1, 2012. Contingent support payments received from the OPA by Bruce A are equal to the difference between the fixed prices under the BPRIA and spot market prices. As a result of the amendment, all output from Bruce A will be subject to spot prices effective June 1, 2012 until the restart of both Units 1 and 2 is complete. Bruce Power and the OPA had amended certain terms and conditions of the BPRIA in July 2009, which included: amendments to the Bruce B floor price mechanism, the removal of a support payment cap for Bruce A, an amendment to the capital cost-sharing mechanism, and addition of a provision for deemed generation payments to Bruce Power at the contracted 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. Under the original BPRIA, which was signed in 2005, 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. Fuelling of both Unit 2 and Unit 1 has now been completed and the final phases of commissioning for Unit 2 are underway. Subject to regulatory approval, Bruce Power expects to commence commercial operations of Unit 2 in first quarter 2012 and commercial operations of Unit 1 in third quarter 2012.
 

Portlands Energy

   
 

April 2009

  The 550 megawatt ("MW") Portlands Energy power plant was fully commissioned.
 

Oakville Generating Station

   
 

September 2009

  The OPA advised TCPL that it was awarded a 20 year Clean Energy Supply contract to build, own and operate a 900 MW generating station in Oakville, Ontario.
 

October 2010

  The Government of Ontario announced that it would not proceed with the Oakville generating station.
 

August 2011

  TCPL, the Government of Ontario and the OPA reached a formal agreement to use arbitration to settle a dispute resulting from termination of the 20 year Clean Energy Supply contract with the OPA referred to above.
 

Cartier Wind

   
 

Third Quarter 2009

  Construction activity began on the Cartier Wind's 212 MW Gros-Morne and 58 MW Montagne-Sèche wind farms.
 

November 2011

  The Montagne-Sèche project and phase one of the Gros-Morne wind farm were completed.
 

Coolidge

   
 

August 2009

  TCPL began construction of the 575 MW Coolidge power generating station.
 

May 2011

  Coolidge power generating station was completed and placed in service.
 

10    TransCanada PipeLines Limited


 
Date
  Description of development
 

Kibby Wind

   
 

October 2009

  The 22 turbine, 66 MW first phase of Kibby Wind was completed and placed in service.
 

October 2010

  The 22 turbine, 66 MW second phase of Kibby Wind was completed and placed in service.
 

Sundance

   
 

February 2011

  TCPL received notice from TransAlta Corporation ("TransAlta") under the Sundance A power purchase arrangement that TransAlta determined that the Sundance 1 and 2 generating units cannot be economically repaired, replaced, rebuilt or restored and that TransAlta therefore seeks to terminate the power purchase arrangement in respect of those units. In December 2010, the Sundance 1 and 2 generating units were withdrawn from service and were subject to a force majeure claim by TransAlta in January 2011. TCPL has disputed both claims under the binding dispute resolution process provided in the power purchase arrangement and both matters will be heard through a single binding arbitration process. The arbitration panel has scheduled a hearing in April 2012 for these claims.
 

Halton Hills

   
 

September 2010

  The 683 MW Halton Hills power plant was completed and placed in service.
 

Ontario Solar

   
 

December 2011

  Subject to a number of conditions precedent, TransCanada agreed to purchase nine Ontario solar power projects from Canadian Solar Solutions Inc. with a combined capacity of 86 MW for approximately $470 million.
 

Further information about developments in the Energy business can be found in the MD&A under the headings TCPL's Strategy, Energy – Highlights, Energy – Financial Analysis and Energy – Opportunities and Developments.

Business of TCPL

We are a leading North American energy infrastructure company focused on Natural Gas Pipelines, Oil Pipelines and Energy. At Year End, Natural Gas Pipelines accounted for approximately 49 per cent of revenues and 48 per cent of TCPL's total assets, Oil Pipelines accounted for approximately 9 per cent of revenues and 19 per cent of TCPL's total assets and Energy accounted for approximately 42 per cent of revenues and 29 per cent of TCPL's total assets. The following table shows TCPL's revenues from operations by segment, classified geographically, for the years ended December 31, 2011 and 2010.

   

Revenues from operations (millions of dollars)

    2011     2010  
   

Natural Gas Pipelines

             
 

Canada - Domestic

  $ 2,187   $ 2,125  
 

Canada - Export(1)

    787     837  
 

United States and other

    1,526     1,411  
   

    4,500     4,373  
   

Oil Pipelines

             
 

Canada - Domestic

         
 

Canada - Export(1)

    300      
 

United States and other

    527      
   

    827     NIL  
   

Energy(2)

             
 

Canada - Domestic

    2,649     2,243  
 

Canada - Export(1)

        1  
 

United States and other

    1,163     1,447  
   

    3,812     3,691  
   

Total revenues(3)

  $ 9,139   $ 8,064  
   
(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.

The following is a description of each of TCPL's three main areas of operations.

Natural Gas Pipelines business

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

2011 Annual information form    11


TCPL has the following natural gas pipelines and related holdings in Canada:

TCPL has the following natural gas pipelines and related holdings in the U.S.:

12    TransCanada PipeLines Limited


2011 Annual information form    13


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

Further information about the Company's pipeline holdings, developments and opportunities and significant regulatory developments which relate to Natural Gas Pipelines can be found in the MD&A under the headings Natural Gas Pipelines, Natural Gas Pipelines – Opportunities and Developments and Natural Gas Pipelines – Financial Analysis.

Oil Pipelines business

The Company's Keystone pipeline system and other opportunities in TCPL's Oil Pipelines business are described below.

Keystone is a 3,467 km (2,154 miles) crude oil pipeline extending from Hardisty, Alberta, to U.S. markets at Wood River and Patoka in Illinois, and from Steele City, Nebraska to Cushing, Oklahoma. The Wood River/Patoka and Cushing Extension sections commenced commercial operations in June 2010 and February 2011, respectively. In January 2012, the U.S. Department of State denied TCPL's application to construct Keystone XL, a 2,673 km (1,661 miles) extension and expansion of the pipeline to the U.S. Gulf Coast. The Company intends to re-apply for a Presidential Permit for Keystone XL.

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

Regulation of the Natural Gas and Oil Pipelines businesses

Canada

Natural Gas Pipelines
Under the terms of the National Energy Board Act (Canada), the Canadian Mainline, TQM, Foothills, and the Alberta System (collectively the "Systems") are regulated by the NEB. The NEB sets tolls that provide TCPL the opportunity to recover costs of transporting natural gas, including the return of capital (depreciation) and 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, and any incentive earnings.

Oil Pipelines
The NEB regulates the terms and conditions of service, including rates, and the physical operation of the Canadian portion of the Keystone system. NEB approval is also required for facility additions. The rates for

14    TransCanada PipeLines Limited



transportation service on the Keystone system are calculated in accordance with a methodology agreed to in transportation service agreements between Keystone and its shippers, and approved by the NEB.

United States

Natural Gas Pipelines
TCPL's wholly owned and partially owned U.S. pipelines, including the ANR, Bison, GTN, Great Lakes, Iroquois, Portland, Northern Border, North Baja and Tuscarora systems, are considered "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.

Oil Pipelines
The FERC also regulates the terms and conditions of service, including transportation rates, on the U.S. portion of the Keystone system. Certain states in which Keystone has rights of way also regulate construction and siting of Keystone.

Energy business

The Energy segment of our 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, and the development, construction, 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 10,800 MW of power generation capacity. Power plants and power supply in Canadian power account for approximately 65 per cent of this total, and power plants in U.S. power account for the balance, being approximately 35 per cent.

TCPL owns and operates the following facilities:

2011 Annual information form    15


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

TCPL has interests in the following:

Further information about the Company's energy holdings and significant developments and opportunities in relation to Energy can be found in the MD&A under the headings Energy, Energy – Highlights, Energy – Financial Analysis, and Energy – Opportunities and Developments.

16    TransCanada PipeLines Limited


General

Employees

At Year End, TCPL had approximately 4,300 full time active employees, substantially all of whom were employed in Canada and the U.S., as set forth in the following table.

   

Calgary

    1,955  

Western Canada (excluding Calgary)

    451  

Houston

    467  

U.S. Midwest

    440  

U.S. Northeast

    403  

Eastern Canada

    253  

U.S. Southeast/Gulf Coast

    246  

U.S. West Coast

    79  

Mexico and South America

    5  
   

Total

    4,299  
   

Social and environmental policies

Health, safety and environment ("HSE") are top priorities in all of TCPL's operations and business activities. These areas are guided by our HSE Commitment Statement, which outlines guiding principles for a safe and healthy environment for TCPL's employees, contractors and the public, and for our commitment to protect the environment. All employees are responsible for TCPL's HSE performance. We are committed to being an industry leader in conducting our business so that it meets or exceeds all applicable laws and regulations, and minimizes risk to the public, and the environment. We are committed to continually improving our HSE performance, and to promoting safety on and off the job, in the belief that all occupational injuries and illnesses are preventable. We endeavour to do business with companies and contractors that share our perspective and expectation on HSE performance and influence them to improve their collective performance. We are committed to respecting the diverse environments and cultures in which we operate and to support open communication with our stakeholders.

The Health, Safety and Environment Committee of our Board of Directors (the "Board") monitors compliance with the Company's HSE corporate policy through regular reporting. TCPL's integrated HSE management system is modeled after the International Organization for Standardization standard for environmental management systems, ISO 14001; and the Occupational Health and Safety Assessment Series (OHSAS 18001) for occupational health and safety. Our HSE management system conforms to external industry consensus standards and voluntary regulatory programs and complies with applicable legislated requirements and various other internal management systems. Resources are focused on the areas of significant risk to the organization's HSE business activities. Management is informed regularly of all important and/or significant HSE operational issues and initiatives through formal reporting and incident management processes. TCPL's HSE management system and performance are assessed by an independent outside firm every three years. The most recent assessment occurred in 2009 and did not identify any material issues. The HSE management system is subject to ongoing internal and external review to ensure that it remains effective as circumstances change.

As one of TCPL's priorities, safety is an integral part of the way our employees work. In 2011, one of our objectives was to sustain health and safety performance year over year. Overall, TCPL's safety frequency rates in 2011 continued to be better than most industry benchmarks.

The safety and integrity of our existing and newly-developed infrastructure is also a top priority. All new assets are designed, constructed and commissioned with full consideration given to safety and integrity, and are brought in service only after all necessary requirements have been satisfied. We expect to spend approximately $322 million in 2012 for pipeline integrity on pipelines we operate, an increase of approximately

2011 Annual information form    17



$78 million over 2011 primarily due to increased levels of in-line pipeline inspection on all systems. Under the approved regulatory models in Canada, non-capital pipeline integrity expenditures on our NEB-regulated pipelines are treated on a flow-through basis and, as a result, these expenditures have no impact on TCPL's earnings. Under the Keystone transportation contracts, pipeline integrity expenditures are recovered through the tolling mechanism and, as a result, these expenditures have no impact on TCPL's earnings. Our pipeline safety record in 2011 continued to be better than industry benchmarks. We experienced two pipeline breaks in 2011 on pipelines we operate. The first break occurred in a remote part of Northern Ontario on the Canadian Mainline pipeline system. The second break occurred in a remote part of Wyoming on the Bison pipeline system. Spending associated with public safety on the Energy assets is focused primarily on the Company's hydro dams and associated equipment and is slightly higher than previous years due to increased spending to repair damage from the high flow events of 2011 caused by Hurricane Irene.

Environmental controls including physical design, programs, procedures and processes are in place to effectively manage TCPL's environmental risk factors. With respect to physical risks arising from climate change, we have in place a set of procedures to manage our response to natural disasters such as forest fires, tornadoes, earthquakes, floods, volcanic eruptions and hurricanes regardless of cause. These procedures are included in TCPL's Operating Procedures and are part of the Company's Incident Management System. The procedures are in place to protect the health and safety of our employees and to limit the impact to the environment of any operational upsets caused by a natural disaster.

With respect to business opportunities, the Company has well established processes and criteria for assessing new business opportunities including those that may arise as a result of climate change policies. These processes have been and continue to be key contributors to our financial strength and success. Governments in North America are developing long-term plans for limiting greenhouse gas ("GHG") emissions. These plans, combined with a shift in consumer attitude and demand for low-emissions fuels, will require changes in energy supply and infrastructure. With the Company's experience in pipeline transmission and power generation, TCPL is well-positioned to participate in these opportunities.

Aboriginal, Native American and stakeholder engagement

We recognize that an enhanced level of engagement of a wide variety of stakeholders in our business activities can have a significant impact on the Company's ability to obtain approvals for new assets and to maintain our social licenses to operate. TCPL has a number of policies, guiding principles and practices in place to help manage stakeholder engagement. TCPL has adopted a code of business ethics which applies to our employees that is based on the Company's four core values of integrity, collaboration, responsibility and innovation, which guide the interaction between and among the Company's employees and serve as a standard for TCPL in our dealings with all stakeholders. The code may be viewed on our website (www.transcanada.com).

Our approach to stakeholder engagement is based on building relationships, mutual respect and trust while recognizing the unique values, needs and interests of each community. Key principles that guide TCPL's engagement include: the Company's respect for the diversity of Aboriginal/Native American communities and recognition of the importance of the land to these communities; and our belief in engaging stakeholders from the earliest stages of our projects, through the project development process and into operations.

Environmental protection

TCPL's facilities are subject to stringent federal, state, provincial, and local environmental statutes and regulations governing environmental protection, including, but not limited to, air emissions and GHG emissions, water quality, wastewater discharges and waste management. Such laws and regulations generally require facilities to obtain or comply with a wide variety of environmental registrations, licences, permits and other approvals and requirements. Failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties, the imposition of remedial requirements and/or the issuance of orders respecting future operations. We have ongoing inspection programs designed to keep all of our facilities in compliance with environmental requirements.

18    TransCanada PipeLines Limited


At December 31, 2011, TCPL recorded liabilities of approximately $69 million (2010 – $84 million) for remediation obligations and compliance costs associated with certain environmental regulations. We believe that the Company has considered all necessary contingencies and established appropriate reserves for environmental liabilities; however, there is the risk that unforeseen matters may arise requiring us to set aside additional amounts.

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

The Company owns assets in four regions, Alberta, Québec, B.C., and the Northeastern U.S., where regulations exist to address industrial GHG emissions. We have procedures in place to comply with these regulations. In Alberta, under the Specified Gas Emitters Regulation, industrial facilities emitting GHG emissions over an intensity threshold level are required to reduce the intensity of GHG emissions by 12 per cent below an average baseline. Our Alberta-based facilities are subject to this regulation, as are the Sundance and Sheerness coal-fired power facilities with respect to which TCPL has certain rights under power purchase arrangements. TCPL has a program in place to manage the compliance costs incurred by these assets as a result of the regulation. Compliance costs on the Alberta System are recovered through tolls paid by customers. Some of the compliance costs from the Company's power generation facilities in Alberta are recovered through market pricing and contract flow-through provisions. TCPL has estimated and recorded GHG emissions related costs of $13 million for 2011 (2010 – $22 million), after contracted cost recovery.

In Québec, the natural gas distributor collects the hydrocarbon royalty on behalf of the provincial government through a green fund contribution charge on gas consumed. In 2011, the cost pertaining to the Bécancour facility arising from the hydrocarbon royalty was less than $1 million as a result of an agreement between TCPL and Hydro-Québec to temporarily suspend the facility's power generation.

The carbon tax in B.C., which came into effect in mid-2008, applies to carbon dioxide ("CO2") emissions from fossil fuel combustion. Compliance costs for fuel combustion at the Company's compressor and meter stations in B.C. are recovered through tolls paid by customers. Costs related to the carbon tax in 2011 were approximately $3 million (2010 – $4 million). The cost per tonne of CO2 will be increased in July 2012 to $30.00 from $25.00.

States in the northeastern U.S. that are members of the Regional Greenhouse Gas Initiative ("RGGI") implemented a CO2 cap-and-trade program for electricity generators effective in January 2009. Under the RGGI, both the Ravenswood and Ocean State Power generation facilities were required to submit allowances following the end of the first compliance period on 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 $4 million in 2011 (2010 – $5 million). 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

Environmental risks from our operating facilities typically include: air emissions and GHG emissions; potential impacts on land, including land reclamation or restoration following construction; the use, storage and release of hydrocarbons or other chemicals; the generation, handling and disposal of wastes and hazardous wastes; and water impacts such as uncontrolled water discharge.

TCPL 's assets are located throughout North America and the Company's facility design must deal with different geographical areas. In northern regions, changing permafrost distribution due to warmer temperatures have been experienced, however, very few kilometers of our pipeline systems are currently in permafrost regions. If we build new facilities in northern areas, the Company's facility designs will take into account the potential for changing permafrost distribution.

2011 Annual information form    19


As mentioned above, our 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, and with damage claims arising from 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:

Changing legislation and regulations

The impact of new or proposed federal, state, and/or provincial safety and environmental laws, regulations, guidelines and enforcement in Canada and the U.S. on our business is not yet certain. We make assumptions about possible expenditures for safety and environmental matters based on current laws and regulations and interpretations thereof. If the laws or regulations or the interpretation thereof changes, the Company's assumptions may change. Incremental costs may or may not be recoverable under existing rate structures or commercial agreements. Proposed changes in environmental policy, legislation or regulation are routinely monitored by TCPL, and where the risks are potentially large or uncertain, the Company works independently or through industry associations to comment on proposals.

In April 2010, the Environmental Protection Agency ("EPA") published an Advanced Notice of Proposed Rulemaking to solicit comments with respect to EPA reassessment of current regulations under the Toxic Substances Control Act, governing the authorized use of polychlorinated biphenyls in certain equipment. Following a review of comments, the EPA has indicated that the use authorization for pipelines will likely remain in place but that requirements to use the authorization may become more strict. These changes would likely result in increased costs for our impacted pipelines. Proposed EPA rules are expected in 2012.

In Canada, development of the major elements of an Air Quality Management System ("AQMS") continued in 2011 following endorsement of the AQMS in October 2010 by the Canadian Council of Ministers of the Environment. Two key aspects of the AQMS are of particular interest to us: the Base Level Industry Emissions Standards, which assumes that all significant industrial sources of emissions in Canada should be expected to meet, base-level of environmental performance; and air zone management, which is intended to address the sources of air pollution and the actions that are required to ensure that a specified level of air quality is improved or maintained in a specified region. While our Canadian based facilities would likely be impacted by AQMS, the potential financial impact of this initiative is currently unknown.

Regulation of air pollutant emissions under the U.S. Clean Air Act and state regulations continue to evolve. A number of EPA initiatives could lead to impacts ranging from requirements to install enhanced emissions control equipment, to additional administrative and reporting requirements. At this time, there is insufficient detail to accurately determine the potential impacts of these initiatives. While the majority of the proposals are not expected to be material to TCPL, we anticipate additional future costs related to the monitoring and control of air emissions.

20    TransCanada PipeLines Limited


In addition to those climate change policies already in place, there are also federal, regional, state, and provincial initiatives currently in development. While recent political and economic events may significantly affect the scope and timing of new policies, we anticipate that most of the Company's facilities in Canada and the U.S. are or will be subject to federal and/or regional climate change regulations to manage industrial GHG emissions.

In August 2011, the Canadian government published the first sector specific draft regulation that will impact industrial GHG emissions. This proposed regulation is focused on the coal-fired generation of electricity and requires a natural gas performance standard for all coal-fired facilities reaching the end of their economic life. The draft regulation is expected to come into effect in July 2015. This process is not expected to pose a significant risk or financial impact to our existing facilities and may present opportunities for new power generation investment. Additional sectors, including the natural gas-fired generation of electricity and upstream oil and gas facility sectors, are expected to begin consultations with Environment Canada.

The Western Climate Initiative ("WCI") continues to work toward implementing a regional cap-and-trade program. California and Québec are the only WCI members with cap-and-trade regulations. In December 2011, the Government of Québec adopted the "Regulation respecting the cap-and-trade system for greenhouse gas emission allowances". The initial phase of the cap-and-trade system will begin January 1, 2013. The regulation will have a limited impact on TCPL's Bécancour power generation facility and natural gas pipeline assets. With respect to California, the Air Resources Board adopted a cap-and-trade regulation in October 2011. The regulation is divided into two phases: the first, beginning in 2013, will include all major industrial sources and electricity utilities; the second, starting in 2015, will cover distributors of transportation fuels, natural gas and other fuels. The regulation may impact the Company's importation of electricity into the state.

TCPL monitors climate change policy developments and, when warranted, participates in policy discussions in jurisdictions where we have operations. We are also continuing our programs to manage GHG emissions from our facilities and to evaluate new processes and technologies that result in improved efficiencies and lower GHG emission rates. For example, in 2011 TCPL participated in a number of multi-stakeholder expert groups that were established to develop equipment standards in Canada. TCPL participated both independently and through industry associations.

Other risk factors

A discussion of the Company's risk factors can be found in the MD&A under the headings Natural Gas Pipelines – Opportunities and Developments,Natural Gas Pipelines – Business Risks, Natural Gas Pipelines – Outlook,Oil Pipelines – Opportunities and Developments,Oil Pipelines – Business Risks,Oil 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. Currently, TransCanada's payment of dividends is primarily funded from dividends it receives as the sole common shareholder of TCPL. 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 TCPL's cumulative redeemable first preferred shares, series U (the "Series U Preferred Shares") are entitled to receive as and when declared by the Board, fixed cumulative cash dividends at an annual rate of $2.80 per share, payable quarterly. The dividends declared per share on TCPL's respective

2011 Annual information form    21



common shares, Series U Preferred Shares, and cumulative redeemable first preferred shares, series Y (the "Series Y Preferred Shares") during the past three completed financial years are set forth in the following table.

   
 
  2011
  2010
  2009
 
   

Dividends declared on common shares(1)

  $ 1.75   $ 1.67   $ 1.62  
   

Dividends declared on Series U Preferred Shares

  $ 2.80   $ 2.80   $ 2.80  
   

Dividends declared on Series Y Preferred Shares

  $ 2.80   $ 2.80   $ 2.80  
   
(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 703,861,065 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 Preferred Shares and 4,000,000 Series Y 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.

Series U Preferred Shares

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, the provisions described below.

The holders of the Series U Preferred Shares are entitled to receive dividends as set out above under Dividends.

The first preferred shares of each series rank on a parity with the first preferred shares of every other series, and are 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 Series U Preferred Shares 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 Series U Preferred Shares upon payment for each share at $50.00 per share.

Except as provided by the CBCA 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 Series U Preferred Shares.

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 sixty-six and two-thirds per cent of the first preferred shares represented and voted at a meeting or adjourned meeting of such holders.

22    TransCanada PipeLines Limited


Series Y Preferred Shares

The rights, privileges, restrictions and conditions attaching to the Series Y Preferred Shares are substantially identical to those attaching to the Series U Preferred Shares, except that the Series Y Preferred Shares 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, 2011.

   
Date Issued
  Issue Price per
$1,000 Principal
Amount of Notes

  Aggregate
Issue Price

 
   

November 15, 2011

    US$998.67(1)     US$500,000,000  
   

November 15, 2011

    US$994.00(1)     US$250,000,000  
   
(1)
These notes were issued under the same base prospectus supplement. Notes maturing in 2021 were issued at 99.867 per cent and notes maturing in 2041 were issued at 99.400 per cent.

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 current 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 & Poor's ("S&P"):

 
 
  DBRS
  Moody's
  S&P
 

Senior unsecured debt

           
 

Debentures

  A   A3   A-
 

Medium-term notes

  A   A3   A-
     

Junior subordinated notes

  BBB (high)   Baa1   BBB
     

Preferred shares

  Pfd-2 (low)   Baa2   P-2
     

Commercial paper

  R-1 (low)   -   A-2
     

Trending /rating outlook

  Stable   Stable   Stable
 

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.

The Company paid fees to each of DBRS, Moody's and S&P for the credit ratings rendered on each of the outstanding classes of securities noted above. No additional payments were made to DBRS, Moody's and S&P in respect of any other services provided to the Company during the past two years.

The information concerning the Company's credit ratings relates to the Company's financing costs, liquidity and operations. The availability of TCPL's funding options may be affected by certain factors, including the global capital market environment and outlook as well as the Company's financial performance. TCPL's access to capital markets at competitive rates is dependent on its credit rating and rating outlook, as determined by credit rating agencies such as DBRS, Moody's and S&P, and if TCPL's ratings were downgraded the Company's financing costs and future debt issuances could be unfavorably impacted. A description of the rating agencies' credit ratings listed in the table above is set out below.

2011 Annual information form    23



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 all rating categories other than AAA and D. 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 good credit quality. The overall strength is not as favourable as higher rating categories, but any qualifying negative factors that exist are considered manageable. 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 good credit quality. The capacity for the payment of interest and principal is substantial, but of lesser credit quality than that of AA rated securities. Long-term debt rated A may be vulnerable to future events but qualifying negative factors are considered manageable. 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. The capacity for the payment of interest and principal is considered acceptable, but it may be vulnerable to future events. 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. In general, Pfd-2 ratings correspond with long-term debt rated in the A category.

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 from Aa through Caa, with 1 being the highest and 3 being the lowest. The A3 rating assigned to TCPL's senior unsecured debt is in 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 from AA through CCC 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. As guarantor of a U.S. subsidiary's commercial paper program, TCPL has been assigned a commercial paper rating of A-2 which is the second highest of nine rating categories for short-term debt obligations. A short term debt rated A-2 is somewhat more susceptible to adverse effects of changes in economic conditions than higher rated categories; however, the capacity to meet all financial commitments remains satisfactory. 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.

24    TransCanada PipeLines Limited


Market for securities

TransCanada holds all of the common shares of TCPL and these are not listed on a public market. During 2011 and 2012 to date, 738,507,894 common shares of TCPL were issued to TransCanada as set out in the following table:

 
Date
  Number of TCPL Common Shares
  Price per TCPL Common Share
  Aggregate Issuance Price
 

December 15, 2011

  56,324,806   $41.61   $2,400,000,000

January 30, 2012

  6,509,161   $41.48   $270,000,000
 

TransCanada's common shares are listed on the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE") under the symbol "TRP". TransCanada's cumulative redeemable first preferred shares, series 1, 3 and 5have been listed for trading on the TSX since September 30, 2009, March 11, 2010 and June 29, 2010, under the symbols "TRP.PR.A", "TRP.PR.B", and "TRP.PR.C", respectively. 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 respective series 1, 3, and 5 preferred shares on the TSX, for the period indicated:

Common shares

   
 
  TSX (TRP)   NYSE (TRP)  
Month
  High
($)

  Low
($)

  Close
($)

  Volume
Traded

  High
(US$)

  Low
(US$)

  Close
(US$)

  Volume
Traded

 
   

December 2011

    44.74     42.03     44.53     38,155,545     43.95     40.55     43.67     10,540,577  

November 2011

    42.90     39.25     42.88     40,551,335     42.54     38.62     41.80     22,065,841  

October 2011

    44.10     39.81     42.37     41,926,225     44.38     37.58     43.04     15,887,005  

September 2011

    43.23     40.27     42.54     33,171,287     43.79     39.08     40.49     16,346,869  

August 2011

    42.36     37.00     42.36     41,333,472     43.20     37.29     43.15     26,402,340  

July 2011

    42.39     39.42     40.14     32,882,839     44.08     40.66     41.95     8,871,558  

June 2011

    43.72     41.07     42.35     33,597,026     45.09     41.76     43.84     8,832,316  

May 2011

    43.48     40.75     43.39     27,895,419     44.97     42.10     44.83     7,444,917  

April 2011

    40.71     38.95     40.71     24,366,705     43.02     40.37     42.94     7,523,263  

March 2011

    39.64     37.73     39.31     36,681,641     40.76     37.88     40.53     12,204,704  

February 2011

    39.19     36.53     39.04     37,966,180     40.32     36.76     40.21     9,750,606  

January 2011

    38.40     36.10     36.55     32,309,382     38.61     36.12     36.54     8,313,201  
   

Series 1 preferred shares

   
 
  TSX (TRP.PR.A)  
Month
  High
($)

  Low
($)

  Close
($)

  Volume
Traded

 
   

December 2011

    26.50     25.85     26.21     154,033  

November 2011

    26.38     25.66     26.02     215,475  

October 2011

    26.05     25.71     25.97     305,469  

September 2011

    26.32     25.78     25.85     221,164  

August 2011

    26.28     25.65     25.85     156,599  

July 2011

    26.20     25.81     26.07     226,612  

June 2011

    26.24     25.68     25.94     278,119  

May 2011

    26.25     25.65     25.66     1,207,022  

April 2011

    26.00     25.70     25.80     172,341  

March 2011

    26.00     25.40     25.75     282,270  

February 2011

    26.36     25.40     25.64     479,357  

January 2011

    26.25     25.75     26.21     601,031  
   

2011 Annual information form    25


Series 3 preferred shares

   
 
  TSX (TRP.PR.B)  
Month
  High
($)

  Low
($)

  Close
($)

  Volume
Traded

 
   

December 2011

    25.89     24.94     25.75     165,577  

November 2011

    25.45     24.97     25.16     359,674  

October 2011

    25.39     24.96     25.25     350,993  

September 2011

    25.38     25.00     25.12     221,672  

August 2011

    25.67     24.81     25.01     278,636  

July 2011

    25.92     25.15     25.67     501,178  

June 2011

    25.54     24.93     25.20     343,637  

May 2011

    25.44     24.85     24.99     326,765  

April 2011

    25.39     24.93     25.20     328,708  

March 2011

    25.20     24.42     24.96     389,964  

February 2011

    25.35     24.36     24.79     336,606  

January 2011

    25.48     24.70     25.02     499,120  
   

Series 5 preferred shares

   
 
  TSX (TRP.PR.C)  
Month
  High
($)

  Low
($)

  Close
($)

  Volume
Traded

 
   

December 2011

    26.67     25.58     25.80     175,643  

November 2011

    25.98     25.45     25.84     388,764  

October 2011

    25.60     25.00     25.49     696,761  

September 2011

    26.44     25.27     25.46     281,423  

August 2011

    26.00     25.45     25.77     308,562  

July 2011

    26.10     25.50     25.88     199,978  

June 2011

    26.10     25.33     25.56     170,757  

May 2011

    25.90     25.45     25.80     450,511  

April 2011

    25.73     25.27     25.52     154,113  

March 2011

    25.89     25.19     25.73     724,705  
   

February 2011

    25.76     25.12     25.39     378,470  

January 2011

    26.15     25.28     25.49     541,030  
   

In addition, the Series U Preferred Shares and Series Y Preferred Shares are listed on the TSX under the symbols "TCA.PR.X" and "TCA.PR.Y", respectively. 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

   
 
  Series U (TCA.PR.X)   Series Y (TCA.PR.Y)  
Month
  High
($)

  Low
($)

  Close
($)

  Volume
Traded

  High
($)

  Low
($)

  Close
($)

  Volume
Traded

 
   

December 2011

    53.25     52.01     52.22     30,890     53.26     52.16     52.75     32,847  

November 2011

    53.20     50.00     52.86     37,032     53.34     52.12     52.72     47,968  

October 2011

    52.49     50.65     52.33     38,222     52.59     51.01     52.16     35,562  

September 2011

    52.21     50.87     51.05     35,488     53.27     50.90     51.39     41,283  

August 2011

    51.79     50.25     51.06     64,190     51.99     50.30     51.31     72,989  

July 2011

    50.65     50.04     50.42     56,925     50.74     50.01     50.12     52,823  

June 2011

    51.06     50.04     50.29     70,166     51.11     49.93     50.10     50,688  

May 2011

    50.94     50.04     50.52     44,395     50.79     49.96     50.63     69,084  

April 2011

    50.35     49.95     50.24     127,788     50.44     49.95     50.25     92,921  

March 2011

    50.60     49.82     49.91     164,677     50.61     49.80     49.91     157,497  

February 2011

    50.65     50.01     50.29     157,372     51.00     50.10     50.30     187,789  

January 2011

    50.60     49.78     50.38     65,989     50.80     49.50     50.60     93,867  
   

26    TransCanada PipeLines Limited


Directors and officers

As of February 17, 2012, the directors and officers of TransCanada as a group beneficially owned, or exercised control or direction, directly or indirectly, over an aggregate of 551,756 common shares of TransCanada. This constitutes less than one per cent of TransCanada's common shares. The Company collects this information from our directors and officers but otherwise we have no direct knowledge of individual holdings of TransCanada's securities.

Directors

The following table sets forth the names of the 14 directors who serve on the Board as at the date hereof, together with their jurisdictions of residence, all positions and offices held by them with TCPL and the Company's 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.

   
Name and
place of residence

  Principal occupation during the five preceding years
  Director since
 
   
Kevin E. Benson
Calgary, Alberta
Canada
  President and Chief Executive Officer, Laidlaw International, Inc. (transportation services) from June 2003 to October 2007. Director, Calgary Airport Authority.     2005  
   
Derek H. Burney(1), O.C.
Ottawa, Ontario
Canada
  Senior strategic advisor at Norton Rose Canada LLP (law firm). Chair (not a Director), International Advisory Board for Garda World Consulting and Investigation/Global Risks Group, a division of Garda World Security Corporation since 2008. Chair, Canwest Global Communications Corp. (communications) from August 2006 (director since April 2005) to October 2010 and lead director at Shell Canada Limited (oil and gas) from April 2001 to May 2007.     2005  
   
Wendy K. Dobson
Uxbridge, Ontario
Canada
  Professor, Rotman School of Management. Director, Institute for International Business, University of Toronto and Director, the Toronto-Dominion Bank. Vice Chair, Canadian Public Accountability Board until February 2010 and Chair of the Audit Committee of the same organization from 2003 to 2009.     1992  
   
E. Linn Draper
Lampasas, Texas
U.S.
  Director, Alliance Data Systems Corporation (data processing and services) and Director, Alpha Natural Resources, Inc. (mining). Chair, NorthWestern Corporation (conducting business as NorthWestern Energy) (oil and gas).     2005  
   
The Hon. Paule Gauthier,
P.C., O.C., O.Q., Q.C.
Québec, Québec
Canada
  Senior Partner, Stein Monast L.L.P. (law firm). Director, Metro Inc., Royal Bank of Canada, Care Canada and the Fondation du Musée national des beaux-arts du Québec. Director, Institut Québecois des Hautes Études Internationales, Laval University from 2002 until 2009 and RBC Dexia Investors Trust until October 2009.     2002  
   
Russell K. Girling
Calgary, Alberta
Canada
  President and Chief Executive Officer, TransCanada since July 1, 2010. Chief Operating Officer from July 2009 to June 30, 2010 and President, Pipelines from June 2006 to June 30, 2010. Director, Agrium Inc.     2010  
   
S. Barry Jackson
Calgary, Alberta
Canada
  Chair of the Board, TransCanada since April 2005. Director, Nexen Inc. (oil and gas) and Director, WestJet Airlines Ltd. Director Cordero Energy Inc. from April 2005 to September 2008.     2002  
   
Paul L. Joskow
New York, New York
U.S.
  Economist and President of the Alfred P. Sloan Foundation. Professor of Economics, Emeritus, Massachusetts Institute of Technology (MIT) where he has been on the faculty since 1972. Director, Exelon Corporation (energy), and a trustee of Putnam Mutual Funds. Director of the MIT Center for Energy and Environmental Policy Research from 1999 to 2007 and Director of National Grid plc from 2000 to 2007.     2004  
   

2011 Annual information form    27


   
Name and
place of residence

  Principal occupation during the five preceding years
  Director since
 
   
John A. MacNaughton(2), C.M.
Toronto, Ontario
Canada
  Chair of the Business Development Bank of Canada. Chair of the Independent Nominating Committee of the Canada Employment Insurance Financing Board since 2008. Member of the Prime Minister's Advisory Committee on the Public Service. Chair, CNSX Markets Inc. (formerly the Canadian Trading and Quotation System Inc.) (stock exchange) from 2006 to July 2010. Director, Nortel Networks Corporation and Nortel Networks Limited (the principal operating subsidiary of Nortel Networks Corporation) (technology) from 2005 to September 2010.     2006  
   
David P. O'Brien(4)
Calgary, Alberta
Canada
  Chair, Encana Corporation (oil and gas) since April 2002 and Chair, Royal Bank of Canada since February 2004. Director, Molson Coors Brewing Company, and Enerplus Corporation. Member of the Science, Technology and Innovation Council of Canada.     2001  
   
Paula Rosput Reynolds
Seattle, Washington
U.S.
  President and Chief Executive Officer of PreferWest, LLC (business advisory group) since October 2009. Director of Anadarko Petroleum Corporation, Delta Air Lines, Inc. and BAE Systems plc. Vice Chairman and Chief Restructuring Officer of American International Group Inc. (insurance and financial services) from October 2008 to September 2009. President and Chief Executive Officer of Safeco Corporation (insurance) from 2006 to 2008.     2011  
   
W. Thomas Stephens(3)
Greenwood Village, Colorado
U.S.
  Trustee, Putnam Mutual Funds. Chair and Chief Executive Officer of Boise Cascade, LLC (paper, forest products and timberland assets) from November 2004 to November 2008. Director, Boise Inc. from February 2008 until April 2010.     2007 (3)
   
D. Michael G. Stewart
Calgary, Alberta
Canada
  Director, Canadian Energy Services & Technology Corp., Pengrowth Energy Corporation and C&C Energia Ltd. Director, Orleans Energy Ltd. from October 2008 to December 2010. Director, Pengrowth Corporation (the administrator of Pengrowth Energy Trust) from October 2006 to December 2010. Director, Canadian Energy Services Inc. (the general partner of Canadian Energy Services L.P.) from January 2006 to December 2009.     2006  
   
Richard E. Waugh
Toronto, Ontario
Canada
  President and Chief Executive Officer and director of The Bank of Nova Scotia (Scotiabank) since March 2003. Director and President, International Monetary Conference. Vice-Chair, Board of the Institute of International Finance.     2012  
   
(1)
Canwest Global Communications Corp. ("Canwest") voluntarily entered into the Companies' Creditors Arrangement Act ("CCAA") and obtained an order from the Ontario Superior Court of Justice (Commercial Division) to start proceedings on October 6, 2009. Although no cease trade orders were issued, Canwest shares were de-listed by the TSX after the filing and started trading on the TSX Venture Exchange. Canwest emerged from CCAA protection, and Postmedia Network acquired its newspaper business on July 13, 2010 while Shaw Communications Inc. acquired its broadcast media business on October 27, 2010. Mr. Burney ceased to be a director of Canwest on October 27, 2010.
(2)
Nortel Networks Limited was 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 some of Nortel's 2005 financial statements. The order was revoked by the OSC on June 8, 2006, and the other provincial securities regulators shortly after. On January 14, 2009, Nortel and some of its Canadian subsidiaries filed for creditor protection under CCAA. The creditor protection proceedings related to this filing are ongoing.
(3)
Mr. Stephens previously served on the Board from 2000 to 2005.
(4)
Air Canada filed for protection under the CCAA and applicable bankruptcy protection statutes in the U.S. in April 2003. Mr. O'Brien resigned as a director of Air Canada on November 26, 2003.

28    TransCanada PipeLines Limited


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 February 13, 2012, are identified below:

 
Director
  Audit
Committee

  Governance
Committee

  Health, Safety
and Environment
Committee

  Human Resources
Committee

 
Kevin E. Benson   Chair   ü        
 
Derek H. Burney   ü   ü        
 
Wendy K. Dobson           ü   ü
 
E. Linn Draper   ü       Chair    
 
Paule Gauthier           ü   ü
 
S. Barry Jackson       ü       ü
 
John A. MacNaughton   ü   Chair        
 
David P. O'Brien       ü       ü
 
Paula Rosput Reynolds           ü   ü
 
W. Thomas Stephens           ü   Chair
 
D. Michael G. Stewart   ü       ü    
 
Richard E. Waugh       ü        
 

The charters of the Audit Committee, Governance Committee, the Health, Safety and Environment Committee and the Human Resources Committee can be found on our website (www.transcanada.com) under Corporate Governance – Board Committees. 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 our website.

Officers

All of the executive officers and corporate officers of TCPL reside in Calgary, Alberta, Canada, with the exception of Mr. Hobbs who resides in Houston, Texas, U.S. References to positions and offices with TCPL prior to May 15, 2003 are references to the positions and offices held with TCPL. Current positions and offices

2011 Annual information form    29



held with TCPL are also held by such person at TCPL. 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:

Executive officers

 
Name
  Present position held
  Principal occupation during the five preceding years
 

Russell K. Girling

  President and Chief Executive Officer   Prior to July 2010, Chief Operating Officer since July 2009 and President, Pipelines since June 2006. Prior to June 2006, Executive Vice-President and Chief Financial Officer, Corporate Development, since March 2003 and Chief Financial Officer, since August 1999.
 

Wendy L. Hanrahan(1)

  Executive Vice-President, Corporate Services   Prior to May 2011, Vice-President, Human Resources since January 2005.
 

Gregory A. Lohnes

  President, Natural Gas Pipelines   Prior to July 2010, Executive Vice-President and Chief Financial Officer since June 2006.
 

Donald R. Marchand

  Executive Vice-President and Chief Financial Officer   Prior to July 2010, Vice-President, Finance and Treasurer since September 1999.
 

Dennis J. McConaghy

  Executive Vice-President, Corporate Development   Prior to July 2010, Executive Vice-President, Pipeline Strategy and Development.
 

Sean McMaster

  Executive Vice-President, General Counsel and Chief Compliance Officer, and Executive Vice-President, Stakeholder Relations   Prior to February 2012, Executive Vice-President, Corporate and General Counsel and Chief Compliance Officer. Prior to January 2007, Executive Vice-President and General Counsel and Chief Compliance Officer. Prior to October 2006, General Counsel and Chief Compliance Officer.
 

Alexander J. Pourbaix

  President, Energy and Oil Pipelines   President, Energy from July 2006 to July 2010 and Executive Vice-President, Corporate Development from July 2009 to July 2010.
 

Donald M. Wishart

  Executive Vice-President, Operations and Major Projects   Prior to July 2009, Executive Vice-President, Operations and Engineering since March 2003.
 
(1)
Ms. Hanrahan has held the position of Executive Vice-President, Corporate Services since May 1, 2011, upon the retirement of Ms. Sarah Raiss who had held the position since January 2002.

30    TransCanada PipeLines Limited


Corporate officers

 
Name
  Present position held
  Principal occupation during the five preceding years
 

Sean M. Brett

  Vice-President and Treasurer   Prior to July 2010, Vice-President, Commercial Operations of TC PipeLines GP, Inc., and Director, LP Operations of TCPL. Prior to December 2009, Director, Joint Venture Management, Keystone Pipeline Project of TCPL. Prior to December 2008, Vice-President and Treasurer of TC PipeLines GP, Inc.
 

Ronald L. Cook

  Vice-President, Taxation   Vice-President, Taxation since April 2002.
 

Donald J. DeGrandis

  Vice-President and Corporate Secretary   Prior to February 2009, Corporate Secretary since June 2006.
 

Lee G. Hobbs

  President, U.S. Natural Gas Pipelines   Senior Vice-President and General Manager, U.S. Pipelines, Pipelines Division, TCPL, June 2009 to July 2010. Vice-President and General Manager, U.S. Pipelines Central, Pipelines Division, TCPL, March 2007 to June 2009. President, Great Lakes Gas Transmission Company and Great Lakes Gas Transmission Limited Partnership, September 2006 to March 2007.
 

Joel E. Hunter

  Vice-President, Finance   Director, Corporate Finance, January 2008 to July 2010. Prior to January 2008, Senior Analyst, Corporate Finance. Prior to January 2007 Mr. Hunter held a number of positions of increasing responsibility with TransCanada's Finance and Treasury Group.
 

Garry E. Lamb

  Vice-President, Risk Management   Vice-President, Risk Management since October 2001.
 

G. Glenn Menuz

  Vice-President and Controller   Vice-President and Controller since June 2006.
 

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 CBCA. 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 our tariff, deny transportation service to a creditworthy shipper. Further, due to the specialized nature of the industry, TCPL believes that it is important for our 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.

2011 Annual information form    31


Corporate governance

Information about TCPL's corporate governance, including the Company's Board committees and their charters, can be found on our website (www.transcanada.com) under the heading Corporate Governance or at Schedule B to this AIF.

Audit committee

The Audit Committee is responsible for assisting the Board in overseeing the integrity of our financial statements and our compliance with legal and regulatory requirements. It is also responsible for overseeing and monitoring the internal accounting and reporting process and the process, performance and independence of our internal and external auditors. The charter of the Audit Committee can be found in Schedule C of this AIF and on our website (www.transcanada.com) under the Corporate Governance – Board Committees page.

Relevant education and experience of members

The members of the Audit Committee as of February 13, 2012 are 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 TransCanada, of each member of the Audit Committee that is relevant to the performance of his 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 The Insurance Corporation of British Columbia 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 Norton Rose Canada LLP. Mr. Burney previously served as President and Chief Executive Officer of CAE Inc. and as Chair and Chief Executive Officer of Bell Canada International Inc. Mr. Burney was the lead director at Shell Canada Limited until May 2007 and was the Chair of Canwest Global Communications Corp. until October 2010. He has served on one other organization's audit committee, and has participated in Financial Reporting Standards Training offered by KPMG.

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 Chair, President and Chief Executive Officer of American Electric Power Co., Inc. until 2004. He previously served as Chair, President and Chief Executive Officer of Gulf States Utilities Company. Dr. Draper has served and continues to serve on several other public company boards.

32    TransCanada PipeLines Limited


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 a Professor of Economics, Emeritus, at 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 Chair of the Business Development Bank of Canada, and was Chair of CNSX Markets Inc. (formerly Canadian Trading and Quotation System Inc.) until July 2010. 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.

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. Mr. Stewart held a number of senior executive positions with Westcoast Energy Inc. including Executive Vice-President, Business Development. He has been active in the Canadian energy industry for over 38 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.

2011 Annual information form    33



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 2011 and 2010 fiscal years.

   
($ millions)
  2011
  2010
 
   

Audit fees
•    audit of the annual consolidated financial statements
•    services related to statutory and regulatory filings or engagements
•    reviewing interim consolidated financial statements and information contained in various prospectuses and other offering documents

  $ 6.9   $ 6.5  
   

Audit-related fees
•    services related to the audit of the financial statements of certain TransCanada pension plans

    0.2     0.2  
   

Tax fees
•    Canadian and international tax planning and tax compliance matters, including the review of income tax returns and other tax filings

    0.4     1.0  
   

All other fees
•    services related to environmental compliance in 2011 and advice and training related to International Financial Reporting Standards in 2010

    0.1     0.2  
   

Total fees

  $ 7.6   $ 7.9  
   

Loans to directors and executive officers

Information relating to the indebtedness of directors and executive offices to TCPL and its subsidiaries is provided in Schedule D to this AIF under the heading Loans to directors and executive officers.

Securities owned by directors

Information relating to the securities of TCPL and its subsidiaries owned by directors is provided in the attached Schedule D to this AIF under the heading Securities owned by directors.

Compensation of directors

Information relating to the compensation of directors, including information regarding compensation paid by TCPL to directors in 2011, the Company's minimum share ownership guidelines and TCPL's share unit plan for non-employee directors, is provided in Schedule D to this AIF under the heading Compensation of directors.

Executive compensation discussion and analysis

Information relating to TCPL's compensation governance is provided in Schedule E to this AIF. Information relating to TCPL's executive compensation is provided in Schedule F to this AIF under the heading Executive compensation discussion and analysis, which is excerpted from TransCanada's Management Information Circular dated February 13, 2012 ("Information Circular"). Board and committee meetings of TransCanada and TCPL run concurrently. TCPL is the principal operating subsidiary of TransCanada.

Executive officers of TCPL also serve as executive officers of TransCanada. An aggregate remuneration is paid for serving as an executive of TCPL and for service as an executive officer of TransCanada. Since TransCanada does not hold any material assets directly other than the common shares of TCPL and receivables from certain of TransCanada's subsidiaries, all executive employee costs are assumed by TCPL according to a management services agreement between the two companies.

34    TransCanada PipeLines Limited


Legal proceedings and regulatory actions

TCPL and its subsidiaries are subject to various legal proceedings and regulatory actions arising in the normal course of business. While the final outcome of such legal proceedings and regulatory actions cannot be predicted with certainty and there can be no assurance that such matters will be resolved in TCPL's favour, it is the opinion of TCPL's management that the resolution of such proceedings and regulatory actions will not have a material impact on TransCanada's consolidated financial position, results of operations or liquidity.

The Company believes that TransAlta's claims with respect to Sundance A do not meet the test of force majeure or destruction as specified in the power purchase arrangement and has therefore recorded revenues and costs throughout 2011 under the power purchase arrangement as though this event was an interruption of supply. While the outcome of any arbitration process is not certain, TCPL believes the matter will be resolved in its favour.

Further information about the Sundance arbitration can be found in this AIF under the heading Developments in the Energy Business and in the MD&A under the heading Energy – Opportunities and Developments.

Transfer agent and registrar

TCPL's transfer agent and registrar is Computershare Trust Company of Canada with its Canadian transfer facilities in the cities of Vancouver, Calgary, Toronto, and Montréal.

Interest of experts

TCPL's auditors, KPMG LLP, have confirmed that they are independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Alberta.

Additional information

1.
Additional information in relation to TCPL may be found under TCPL's profile on SEDAR (www.sedar.com).

2.
Additional financial information is provided in TCPL's audited consolidated financial statements and MD&A for its most recently completed financial year.

2011 Annual information form    35


Glossary

AIF

  Annual Information Form of TransCanada PipeLines Limited dated February 17, 2012

Alaska Pipeline

 

A proposed natural gas pipeline extending from Prudhoe Bay, Alaska to either Alberta or Valdez, Alaska

Alberta System

 

A natural gas transmission system in Alberta and B.C.

ANR

 

A natural gas transmission system extending from producing fields located primarily in Texas, Oklahoma, the Gulf of Mexico and U.S. midcontinent region to markets located primarily in Wisconsin, Michigan, Illinois, Indiana and Ohio, and regulated underground natural gas storage facilities in Michigan

AQMS

 

Air Quality Management System

B.C.

 

British Columbia

BPRIA

 

Bruce Power Refurbishment Implementation Agreement

Bcf

 

Billion cubic feet

Bécancour

 

A natural gas-fired cogeneration plant near Trois-Rivières, Québec

Bison

 

A natural gas pipeline extending from the Powder River Basin in Wyoming to Northern Border in North Dakota

Board

 

TransCanada's Board of Directors

Bruce A

 

A partnership interest in a nuclear power generation facility consisting of Units 1 to 4 of Bruce Power (Bruce Power A L.P.)

Bruce B

 

A partnership interest in a nuclear power generation facility consisting of Units 5 to 8 of Bruce Power (Bruce Power L.P.)

Bruce Power

 

A nuclear power generating facility located northwest of Toronto, Ontario (Bruce A and Bruce B, collectively)

Canadian Mainline

 

A natural gas transmission system extending from the Alberta/Saskatchewan border east into Québec

Canwest

 

Canwest Global Communications Corp.

Cartier Wind

 

Five wind farms in Gaspé, Québec, four plus the first phase of the fifth which are operational and phase two of the fifth under construction

CBCA

 

Canada Business Corporations Act

CCAA

 

Companies' Creditors Arrangement Act

CEO

 

Chief Executive Officer

CFO

 

Chief Financial Officer

CO2

 

Carbon dioxide

Coolidge

 

A simple-cycle, natural gas-fired peaking power generation station in Coolidge, Arizona

CSA

 

Canadian Securities Administrators

Cushing Extension

 

A crude oil pipeline extending from Steele City, Nebraska to Cushing, Oklahoma

DBRS

 

DBRS Limited

DSU(s)

 

Deferred share unit(s)

Energy

 

As defined in this AIF under the heading General development of the business

EPA

 

Environmental Protection Agency (U.S.)

ESU(s)

 

Executive share unit(s) executive leadership team TCPL's CEO and executive vice-presidents

executive leadership team

 

TCPL's President and CEO and executive vice-presidents

FERC

 

Federal Energy Regulatory Commission (U.S.)

36    TransCanada PipeLines Limited


Foothills

 

A natural gas transmission system extending from central Alberta to the B.C./U.S. border and to the Saskatchewan/U.S. border

GHG

 

Greenhouse gas

Great Lakes

 

A natural gas transmission system that connects to the Canadian Mainline and serves markets in Eastern Canada and the northeastern and midwestern U.S.

GTN

 

A natural gas transmission system extending from the B.C./Idaho border to the Oregon/California border, traversing Idaho, Washington and Oregon

Guadalajara

 

A natural gas pipeline in Mexico extending from Manzanillo, Colima to Guadalajara, Jalisco

Halton Hills

 

A natural gas-fired, combined-cycle power plant in Halton Hills, Ontario

HSE

 

Health, safety and environment

Hydro-Québec

 

Hydro-Québec Distribution

Information Circular

 

TransCanada's Management Information Circular dated February 13, 2012

Iroquois

 

A natural gas transmission system that connects with the Canadian Mainline near Waddington, New York, and delivers natural gas to the northeastern U.S.

JHSEC

 

Joint Health, Safety and Environment Committee

Keystone

 

A crude oil pipeline system which extends from Hardisty, Alberta to the U.S. markets and includes Wood River/Patoka and the Cushing Extension

Keystone XL

 

Keystone XL includes the construction of a new crude oil pipeline from Cushing, Oklahoma to the U.S. Gulf Coast, the expansion of existing facilities at Hardisty, Alberta and the construction of a new crude oil pipeline from Hardisty to Steele City, Nebraska

Kibby Wind

 

A wind farm located in Kibby and Skinner townships in northwestern Franklin County, Maine

km

 

Kilometer(s)

Mackenzie Gas Project

 

A proposed natural gas pipeline extending from a point near Inuvik, Northwest Territories to the northern border of Alberta

MD&A

 

TCPL's Management's Discussion and Analysis dated February 13, 2012

MMcf/d

 

Million cubic feet per day

Moody's

 

Moody's Investors Service, Inc.

MW

 

Megawatt(s)

Natural Gas Pipelines

 

As defined in this AIF under the heading General development of the business

NEB

 

National Energy Board

NI 58-101

 

National Instrument 58-101, Disclosure of Corporate Governance Practices

North Baja

 

A natural gas transmission system extending from Arizona to the Baja California, Mexico/California border

Northern Border

 

A natural gas transmission system extending from a point near Monchy, Saskatchewan to the U.S. Midwest

NGTL

 

Nova Gas Transmission Ltd.

Nortel

 

Nortel Networks Limited and Nortel Networks Corporation, collectively

NYISO

 

New York Independent System Operator

NYSE

 

New York Stock Exchange

Ocean State Power

 

A natural gas-fired, combined-cycle plant in Burrillville, Rhode Island

Oil Pipelines

 

As defined in this AIF under the heading General Development of the Business

OPA

 

Ontario Power Authority

OSC

 

Ontario Securities Commission

Portland

 

A natural gas transmission system extending from a point near East Hereford, Québec to the northeastern U.S.

2011 Annual information form    37


Portlands Energy

 

A natural gas-fired, combined-cycle power plant in Toronto, Ontario

Ravenswood

 

A natural gas-and oil-fired generating facility consisting of multiple units employing steam turbine, combined-cycle and combustion turbine technology located in Queens, New York

Restructuring Proposal

 

Canadian Mainline 2012 Tolls Application and Restructuring Proposal

RGGI

 

Regional Greenhouse Gas Initiative

S&P

 

Standard & Poor's

SEC

 

U.S. Securities and Exchange Commission

Series U Preferred Shares

 

TCPL's cumulative, redeemable, first preferred shares, series U

Series Y Preferred Shares

 

TCPL's cumulative, redeemable, first preferred shares, series Y

Sheerness

 

A coal-fired power generating facility near Hanna, Alberta

subsidiary

 

As defined in this AIF under the heading Presentation of information

Sundance

 

Two coal-fired power generating facilities near Wabamun, Alberta (Sundance A and Sundance B, collectively)

Systems

 

As defined in this AIF under the heading Regulation of the Natural Gas and Oil Pipelines businesses

TCPL

 

TransCanada PipeLines Limited

TQM

 

A natural gas transmission system that connects with the Canadian Mainline near the Québec/Ontario border and transports natural gas to markets in Québec, and connects with Portland

TransCanada or the Company

 

TransCanada Corporation

TransAlta

 

TransAlta Corporation

TSX

 

Toronto Stock Exchange

Tuscarora

 

A natural gas transmission system extending from Malin, Oregon to Wadsworth, Nevada

U.S. or US

 

United States

U.S. GAAP

 

U.S. generally accepted accounting principles

WCI

 

Western Climate Initiative

Wood River/Patoka

 

A crude oil pipeline extending from Hardisty, Alberta to U.S. Markets at Wood River and Patoka in Illinois

Year End

 

December 31, 2011

38    TransCanada PipeLines Limited



Schedule A

Metric Conversion Table

The conversion factors set out below are approximate factors. To convert from Metric to Imperial multiply by the factor indicated. To convert from Imperial to Metric divide by the factor indicated.

 
Metric
  Imperial
  Factor
 
Kilometres (km)   Miles   0.62
 
Millimetres   Inches   0.04
 
Gigajoules   Million British thermal units   0.95
 
Cubic metres*   Cubic feet   35.3
 
Kilopascals   Pounds per square inch   0.15
 
Degrees Celsius   Degrees Fahrenheit   to convert to Fahrenheit multiply by 1.8,
then add 32 degrees; to convert to Celsius
subtract 32 degrees, then divide by 1.8
 
*
The conversion is based on natural gas at a base pressure of 101.325 kilopascals and at a base temperature of 15 degrees Celsius.

2011 Annual information form    39



Schedule B

Corporate Governance

About our governance practices

Our Board and management are committed to the highest standards of ethical conduct and corporate governance.

TCPL is a public company listed on the TSX and the NYSE, and we recognize and respect rules and regulations in both Canada and the U.S.

Our corporate governance practices comply with the Canadian governance guidelines, which include the governance rules of the CSA:

We also comply with the governance listing standards of the NYSE and the governance rules of the SEC that apply to foreign private issuers.

Our governance practices comply with the NYSE standards for U.S. companies in all significant respects, except as summarized on our website (www.transcanada.com). As a non-U.S. company, we are not required to comply with most of the governance listing standards of the NYSE. As a foreign private issuer, however, we must disclose how our governance practices differ from those followed by U.S. companies that are subject to the NYSE standards.

We benchmark our policies and procedures against major North American companies to assess our standards and we adopt best practices as appropriate. Some of our best practices are derived from the NYSE rules and comply with applicable rules adopted by the SEC to meet the requirements of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Board characteristics

The characteristics of our Board and its members exemplify strong principles of corporate governance:

Size and composition

TCPL's articles state that the Board must have 10 to 20 directors.

We believe our Board must consist of qualified and knowledgeable directors. This includes directors with direct experience in the oil and gas, pipelines and power sectors.

Independence

An independent board is a fundamental principle of governance. We believe that the majority of our directors must be independent within the meaning of "independence" in NI 58-101, and consistent with the independence criteria of the regulations of the SEC and rules of the NYSE.

40    TransCanada PipeLines Limited


The Governance Committee and the Board review the independence of every board member and nominated director against these criteria once a year. It also reviews family relationships and possible associations with companies that have relationships with TCPL when it reviews director independence.

The Board has determined that all of the nominated directors are independent, except for Mr. Girling because of his role as President and Chief Executive Officer ("CEO"). None of the directors have a direct or indirect material relationship with TCPL that could reasonably be expected to interfere with the exercise of their independent judgment.

Independent Chair

The Chair is appointed by the Board, and serves in a non-executive capacity. We have had separate Chair and CEO positions since our incorporation in 2003 and at our predecessor company since 1994. Mr. Jackson has served as the independent non-executive Chair since April 30, 2005.

In 2011, the independent directors met separately before and after every regularly scheduled Board meeting. All of the directors are available to meet with management as required.

Independent advice

The Board and each of its four standing committees can retain independent advisors to assist it in carrying out its duties and responsibilities.

Serving on other boards

As of 2012, our directors are limited to serving on a total of six public company boards to ensure we do not have overboarding or interlocking relationships that would conflict with a director's independence or interfere with fulfilling duties and responsibilities for our Board. We discuss the time commitment and duties and responsibilities with every candidate so they have a full understanding of the role and our expectations of directors. The Governance Committee monitors director relationships to ensure their business associations do not hinder their role as a director of TCPL or Board performance overall.

The Board believes that it is important for it to be composed of qualified and knowledgeable directors. As a result, due to the specialized nature of the industry, some of the nominated directors are associated with or sit on the boards of companies that ship natural gas or crude oil through our pipeline systems. Since we are a regulated carrier in Canada and the U.S., we cannot deny transportation service to a creditworthy shipper. The Governance Committee monitors relationships among directors to ensure that business associations do not affect the Board's performance.

If a director declares that they have an interest in a material contract or transaction that is being considered by the Board, the director leaves the meeting when the matter is being discussed and voted on.

See the director profiles in the Business of the meeting — The nominated directors section of the Information Circular for the other public company boards each nominated director serves on.

Governance philosophy

TCPL believes that effective corporate governance improves corporate performance and benefits all shareholders. We believe that honesty and integrity are vital to ensuring good corporate governance.

The Board has formally adopted the corporate governance guidelines recommended by the Governance Committee. These guidelines address the structure and composition of the Board and its committees, and clarify the responsibilities of the Board and management.

Ethical business conduct

Our codes of business ethics incorporate principles of good conduct and ethical and responsible behaviour to guide our decisions and actions and the way we conduct business.

2011 Annual information form    41


We have a code for employees (including our CEO, Chief Financial Officer ("CFO") and Controller) and a separate one for directors. The codes apply to both TransCanada and TCPL and are certified every year by all employees and directors.

Employees are required to report any unusual behaviour or suspected violations of the code immediately. They can report a concern to their supervisor, Compliance, Internal Audit, their Compliance Coordinator, the next level of management, or to our Ethics Help-Line. The Help-Line allows employees, contractors, consultants and the public to report a concern about any perceived accounting irregularities, legal or ethical violations or other suspected breaches of the code of business ethics, confidentially and anonymously. We publish the telephone number on our website and our employee intranet and in our Annual Report available on our website (www.transcanada.com) and under TCPL's profile on SEDAR (www.sedar.com).

Internal Audit handles most investigations, including any concerns about directors and senior management. Human Resources professionals handle any concerns relating to human resources such as harassment.

Our policy strictly prohibits reprisals or retaliation against anyone who files an ethics concern or complaint in good faith. The Audit Committee monitors compliance with the codes and reports any violations to the Board.

The Audit Committee has procedures for receiving complaints, reviewing them, determining a course of action and retaining the information on file. It also oversees the operation of the Ethics Help-Line as part of its responsibilities.

Any waiver of the codes by our executives or directors must be approved by the Board, or the appropriate Board committee, and disclosed. There were no material departures from the codes in 2011.

The codes are posted on our website (www.transcanada.com).

Conflicts of interest

The codes of business ethics cover many potential conflicts of interest. In 2011, the Board looked specifically at corporate conflicts that could arise as a result of serving on non-profit organizations and the operations of our affiliates.

Serving on other boards

The Board considered whether directors serving on the boards of non-profit organizations pose any potential conflict. The Board reviewed these relationships and determined that they do not interfere with a director's ability to act in our best interests.

Affiliates

The Board closely oversees relationships between TCPL and any affiliates to avoid any potential conflicts of interest. This includes our relationship with TC PipeLines, LP, a master limited partnership listed on the NYSE.

The employee code of business ethics was amended in 2011 to require employees to receive consent before accepting a directorship with an entity that is not an affiliate. The CEO and executive vice-presidents (our "executive leadership team") must receive the consent of the Governance Committee. All other employees must receive the consent of their immediate supervisor.

Majority voting

We have a majority voting policy for electing a new board when the number of nominated directors is the same as the number of director positions available. If a nominated director receives "withheld" proxy votes before the meeting that total more than 5 per cent of the total votes cast by proxy, we will hold a vote by ballot for all directors. If a director receives more "withheld" than "for" votes cast by ballot, the director must tender his or her resignation to the Board. We expect the Board to accept the resignation within 90 days, unless there are extenuating circumstances.

This policy does not apply if there is a proxy contest over the election of directors.

The Board may fill the vacancy, as described in our by-laws and according to the terms of the CBCA.

42    TransCanada PipeLines Limited


Share ownership

We have share ownership requirements for our directors and executives to align their interests with those of our shareholders. Ownership levels are significant, and both directors and executives must meet the requirements within five years of assuming the position.

See the Compensation of directors — Minimum share ownership guidelines section of the attached Schedule D and the Director compensation and analysis section of the Information Circular for more information.

Role and responsibilities of the Board

The primary responsibilities of the Board are to foster TCPL's long-term success and oversee our business affairs and management, and act honestly and in good faith and in the best interests of the Company.

The Board's main objective is to promote our best interests in order to maximize long-term shareholder value and enhance stakeholder returns.

The Board retains key duties and responsibilities and attends to them, delegates some duties to its four standing committees and discharges others to management for managing the day-to-day affairs of the business.

Charters and position descriptions

The Board and each Board committee have adopted a charter that outlines its principal responsibilities.

They review the charters every year to ensure they reflect current developments in corporate governance and corporate practices, and approve any necessary changes.

The Board has also developed position descriptions for the Chair of the Board, each committee Chair and the CEO.

The Board Charter describes the:

See Schedule G attached to this AIF for a copy of the Board charter, and Schedule C to this AIF for a copy of the Audit Committee charter. The Board charter, committee charters and position descriptions for the Chair of the Board, each committee Chair and the CEO are posted on our website (www.transcanada.com).

Strategic planning

We have a multi-year strategic plan that balances risk and reward.

The Board provides oversight and direction in the strategic planning process to ensure management develops corporate strategies that support our vision to be the leading energy infrastructure company in North America. We set annual corporate objectives to support our core strategies for achieving growth and creating value for shareholders. These are established with the Board, and the Board approves our corporate objectives every year.

2011 Annual information form    43


The Board monitors management's progress toward achieving the strategic plan, and discusses a broad range of issues related to our strategy and business interests at each regularly scheduled meeting. Management also reports regularly on our operational and financial performance.

The Board generally holds a full day session on strategic planning every year and sessions on strategic issues throughout the year. See the Meeting attendance section of the Information Circular for more information about the meetings held in 2011.

Risk oversight

The Governance Committee oversees our risk management activities as part of its duties. It monitors the identified business risks using a risk matrix which categorizes the risks and shows the Board committee and executives responsible for specific oversight of each risk. The committee reviews the risk matrix with management at each committee meeting to ensure there is proper Board and committee oversight according to the terms of their charters, and that we have management programs in place to mitigate those risks. It also recommends any enhancements to our risk management program and policies to the Board.

We manage risk by identifying the key business risks and categorizing them under six main areas:

All of our executives are involved in the process and are accountable for developing plans and actions to the risks from occurring and to minimize any associated costs.

The Audit Committee, Human Resources Committee and the Health, Safety and Environment Committee provide oversight on financial, human resources and compensation, and operational safety and environmental risks.

The Audit Committee oversees management's role in monitoring compliance with risk management policies and procedures and reviewing the adequacy of our financial risk management. Our financial risk management strategies, policies and limits are designed to ensure TCPL's risks and related exposures are in line with our business objectives and risk tolerance. Risks are managed within limits that are ultimately established by the Board, implemented by senior management and monitored by risk management and internal audit personnel.

The Health, Safety and Environment Committee monitors compliance with our HSE corporate policy through regular reporting from management. We have an integrated HSE management system that establishes a framework for managing HSE issues and is used to capture, organize and document our related policies, programs and procedures.

Our management system for HSE is modeled after international standards for environmental management systems, conforms to external industry consensus standards and voluntary regulatory programs, and complies with applicable legislative requirements and various other internal management systems. It follows a continuous improvement cycle organized into four key areas:

The committee reviews HSE performance quarterly compared to targets, incidents and highlights, and reviews program plans and performance targets for subsequent years. It receives detailed reports on our operational risk management, including governance of these risks, operational performance and preventive maintenance, pipeline integrity, operational risk issues and applicable legislative developments. The

44    TransCanada PipeLines Limited



committee also receives updates on any specific areas of operational risk management review currently being conducted by management.

See the CD&A in the attached Schedule F for more information about how we manage our compensation risk.

Succession planning for management

The committee oversees succession planning for management, and is directly responsible for developing the CEO succession plan and presenting it to the Board for discussion. Succession planning for the CEO position occurs over several years so potential candidates can grow into the role. This includes ongoing analysis of each potential candidate's performance, skills and experience, and an assessment of the personal attributes and characteristics that the committee and the Board believe are necessary for the role.

The CEO prepares an overview of the executive vice-president roles, noting the required skills and expertise for each position and the individual's areas of strength. He also prepares development plans for each of the executives to ensure his or her ongoing performance is satisfactory, and presents them to the committee.

The committee identifies potential future candidates for the executive vice-president positions, with input from the CEO and Human Resources. Each candidate is assessed based on his or her skills and experience and the competencies that are required for promotion to the senior executive level. Development opportunities are also identified so each candidate can receive additional or varied management experience, training, development and educational opportunities.

The Committee reviews each position and the performance assessment and competencies of potential successors at least once a year.

Access to management

The Board has complete access to management, but gives reasonable advance notice to avoid disrupting the business and operations.

The Board encourages the executive leadership team to include key managers in Board meetings so they can share their expertise on specific matters. This gives the Board an opportunity to meet individuals who have the potential to assume more senior positions in the future, and for these individuals to gain exposure with the Board.

Orientation and education

New directors participate in an orientation program that includes sessions on corporate strategy, our main business issues, and historical and financial information about TCPL. They also have an opportunity to visit our facilities and project sites and meet with the executive leadership team and other directors.

We tailor the sessions for each director based on his or her needs and specific areas of interest. New directors also meet with the Vice-President, Corporate Development and Strategy for an overview of the different areas of our business and operations and a discussion of key areas of interest. Briefing sessions are also held for new committee members, as appropriate.

Directors receive a reference manual with:

The Governance Committee reviews the orientation program and manual every year, to ensure it continues to meet our needs and those of new directors.

Continuing education helps strengthen a director's knowledge and understanding of the business, industry, governance and other issues. Senior management and external experts make presentations to the Board and committees from time to time on various topics related to the business, including changes to legal, regulatory

2011 Annual information form    45


and industry requirements. Directors also have an opportunity to tour our operating facilities and project sites twice a year.

Our 2011 program included:

The Governance Committee develops the program every year based on current and emerging issues, our corporate objectives and input from other members of the Board.

We also suggest seminars and education programs that may be relevant, and pay the registration fee and travel expenses as appropriate.

The table below lists the details of our 2011 director education program:

 
2011
  Topic
  Presented/hosted by
  Attended by
 

February 14

  Strategic Issues Session - Operational Risk Review: Keystone Update   Executive Vice-President, Operations and Major Projects
Vice-President, Keystone Pipeline
  All directors
 

June 13 - 14

  Strategic Planning Session - Strategy to Maximize Shareholder Returns, Energy Infrastructure Strategic Outlook (Canada, US), Power Business Strategic Outlook   Vice-President, Corporate Development and Strategy   All directors
 

September 12

  Strategic Issues Session - U.S. GAAP   Chief Financial Officer
KPMG
  All directors, except Mr. Jackson and
Mr. O'Brien
 

September 13

  Site visit to Hydropower facility in Vernon, Vermont   Executive Vice-President, Operations and Major Projects   All directors, except Mr. Burney and
Mr. O'Brien
 

October 4-6

  Site visit to ANR Natural Gas Storage Facilities in Michigan   Executive Vice-President, Operations and Major Projects
Vice-President, Community, Safety and Environment
  Health, Safety and Environment Committee
 

October 4-6

  Annual Meeting of TCPL's Joint Health, Safety and Environment Committee ("JHSEC")   Executive Vice-President, Operations and Major Projects
Vice-President, Community, Safety and Environment
JHSEC employee representatives from Canada and the U.S.
  Health, Safety and Environment Committee
 

November 30

  Strategic Issues Session - Keystone XL Pipeline   Executive Vice-President, Operations and Major Projects
Vice-President, Keystone Pipeline
  All directors
 

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Ensuring effectiveness

The Governance Committee assesses the performance of the Board, Board committees and individual directors every year and reports the results to the Board. The Chair of the Board conducts one-on-one interviews with each director, and each committee also conducts a self-assessment led by its committee Chair.

Assessments focus on the effectiveness of the Board and each committee and solicit director input about areas of potential improvement. Interviews include questions about personal and individual peer performance. The Chair of the Board summarizes the interview responses and reports them to the Governance Committee and the Board.

The Chair of the Governance Committee interviews each director about the performance of the Chair of the Board, and presents the results to the Board for discussion.

The Chair of the Board also conducts interviews with each member of the executive leadership team every year and reports the results to the Board.

The Governance Committee believes the interview process is the most effective way for directors to give feedback that can be reviewed by the entire Board. The committee also monitors developments in board governance and evolving best practices in corporate governance.

Financial literacy

The Board has determined that all members of the Audit Committee are "financially literate", which means each member can read and understand a set of financial statements that are similar to ours in terms of breadth and complexity of accounting issues. You can find more information about their education and financial experience in the director profiles in the Business of the meeting — The nominated directors section of the Information Circular and the Audit Committee section of this AIF.

Board renewal

The Governance Committee regularly assesses the skill set of each director, and reviews them against the director retirement schedule, their ages and the composition of each Board committee.

The Board is responsible for identifying suitable director candidates, while the Governance Committee is responsible for assessing the individuals and proposing the strongest candidates for nomination to the Board.

The committee looks for a mix of skills and experience required for overseeing our affairs. Candidates are nominated as directors based on their background and ability to contribute to the Board and committee meetings.

The committee ensures that the Board includes members with expertise in 10 key areas:

Candidates who are being nominated for the first time must have experience in industries similar to ours, or experience in general business management or with corporations that are similar in size and scope. Candidates must also be willing to serve on the Board, able to devote the necessary time to fulfill their duties and responsibilities and be under 70 years old.

2011 Annual information form    47


The committee recommends potential candidates based on their qualifications and independence and how these qualities balance with the skill set of the current Board, the structure and composition of the committees and the director retirement schedule. This assessment helps the Board determine the best mix of skills and experience to guide our long-term strategy and ongoing business operations.

Director tenure

The Governance Committee reviews events or matters that may trigger the resignation or retirement of a director such as age, changes in principal occupation or other relevant circumstances.

Once a director turns 70 and has served at least seven consecutive years, he or she must retire either on or before the date of the next annual meeting to elect directors. If a director has turned 70 before serving the full, seven consecutive years, the Board may recommend that a director stand for re-election each year until he or she has served a full seven-year term. The Board may, in exceptional circumstances and depending on its needs, recommend that a director stand for re-election after a director has turned 70 or served the full, seven consecutive years because of the specific skills and experience he or she brings to the Board.

The graphs below show the composition of our Board by years of service as of the date of this circular and after the annual meeting, assuming all of the nominated directors are elected:

Current composition   Post-meeting composition
GRAPHIC   GRAPHIC

The table below lists the likely retirement dates of the current non-executive directors, the Board committees they serve on, their education and their particular areas of expertise. The Governance Committee considers

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these factors and others when discussing Board renewal. Ms. Dobson and Mr. O'Brien will retire on April 27, 2012 prior to the annual meeting.

 
Retirement
year

  Director
  Board committees
  Education
  Skills and experience
 
2012   Wendy K. Dobson   Human Resources
Health, Safety & Environment
  Ph.D. Economics
Masters in Public Administration
S.M. Hyg., BSN
  Accounting & Finance (Audit)
Governance
Government
International Economics
    David P. O'Brien   Governance
Human Resources
  LL.B.
B.A. Economics
  Governance
Law
Oil & Gas/Utilities
Operations & HSE
Organization & Leadership
Transportation
 
2013   Derek H. Burney   Audit
Governance
  M.A. Political Science
B.A. Political Science
  Civil Aviation and Defence
Government (Regulatory & Law)
Power/Utilities
Telecommunications
    E. Linn Draper   Audit
Health, Safety & Environment (Chair)
  Ph.D. Nuclear Science
B.Sc. Chemical Engineering
  Engineering
Operations & HSE
Organization & Leadership
Power/Utilities
    W. Thomas Stephens   Human Resources (Chair)
Health, Safety & Environment
  M.Sc. Industrial Engineering   Building & Commercial Products
Engineering
Forestry
Operations & HSE
Organization & Leadership
 

2011 Annual information form    49


 
Retirement
year

  Director
  Board committees
  Education
  Skills and experience
 
2014   Paule Gauthier   Health, Safety & Environment
Human Resources
  LL.M.
LL.B.
B.A.
  Law
Governance
Government (Regulatory)
 
2015   John A.
MacNaughton
  Governance (Chair)
Audit
  B.A. Economics   Accounting & Finance
Investment Banking/Management Organization & Leadership
 
2017   Kevin E. Benson   Audit (Chair)
Governance
  B.A. Accounting   Accounting & Finance
Economics
Organization & Leadership
Transportation
 
2018   Paul L. Joskow   Audit
Governance
  Ph.D. Economics
M.A. Economics
B.A. Economics
  Accounting & Finance
Economics
Governance (Law)
Government (Regulatory)
Power/Utilities
    Richard E. Waugh   Governance   MBA
B.Comm.
  Banking
International Markets
Organization & Leadership
 
2022   D. Michael G. Stewart   Audit
Health, Safety & Environment
  B.Sc. Geological Sciences   Geology
Oil & Gas/Utilities
Operations & HSE
Organization & Leadership
 
2023   Barry Jackson   Board Chair
Governance
Human Resources
  B.Sc. Engineering   Engineering
Oil & Gas/Utilities
Operations & HSE
Organization & Leadership
 
2027   Paula Rosput Reynolds   Health, Safety & Environment
Human Resources
  B.A. Economics   Economics
Insurance
Organization & Leadership
Power/Utilities
Risk Management
 

Communicating with the Board

Shareholder engagement allows us to hear first hand from shareholders and other important stakeholders.

Shareholders, employees and others can communicate directly with the Board by writing to:

Chair of the Board of Directors
TransCanada PipeLines Limited
450 First Street S.W.
Calgary, Alberta T2P 5H1

Board committees

The Board has four standing committees:

Each Board committee must consist entirely of independent directors, except for the Health, Safety and Environment Committee, which must have a majority of independent directors. Each committee has the authority to retain advisors to help it carry out its responsibilities. The Board does not have an executive committee.

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Each committee reviews its charter at least once a year, and recommends any changes to the Governance Committee and the Board. You can find the committee charters on our website (www.transcanada.com). Each committee also conducts a performance self-assessment every year (see the Corporate Governance — Ensuring effectiveness section above for details).

The Audit and the Human Resources Committees hold simultaneous meetings as do the Governance and Health, Safety and Environment Committees to ensure each committee has sufficient time to focus on its responsibilities. As a result, Mr. Jackson, the independent non-executive Chair of the Board, is a voting member of the Governance Committee and the Human Resources Committee, and is not a member of the Audit Committee or the Health, Safety and Environment Committee.

The committees will be reconstituted after the annual meeting to take into account the retirement of Ms. Dobson and Mr. O'Brien, and the new board members, Ms. Reynolds and Mr. Waugh.

All meetings have scheduled periods when members can discuss the committee operations and responsibilities without management present.

Audit Committee

 
Members   Kevin E. Benson (Chair)
Derek H. Burney
E. Linn Draper
  Paul L. Joskow
John A. MacNaughton
D. Michael G. Stewart
 
Meetings in 2011   5 regularly scheduled meetings (February, April, July, October, November)
2 special meetings (June, September)
 
Independent   6 independent directors, 100% independent and financially literate
Mr. Benson, Chair of the Audit Committee, is an "audit committee financial expert" as defined by the SEC in the U.S., and has the accounting or related financial management experience required under the NYSE rules.
 
Mandate   The Audit Committee is responsible for assisting the Board in overseeing the integrity of our financial statements and our compliance with legal and regulatory requirements.
It is also responsible for overseeing and monitoring the internal accounting and reporting process, and the process, performance and independence of our internal and external auditors.
 

The Audit Committee meets in-camera with the CFO at the beginning of each meeting, and also meets separately with the external and internal auditors and management. Additionally, the committee meets in-camera at the end of each meeting.

2011 highlights

2011 Annual information form    51


The Audit Committee section of this AIF includes more information about the Audit Committee, including oversight responsibilities, each member's education and experience, and policies and procedures for pre-approving services. The charter of the Audit Committee can be found at Schedule C to this AIF and on our website (www.transcanada.com) under the Corporate Governance — Board Committees page.

Governance Committee

 
Members   John A. MacNaughton (Chair)
Kevin E. Benson
Derek H. Burney
S. Barry Jackson
  Paul L. Joskow
David P. O'Brien
Richard E. Waugh
 
Meetings in 2011   3 regularly scheduled meetings (February, April, October)
 
Independent   7 independent directors, 100% independent
 
Mandate   The Governance Committee is responsible for assisting the Board with maintaining strong governance policies and practices at TCPL, reviewing the independence and financial literary of directors, managing director compensation and the board assessment process, and overseeing our strategic planning process and risk management activities.
         
    It monitors the relationship between management and the Board, directors' share ownership levels, governance developments and emerging best practices. It is also responsible for identifying qualified candidates for the Board to consider as potential directors.
         
    It also recommends the meeting schedule for Board and committee meetings, site visits, and oversees matters related to the timing of our annual meeting.
 

The Governance Committee meets in-camera at the beginning and end of each meeting.

2011 highlights

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Health, Safety and Environment Committee

 
Members   E. Linn Draper (Chair)
Wendy K. Dobson
Paule Gauthier
  W. Thomas Stephens
D. Michael G. Stewart
Paula Rosput Reynolds
 
Meetings in 2011   3 regularly scheduled meetings (February, April and October)
 
Independent   6 independent directors, 100% independent
 
Mandate   The Health, Safety and Environment Committee is responsible for overseeing our health, safety, security and environmental practices and procedures.
         
    It monitors our compliance with applicable legislation and meeting industry standards, and oversees our policies and procedures to prevent or mitigate losses and to protect our assets, network and infrastructure from malicious acts, natural disasters or other crisis situations.
 

The Health, Safety and Environment Committee meets in-camera with the Vice-President, Community, Safety and Environment and separately at the end of each meeting. The committee also meets in-camera at the beginning of each meeting if determined necessary.

2011 highlights

2011 Annual information form    53


Human Resources Committee

 
    W. Thomas Stephens (Chair)
Wendy K. Dobson
Paule Gauthier
  Paula Rosput Reynolds
S. Barry Jackson
David P. O'Brien
 
Meetings in 2011   3 regularly scheduled meetings (February, October, November)
2 special meetings (January, September)
 
Independent   6 independent directors, 100% independent
 
Mandate   The Human Resources Committee is responsible for assisting the Board with developing strong human resources policies and plans and succession planning, overseeing the compensation programs, and assessing the performance of the CEO and other members of the executive leadership team against pre-established objectives and recommending their compensation.
         
    It approves all long-term incentive awards, including stock options, and any major changes to the compensation program and benefits plans for employees. It is also responsible for the benefits under our Canadian pension plans and reviewing our share ownership requirements for executives.
 

The Human Resources Committee meets in-camera at the beginning and end of each meeting.

2011 highlights

The committee also undertook a number of other activities during the year, and these go into effect beginning in 2012:

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Schedule C
Charter of the Audit Committee

1.     Purpose

2.     Roles and Responsibilities

2011 Annual information form    55


56    TransCanada PipeLines Limited


2011 Annual information form    57


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3.     Composition of Audit Committee

4.     Appointment of Audit Committee Members

5.     Vacancies

2011 Annual information form    59


6.     Audit Committee Chair

7.     Absence of Audit Committee Chair

8.     Secretary of Audit Committee

9.     Meetings

10.  Quorum

11.  Notice of Meetings

12.  Attendance of Company Officers and Employees at Meeting

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13.  Procedure, Records and Reporting

14.  Review of Charter and Evaluation of Audit Committee

15.  Outside Experts and Advisors

16.  Reliance

2011 Annual information form    61



Schedule D

Loans to directors and executive officers

As of the date of this AIF, none of our directors and executives had any loans from TCPL or any of our subsidiaries. This is also true for:

None of the above owe money 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 our subsidiaries.

Securities owned by directors

The table below shows the total value as of February 13, 2012 of each director's shares and deferred share units ("DSUs") or shares of our affiliates outstanding at the end of 2011, including the DSUs credited as dividend equivalents until January 31, 2012.

None of the nominated directors (or all of our directors and executives as a group) own more than 1% of TransCanada shares, or any class of shares of its subsidiaries and affiliates.

   

Director

    TransCanada
Common Shares
    Deferred Share
Units
 
   

K. Benson

    13,000     40,483  
   

D. Burney

    4,606     34,770  
   

W. Dobson

    6,000     49,149  
   

E.L. Draper

    N/A     41,413  
   

P. Gauthier

    2,000     44,854  
   

R. Girling

    673,487     N/A  
   

S.B. Jackson

    39,000     76,964  
   

P.L. Joskow

    5,000     25,956  
   

J. MacNaughton

    50,000     29,912  
   

D. O'Brien

    54,549     48,185  
   

P. Rosput Reynolds (joined November 30, 2011)

    2,500     334  
   

W. T. Stephens

    1,800     14,673  
   

D.M.G. Stewart

    13,801     16,249  
   

R.E. Waugh (joined February 1, 2012)

    19,370     N/A  
   

Notes

The value of a DSU is tied to the value of TransCanada's common shares. A DSU is a bookkeeping entry, equivalent to the value of a TransCanada common share, and does not entitle the holder to vote or other shareholder rights, other than the accrual of additional DSUs for the value of dividends. A director cannot redeem DSUs until the director ceases to be a member of the Board. Upon ceasing to be a member of the Board, Canadian directors may redeem their units for cash or common shares at the market price, while U.S. directors may only redeem their units for cash.
Securities owned, controlled or directed include common shares that Mr. Girling has a right to acquire through the exercise of stock options that are vested under the stock option plan, which is described in the CD&A attached to this AIF at Schedule F. Directors as such do not participate in the stock option plan. Mr. Girling, as an employee of TCPL, has the right to acquire 592,210 common shares under vested stock options, which amount is included in this column.
Mr. Girling is an employee of TCPL and participates is the Company's executive share unit program; he does not participate in the DSU program.
Mr. Stewart's holdings include 1,789 shares held by his wife.
Mr. Waugh's holdings include 4,150 shares held by his wife.

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Compensation of directors

Approach

Our director compensation program reflects our size and complexity, and reinforces the importance we place on shareholder value. Director compensation includes annual retainers and meeting fees that are paid in cash and DSUs to link a significant portion of their compensation to the value of our common shares.

Director compensation is not based on corporate performance, but the Board follows a formal performance assessment process to ensure director effectiveness and encourage director engagement.

The Governance Committee reviews director compensation at least once a year, and makes its compensation recommendations to the Board for review and approval. Recommendations take into consideration the time commitment, duties and responsibilities of the directors, and director compensation practices at comparable companies.

Directors of TransCanada also serve as directors of TCPL. Board and committee meetings of TransCanada and TCPL run concurrently, and the director compensation described below is for serving on both Boards. TransCanada does not hold any material assets directly, other than TCPL common shares and receivables from some of our subsidiaries. As a result, TCPL assumes all directors' costs according to a management services agreement between the two companies.

Benchmarking

Director compensation is benchmarked against two comparator groups. Total compensation is determined with reference to median levels in our comparator groups, so we can attract and retain qualified directors.

Towers Watson conducts an independent review of director compensation every year, and prepares a report on compensation paid by our comparator companies. The Governance Committee refers to the report when conducting its compensation review.

Minimum share ownership guidelines

The Board believes that directors can represent the interests of shareholders more effectively if they have a significant investment in TransCanada. Directors must now hold at least six times their annual cash retainer in common shares or DSUs within five years of joining the Board. The minimum was increased from five times in October 2011, to reinforce the importance of share ownership and more closely align directors' interests with those of shareholders.

Directors can meet the requirements by purchasing TransCanada shares, participating in our dividend reinvestment plan or by directing all or a portion of their compensation to be paid in DSUs. We recalibrate the ownership values if the cash retainer is increased.

If their holdings fall below the minimum level because of fluctuations in our share price, we expect the director to attain the minimum threshold within a reasonable amount of time set by the Governance Committee.

As President and CEO, Mr. Girling must meet our CEO share ownership requirements under the executive share ownership guidelines. Mr. Girling meets these ownership requirements (see the Aligning the interest of executives and Shareholders of the CD&A for details).

As of February 13, 2012, all of our directors had met the share ownership requirements, except for Ms. Reynolds who was appointed to the Board on November 30, 2011 and has five years from her appointment date to meet the requirements.

Share unit plan for non-employee directors

DSUs are notional shares that have the same value as TransCanada shares. DSUs earn dividend equivalents as additional units, at the same rate as dividends paid on our shares.

2011 Annual information form    63


We introduced a DSU plan for directors in 1998 that allows them to choose to receive a portion of their retainers, meeting fees and travel fees in DSUs instead of cash. The plan also allows the Governance Committee to use discretion to grant DSUs to directors as additional compensation (excluding employee directors such as our President and CEO). No discretionary grants of DSUs were made to directors in 2011.

Directors redeem their DSUs when they retire from the Board. Canadian directors can redeem their DSUs for cash or shares at the market price. U.S. resident directors can only redeem their DSUs for cash.

Further information regarding director compensation can be found in the Director compensation discussion and analysis section of the Information Circular.

Director compensation table

The following table sets forth the total compensation paid by TCPL to directors in 2011.

   
Name     Fees Earned(1)
($)
    Share-based
Awards(2)
($)
    All Other
Compensation
($)
    Total
($)
 
   
K.E. Benson     123,000     85,000         208,000  
   
D.H. Burney     115,500     85,000         200,500  
   
W.K. Dobson     112,500     85,000         197,500  
   
E.L. Draper     129,000     85,000         214,000  
   
P. Gauthier     117,000     85,000         202,000  
   
K. Hawkins (retired April 29, 2011)     52,500     42,500         95,000  
   
S.B. Jackson(3)     202,500     230,000     37,240     469,740  
   
P.L. Joskow     114,000     85,000         199,000  
   
J.A. MacNaughton     129,000     85,000         214,000  
   
D.P. O'Brien     106,500     85,000         191,500  
   
Paula Rosput Reynolds (joined November 30, 2011)     9,087     6,261         15,348  
   
W.T. Stephens     129,000     85,000         214,000  
   
D.M.G. Stewart     109,500     85,000         194,500  
   
R.E. Waugh (joined February 1, 2012)                  
   

Notes

Fees earned includes Board and committee retainers, meeting fees and travel fees paid in cash, including the portion they chose to receive as DSUs.
Share-based awards include the portion of the board retainer ($85,000) and the board chair retainer ($230,000) that we automatically pay in DSUs. There were no additional grants of DSUs in 2011.
In 2011, Mr. Jackson was reimbursed $31,675 for third-party office and other expenses, and received a reserved parking space valued at $5,545.

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Retainers and fees paid to directors

Directors receive annual retainers, meeting fees and, in some cases, travel fees. They are also reimbursed for out-of-pocket expenses they incur while attending meetings, and are paid a per diem for Board and committee activities outside of our meeting schedule. Directors who are U.S. residents receive the same amounts in U.S. dollars. Mr. Girling is an employee of TransCanada and is compensated in his role as President and CEO, and does not receive any director compensation.

Both the annual board retainer and the separate retainer for the Chair of the Board are paid in cash and DSUs according to the fee schedule below:

 

Board Chair retainer

  $410,000 per annum ($180,000 in cash + $230,000 value of DSUs)(1)(2)
 

Board Chair meeting fee

  $3,000 per Chaired Board meeting(1)
 

Board retainer

  $155,000 per annum ($70,000 cash + $85,000 value of DSUs)(2)
 

Committee retainer

  $5,500 per annum
 

Committee Chair retainer

  $12,000 per annum
 

Board and Committee meeting fee

  $1,500 per meeting
 

Committee Chair meeting fee

  $3,000 per meeting
 

DSUs are credited quarterly, in arrears, using the closing price of TransCanada shares on the TSX at the end of each quarter.

In 2011, three directors chose to receive 100% of their retainer and meeting and travel fees in DSUs:

2011 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 2011 as at the date of the grant, unless otherwise stated. Mr. Girling, as an employee of TCPL, receives no cash fees or DSUs as a director.

   

Name

    Board
Retainer
($)
    Committee
Retainer
($)
    Committee
Chair
Retainer
($)
    Board
Meeting
Fee
($)
    Committee
Meeting
Fee(1)
($)
    Travel
Fee
($)
    Strategic
Planning
Sessions
($)
    Total
Fees
Paid in
Cash
($)
    Total
Value of
DSUs
Credited(2)
($)
    Total Cash
& Value of
DSUs
Credited(3)
($)
 
   

K.E. Benson

    70,000     11,000     12,000     12,000     15,000     1,500     1,500         208,000     208,000  
   

D.H. Burney

    70,000     11,000         10,500     15,000     7,500     1,500     115,500     85,000     200,500  
   

W.K. Dobson

    70,000     11,000         10,500     12,000     7,500     1,500     112,500     85,000     197,500  
   

E.L. Draper

    70,000     11,000     12,000     10,500     15,000     9,000     1,500         214,000     214,000  
   

P. Gauthier

    70,000     11,000         10,500     15,000     9,000     1,500     82,000     120,000     202,000  
   

K. Hawkins

    35,000     5,000         3,000     6,000     3,000             95,000     95,000  
   

S.B. Jackson

    180,000                     1,500     3,000         432,500     432,500  
   

P.L. Joskow

    70,000     11,000             15,000     6,000     1,500     114,000     85,000     199,000  
   

J.A. MacNaughton

    70,000     11,000     12,000     12,00     15,000     9,000     1,500     129,000     85,000     214,000  
   

D.P. O'Brien

    70,000     11,000             12,000     1,500     1,500     36,500     155,000     191,500  
   

P. Rosput Reynolds
(joined November 30, 2012)

    6,087                     1,500         1,500     13,848     15,348  
   

W.T. Stephens

    70,000     11,000     12,000         15,000     9,000     1,500     103,200     110,800     214,000  
   

D.M.G. Stewart

    70,000     11,000             15,000     1,500     1,500     109,500     85,000     194,500  
   

R.E. Waugh
(joined February 1, 2012)

                                         
   

Notes

2011 Annual information form    65


Board meeting fees for Mr. Jackson includes the $3,000 fee for each Board meeting he chaired. Mr. Benson chaired the July 28, 2011 meeting in Mr. Jackson's absence and received the Board Chair meeting fee of $3,000.


Committee meeting fees for Ms. Gauthier and Mr. Stephens includes $3,000 in fees they received for attending two special Audit Committee meetings as guests.


DSUs credited includes the minimum portion of the board retainer paid in DSUs ($230,000 for the Chair and $85,000 for the other directors) plus the portion of the retainers, meeting fees and travel fees directors chose to receive in DSUs in 2011. DSUs were paid quarterly based on $39.31, $42.35, $42.54 and $44.53, the closing prices of TransCanada shares on the TSX at the end of each quarter in 2011.


Total cash and DSUs credited is the total dollar amount paid for duties performed on the TransCanada and TCPL Boards.

66    TransCanada PipeLines Limited



Schedule E

Compensation governance

The Board, the Human Resources Committee and the Governance Committee are responsible for the integrity of our compensation governance practices.

Human Resources Committee   Governance Committee
•  W. Thomas Stephens (Chair)   •  John A. MacNaughton (Chair)
•  Wendy K. Dobson (retires April 27, 2012)   •  Kevin E. Benson
•  Paule Gauthier   •  Derek H. Burney
•  S. Barry Jackson   •  S. Barry Jackson
•  David P. O'Brien (retires April 27, 2012)   •  Paul L. Joskow
•  Paula Rosput Reynolds   •  David P. O'Brien (retires April 27, 2012)
    •  Richard E. Waugh

The Board approves all matters related to executive and director compensation. The committees are responsible for the review and analysis of compensation matters and for making any recommendations. Both committees are 100% independent.

2011 Annual information form   67


Expertise

Human resources and executive compensation
The Human Resources Committee is responsible for executive compensation. It consists of six independent directors who have an appropriate mix of skills and experience in management, business, industry, human resources and public accountability for carrying out their responsibilities.

All of the members (including the committee Chair) have experience as members of human resources or compensation committees of other public companies. Mr. Stephens, the committee Chair, has served as Chair of the compensation committee of two other public companies in addition to TCPL. Mr. Jackson has also served as the Chair of the compensation committee for several public companies.

Four members bring additional insight to the role and performance of the chief executive officer because of their own experience in that role at various companies in the oil and gas, forest and paper products and insurance industries.

As a former chief executive officer of four public companies, Mr. Stephens has experience working with boards and compensation consultants to design appropriate compensation programs. Mr. O'Brien has also directly handled compensation matters as a former chief executive officer of two public companies. Ms. Reynolds was the chief executive officer of two U.S. public companies and was responsible for overseeing compensation plans and their implementation, and has direct experience in designing detailed performance-based goals for executives. As a former chief executive officer of a public oil and gas company, Mr. Jackson has experience in overseeing executive compensation programs and working closely with compensation consultants, and has been involved in all aspects of the design, implementation and administration of compensation programs as a senior executive and director.

Ms. Gauthier has legal expertise and experience in overseeing executive compensation programs as a member of compensation committees of public companies in banking and other industries.

Ms. Dobson was a member of the 1994 TSX Committee on Corporate Governance in Canada (also known as the Dey Commission), which pioneered corporate governance in Canada and produced best practice guidelines including compensation policies and practices.

In addition to the committee's collective experience in compensation matters, all of the members stay actively informed of trends and developments in compensation matters and the applicable legal and regulatory frameworks.

Governance
The Governance Committee is responsible for director compensation and risk oversight. It consists of seven independent directors who have a mix of skills and experience in business, risk, governance, human resources and compensation. Five of the members are currently or have been members of human resources or compensation committees of other public companies. Each of these five members also has experience as chief executive officer of one or more public companies which has provided each of them with experience in oversight of and direct involvement in compensation matters.

You can find specific details about each director's background and experience in the director profiles in the Business of the Meeting — The nominated directors section of the Information Circular and in the Audit Committee section of this AIF. More information about the committees is available in Schedule B to this AIF under the heading Board Committees.

68   TransCanada PipeLines Limited


Compensation Oversight
Compensation oversight includes ensuring executives and directors are compensated fairly, without incurring undue risk to TCPL's business and operations.

The Board reviews our compensation policies and practices every year and considers the related risks, and makes any adjustments it deems necessary to ensure that our compensation policies are not reasonably likely to have a material adverse effect on TransCanada. It carries out this work directly or through the Human Resources Committee and the Governance Committee.

The compensation policies and practices implemented by the Board to effectively identify and mitigate compensation risks and discourage members of the executive leadership team or others from taking inappropriate or excessive risks are highlighted below.

Multi-year strategic plan
We have a multi-year, corporate strategic plan that identifies our core strategies to help us achieve our vision of being the leading energy infrastructure company in North America:

maximize the full-life value of our infrastructure assets and commercial positions
commercially develop and physically execute new asset investment programs
cultivate a focused portfolio of high quality development options, and
maximize our competitive strengths.

Executive compensation is closely linked to the strategic plan. Our annual corporate objectives support the strategic plan and are used when making compensation decisions. At the end of each year, the Board assesses our performance against the corporate objectives to determine the adjustment factor to be used in calculating short-term incentive awards for the executive leadership team and all other employees. The Board also ensures that the annual individual performance objectives for each member of the executive leadership align with our corporate objectives and reflect performance areas that are specific to each role when it determines his or her total direct compensation.

Compensation philosophy
We have a formal compensation philosophy to guide compensation program design and decisions. Our approach to compensation is structured to meet four key objectives: pay for performance, be market competitive, align executives' interests with those of our shareholders and customers and engage and retain our executives. In setting target compensation levels, each component – base salary, short-term incentive and long-term incentives – as well as total direct compensation are determined with reference to median levels in our comparator group (see the CD&A attached to this AIF at Schedule F for details).

Our executive compensation is also designed to minimize risk as a significant portion of total direct compensation is delivered as variable or at-risk compensation. See the CD&A attached to this AIF at Schedule F for the pay mix for each named executive.

2011 Annual information form   69


Executive compensation structured to manage risk

The Human Resources Committee and the Board have structured the executive compensation program to ensure that executives are compensated fairly, and in a way that does not incur undue risk to TCPL or encourage executives to take inappropriate risks.

Structured process: The committee has implemented a formal decision-making process that involves management, the committee and the Board. The committee uses a two-step review process for all compensation matters, reviewing and discussing items at an initial meeting before approving them at a subsequent meeting.
Benchmarking to ensure fairness: Director and executive compensation are reviewed every year, and benchmarked against comparator groups to assess competitiveness and fairness.
Modelling and stress testing: The committee uses modelling to stress test different compensation scenarios and potential future executive compensation. This includes an analysis that shows the potential effect of different corporate performance scenarios on previously awarded and outstanding compensation to assess whether the results are reasonable. The committee also uses modelling to assess the payments under the terms of the executives' employment agreements for severance and change of control situations.
Independent advice: Management uses an external compensation consultant to conduct a competitive compensation review every year for all executive positions. This provides the committee and the Board with a market reference point when they assess individual performance in the context of overall corporate performance. The committee has also retained its own external consultant to advise it on human resources matters. While this individual is from the same consulting firm as management's consultant, TCPL and the consulting firm have taken a number of steps to maintain the consultant's independence (see below for details).
Emphasis on long-term incentives: The committee and the Board place a significant emphasis on long-term incentives when determining the total direct compensation for the executive leadership team. Our long-term incentives include ESUs and stock options – both incentive plans encourage value creation over the long term and align executives' interests with those of our shareholders.
Pre-established objectives: The Board approves pre-established individual and corporate performance objectives every year for each member of the executive leadership team. These are used to assess their performance and compensation, and each executive agrees to these objectives as set out in their annual performance agreement and scorecard.
Performance-based compensation: Awards under the ESU plan are paid out based on our performance against objectives set for the three-year vesting period.
Fixed limits on variable compensation payments: Short-term incentive payouts can be adjusted from target up to a maximum factor of 2.5 for individual performance and 1.2 for corporate performance. Long-term incentive awards under the ESU plan are limited to a maximum payout of 1.5 times the final number of units accrued at the end of the vesting period. These limits can only be exceeded if the Board uses its discretion to recognize extraordinary performance.
Discretion: The Board completes a formal assessment, and can then use its discretion to increase or decrease any compensation awards if it deems it appropriate based on market factors or other extenuating circumstances.

70   TransCanada PipeLines Limited


Policies and guidelines to manage risk
The Governance Committee, the Human Resources Committee and the Board have instituted several policies to ensure that compensation risk is appropriately managed and that the interests of both directors and executives are aligned with those of our shareholders. These policies are derived from best practices in governance and legal requirements.

Share ownership requirements: We implemented share ownership requirements for both directors and executives in 2003 reflecting the Board's view that directors and executives can best represent the interests of shareholders more effectively if they have a significant investment in TCPL.
Hedging prohibited: In 2011, the Governance Committee amended our trading policy for employees and insiders to include an anti-hedging policy. It prohibits executives and directors, and any others they designate, from purchasing financial instruments designed to hedge or offset a decrease in the market value of equity securities granted as compensation. This includes prepaid variable forward contracts, equity swaps, collars and units of exchange funds.
Reimbursement: If there is an incidence of misconduct with our financial reporting and we must restate our financial statements because of material non-compliance with a financial reporting requirement, our CEO and CFO are required by law to reimburse TCPL for incentive-based compensation related to the period the misconduct occurred. They must also reimburse us for any profits they realized from a sale of TransCanada securities during the 12 months following the issue of the misstated financial statements.
Say on pay: We have implemented a non-binding advisory shareholder vote on our approach to executive compensation. We held say on pay votes at our annual shareholder meetings in 2010 and 2011, and both advisory votes were approved by more than 86% of shareholders who voted at the meetings. These results show that shareholders find our approach to executive compensation acceptable.
Code of business ethics: We have codes of business ethics for both directors and employees. These codes incorporate principles of good conduct and ethical and responsible behaviour to guide our decisions and actions and the way we conduct business.

After considering the implications associated with our compensation policies and practices and completing a review of our policies and practices described above, the Board believes that:

we have the proper practices in place to effectively identify and mitigate potential risk, and
TCPL's compensation policies and practices do not encourage any member of our executive leadership team, or any employee to take inappropriate or excessive risks, and are not reasonably likely to have a material adverse effect on our company.

In addition to our compensation policies and practices, our corporate values – Integrity, Collaboration, Responsibility and Innovation – also guide director, officer and employee behaviour, underpin our company culture and define the character of the organization we share and work in every day.

2011 Annual information form   71


External Consultant
TCPL first retained Towers Watson in 2002 to provide human resources consulting services to management.

In 2006, the Human Resources Committee retained an individual consultant from Towers Watson as its advisor on human resource matters. This consultant provides independent advice to the committee to support its compensation review and decision-making, but the committee is responsible for making its own decisions and recommendations to the Board. The committee chose this individual because it believed it would receive candid, direct, independent and quality advice, based on her reputation in the marketplace. Given the quality of the executive compensation advisory services provided by the consultant, the committee has chosen to renew the consultant's engagement each year.

TCPL and Towers Watson have taken several steps to maintain the independence of the external consultant. This includes ensuring that the consultant's pay is not directly affected by any change in services provided to management or the Board committees. The consultant:

is not the client relationship manager
is not involved in any client development activities related to increasing consulting services to us
only provides services to the Human Resources Committee, and
has limited interactions with management unless they specifically relate to matters for the committee's review or approval.

The Human Resources Committee created a mandate for the consultant that includes:

advising on compensation levels for the CEO
assessing the CEO's recommendations on the compensation of the other named executives
attending all of its committee meetings (unless otherwise requested by the committee Chair)
providing data, analysis or opinion on compensated-related matters requested by the committee or its Chair, and
reporting to the committee on all matters related to executive compensation.

The Human Resources Committee reviews the consultant's mandate and the overall relationship with Towers Watson every year, including all projects and the fees charged. The table below shows the fees paid to Towers Watson in 2010 and 2011.

Executive compensation-related fees


Towers Watson   2011   2010

Consultant services
to the Human Resources Committee
  $164,003   $125,000

Consulting to Human Resources management        
•  compensation market data on executives and non-executives   197,000   220,000
•  benefit and pension actuarial consulting services for our Canadian and U.S. operations   2,278,358   1,850,000
Consulting to the Governance Committee        
•  preparing an annual report on director compensation   32,000   30,000

All other fees    

Total fees   $2,671,361   $2,225,000

72   TransCanada PipeLines Limited



Schedule F

Executive compensation discussion and analysis (CD&A)

EXECUTIVE SUMMARY
TransCanada's vision is to be the leading energy infrastructure company in North America, with a strong focus on pipelines and power generation opportunities located in regions where we have or can develop significant competitive advantages.

TransCanada's strategy for growth and value creation has four key elements:

maximize the full-life value of our infrastructure assets and commercial positions
commercially develop and physically execute new asset investment programs
cultivate a focused portfolio of high quality development options, and


maximize our competitive strengths.

We have focused on steady and consistent implementation of our strategy since establishing it in 2000. The fundamentals of that strategy remain the same.

Our compensation package 'pays for performance' by rewarding executives for delivering strong results that meet our corporate objectives and support our overall strategy.

This Compensation discussion and analysis (CD&A) explains our executive compensation program, our 2011 performance, the performance assessment by the Human Resources Committee and the Board, and their compensation decisions for our named executives:

Russell K. Girling, President and Chief Executive Officer (CEO)
Donald R. Marchand, Executive Vice-President and Chief Financial Officer (CFO)
Alexander J. Pourbaix, President, Energy and Oil Pipelines
Gregory A. Lohnes, President, Natural Gas Pipelines, and
Donald M. Wishart, Executive Vice-President, Operations and Major Projects.

The named executives and three other executive vice-presidents make up our executive leadership team.

Performance highlights
We performed well in 2011 with an increase in comparable earnings per share of 13% compared with 2010 and a 10% year-over-year increase in funds generated from operations. We continued to execute our significant capital program, bringing into service large capital projects including the Wood River/Patoka and Cushing Extension sections of the Keystone oil pipeline system, the Guadalajara and Bison natural gas pipelines, the Coolidge generating station, and the Montagne-Sèche and phase one of the Gros-Morne wind farms.

We advanced the $4.8 billion refurbishment and restart of two reactors at the Bruce Power nuclear facility in Ontario. Our expected net capital cost of the project is $2.4 billion. Subject to regulatory approval, Unit 2 and Unit 1 are expected to begin commercial operations in the first quarter and the third quarter of 2012, respectively.

We continued to enhance the value of our natural gas pipeline business by advancing projects that will transport natural gas supply from shale basins in northeastern British Columbia and Alberta. In our oil pipeline business, we secured commercial support for extensions and expansions of Keystone XL to transport crude oil from Hardisty, Alberta to Houston, Texas. We also have customer support to provide service for U.S. produced crude oil sourced from the Bakken shale play in Montana and North Dakota (Bakken Marketlink), and from Cushing, Oklahoma (Cushing Marketlink).

In our power business, we executed an agreement for the purchase of nine Ontario solar projects, with a combined capacity of 86 MW, for approximately $470 million that are expected to come into service between late 2012 and mid-2013.

The year was not without challenges with the denial of our Keystone XL Presidential Permit, operational start-up issues on several projects, uncertainty regarding the outcome of the decision of the National Energy Board (NEB) on our comprehensive toll restructuring application for the Canadian Mainline, uncertainty regarding the ultimate resolution of the capacity pricing issues in New York, and the Sundance A power purchase arrangement (PPA) arbitration.

2011 Annual information form   73


Delivery of strong financial results and a disciplined approach to quality and cost schedule as well as capital investment, however were recognized in record share performance. Our total shareholder return for 2011, including dividends paid, was 22%. We believe we are well positioned to build on our track record of strong and sustainable earnings, cash flow and dividends to deliver attractive and sustainable returns to shareholders over the long-term.

Compensation highlights
The Human Resources Committee and Board made the following executive compensation decisions in 2012:

Our named executives received increases in base salary to ensure salaries continue to align with the competitive market and to recognize proficiency in the role. The average annual increase was 7%. Named executives who are new to the role received an average increase of 15% to reflect progression relative to the guideposts.
The committee and the Board concluded that overall, notwithstanding the challenges outlined above, TransCanada exceeded its performance objectives. After considering these performance results and the relative weighting of each (50% on financial results and 50% on operational, growth and other business considerations), they assigned a corporate adjustment factor (CAF) of 1.05. The CAF is used in the formula to determine short-term incentive awards for our named executives.
Long-term incentives were awarded based on the Board and committee's assessment of each named executive's individual performance and potential to contribute to TransCanada's future success. Actual long-term incentive awards to our named executives were above the target award levels. Long-term incentives in 2012 were allocated 50% each to ESUs and stock options.
The 2009 ESU grant payout was assigned a performance multiplier of 110%, reflecting overall performance above target against pre-established objectives over the performance period. Our named executives realized 168% of the original grant value awarded in 2009.

See compensation decisions in 2012 for more information.

74   TransCanada PipeLines Limited


Compensation vs. financial performance
The chart below compares the results of our key financial metrics for the last five fiscal years, to total direct compensation awarded to the named executives for the same period. Total direct compensation includes base salary, the short-term incentive award (paid in the first quarter following the performance year) and the grant value of ESUs and stock options.

GRAPHIC

Note


Funds generated from operations and comparable earnings per share are non-GAAP measures and do not have any standardized meanings prescribed by generally accepted accounting principles. You can find more information about these non-GAAP measures in Appendix A.

The table below shows total direct compensation awarded to our named executives as a percentage of our comparable earnings for the last five fiscal years:


    2007   2008   2009   2010   2011

Total direct compensation awarded to the named executives (as a percentage of comparable earnings)   1.4%   1.4%   1.4%   1.1%   1.1%

2011 Annual information form   75


Compensation vs. total shareholder return
Our total shareholder return (TSR) has tracked favourably against the S&P/TSX Composite Index over the last five years, delivering an annual compound return of 6.1% compared to 1.3% for the Index.

The chart below illustrates TSR as the change in value of an initial investment of $100 in TransCanada shares on December 31, 2006, assuming reinvestment of dividends, and compares it to the return of the S&P/TSX Composite Index and the trend in total direct compensation awarded to our named executives over the same period.

TSR is only one of the performance measures the Board considers when assessing performance and determining compensation for our named executives, so we do not necessarily expect there to be a direct correlation between TSR and total direct compensation awarded in a given period. In addition, the long-term compensation awarded in any given year is not guaranteed. A portion of it is equity-based, and its value will be directly affected by any change in the price of our common shares.

GRAPHIC

We experienced record share price levels in 2011 and expect to continue to deliver superior returns to our shareholders.


At
Dec. 31
  2006   2007   2008   2009   2010   2011   Compound
annual growth

TRP   $100   $103.30   $87.70   $100.30   $110.00   $134.40   6.1%

TSX   $100   $109.80   $73.60   $99.40   $116.90   $106.70   1.3%

76   TransCanada PipeLines Limited



Program changes
In 2011, the Board approved and implemented a number of changes to the executive compensation program:

base salaries are now determined within a range where guideposts are aligned with reference to median base salary levels in our comparator group, and
formal target awards have been introduced for the short and long-term incentive plans (these changes are discussed in more detail under the individual components).

In 2012, the Board approved four changes to the long-term incentives which go into effect beginning this year. The Board:

adjusted the weighting of the long-term incentive award for our executive leadership team so that 50% of the grant value is allocated each to ESUs and stock options
changed the stock option valuation methodology. The Binomial valuation model will now be used to calculate TransCanada's accounting value, which will be used for both compensation and financial reporting purposes
adopted relative total shareholder return (TSR) as the single performance measure under the ESU plan, and adjusted the vesting terms by introducing a minimum payout of 50% of target while keeping the maximum payout at 150%, and
amended the retirement provisions under the ESU and stock option plans:
unvested ESUs at the time of retirement will continue to mature and the final award will be prorated for the period of employment up to the retirement date, and
stock options will continue to vest beyond the retirement date in accordance with the terms of the stock option plan, rather than vest immediately on the date of retirement.

The Board reviewed the measures under the ESU plan and decided to adopt relative TSR as the single performance measure because it:

eliminates the duplication of measures under the short-term incentive plan and increases the alignment between executive compensation levels and shareholder results, and
aligns more closely with market practices.

The Board believes these changes ensure the executive compensation program continues to align with the interests of shareholders and customers, strengthen the link between pay and performance, align with market practices in executive compensation and engage and retain executives. These changes went into effect for the long-term incentive awards granted to the named executives in early 2012.

2011 Annual information form   77


APPROACH
TransCanada's executive compensation program is structured to meet four key objectives:

provide a compensation package that 'pays for performance' by rewarding executives for delivering on our corporate objectives and achieving our overall strategy
offer a level and type of compensation that is competitive with the market
align executives' interests with those of our shareholders and customers, and
attract, engage and retain our executives.

Compensation is also aligned with our risk management processes to ensure there is an appropriate balance between risk and reward.

Decision-making process
We follow a comprehensive decision-making process that involves management, the Human Resources Committee and the Board, and takes into account market data, input from the CEO and independent advice from an external consultant to the committee.

The Board makes all decisions affecting executive compensation based on the committee's recommendations.

GRAPHIC

78   TransCanada PipeLines Limited


Management analysis

Assessing the market
The committee and the Board recognize the importance of retaining executive talent for business continuity, managing stakeholder relationships, succession planning and achieving desired short and long-term corporate performance.

With the assistance of its external consultant, management analyzes and provides relevant market data and other information to the committee and the Board. This process includes benchmarking executive compensation against a comparator group of companies to stay competitive with the market (see Benchmarking, below).

In addition to considering external market data when determining compensation levels, the committee and Board also consider compensation relative to other executives. This is especially important in situations where the market data for a particular role does not reflect the relative scope of the role at TransCanada.

Determining performance objectives
The Board approves annual corporate objectives to support our core strategies for achieving growth and creating value for shareholders. Our corporate performance scorecard incorporates these objectives, which include a combination of financial measures and operational, growth and other business considerations in weightings approved by the Board.

The Board establishes annual performance objectives and relative weightings for the CEO and the other named executives. Objectives are aligned with the annual corporate objectives and reflect key performance areas of the role. The CEO's objectives include a corporate performance scorecard, personal objectives and leadership priorities. Objectives for the other named executives include a functional area or business scorecard for their role, as well as personal objectives and leadership priorities.

Recommendation
The committee and the Board assess the performance of the CEO. The CEO assesses the performance of his direct reports, including the other four named executives, and makes compensation recommendations to the committee.

The committee recommends compensation awards for the CEO and the other named executives to the Board. The committee seeks independent advice from its external consultant and other advisors, but is responsible for making its own decisions and recommendations to the Board.

The committee bases its recommendations on the relevant performance period, and not on the number, term or current value of any outstanding compensation previously awarded or gains an executive may have realized in prior years. This includes ESUs, stock options or other forms of compensation. The committee believes that reducing or limiting grants or awards based on prior gains would unfairly penalize the executive and could detract from the incentive to continue to deliver strong performance. Similarly, it does not take into account the value of long-term incentive awards it grants in a given year to offset less-than-expected returns from awards granted in prior years.

Approval
The Board reviews the recommendations by the committee, and approves all executive compensation decisions.

2011 Annual information form   79


Benchmarking
We benchmark our compensation for named executives against a comparator group of companies to stay competitive with the market. Management reviews the comparator group with its external consultant every year. The committee reviews and approves the comparator group every year.

Our 2011 comparator group consists of 25 Canadian companies representing two industry sectors:


Oil & Gas   Pipeline & Utility

BP Canada Energy Company   Alliance Pipeline Ltd.
Canadian Natural Resources Ltd.   ATCO Ltd.
Cenovus Energy Inc.   Capital Power Corporation
Chevron Canada Resources   Enbridge Inc.
ConocoPhillips Canada   EPCOR Utilities Inc.
Devon Canada Corporation   FortisAlberta Inc.
Encana Corporation   FortisBC Energy Inc.
ExxonMobil Canada   Kinder Morgan Canada Inc.
Husky Energy Inc.   Spectra Energy Corporation (Canada)
Imperial Oil Ltd.   TransAlta Corporation
Nexen Inc.    
Shell Canada Ltd.    
Suncor Energy Inc.    
Syncrude Canada Ltd.    
Talisman Energy Inc.    

These Canadian-based energy companies are generally similar to us in size and scope and we compete with them for executive talent. All of these companies have capital intensive, long cycle businesses that operate either in the Canadian oil and gas industry or the North American pipeline, power and utility industry.


Profiles
At December 31, 2010
  TransCanada   Comparator group    

Industry   North American pipelines,   North American pipelines, power, utilities
    power   Canadian oil and gas

Location   Calgary, Alberta   Mainly Alberta    

 
 
        Median   75th percentile

 
 
Revenue   $8.1 billion   $6.1 billion   $14.3 billion

Market capitalization at December 31, 2011 (Monthly closing price of common shares × common shares outstanding for the most recent quarter)   $31.3 billion   $18.7 billion   $36.3 billion

Assets   $46.8 billion   $13.1 billion   $26.7 billion

Employees   4,209   2,433   4,675

80   TransCanada PipeLines Limited



We benchmark each named executive position against similar positions in the comparator group. Competitive market data on the comparator group gives the committee and the Board an initial reference point for determining executive compensation.

Total direct compensation is generally set according to the following guidelines:

GRAPHIC

See Components for more information about total direct compensation.

2011 Annual information form   81


Aligning the interests of executives and shareholders
We have share ownership requirements for executives to align their interests with those of our shareholders. The minimum requirements are significant and vary by executive level:


Executive level   Required ownership
(multiple of base salary)

Chief Executive Officer   4x

Executive Vice Presidents   2x

Senior Vice Presidents   1x

Certain Vice Presidents   1x

Executives have five years to meet the requirement, and can accumulate eligible shares and unvested ESUs to meet the requirements within the limits set out below:


    % of executive's total
share ownership

Eligible shares
•  TransCanada shares
•  Units of any TransCanada sponsored limited partnership
  50% or more

Unvested ESUs   up to 50%

The committee reviews share ownership levels every year. It may use its discretion when assessing compliance if ownership levels fall below the minimum because of fluctuations in share price.

In 2010, the committee increased the minimum requirement for the CEO from three times to four times base salary, and introduced a requirement for executives to 'buy and hold' 50% of all stock options they exercise until they meet their share ownership requirement.

All of the named executives met their share ownership requirements in 2011. See the executive profiles for their current ownership.

82   TransCanada PipeLines Limited


COMPONENTS
Total direct compensation includes fixed and variable pay. Base salary is the only form of fixed compensation we offer. Variable compensation includes our short and long-term incentive plans.


Element   Form   Performance period   Objective

base salary (fixed)   cash   •  one year   •  provide a certain level of steady income
•  attract and retain executives

short-term incentive
(variable)
  cash   •  one year   •  motivate executives to achieve key annual business objectives
•  reward executives for relative contribution to the company
•  align interests of executives and shareholders
•  attract and retain executives


long-term incentive (variable)   ESUs   •  three-year term
•  vesting at the end of the term if performance conditions are met
  •  motivate executives to achieve medium-term business objectives
•  align interests of executives and shareholders
•  attract and retain executives
   
    stock options   •  seven-year term
•  one-third vest each year beginning on the first anniversary of the grant date
  •  motivate executives to achieve long-term sustainable business objectives
•  align interests of executives and shareholders
•  attract and retain executives

We also offer indirect compensation which includes retirement benefits, other benefits and perquisites.

2011 Annual information form   83


Fixed compensation

Base salary
Base salaries for executive positions are managed within a range where guideposts are aligned with reference to median base salary levels in our comparator group. Management conducts a competitive market compensation review with its external consultant every year to align the base salary structure with the market and ensure that guideposts are generally aligned with market median pay levels.

Actual base salaries are determined on a sliding scale of ±10% around the guidepost. Increases in base salary for the named executives are based on their performance, the competitive market data and compensation relative to other executives. Base salary adjustments typically go into effect on March 1.

Variable or at-risk compensation
Variable compensation accounts for a significant portion of executive pay, and increases by executive level. Market data is used to establish short and long-term incentive targets for each executive role. Target awards are expressed as a percentage of base salary and are determined with reference to median market levels. While targets are reviewed annually against the competitive market data, they are not expected to change year-to-year unless the role changes or is reassessed against market conditions.

The table below shows the short-term incentive target and the long-term incentive target range for each named executive:


    Short-term
incentive
target
  Long-term incentive target range
(% of base salary)

    (% of base
salary)
  minimum   target   maximum

President & Chief Executive Officer
(Russell K. Girling)
  100%   225%   275%   325%

Executive Vice-President & Chief Financial Officer
(Donald R. Marchand)
  65%   150%   200%   250%

President, Energy & Oil Pipelines
(Alexander J. Pourbaix)
  75%   200%   250%   300%


President, Natural Gas Pipelines
(Gregory A. Lohnes)

 

65%

 

150%

 

200%

 

250%

Executive Vice-President, Operations & Major Projects
(Donald M. Wishart)
  65%   150%   200%   250%

84   TransCanada PipeLines Limited


Short-term incentive
The short-term incentive plan is designed to attract and retain executives, and motivate them to achieve key annual business objectives. The plan provides annual cash payments to our named executives based on a formula that takes into account:

base salary and the market-competitive, short-term incentive target (percentage of base salary) for each role
individual contributions and achievements – expressed through an individual performance adjustment factor (PAF) determined for each named executive, and
corporate performance against objectives – expressed as the corporate adjustment factor (CAF).

Short-term incentive awards are provided in a single lump sum cash payment in March following the performance year.

GRAPHIC

Individual performance
Each named executive's annual performance is assessed relative to performance standards and objectives established at the beginning of each year. An individual PAF between 0 and 2.0 is approved by the Board. An individual PAF between 2.0 and 2.5 may be approved in exceptional circumstances where the executive made a very significant contribution to a transformational corporate achievement. Awards are calculated based on the named executive's base salary in effect on December 15 of the performance year. The committee and Board can use discretion to adjust the calculated amounts where circumstances warrant.


Performance level   Individual
PAF range
  Description

Exceeds most or all standards plus transformational event   2.1 - 2.5   Awarded in exceptional circumstances
Reflects extraordinary achievement with a significant transformational impact on the company

Exceeds most or all standards   1.8 - 2.0   Tangible contributions to the business with several examples that had a significant impact beyond normal expectations

Exceeds some standards   1.4 - 1.7   Fully satisfactory effort with contributions beyond normal expectations

Meets standards   0.9 - 1.3   Fully satisfactory effort and met all performance expectations

Standards not met   0 - 0.8   Future success depends on improving level of performance – no payout

Corporate performance
A CAF of 0 to 1.2 is approved by the Board based on corporate performance against objectives established at the beginning of each year. We expect the CAF to fall between 0.8 and 1.2 in most years. The assessment is based 50% on our financial performance, and 50% on operational, growth and other business considerations.


Performance level   CAF range   Description

Exceeds most or all standards and/or a transformational corporate event is achieved   1.11 - 1.20   Exceptional business results with several examples that had a significant impact beyond normal expectations and/or a corporate event that had a transformational impact

Exceeds some standards   1.01 - 1.10   Fully satisfactory results
Met or exceeded all material performance standards, with several examples of significant positive business outcomes

Meets standards   1.00   Fully satisfactory results, and met all performance expectations

Some standards not met   0.50 - 0.99   Did not meet some expectations
Satisfactory performance but partial payout is appropriate

Standards not met   Below 0.50   Unacceptable performance – no payout

2011 Annual information form   85


Long-term incentive
Each executive role is assigned a target and an associated range for the long-term incentive award, expressed as a percentage of base salary. Each year, the committee and the Board grant long-term incentive awards to the named executives based on their assessment of individual performance and potential to contribute to TransCanada's future success. Starting in 2012, the long-term incentive award to our executive leadership team is allocated 50% each to ESUs and stock options. It was previously allocated 75% to ESUs and 25% to stock options.

Executive share units
These are notional share units granted under the ESU plan.

ESUs accrue dividend equivalents and vest on December 31 at the end of the three-year performance period, depending on how well we perform against targets that are established at the beginning of the performance period.

ESU awards are paid out in a lump sum cash payment in the first quarter following the end of the performance period.

GRAPHIC

Notes


Number of ESUs at vesting is the number of ESUs originally granted plus ESUs earned as dividend equivalents during the three-year performance period.


Valuation price on the vesting date is the volume-weighted average closing price of TransCanada shares for the five trading days immediately prior to and including the vesting date. Starting with the 2012 ESU award, we will use a 20-day weighted average to calculate the valuation price on the vesting date.


Performance multiplier

The performance multiplier is determined based on the guidelines in the table below. Relative TSR is calculated using the 20-day volume weighted average share price at the end of the three-year performance period.


If TransCanada's relative TSR is   Then the following ESUs vest for payment

At or below the 25th percentile of the ESU peer group (threshold)   50% of ESUs vest   We calculate the number of ESUs that vest using a straight-line interpolation if performance is between:

   
At the 50th percentile of the ESU peer group (target)   100% of ESUs vest   •  threshold and target, or
•  
target and maximum

   
At or above the 75th percentile of the ESU peer group (maximum)   150% of ESUs vest