Exhibit

4.208




 




	

   


  	

  


  





 




FOURTH QUARTER 2002




 




Quarterly Report to Shareholders




 




Consolidated

Results-at-a-Glance




 




	

  (unaudited)


  (millions of dollars except per share amounts)


  	

   


  	

  Three months ended

  December 31


  	

   


  	

  Year ended December 31


  	

   


  
	

   


  	

  2002


  	

   


  	

  2001*


  	

   


  	

  2002


  	

   


  	

  2001*


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Net Income/(Loss) Applicable to Common Shares


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Continuing

  operations


  	

   


  	

  180


  	

   


  	

  166


  	

   


  	

  747


  	

   


  	

  686


  	

   


  
	

  Discontinued

  operations


  	

   


  	

  —


  	

   


  	

  20


  	

   


  	

  —


  	

   


  	

  (67


  	

  )


  
	

   


  	

   


  	

  180


  	

   


  	

  186


  	

   


  	

  747


  	

   


  	

  619


  	

   


  
	

  Net Income/(Loss) Per Share - Basic


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Continuing

  operations


  	

   


  	

  $


  	

  0.37


  	

   


  	

  $


  	

  0.35


  	

   


  	

  $


  	

  1.56


  	

   


  	

  $


  	

  1.44


  	

   


  
	

  Discontinued

  operations


  	

   


  	

  —


  	

   


  	

  0.05


  	

   


  	

  —


  	

   


  	

  (0.14


  	

  )


  
	

   


  	

   


  	

  $


  	

  0.37


  	

   


  	

  $


  	

  0.40


  	

   


  	

  $


  	

  1.56


  	

   


  	

  $


  	

  1.30


  	

   


  
															





 




* Restated, see note 2,

Accounting Changes, in the Notes to the Consolidated Financial Statements.




 




Management’s Discussion and Analysis




 




On January 28, 2003, the Board of Directors

of TransCanada PipeLines Limited (TransCanada or the company) raised the

quarterly dividend on the company's common shares from $0.25 per share to $0.27

per share, an increase of eight per cent, for the quarter ended March 31, 2003.




 




The following discussion and

analysis should be read in conjunction with the accompanying consolidated

financial statements of TransCanada and the notes thereto.




 




Results of Operations




 




Consolidated




 




TransCanada’s net income applicable to common

shares from continuing operations (net earnings) for the year ended December

31, 2002 was $747 million or $1.56 per share compared to $686 million or $1.44

per share in 2001.  The increase of $61

million or $0.12 per share in 2002 compared to 2001 is primarily due to higher

earnings from the Transmission business and reduced expenses in the Corporate

segment, partially offset by lower




 




 













 




earnings from the Power

segment.  In 2001, the Power segment

earnings reflected the significant market opportunities created by high market

prices and power price volatility.  In

June 2002, TransCanada received the National Energy Board (NEB) decision on its

Fair Return application (Fair Return decision) to determine the cost of capital

to be included in the calculation of 2001 and 2002 final tolls on its Canadian

Mainline. The results for




 




 




 













 




the year ended December 31, 2002 include

after-tax net income of $36 million or $0.08 per share, representing the impact

of the Fair Return decision for 2001 ($16 million) and 2002 ($20 million).  The results also include $7 million relating

to TransCanada’s proportionate share of a favourable ruling in Great Lakes with

respect to Minnesota use tax paid in prior years.




 




Net income applicable to common shares for

the year ended December 31, 2002 was $747 million or $1.56 per share compared

to $619 million or $1.30 per share in 2001. 

The 2001 results included a net loss from discontinued operations of $67

million or $0.14 per share.




 




TransCanada’s net earnings for

fourth quarter 2002 were $180 million or $0.37 per share compared to $166

million or $0.35 per share for fourth quarter 2001.  The increase of $14 million or $0.02 per share in the fourth

quarter is mainly attributable to stronger results from the Transmission

segment and lower expenses in the Corporate segment, offset by lower earnings

from the Power segment.




 




Net income applicable to common shares for

fourth quarter 2002 was $180 million or $0.37 per share compared to $186

million or $0.40 per share for fourth quarter 2001.  The fourth quarter 2001 results include a positive $20 million or

$0.05 per share after-tax adjustment to the provision for loss on discontinued

operations.




 




Funds generated from continuing operations of

$1,827 million for the year ended December 31, 2002 increased by $203 million

in comparison to 2001.  Funds generated

from continuing operations of $467 million for fourth quarter 2002 increased

$106 million compared to the fourth quarter last year.




 




The company has chosen to expense stock

options and the impact of this accounting change, which has been recorded in

the fourth quarter 2002, was a $2 million charge to net income in the three

months and year ended December 31, 2002.




 




Effective third quarter 2002, the company

adopted accrual accounting for energy trading contracts, changing from its

previous policy of mark-to-market accounting for these contracts. This

accounting change has been applied retroactively with restatement of prior

periods (see note 2, Accounting Changes, in the Notes to Consolidated Financial

Statements).  The cumulative effect of

this accounting change as at January 1, 2001 was a decrease in retained

earnings of $20 million.  Net income for

the year ended December 31, 2001 included a positive adjustment of $11 million.

Under accrual accounting, net income for the year ended




 




 




 













 




December 31, 2002 is $13 million higher than

would have been reported under mark-to-market accounting.




 




	

  Segment

  Results-at-a-Glance


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  (unaudited)


  (millions of dollars)


  	

   


  	

  Three months ended

  December 31


  	

   


  	

  Year ended December 31


  	

   


  
	

   


  	

  2002


  	

   


  	

  2001


  	

   


  	

  2002


  	

   


  	

  2001


  	

   


  
	

  Transmission


  	

   


  	

  162


  	

   


  	

  153


  	

   


  	

  653


  	

   


  	

  585


  	

   


  
	

  Power


  	

   


  	

  30


  	

   


  	

  35


  	

   


  	

  146


  	

   


  	

  168


  	

   


  
	

  Corporate


  	

   


  	

  (12


  	

  )


  	

  (22


  	

  )


  	

  (52


  	

  )


  	

  (67


  	

  )


  
	

  Continuing

  operations


  	

   


  	

  180


  	

   


  	

  166


  	

   


  	

  747


  	

   


  	

  686


  	

   


  
	

  Discontinued

  operations


  	

   


  	

  —


  	

   


  	

  20


  	

   


  	

  —


  	

   


  	

  (67


  	

  )


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Net Income Applicable to Common Shares


  	

   


  	

  180


  	

   


  	

  186


  	

   


  	

  747


  	

   


  	

  619


  	

   


  





 




Transmission




 




The Transmission business generated net

earnings of $162 million and $653 million for the three months and year ended

December 31, 2002, respectively.




 




	

  Transmission

  Results-at-a-Glance


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  (unaudited)


  (millions of dollars)


  	

   


  	

  Three months ended

  December 31


  	

   


  	

  Year ended December 31


  	

   


  
	

   


  	

  2002


  	

   


  	

  2001


  	

   


  	

  2002


  	

   


  	

  2001


  	

   


  
	

  Wholly-Owned Pipelines


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Alberta

  System


  	

   


  	

  56


  	

   


  	

  59


  	

   


  	

  214


  	

   


  	

  204


  	

   


  
	

  Canadian

  Mainline


  	

   


  	

  75


  	

   


  	

  70


  	

   


  	

  307


  	

   


  	

  274


  	

   


  
	

  BC

  System


  	

   


  	

  2


  	

   


  	

  1


  	

   


  	

  6


  	

   


  	

  5


  	

   


  
	

   


  	

   


  	

  133


  	

   


  	

  130


  	

   


  	

  527


  	

   


  	

  483


  	

   


  
	

  North American Pipeline Ventures


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Great

  Lakes


  	

   


  	

  17


  	

   


  	

  15


  	

   


  	

  66


  	

   


  	

  56


  	

   


  
	

  TC

  PipeLines, LP


  	

   


  	

  5


  	

   


  	

  4


  	

   


  	

  17


  	

   


  	

  15


  	

   


  
	

  Iroquois


  	

   


  	

  3


  	

   


  	

  4


  	

   


  	

  18


  	

   


  	

  16


  	

   


  
	

  Portland


  	

   


  	

  —


  	

   


  	

  —


  	

   


  	

  2


  	

   


  	

  (1


  	

  )


  
	

  Foothills


  	

   


  	

  4


  	

   


  	

  5


  	

   


  	

  17


  	

   


  	

  20


  	

   


  
	

  Trans

  Québec & Maritimes


  	

   


  	

  2


  	

   


  	

  2


  	

   


  	

  8


  	

   


  	

  8


  	

   


  
	

  Northern

  Development


  	

   


  	

  (1


  	

  )


  	

  (3


  	

  )


  	

  (6


  	

  )


  	

  (9


  	

  )


  
	

  Other


  	

   


  	

  (1


  	

  )


  	

  (4


  	

  )


  	

  4


  	

   


  	

  (3


  	

  )


  
	

   


  	

   


  	

  29


  	

   


  	

  23


  	

   


  	

  126


  	

   


  	

  102


  	

   


  
	

  Net

  earnings


  	

   


  	

  162


  	

   


  	

  153


  	

   


  	

  653


  	

   


  	

  585


  	

   


  





 




 




 













 




Wholly-Owned Pipelines




 




The Alberta System’s net earnings of $56

million in fourth quarter 2002 decreased $3 million compared to $59 million in

the same quarter of 2001 primarily due to recognition in fourth quarter 2001 of

incentive earnings from operating cost efficiencies related to 2001.  Net earnings for the year ended December 31,

2002 increased $10 million when compared to the prior year, primarily due to an

interest refund relating to a prior year income tax reassessment, and the

expiry of TransCanada’s transition support costs with respect to the Alberta

System’s Products & Pricing Agreement which ended in the first quarter of

2002.  TransCanada is currently in

negotiations with Alberta System customers on the 2003 revenue requirement.  TransCanada plans to file an application for

approval of the Alberta System 2003 revenue requirement and final 2003 tolls,

rates and charges with the Alberta Energy and Utilities Board (EUB) by February

28, 2003.




 




The Canadian Mainline’s net earnings have

increased $5 million and $33 million, respectively, for the three months and

year ended December 31, 2002 when compared to the corresponding periods in

2001.  Net earnings in 2002 reflect the

impact of the Fair Return decision which included an increase in the deemed

common equity ratio from 30 to 33 per cent, effective January 1, 2001.  The increase in earnings from the Fair

Return decision was partially offset by a decline in the rate of  return on common equity from 9.61 per cent

in 2001 to 9.53 per cent in 2002 and a lower average




 




 













 




investment base.  The NEB has scheduled a hearing to commence

February 24, 2003 to consider the Canadian Mainline 2003 Tolls and Tariff

Application.  In September 2002,

TransCanada also filed with the NEB a request for review and variance of the

Fair Return decision and that the final Canadian Mainline 2003 Tolls and Tariff

Application reflect the review and variance decision.  The NEB has not yet responded to TransCanada’s review and

variance request.




 




	

  Operating Statistics


  Year ended December 31 (unaudited)


  	

   


  	

  Alberta


  System*


  	

   


  	

  Canadian


  Mainline**


  	

   


  	

  BC


  System


  	

   


  
	

   


  	

   


  	

  2002


  	

   


  	

  2001


  	

   


  	

  2002


  	

   


  	

  2001


  	

   


  	

  2002


  	

   


  	

  2001


  	

   


  
	

  Average

  investment base ($millions)


  	

   


  	

  5,074


  	

   


  	

  5,183


  	

   


  	

  8,884


  	

   


  	

  9,176


  	

   


  	

  211


  	

   


  	

  204


  	

   


  
	

  Delivery

  volumes (Bcf)


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Total


  	

   


  	

  4,146


  	

   


  	

  4,059


  	

   


  	

  2,630


  	

   


  	

  2,450


  	

   


  	

  371


  	

   


  	

  395


  	

   


  
	

  Average

  per day


  	

   


  	

  11.4


  	

   


  	

  11.1


  	

   


  	

  7.2


  	

   


  	

  6.7


  	

   


  	

  1.0


  	

   


  	

  1.1


  	

   


  





 






















*Field

receipt volumes for the Alberta System for the year ended December 31, 2002

were 4,101 Bcf (2001 - 4,170 Bcf); average per day were 11.2 Bcf (2001 - 11.4

Bcf).




**Canadian

Mainline deliveries originating at the Alberta border and in Saskatchewan for

the year ended December 31, 2002 were 2,221 Bcf (2001 - 2,098 Bcf); average per

day were 6.1 Bcf (2001 - 5.7 Bcf).




 




North American Pipeline Ventures




 




TransCanada’s proportionate share of net

earnings from its other Transmission businesses was $29 million and $126

million for the three months and year ended December 31, 2002,

respectively.  This represents increases

of $6 million and $24 million, respectively, compared to the same periods in

2001.




 




Higher net earnings for the year ended

December 31, 2002 reflect TransCanada’s $7 million share of a favourable ruling

in Great Lakes related to Minnesota use tax paid in prior years.  Excluding the impact of the Great Lakes

favourable ruling, the increase in full year 2002 net earnings was mainly due

to higher transportation margins, favourable foreign exchange rates on stronger

operating results from U.S. pipeline affiliates and TransCanada’s increased

ownership interests in Iroquois and Portland acquired in second quarter 2001.  In addition, net earnings related to

TransCanada’s share of other ventures, including CrossAlta gas storage

facilities (CrossAlta), Ventures LP and TransGas de Occidente, increased $7

million in 2002 when compared to the prior year.




 




The $6 million increase in fourth quarter

2002 compared to 2001 is mainly due to lower northern development costs and

increased contributions from CrossAlta and Great Lakes.




 




 




 




 













 




Power




 




	

  Power Results-at-a-Glance


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  (unaudited)


  (millions of dollars)


  	

   


  	

  Three months ended December

  31


  	

   


  	

  Year ended December 31


  	

   


  
	

   


  	

  2002


  	

   


  	

  2001


  	

   


  	

  2002


  	

   


  	

  2001


  	

   


  
	

  Power

  LP investment


  	

   


  	

  9


  	

   


  	

  10


  	

   


  	

  36


  	

   


  	

  39


  	

   


  
	

  Northeastern

  U.S. operations


  	

   


  	

  35


  	

   


  	

  55


  	

   


  	

  149


  	

   


  	

  159


  	

   


  
	

  Western

  operations


  	

   


  	

  30


  	

   


  	

  15


  	

   


  	

  131


  	

   


  	

  149


  	

   


  
	

  General,

  administrative and support costs


  	

   


  	

  (25


  	

  )


  	

  (18


  	

  )


  	

  (73


  	

  )


  	

  (49


  	

  )


  
	

  Operating

  and other income


  	

   


  	

  49


  	

   


  	

  62


  	

   


  	

  243


  	

   


  	

  298


  	

   


  
	

  Financial

  charges


  	

   


  	

  (4


  	

  )


  	

  (9


  	

  )


  	

  (13


  	

  )


  	

  (24


  	

  )


  
	

  Income

  taxes


  	

   


  	

  (15


  	

  )


  	

  (18


  	

  )


  	

  (84


  	

  )


  	

  (106


  	

  )


  
	

  Net

  earnings


  	

   


  	

  30


  	

   


  	

  35


  	

   


  	

  146


  	

   


  	

  168


  	

   


  





 




Power’s net earnings of $146 million for the

year ended December 31, 2002 were $22 million lower when compared to 2001.  Net earnings of $30 million in fourth

quarter 2002 decreased $5 million compared to $35 million in fourth quarter

2001.




 




Operating and other income from

the investment in TransCanada Power, L.P. (Power LP) for the three months ended

December 31, 2002 was comparable to the same period in 2001.  For the year ended December 31, 2002,

earnings were $3 million lower when compared to 2001, primarily due to an

unplanned outage at the Williams Lake plant in the first half of 2002 and a

reduction in TransCanada’s ownership interest from 41.6 per cent to 35.6 per

cent in Power LP, effective October 2001.




 




Operating and other income from

the Northeastern U.S. Operations decreased $10 million and $20 million, for the

year and three months ended December 31, 2002, respectively, compared to the

same periods in 2001.  The decrease is

primarily due to lower revenues under long-term power sales arrangements in

2002 and TransCanada’s ability to capitalize on market opportunities in fourth

quarter 2001.  The annual decrease is

partially offset by income from a full year ownership in 2002 of the Curtis

Palmer Hydroelectric Company, L.P., which was acquired in July 2001.




 




 




 













 




Operating and other income from

Western Operations of $30 million for the three months ended December 31, 2002

was $15 million higher than the same period in 2001.  Results in 2002 included income from the December 2001

acquisition of a 50 per cent interest in the Sundance B power purchase

arrangement (PPA), the January 2002 commercial start up of the Redwater and

Carseland plants, the November 2002 acquisition of the ManChief plant, and

lower contract prices on the sale of output from the Sundance A PPA compared to

2001.  Operating and other income for

the year ended December 31, 2002 is $18 million lower than 2001, mainly due to

lower contract prices for the Sundance A PPA in 2002 and TransCanada’s ability

in the first half of 2001 to take advantage of market opportunities created by

high market prices and power price volatility. 

These decreases are partially offset by income from the Sundance B PPA

and the Redwater, Carseland and ManChief plants.




 




The increase in general,

administrative and support costs for the three months and year ended December

31, 2002 compared to the same periods in 2001 includes increased project

development costs and reflects the continuing investment in the Power business.




 




Corporate




 




Net expenses were $12 million

and $22 million for the three months ended December 31, 2002 and 2001, respectively.  Net expenses were $52 million for the year

ended December 31, 2002 compared to $67 million for 2001.




 




Results for the year ended

December 31, 2001 included a positive adjustment of $5 million to foreign

currency gains reflecting the January 1, 2002 required retroactive adoption of

an accounting change issued by the Canadian Institute of Chartered Accountants

related to foreign currency translation. 

There was no impact of this accounting change in the three months ended

December 31, 2001 nor in the year ended December 31, 2002.




 




Net expenses for fourth quarter

2002 have improved by $10 million compared to fourth quarter 2001, and results

for the full year 2002, excluding the impact of the foreign currency accounting

change, have improved by $20 million compared to 2001.  These improvements are primarily due to

lower general and administrative expenses to support discontinued operations

and the positive impact of lower interest rates offset by increased Corporate

financial charges resulting from the Fair Return decision.




 




 













 




Discontinued

Operations




 




The Board of Directors approved

a plan in July 2001 to dispose of the company’s Gas Marketing business.  The company’s exit from Gas Marketing was

substantially completed by December 31, 2001. 

As described in Management’s Discussion and Analysis in TransCanada’s

2001 Annual Report, the company remains contingently liable pursuant to

obligations under certain energy trading contracts that relate to the divested

Gas Marketing business.  At December 31,

2002, TransCanada reviewed the provision for loss on discontinued operations,

including the approximately $100 million of deferred after-tax gains and

remaining obligations related to the Gas Marketing business, and concluded the

provision and continued deferral of the gains were appropriate.  As a result, there was no earnings impact

related to discontinued operations in 2002.




 




Liquidity and Capital Resources




 




Funds Generated from Operations




 




Funds generated from continuing operations of

$1,827 million for the year ended December 31, 2002 increased by $203 million

in comparison to 2001.  Funds generated

from continuing operations of $467 million for fourth quarter 2002 increased

$106 million compared to the fourth quarter last year.




 




TransCanada’s ability to generate adequate

amounts of cash and cash equivalents in the short term and the long term when

needed, and to maintain capacity to provide for planned growth remains

substantially unchanged since December 31, 2001.




 




Investing Activities




 




In the three months and year ended December

31, 2002, capital expenditures, excluding acquisitions, totalled $202 million

(2001 - $174 million) and $599 million (2001 - $492 million),




 




 













 




respectively, and related primarily to

maintenance and capacity capital in the Transmission business and ongoing

construction of the Bear Creek and MacKay River power plants in Alberta.  In fourth quarter 2002, TransCanada acquired

the ManChief power plant for $209 million. 

Acquisitions for the year ended December 31, 2002 totalled $228 million

compared to $585 million in 2001.




 




Financing Activities




 




TransCanada used a portion of its cash

resources to fund debt maturities of $486 million and reduce notes payable by

$46 million in 2002.




 




In the fourth quarter 2002, TransCanada filed

shelf prospectuses in Canada and the United States qualifying for issuance of

$2 billion of common shares, preferred shares and/or debt securities including

medium term notes and US$1 billion of common shares, preferred shares and/or

debt securities, respectively.  Any

offer to sell securities under these shelf prospectuses will only be made by

means of prospectus supplements filed with the appropriate securities

regulatory authorities.




 




During the fourth quarter 2002, TransCanada

established a new $1.5 billion syndicated credit facility, replacing existing

lines set to expire in mid-2003.




 




Dividends




 




On January 28, 2003, TransCanada’s Board of

Directors declared a quarterly dividend of $0.27 per share for the quarter

ended March 31, 2003 on the outstanding common shares.  This is the 157th consecutive

quarterly dividend paid by TransCanada on its common shares, and is payable on

April 30, 2003 to shareholders of record at the close of business on March 31,

2003.  The Board also declared regular

dividends on TransCanada’s preferred shares.




 




Discontinued Operations




 




Net cash provided by discontinued operating

activities was $59 million for the year ended December 31, 2002 compared with

net cash used in discontinued operating activities of $659 million in

2001.  The significant amount of net

cash used in the year ended December 31, 2001 was primarily in the Gas

Marketing business and included the return in 2001 of margin cash received in

2000, the settlement of natural gas trading losses and other working capital

adjustments.




 




There were no dispositions of discontinued

operations in the year ended December 31, 2002 compared to dispositions of

$1,170 million in 2001.




 




 













 




Risk

Management




 




With respect to continuing operations,

TransCanada’s market risk remains substantially unchanged since December 31,

2001. However, with the deterioration in the creditworthiness of a number of

counterparties since December 31, 2001, TransCanada has and will continue to

mitigate this heightened credit risk with additional financial assurances,

including letters of credit and/or cash. 

The company has retained certain exposures as a result of the

divestiture of the Gas Marketing business. 

See explanation in Results of Operations - Discontinued Operations.  For further information on risks, refer to

Management’s Discussion and Analysis in TransCanada’s 2001 Annual Report.




 




TransCanada manages market and credit risk

exposures in accordance with its corporate risk policies and position

limits.  The policies and limits are

designed to mitigate the risk of significant loss.  The company’s primary market risks result from volatility in

commodity prices, interest rates and foreign currency exchange rates.  The company is also exposed to risk of loss

due to the failure of counterparties to meet their financial obligations.




 




Controls and Procedures




 




Within 90 days prior to the filing of this

quarterly report, TransCanada’s management evaluated the effectiveness of the

design and operation of the company’s disclosure controls and procedures

(disclosure controls) and internal controls for financial reporting purposes

(internal controls). Based on that evaluation, the Chief Executive Officer and

the Chief Financial Officer have concluded that:




 




•                                          TransCanada’s

disclosure controls are effective in ensuring that material information

relating to TransCanada is made known to management on a timely basis, and is

included in this quarterly report; and




 




•                                          TransCanada’s

internal controls are effective in providing assurance that the financial

statements for this quarter are fairly presented in accordance with Canadian

generally accepted accounting principles.




 




To the best of these officers’

knowledge and belief, there have been no significant changes in internal

controls or in other




 




 




 













 




factors that could significantly affect

internal controls subsequent to the date on which such evaluation was completed

in connection with this quarterly report.




 




Critical Accounting Policy




 




TransCanada’s critical accounting policy is

the use of regulatory accounting for its regulated operations which remains

unchanged since December 31, 2001.  For

further information on this critical accounting policy, refer to Management’s

Discussion and Analysis in TransCanada’s 2001 Annual Report.




 




Outlook




 




The outlook for the company’s segments remains

relatively unchanged since December 31, 2001. For further information on

outlook, refer to Management’s Discussion and Analysis in TransCanada’s 2001

Annual Report.




 




The company’s earnings and cash flow combined

with a strong balance sheet continue to provide the financial flexibility for

TransCanada to make disciplined investments in its core businesses of

Transmission and Power.  Credit ratings

on the company’s senior unsecured debt assigned by Dominion Bond Rating Service

Limited (DBRS), Moody’s Investors Service (Moody’s) and Standard & Poor’s

are




 




 




 













 




currently A, A2 and A-,

respectively.  On December 23, 2002,

Standard & Poor’s placed its rating on TransCanada’s senior unsecured debt

on ‘CreditWatch’ with negative implications. 

DBRS and Moody’s continue to maintain a ‘stable’ outlook.




 




Other Recent Developments




 




Transmission




 




Wholly-Owned Pipelines




 




In December 2002, the EUB

approved interim tolls for 2003 on the Alberta System.  TransCanada is currently in negotiation with

Alberta System customers on the 2003 revenue requirement.  TransCanada plans to file an application for

approval of the Alberta System 2003 revenue requirement and final 2003 tolls,

rates and charges with the EUB by February 28, 2003.




 




In December 2002, TransCanada’s Mainline interim

tolls were approved by the NEB.  The NEB

is scheduled to commence a public hearing beginning on February 24, 2003 to

consider TransCanada’s application for approval of 2003 tolls.




 




North American Pipeline Ventures




 




In January 2003, Portland Natural Gas

Transmission System received U.S. Federal Energy Regulatory Commission

approval, subject to a public comment period, on new tolls which are effective

retroactive to April 2002.




 




Power




 




In November 2002, TransCanada completed its

acquisition of the ManChief power plant from El Paso for $209 million.  The ManChief power plant is a simple-cycle,

two-turbine facility located near Brush, Colorado and has a generating capacity

of 300 megawatts (MW).  The entire

output of the plant is sold under long-term tolling contracts that expire in

2012.




 




In December 2002, TransCanada reached an

agreement under which affiliates of TransCanada will acquire a 31.6 per cent

interest in Bruce Power Limited Partnership (Bruce Power) and an approximate

33.3 per cent interest in Bruce Power Inc., the general partner of Bruce Power,

from British Energy plc (BE) for approximately $376 million.  TransCanada will also fund a one-third share

($75 million) of a $225 million accelerated deferred rent payment to Ontario

Power Generation (OPG).  Currently, BE

and Cameco Corporation (Cameco) indirectly hold the interests in Bruce Power

together with the Power Workers’ Union and The Society of Energy




 




 













 




Professionals. TransCanada, as part of a

consortium that includes Cameco and BPC Generation Infrastructure Trust, a

trust established by the Ontario Municipal Employees Retirement System, expects

to close the transaction in February 2003 pending necessary consents and

regulatory approval.  The Bruce Power

facility is made up of two nuclear plants - Bruce B and Bruce A.  Bruce B consists of four reactors, currently

generating 3,140 MW.  Bruce A consists

of four 769 MW reactors, which are currently not operating.  Two of the Bruce A units are expected to be

restarted and online by the summer of 2003. 

Bruce Power is a tenant under a lease on the facility which expires in

2018 with an option to extend the lease by up to 25 years.  The Bruce Power facility will continue to be

managed and operated by the management and staff of Bruce Power.  Spent fuel and decommissioning liabilities

remain the responsibility of OPG.




 




 













 




In December 2002, TransCanada

and OPG announced the formation of Portlands Energy Centre L.P., a 50/50

partnership.  The partnership will

assess the viability of developing a 550 MW combined cycle natural gas-fuelled

cogeneration facility which would be located in the Portlands area of Toronto’s

downtown waterfront.




 






















Forward-Looking

Information




 




Certain information in this quarterly report

is forward-looking and is subject to important risks and uncertainties.  The results or events predicted in this

information may differ from actual results or events.  Factors which could cause actual results or events to differ

materially from current expectations include, among other things, the ability

of TransCanada to successfully implement its strategic initiatives and whether

such strategic initiatives will yield the expected benefits, the availability

and price of energy commodities, regulatory decisions, competitive factors in

the pipeline and power industry sectors, and the prevailing economic conditions

in North America.  For additional

information on these and other factors, see the reports filed by TransCanada

with Canadian securities regulators and with the United States Securities and

Exchange Commission.  TransCanada

disclaims any intention or obligation to update or revise any forward-looking

statements, whether as a result of new information, future events or otherwise.